BlueRock Diamonds plc
Annual Report 2019

Plain-text annual report

Bluerock Diamonds Plc Annual Report & Accounts 2019 PRODUCING EXCEPTIONAL QUALITY DIAMONDS 1 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceKimberley Koffiefontein Kareevlei Diamond mine SOUTH AFRICA INTRODUCTION BlueRock Diamonds plc, listed on AIM in London, operates the Kareevlei Diamond mine near Kimberley in South Africa, the birthplace of diamond mining. Kareevlei consists of 5 known kimberlite pipes and produce diamonds of exceptional quality and ranks in the top ten in the world in terms of average value per carat. → For more information, visit our website: www.bluerockmining.com 2 STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019CONTENTS STRATEGIC REPORT 02 Highlights 04 Chairman’s Statement 10 Operational Statement 17 Financial Review 18 Risk Management 21 Key Performance Indicators 22 Directors’ Section 172 statement GOVERNANCE 26 Board of Directors 27 Corporate Governance 35 Directors’ Report FINANCIAL STATEMENTS 38 Independent Auditor’s Report 42 Consolidated and Company Statements of Financial Position 43 Consolidated Statement of Profit or Loss and Other Comprehensive Income 44 Consolidated Statement of Changes in Equity – Group 45 Statements of changes in equity – Company 46 Consolidated and Company Statements of Cash Flows 47 Accounting Policies 62 Notes to the Annual Report and Financial Statements 88 Notice of Annual General Meeting 92 General Information Bluerock Diamonds Plc Annual Report and Accounts 2019 1 1 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Highlights Revenue £4.1 million (2018: £1.4 million) Carats sold 12,675 (FY 2018: 5,657) Production Volume 323,000 tonnes (FY 2018: 190,000) Average Grade 4.34 cpht (FY 2018: 3.28 cpht) Price per carat US$415 (FY2018: US$334) Operating losses £472,000 (FY 2018: £1,803,000) 190% 124% 70% 32% 24% 74% 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2 BLUEROCK DIAMONDS PLCBluerock Diamonds Plc Annual Report and Accounts 2019Strategic Report Governance Financial Statements Bluerock Diamonds Plc Annual Report and Accounts 2019 3 3 2019 2018 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceChairman’s Statement “Dear Shareholders, of your company in 2019. I am pleased to present a review This year we have included a detailed operational report by our Chief Operating Officer, Gus Simbanegavi. 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. 4 Operating 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. 2019 2018 190% 2019 2018 124% Revenue £4.1 million (2018: £1.4 million) Carats sold 12,675 (FY 2018: 5,657) 2019 2018 2019 2018 2019 2018 70% Production Volume 323,000 tonnes (FY 2018: 190,000) 32% 24% Average Grade 4.34 cpht (FY 2018: 3.28 cpht) Price per carat US$415 (FY2018: US$334) STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019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 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. 5 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 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceChairman’s Statement Continued 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. Step 1 COMPLETED Achieve profitability through Completed by the end of 2019 enhanced production → Reach annual run rate of 400,000 tonnes → Become operationally profitable Step 2 IN PROCESS Optimise profitability through internal growth Decision taken in February 2020 to double production again to over 700,000 tonnes a year by end 2020 → Funds raised → Implementation started Expansion halted due to COVID-19 Step 3 External growth FUTURE PLAN To be implemented once step 2 is achieved 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. 6 STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019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 IIn 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. The Group had cash resources of £799,000 as at 16 June 2020 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 800 carats. 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. 7 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceChairman’s Statement Continued Outlook The Company has positioned itself for the challenges ahead as follows: a. b. c. It has put in place a new sales channel in the most liquid diamond market in the world 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 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 8 STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 20199 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceSTRATEGIC REPORT Operational Statement Our primary operational focus for the year was to drive operational improvements across all areas of the business. Equally key was the safety and health for our staff and meeting our environment and social obligations. Historically, operational performance has been below acceptable levels and required changes to be made. This saw the appointment of a new leadership team and a strengthening of operational skills at the beginning of Q2 2019. The new team developed a short term plan designed to increase production to 400,000 tonnes per annum, implemented a new mining plan focussed on cash generation, introduced strict mining discipline into the operations and restructured contracts with the main suppliers to align their remuneration with the objectives of the company. The increased operating efficiencies resulted in a strong operational performance, with record carat production in 2019. 323 000 tons of ore was processed, recovering 14 033 carats for the year; up 125% over the prior year. 10 10 Bluerock Diamonds Plc Annual Report and Accounts 2019 STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019Safety, Health and Environment As part of driving change during the year, the health and safety of the employees was made one of the priority areas. Emphasis was placed in ensuring the company shift from an unconventional small scale operation to a mid-sized mine. This required implementation of systems and procedures which were aligned to the South African mining industry and world best practices. An intensive safety campaign in conjunction with our major contractors was implemented aimed to raise safety awareness to ensure compliance with regulations. The safety and health departments were strengthened with a Training Officer appointed during the year and we are pleased to report a fatality-free year with only one loss time incident recorded during the year. We are committed to eliminating workplace injuries. Whilst the year 2019 saw some challenges in terms of a relatively volatile market, as well as the Company’s transition to a more conventional mining operation, using mainly the existing process plant which has some design flaws, we delivered a largely solid operational performance. Mining There have been significant improvements made in the mining operation to meet the stringent safety standards and to ensure that pit designs will cope with the planned increase in production and provide higher levels of flexibility. A mine plan was developed to focus on cash flow generation whilst ensuring the integrity of the pit structure and LOM strip ratios to ensure that each pipe can be exploited in the most efficient manner. This is an ongoing process that will be further developed as our understanding of the resource is expanded. During the year mining was predominantly in KV1 with ore mined mainly at 20m-30m depth from surface. A major change experienced during the year was the quality and hardness of the kimberlite as mining progressed at depth in KV1. Grades at this level increased to approximately 5 cpht at 20m to 30m in depth below surface. It was suspected, however, that there were significant locked up diamonds. A trial at a closer crusher setting was undertaken which increased recoveries from a historical 70% to +/- 90% of the stated resource grades. A second stage tertiary crushing circuit will be implemented in the new plant configuration to unlock the extra diamonds. A bulk sample of 27 500 tons was mined from KV5 from 5m-15m depth from surface and processed separately. The bulk sample confirmed the quality, grade and coarser diamond distribution of the pipe. The grade recovered from the sample was 4.4 cpht at an average size of 0.41 carats/stone. KV5 is planned to contribute 5-10% of the ore feed for processing in the short term. 11 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceOperational Statement Continued Mining continued As part of the planning process for mining and ore supply, the decision was taken to mine KV1 and KV2 pipes as one pit as the distance between the two pipes at surface was less than 40m. This will result, once fully completed in early Q3 2020 with a more efficient mining operation (shared ramp access system) as it progresses at depth allowing for optimised stripping ratios across the 2 pipes. KV1 has been mined and developed properly and will be used to access and tidy up the hitherto poorly mined KV2 pit. The combination of the two pipes will allow for mining to a much greater depth than previously planned. In addition, it will allow for flexibility in the mining process and aligns the mining with the proposed increased in tonnage throughput in the future. The KV1/KV2 pit will provide the bulk of the kimberlite required whilst KV5 and the larger KV3 are developed. Teichmann South Africa Mining Limited, part of the Teichmann Group, was appointed as our new mining contractor in May 2019 following an extensive tendering process. The new contract is largely volume based unlike the previous time based contract so the interests of the Company and its main contractor are aligned. The new contracting arrangements have worked well and the efficiency of our mining operation has improved significantly. Quarterly mining activity is shown below: Tonnes Mined 300,000 250,000 200,000 150,000 100,000 50,000 FY 2019 FY 2018 Q1 Q2 Q3 Q4 Waste 121,077 109,667 272,215 189,097 Ore 29,514 77,132 98,536 137,616 Full Year 692,056 342,798 Waste 57,659 107,902 90,447 126,653 382,661 Ore 28,996 54,418 55,291 73,024 211,729 Waste mining for 2019 was 692,056 tonnes up 81% (382,661 tonnes) on 2018. Ore mined was 342,798 tonnes up 62% (211,729 tonnes). In 2019, the strip ratio average of 2.0 (1.8 in 2018) is within our target range of between 2.0 and 2.25 which has been set to provide the optimum balance between longer term mine development and cashflow generation. At the end of 2019 significant ROM stocks (43 tons) where available ready for crushing and processing. 12 Processing We processed 323,000 tonnes of ore during the year, which is close to the higher end of our guidance in May 2019 (when funds were raised to implement the 2019 expansion plan) of 330,000 tonnes and 70% higher than in 2018. Of the total processed 203 000 was processed in the second half of the year. The production year should be considered in two parts, the first 4 months under our previous management team and the last 8 months under the guidance of our new mining team appointed in May 2019. Production volumes by quarter are shown below: Quarterly Production 120,000 100,000 80,000 60,000 40,000 20,000 Q1 FY 19 Tonnes 41,667 FY 18 Tonnes 38, 789 Q2 78,759 34,252 Q3 92,483 63,621 Q4 110,125 53,341 The first 4 months averaged 14,000 tonnes per month despite what was a relatively low rainfall season. The company was closed for 2 weeks in January as part of the Christmas shut down and was operating on a 5 day week. One of the decisions by the new management team was to move to a 7 day/24 hour operation and this was finally fully implemented in Q2 2019. With the weather drying up, significant progress was made with May production reaching a then monthly record of 29,000 tonnes achieved through implementation of strict mining and operational control disciplines. The improvements to the plant, largely associated with the secondary crushing circuit, funded by the May 2019 fund raising were completed in early August 2019 after a three week shutdown in July 2019. August 2019 saw production rise to over 39,000 and production continued to average 38,000 tonnes a month for the remainder of the year. At a run rate of 38,000 tonnes per month we had comfortably reached our target of operating at an annual run rate of 400,000 tonnes. STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019As a result of the improved crushing and the two existing pans operating at the upper end of their capacity, a decision was made to introduce a third pan in Q4 which was installed in December 2019. The third pan created flexibility for maintenance and allowed for increased through put to between 45,000-50,000 tons per month. The biggest challenge for the processing unit occurred in Q4 with the introduction of harder/more abrasive kimberlite as mining moved into deeper ground. It became apparent that the back of the primary crusher handling equipment was poorly designed to handle the harder kimberlite. It was decided to contract in crushing equipment in order to build stocks of crushed kimberlite for processing in the rainy season. This was a costly exercise and since the year end the necessary changes have been made in order that our crushing circuit can handle the harder material and there is no longer a need to hire extra crushing equipment. In 2019 there was a big focus on improving engineering availability and plant utilisation and to this end the engineering skill set has been strengthened over the year, the workshops have been upgraded and the planned maintenance scheduling improved. The existing plant was not designed to deal with maintenance issues efficiently with many key pieces of equipment not easily accessible resulting in excessive downtime when breakdowns occur. Improvements have been made but it remains an area that offers considerable potential and will be largely resolved when the existing plant is moved to its new site. Much consideration has been given to how best to present a drier product to the plant and improve availability. Some progress has been made to alleviate these issues but, permanent solutions can only be achieved when the existing plant is moved to its new site. Nevertheless, the changes made have already had a positive impact on the Q1 2020 throughput despite the unusually heavy rains experienced. 13 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceOperational Statement Continued Recoveries Grade The average grade of the pipes continues to improve and increase in line with expectations as deeper and cleaner kimberlite is mined. For FY 19 the grade was 4.34 cpht a significant improvement over the average for 2018 of 3.28 cpht (32% increase). Value per carat The quality of our diamonds continues to be exceptional and maintained their status as one of the top 10 gem quality diamonds in the world. Despite the diamond market environment being challenging in FY 2019, driven by a weakening in global markets, the quality of our output continues to be high as evidenced by the increase in the value per carat achieved on sale and the average coarseness of our stones. Recovered CPHT $/Carat Achieved 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 500 450 400 350 300 250 200 150 100 50 FY 19 Grade FY 18 Grade Q1 3.41 3.77 Q2 4.47 2.37 Q3 4.30 2.89 Q4 4.65 4.15 FY 19 $/carat FY 18 $/carat Q1 371 359 Q2 430 305 Q3 432 336 Q4 410 322 The grade for the last three quarters of 2019 stabilised at an average of around 4.5 cpht. The improved grade for the year was a combination of the increased mining at lower levels (20- 30m depth) in KV1 and a smarter approach to mining in general ensuring lower dilution levels when mining kimberlite ore material. As mining gets deeper and the tertiary crushing plant is commissioned which will crush finer, the grade is expected to be on average at or higher than the levels seen in the last three quarters of 2019. Grade will vary from quarter to quarter whilst the KV1 and KV2 pit is developed and in particularly when mining is near the edge of the pit and shallower levels where contamination is unavoidably higher. Recovery of larger value stones As more tonnes were processed during 2019, we started to recover larger higher value individual stones. In particular, we sold 4 stones for in excess of USD100,000 at prices ranging from $8,000 to $11,500 per carat. Carats Sales value (US$’000) June July September October 25.0 12.2 10.6 20.7 196 105 103 236 This is an exciting development in the life of Kareevlei as this is consistent with the statistical models prepared by our 14 Sales value per carat remained fairly steady in the last three quarters of 2019, averaging USD422 for the period. The value per carat is a function of size and quality. Over 90% of our output is either gem or near gem quality and during 2019 the average coarseness was 0.37 carats/stone. Both of these indicators are high in the industry and we remain one of the top 10 mines in the world by reference to the value per carat. competent person and technical experts. As the tonnages processed are increased we expect to find more larger stones in line with increased volumes. As diamonds are not a homogeneous resource it should not be expected that we will recover larger stones on a monthly basis although as volumes increase and we get lower in the mine it would be statistically likely that the recovery of larger stones will be more frequent. Whilst the increased incidence of larger value stones has an impact upon the average value per carat that we obtain, our normal run of mine production, excluding the high value individual stones, averaged around USD 350 per carat in 2019. STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019Costs The Group uses various cost measures to monitor performance. Key amongst these are back of mine cash costs (“Mine Cash Cost”) per tonne and per carat both calculated on a normalised basis. Mine Cash Costs per tonne includes all mining and processing costs but excludes stripping assets and liabilities, abnormal costs and depreciation and overhead costs. Mine Cash Cost per tonne in 2019 in the first half of 2019 was impacted heavily by the low volumes processed in the first four months of the year prior to the change in management discussed earlier and Q3 2019 was impacted by the shut down in July in order to install the new crusher. Q4 2019 is the most representative of normalised costs as volumes throughout the quarter remained relatively consistent and at budgeted levels. Set out below is the Mine Cash Cost per carat and tonne for FY 2019 and Q4 2019. Total Mine Cost per carat Total Mine Cost per tonne FY 2019 Q4 2019 (US$) 260.4 13.7 (US$) 187.2 10.2 The average Mine Cash Cost per carat and tonne for the year were heavily skewed by the poor performance in the first quarter where the average Mine Cash Cost per carat was USD 633. As volumes increase, unit costs per carat and tonne will decrease as the fixed cost element per unit will get diluted. The resource and life of mine Our current resource statement which was last updated in November 2018 showed an inferred resource of 7.7 million tonnes split across four pipes as shown below. To date approximately 720,000 tonnes have been mined representing less than 10% of the current resource statement. Pipe Volume (m3) Tonnes Carats (+1mm) Grade (cpht +1mm) KVW01 605,800 1,561,400 KVW02 734,000 1,909,700 97,000 86,600 KVW03 1,461,600 3,629,200 152,000 KVW05 253,400 644,300 31,400 Total 3,054,800 7,744,600 367,000 6.2 4.5 4.2 4.9 4.7 The resource statement is based on drilling performed by previous owners and relies upon a combination of large diameter drill holes to a depth of 30 to 40m and 10 inch open holes to a depth of 100m. Based on this data modelling of the resource was only done to a depth of 60m for KV1, 3 and 5 and 80m for KV2. We now have a lot more information as a result of the mining that we have been conducting over the last 18 months with initial indications showing that: • KV1 is approximately 25% larger than originally thought; and • based on expected values and costs the economic depth of K1 and K2 and a significant portion of K3 is at least 100m to 120m. We have not commissioned a new resource statement yet, although this is planned for 2020, but management believe that the resource when recalculated will be significantly larger than the November 2018 figure. Accordingly, our current expected life of mine is in excess of 10 years based on our current optimum production level of approximately 700- 800k tonnes per annum. More exploration work is required on KV3 which is the largest of the pipes but initial indications suggest that our current resource estimate will be upgraded significantly. This underpins the potential and future of the Kareevlei for at least 10 years. Detailed optimisation of the pit designs and remodelling will be done in the coming year utilising the knowledge gained to date. 15 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceOperational Statement Continued Operational Outlook 2019 was a transition year for BlueRock Diamonds and its Kareevlei mining operations. Significant strides and operational efficiency improvements were achieved and the operation is in a position to run sustainably at over 40,000 tons per month whilst the new proposed plant is being constructed. The new team with considerable experience in mine management, project construction and engineering competencies will spearhead the expansion of the operations. The modification and combination of the existing plant and “Numovista Plant” with additional new equipment will establish a processing plant which will be able to operate through the year limiting any major seasonal fluctuations. The reoptimisation of the mining plan with the increased foot print of the pipes provides flexibility and will ensure that the mine will be able to deliver the required ore volumes. Recoveries of up to 90% of in situ grade are expected in line with the industry norms, as mining progresses at deeper levels and higher levels of pure kimberlite ore are processed and crushed finer. The Covid-19 pandemic has delayed our expansion plans although it is the intention to implement them as soon as is possible. Once implemented we can look forward to: • A new dual line process plant with improved layout and accessibility. • Increased production of over 750,000 tons per annum. • Lower cost structure due to economies of scale and lower power costs. • Review and potential upgrade of the resource and LOM plan. I would like to thank the Kareevlei team for their continued efforts, hard work and contribution to the success of the operations. I also would like to pass my appreciation and thanks to the communities for their support during this period and I look forward to their continued support. Gus Simbanegavi Chief Operating Officer 16 STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019Financial Review Overview The results for the year show significant improvements over the previous year, with a Group operating profit (excluding non-cash adjustments for IFRS 9 charges, share-based payments and movement in foreign exchange) being recorded for the second half of the year. As outlined in the Chairman’s Statement, revenue, carats sold, production volumes, average grades and average price per carat have all increased substantially. Revenue and loss for the year Cash flows In 2019, the Group made a loss before tax of £684,244 (2018: £2,441,943) on revenue of £4,073,853 (2018: £1,416,699) reflecting increases in the number of carats produced and sold and an increase in the value per carat. The loss in 2019 relates largely to the first half of the year which was dominated by a poor first quarter during the rainy season, which accounted for the vast majority of the loss. Statement of Financial Position Total assets increased from £1,573,217 in 2018 to £3,268,710 in 2019, with net assets increasing by £918,186. Borrowings were reduced from £1,103,894 in 2018 to £916,489 in 2019. Property, plant and equipment have increased by £208,117 in the year, as investment in the mine continues. In accordance with IFRS16 leased assets have now been recognised on the balance sheet as an asset of £455,381 and a liability of £454,508. Inventories have increased by £645,941 and trade and other payables by £293,039. Investments During the year we invested £569,367 (2018: £109,710) in the purchase of plant and equipment. The majority of this expenditure was in order to improve the processing facilities, with a secondary crushing circuit introduced in August 2019 and a third pan in Q4. The rehabilitation provision was increased by £286,984 (2018: reduction of £60,647). This was required as the footprint of the mine has been increased. Financing During 2019, the Company raised a total of £1,557,000 gross of expenses through two placings and subscriptions (£575,000 in February 2019 and £982,000 in May 2019). The February fund raising was largely to provide working capital whereas the majority of the May 2019 was used to fund our expansion plans in order to reach our target of operating at an annual run rate of 400,000 tonnes, as outlined in the Operational Statement. Cash position At the end of the year the Group cash balance (excluding restricted cash) was £165,935 (2018: £168,181). Additionally, the Group had inventories of £527,300 (2018: £191,406). The increased inventories are in line with the higher production and introduction of crushed ore stockpile. Covid-19 Since the year end COVID-19 has had a negative impact on the cash position of the Company: with lost revenue of approximately £100,000, care and maintenance costs for the period of the shutdown of the mine amounting to approximately £150,000 and approximately £300,000 required to settle outstanding creditors. The latter will be reversed over time as we re-institute normal credit terms, although some suppliers are now insisting upon cash up front. Our expansion plans for 2020 have also been delayed. 17 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceRisk Management Principal risks and uncertainties In addition to the extra risks resulting from the Covid-19 pandemic which are discussed below, the principal risks that relate to the Group have been set out below, categorised as follows: • Operational risks: Risks relating to the Group’s operations including mining • Market risks: Risks associated with changes in the markets in which the Group operates • Country risks • Other risks: Other significant risks COVID 19 risks Possible further shutdowns There is a risk that the South African Government may impose a second shutdown should the spread of the infection increase. There have been no infections to date at the mine and the Group has taken measures to protect its employees and has plans in place to detect and isolate cases. Availability of tenders and fall in prices There is a risk that tenders will be closed or poorly attended as was seen at the March tender in South Africa which caused a dramatic fall in prices offered. The Group has put in place plans to commence selling in the Antwerp market through the Bonas Group, as discussed above, to mitigate this risk. The Company has also 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 to mitigate this risk. However, DDFF may opt not to provide finance as outlined in their letter of intent. Going concern Risk As highlighted in the going concern statement, the above factors, which are out of the Group’s control, could affect the ability of the Group to continue as a going concern without raising additional funds in the forthcoming year. Refer to paragraph 2 of the Directors' Report for further details. 18 STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019Operational risks Risks relating to the Group’s operations including mining Reliability of mineral resource and reliance on historic data The calculation of a mineral resource involves significant assumptions and estimates that may prove inaccurate, including assumptions of diamond prices. In calculating the Inferred Mineral Resource at the Kareevlei tenements, reliance has been placed upon measurements and data collected by Diamond Resources Pty Limited (the vendor of the Kareevlei tenements) and other parties and the analysis of the results achieved by Kareevlei Mining (Pty) Limited. There can be no guarantee that predicted grades will continue to materialise or that the resource will be economically viable. The Group mitigates this risk by continually assessing its production assets in order to provide further evidence to support the mineral resource estimates set out in the Competent Person’s Report dated August 2013 prior to expanding our production facilities. Increase in production The future profitability of the Group is dependent upon increasing production levels in order to achieve the necessary economies of scale. Whilst the Group believe that it has a management team with the appropriate skills, have developed a detailed plan and that is has sufficient resources in order to achieve the required increase in production, there remain significant challenges in order to achieve this and there can be no guarantees that such an increase will be achieved nether can there be any guarantee that once achieved such levels can continue to be achieved. Exposure to mining hazards Whilst the Group’s exposure is reduced due to the open cast mining technique, the Group remains exposed to a number of risks and hazards associated with mining including pit wall failure, adverse weather and mechanical breakdown. The Group monitors its mining operations constantly to ensure that mining risks are minimised. In addition, the Group production team has extensive experience operating and maintaining similar production facilities. Security risks Whilst the Group has implemented security procedures, there can be no guarantee that theft of plant, machinery or diamonds will not occur. Should any theft occur, the Group may suffer adverse financial consequences. We have mitigated this risk by ensuring that our security team is present at all times. 19 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceRisk Management Continued Market risks Risks associated with changes in the markets in which the Group operates Exposure to a decrease in rough diamond prices As the Group has commenced diamond sales, the profitability of mining operations is directly related to the prevailing diamond price. Historically, diamond prices for good quality stones has been relatively stable but are affected by numerous factors which the Group is unable to control or predict, including world production levels, international economic trends, industrial and consumer demand, currency exchange fluctuations, seasonality, speculative activity and political events. Exposure to strengthening of the South African Rand and weakening of the US Dollar The Group realises US Dollars for its diamond sales and reports its results in Pounds Sterling. Should the South African Rand strengthen against the Pound, the costs of the Group’s mining operations, which are largely denominated in South African Rand, may be adversely affected. Should the US Dollar weaken against the Pound, the Group’s revenues may be reduced. Exposure to movements in the prices of raw materials, equipment and services Should market prices for raw materials, services and equipment, such as diesel or mining equipment increase, the Group’s results may be adversely affected. The Group seeks to obtain the best rate for each product or service, taking into account price, service quality and reliability. Country risks Specific risks relating to the Group’s main country of operation, South Africa Operations in South Africa The Group’s main country of operation is South Africa. Whilst the Directors intend that the Group will carry out its activities in accordance with all applicable laws, rules and regulations, it is possible that new laws, rules or regulations may be enacted or that the interpretation of current laws, rules or regulations may change, either of which may limit the ability of the Group to operate. The Group activities and profitability may also be adversely affected by economic or political factors outside its control. Financial Risk Management Details of the Group’s financial risk management is set out in note 29. 20 STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019Key Performance Indicators As a management team we monitor a variety of performance indicators: Production 323,000 T 70% (FY 2018: 190,000) 2019 2018 Grade 4.34 CPHT 32% (FY 2018: 3.28 cpht) 2019 2018 Value per carat 2019 2018 US$415 24% (FY 2018: US$334) Cost per carat FY 2019 Q1 2019 Q4 2019 US$187 US$633 US$260 Tonnes processed in 2019 was 323,000 tonnes, 70% up on 2018. Average monthly production for the second half of 2019 was approximately 37,000 tonnes compared to 19,500 during 2018. The average grade for 2019 was 4.34 cpht, 32% up on 2018. The average grade for the last three quarters of 2019 stabilised at 4.5 cpht. The value per carat for 2019 was USD 415, 24% up on 2018. The sales value per carat averaged USD 422 for the last three quarters of 2019. The Mine Cash Cost per carat was USD 260 and USD 187 for the full year and Q4 of 2019 res pectively. The Mine Cash Cost per carat was USD 633 highlighting t he weak Q1 pe rformance. 21 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceDirectors’ section 172 statement Section 1. Stakeholder mapping and engagement activities within the reporting period. The Company continuously interacts with a variety of stakeholders important to its success, such as equity investors, business partners, workforce, government bodies, local community, suppliers and advisors. The Company strives to strike the right balance between engagement and communication. Furthermore, the Company works within the limitations of what can be disclosed to the various stakeholders with regards to maintaining confidentiality of market and/or commercially sensitive information. The following disclosure describes how the Directors have had regard to the matters set out in section 172(1)(a) to (f) and forms the Directors’ statement required under section 414CZA of The Companies Act 2006. This new reporting requirement is made in accordance with the new corporate governance requirements identified in The Companies (Miscellaneous Reporting) Regulations 2018, which apply to company reporting on financial years starting on or after 1 January 2019. The matters set out in section 172(1) (a) to (f) are that a Director must act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to: a. the likely consequences of any decision in the long term; b. the interests of the Company’s employees; c. d. the need to foster the Company’s business relationships with suppliers, customers and others; the impact of the Company’s operations on the community and the environment; e. the desirability of the Company maintaining a reputation for high standards of business conduct; and f. the need to act fairly between members of the Company. In the above Strategic Report section of this Annual Report, the Company has set out the short to long term strategic priorities, and described the plans to support their achievement. We have split our analysis into two distinct sections, the first to addresses Stakeholder engagement, which provides information on stakeholders, issues and methods of engagement, disclosed by stakeholder group. The second section addresses principal decisions made by the Board and focuses on how the regard for stakeholders influenced decision-making. 22 STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019Who: Key Stakeholder groups Why: why is it important to engage this group of stakeholders How: how BlueRock engaged with the stakeholder group What: what came of the engagement Equity Investors and Business Partners Teichmann Company Ltd own 29% (after share issue following the AGM) of the Company’s shares and are our major operating partners Workforce The Group has approximately 74 employees including its Directors. Two of the Directors are UK residents and two are overseas resident Directors. The rest of the Company’s workforce is based in South Africa Governmental bodies We engaged with investors on topics of strategy, governance and performance. The Chairman and CFO presented at a number of investor roadshows and one-to-one meetings. Over the course of 2019, the Group raised £1.56 million in cash through new share issues Access to capital has been of vital importance to the long-term success of our business to enable the Group to proceed with its expansion plans for the mine. Teichmann provide a vital role in the mining process, without which the Company cannot create value for our shareholders by producing diamonds and therefore a return on the investment. Through our engagement activities, we strive to obtain investor buy-in into our strategic objectives and how we go about executing them. We are seeking to promote an investor base that is interested in a long term holding in the Company and will support the Company in achieving its strategic objectives. The key mechanisms of engagement included: Teichmann Teichmann have the option to appoint a Director to the Board. As of the date of signing they have not taken up this option. Regular meetings are held between the Board and management of Teichmann. Prospective and existing investors The AGM and Annual and Interim Reports. Investor roadshows and presentations. Shareholder calls with the Board. Regular news releases and updates The Group’s long-term success is predicated on the commitment of our workforce to our vision and the demonstration of our values on a daily basis. Meetings were held with staff to provide project updates and ongoing business objectives. Efforts to focus on mine safety have yielded significant improvements in safety performance, resulting in a reduction of injuries in calendar year 2019. General Workforce: The Company maintains an open line of communication between its employees, senior management and Board of Directors in South Africa. There is a formalised employee induction into the Company corporate policies and procedures. The Remuneration Committee approved an employee Bonus scheme payable on achieving certain production targets The team were trained in aspects of corporate policies and procedures to engender positive corporate culture aligned with the Company code of conduct The Group is regulated in South Africa, by the Department for Mineral Resources (“DMR”). The Group’s mining licence renewals require satisfying the requirements of the DPR, which include changes to BEE ownership requirements. The Group has held several meetings with the DMR and has ongoing dialogue. The Group has made significant operational improvements and is finalising its amended BEE ownership arrangements. 23 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceDirectors’ section 172 statement Continued Section 1. Stakeholder mapping and engagement activities within the reporting period continued Why: why is it important to engage this group of stakeholders How: how BlueRock engaged with the stakeholder group What: what came of the engagement The Company has identified the key stakeholders within the local community, and has held regular meetings with all parties. The Group has ongoing engagements with the local community. We need to engage with the local community to build trust. The community’s trust will mean it is more likely that any fears the community has can be assuaged and our plans and strategies are more likely to be accepted. Community engagement will inform better decision making. The Group has a social and economic impact on the local community and surrounding area. The Company is committed to ensuring sustainable growth minimising adverse impacts. The local community will have an interest in the ownership of the subsidiary once the BEE ownership is finalised. The majority of the workforce is drawn from the local community. A good relationship with key suppliers is essential to ensure timely supplies do not interrupt mining and processing. Regular communication takes place with all key suppliers and advisors. Key advisors are essential to ensure we maintain good governance in all areas. The Group has had no problems with supplies or corporate governance issues during the year. Who: Key Stakeholder groups Community The local community at the mine site in South Africa and the surrounding area. Key suppliers and Advisors Key suppliers have been identified in South Africa. Advisors include our Nomad, brokers, lawyers, auditors and PR consultants. 24 STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019Section 2. Principal decisions by the board during the period. We define principal decisions as both those that have long-term strategic impact and are material to the Group, but also those that are significant to our key stakeholder groups. In making the following principal decisions, the Board considered the outcome from its stakeholder engagement, the need to maintain a reputation for high standards of business conduct and the need to act fairly between the members of the Group: The Board considers that the principal decisions made in 2019 were: a. The appointment of Gus Simbanegavi, initially as Chief Executive Officer to Kareevlei Mining and, subsequent to the year end, to the Board of BlueRock Diamonds. Gus is a mining engineer and has extensive experience of working in mining operations in South Africa and Zimbabwe. He has previously worked closely with the Company's Chairman Mike Houston. Importantly, Gus' experience encompasses both small and large scale mining operations including extensive open cast mining. Gus' initial focus was on increasing production levels, which he has successfully achieved in 2019. Since joining, Gus has instigated significant improvements in all areas, including safety and community relations. Additionally, he has put forward plans to expand the mine, improve processing facilities and reduced the cost per carat of diamonds mined. a. The decision to increase annual production capacity to 400,000 tonnes pa and allied fund raising The Board decided that increasing production to at least 400,000 tonnes per annum was key to achieving profitability. In order to achieve this, the company required to raise sufficient finance in order to fund the expansion plans. Approximately £1m was raised in May 2019 for this purpose. a. Attracting a strategic partner The Board determined that a strong strategic partner would not only assist in the financing of the group but also providing technical expertise and in the future assist in the further development of the company. Initially, Teichmann subscribed for a 20% stake in May 2019 and increased this to 29% in February 2020. In making the above principal decisions, the Directors believe that they have considered all relevant stakeholders, potential impact and conflicts, the Company’s business model and its long-term strategic objectives, and have acted accordingly to promote the success of the Company for the benefit of its members as a whole. We do not believe that any stakeholders have been affected detrimentally by these decisions. The Strategic Report has been approved By order of the board Michael Houston Executive Chairman 19 June 2020 25 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceBoard of Directors Michael Houston Executive Chairman Aged 68 David Facey Finance Director Aged 57 Michael Houston is a mining veteran with over 30 years' experience in Africa having worked with companies including Anglo American (Executive roles), Shanta Gold (CEO), and Zimplats Holdings (CEO/COO). He has also worked on a consultancy basis supporting a number of companies with various project reviews and due diligence. David is a Fellow of the Institute of Chartered Accountants of England and Wales and has over 20 years' experience in Corporate Finance and Equity Capital Markets. After working at PwC, David spent 10 years at HSBC Investment Bank, where he specialised in raising funds in the UK for companies all over the world, particularly in the EMEA region. Throughout his career David has advised governments, large corporates and smaller enterprises on public fund raising, private fund raising, mergers and acquisitions. In addition, David was a founding partner in SP Angel, an investment banking boutique specialising in advising SMEs on raising funds in the London market, both public and private. Tim Leslie Non-Executive Director Aged 53 Gus Simbanegavi Chief Operating Officer Aged 45 Tim Leslie has worked in the financial markets for over 25 years. He joined Paribas in 1986 and has since worked for JPMorgan, HSBC and then at Donaldson Lufkin & Jenrette (“DLJ”). In 2000, DLJ was bought by Credit Suisse and Tim left to join the hedge fund Moore Capital Management LLC as a portfolio manager. In 2003 Tim launched a new fund at Moore Capital, the Moore Credit Fund, for which he was the Chief Investment Officer. Tim left Moore Capital in 2008 and launched James Caird Asset Management LLP with assets under management of US$3.6bn as at launch. In 2011, Tim founded JCAM investments Ltd to run a family office and make longer term investments. Gus Simbanegavi was appointed as COO on 19 February 2020. Gus is a mining engineer and has extensive experience of working in mining operations in South Africa and Zimbabwe. He has previously worked closely with the Company's Chairman Mike Houston. Importantly, Gus' experience encompasses both small and large scale mining operations including extensive open cast mining. Gus is a professional Mining Engineer and also holds a Masters in Business Administration. He is a member of the Australian Institute of Mining and Metallurgy (AusIMM). Gus has over 20 years’ experience in executive roles for mining operations which spans across diverse mining commodities with majority of experience in Gold and Platinum Mining for both Open pit, Underground mining and Processing plants. Before joining Bluerock diamonds Gus has worked at various levels for Aquarius Platinum (SA), Eqstra Holdings, Zimplats and Delta Gold where he was involved in taking the various operation from design concept to operational mines. He was instrumental in the development of Zimplats Ngezi Operations in Zimbabwe and Aquarius Platinum’s Everest and Marikana Platinum Mines in South Africa. Experience over the years has been operational management and project implementation of mining projects and operations. 26 GOVERNANCEBluerock Diamonds Plc Annual Report and Accounts 2019Corporate Governance The Board of BlueRock Diamonds plc (the “Company” or “BlueRock”) fully supports good corporate governance and recognises that it enhances its decision-making processes by improving the success of the Company and increasing shareholder value over the medium to long-term. BlueRock currently complies with the principles of the Quoted Companies Alliance Corporate Governance Code (the “QCA Code”) to the extent that the Directors consider it appropriate, having regard to the Company’s size, board structure, nature of operations and available resources. The QCA Code identifies ten principles to be followed in order for companies to deliver growth in long term shareholder value, encompassing and efficient, effective and dynamic management framework accompanied by good communication to promote confidence and trust. The sections below set out the ways in which the Company applies the ten principles of the QCA Code in support of the Company’s medium to long-term success, together with any areas of non-compliance. The 10 principles are as follows: 1 2 3 4 5 6 7 8 9 Establish a strategy and business model which promote long-term value for shareholders Seek to understand and meet shareholder needs and expectations Take into account wider stakeholder and social responsibilities and their implications for long-term success Embed effective risk management, considering both opportunities and threats, throughout the organisation Maintain the board as a well-functioning, balanced team led by the chair Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities Evaluate board performance based on clear and relevant objectives, seeking continuous improvement Promote a corporate culture that is based on ethical values and behaviours Maintain governance structures and processes that are fit for purpose and support good decision-making by the board 10 Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders 27 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceCorporate Governance Continued Principle 1 Business Model and Strategy Principle 2 Understanding Shareholder Needs and Expectations Our business model is to acquire and develop under exploited kimberlite diamond mines in sub- saharan Africa, initially in South Africa. In 2019, a three step strategy was introduced. Step 1 was to establish profitability at KVM through increasing production to an annual run rate of 400,000 tonnes. This had been achieved by the end of 2019. Step 2 is to optimise the Kareevlei resource through increasing production to in excess of 750,000 tonnes per annum. The company is in the early stages of implementing Step 2, although its completion has been delayed as a result of COVID-19. Step 3 is to seek expansion through either acquisition or development. Our expertise is in open cast mining and we intend to continue to concentrate our activities on open cast mining although in the longer term, if economically advantageous, we may consider expanding our operations beyond open cast mining. We are unlikely to expand our operation into alluvial mining. The Board is committed to maintaining good communications and having a constructive dialogue with both its institutional and private shareholders. The Chief Executive Officer and Finance Director are principally responsible for shareholder liaison and have regular dialogue with investors in order to develop an understanding of their views. In ordinary circumstances the Company encourages all shareholders to attend its Annual General Meeting where they can meet and question the Directors and express ideas or concerns. In addition, the Company regularly invites shareholders to submit questions to and participate in shareholder calls and video interviews via Interactive Investor, both of which are available on the Company’s website. The Directors undertake presentations and roadshows to institutional investors as appropriate. In addition, shareholder communication is answered, where possible or appropriate, by Directors or the Company’s Financial PR advisors, St Brides Partners Ltd, or the Company’s Nominated Adviser and broker, SP Angel Corporate Finance LLP. Principle 3 Stakeholder and Social Responsibilities The Board recognises that the Company’s continued growth and long-term success is largely reliant on its relations with its stakeholders, both internal (employees and shareholders) and external (customers, suppliers, business partners and advisors etc). The Company maintains a regular dialogue with all of its stakeholders, including suppliers of key materials and services and its regulator in South Africa, the Department for Mineral Resources. The Company works closely with its advisors to ensure it operates in conformity of its listing regulations as well as the social, legal, religious and cultural requirements of the countries in which it operates. As a Company, we take our corporate social responsibilities very seriously, particularly as we operate in area of high unemployment. The Company employs a dedicated person to fulfil its social responsibility policies which involve supporting the school local to our mine. The Board is proud of the support and assistance the Company provides to the local community. Principle 4 Risk Management As a business operating in an emerging market there is clearly an elevated risk which is balanced by potentially greater rewards. The Board is mindful of and monitors both its corporate risks and mining risk which are set out in the risk report on pages 18 to 20. Currently, we operate only one mine but, if and when the Company expands, it will monitor mining risk on a mine by mine basis as each mine will present its own unique risks. Mining risks are categorised by both probability and impact and appropriate measures identified to monitor and mitigate any potential impact are monitored through the life cycle of the mine as existing risks change and new risks appear. Mining risks and mitigation are a key part of regular discussions in project management meetings. The Company’s corporate risks, risk monitoring, and risk management procedures are regularly reviewed by the Board and updated as necessary. The risk report is set out on pages 18 to 20. 28 GOVERNANCEBluerock Diamonds Plc Annual Report and Accounts 2019Principle 5 Board Structure The PLC Board contains a balance of Executive and Non-Executive Directors, including an Executive Chairman who is responsible for dealing with the strategic direction and long-term success of the Company. The Board consider that is appropriate to have an Executive Director serving as the Chair, as this is expected to be temporary, and will change on the appointment of a Chief Executive Officer. The Board meets at least every two months or at any other time deemed necessary for the good management of the business and at a location agreed between the Board members. The Board currently consists of one Non-Executive director and three Executive directors. Tim Leslie is the sole independent Non-Executive Director. It is the Board intention to revert to a Non-Executive Chairman and appoint an additional independent Non-Executive director in due course. As announced on 16 May 2019, Teichmann Company Limited (“TCL”), an investment company controlled by trusts connected with the owners of BlueRock’s strategic partner, Teichmann Group, retains a right to appoint a non-executive director to the Board whilst it maintains a holding over 10%. TCL currently hold approximately 26% of the Company and it is expected that such appointment will be made in due course. The Teichmann appointee will not be fully independent of the Company because of TCL’s substantial shareholding but will be independent of the executive team. TCL has entered into a Relationship Agreement with the Company which, among other matters, governs Teichmann's ability to make changes to the Company's board composition. The CEO role is currently carried out by the Executive Chairman and the Company will appoint a CEO when the Board considers necessary. The Executve Board members consist of the Chairman, the Finance Director and the Chief Operating Officer. The Chief Operating Officer is also CEO of the Company's subsidiary, Kareevlei Mining Pty Limited. Non-executive directors are required to commit to up to 4 days a month. The Executive Chairman and the Finance director are required to commit to up to 10 days a month. The monthly commitment varies depending upon the demands of the company. In 2019 the Board held 12 formal Board meetings. Attendance at these meetings were as follows: Director Meetings attended % attended Mike Houston Tim Leslie David Facey Adam Waugh* *resigned 18/09/2019 12 12 12 8 100 100 100 100 The Audit committee met twice in the period to which all committee members were in attendance. The remuneration committee met twice in the year at which all committee members were present. Principle 6 Board Composition and Experience The Company operates in a complex and challenging technological and geographical area and the Board is mindful that in order to deal effectively with the challenges of the business and to maximise its growth opportunities it has to incorporate a broad range of skills and diversity. The Board considers that all directors have the relevant professional and technical skills to ensure that they are able to fulfil their duties. Mike Houston, Executive Chairman has extensive experience in the natural resources sector having been Chairman and CEO of Zimplats Holdings (ASX) and CEO of Shanta Gold (AIM), Tim Leslie has operated in the financial sector for many years and is a FCA regulated person, and David Facey is a Fellow of the Institute of Chartered Accountants and has many years of investment banking experience and is also CEO and CFO of Tri-Star Resources plc (AIM). In addition, Gus Simbanegavi is a mining engineer and has extensive experience of working in mining operations in South Africa and Zimbabwe. Gus' experience encompasses both small and large scale mining operations including extensive 29 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceCorporate Governance Continued Principle 6 Board Composition and Experience continued open cast mining. The Directors note the need to keep their experience, skills and knowledge up to date and note that the addition of another Non-Executive Director which is expected in due course, will further add strength and objectivity to the Board. The current composition of the Board may be found on page 23 of the Annual Report. The Board and its committees also seek external expertise and advice when required in particular from specialist mining and engineering consultants. The Board considers evaluation of its performance and that of its committees and individual directors to be an integral part of corporate governance to ensure it has the necessary skills, experience and abilities to fulfil its responsibilities. The goal of the Board evaluation process is to identify and address opportunities for improving the performance of the board and to solicit honest, genuine and constructive feedback. The Board considers the evaluation process is best carried out internally given the Company’s current size, however the Board will keep this under review and may consider independent external evaluation reviews in due course as the Company grows. A Board performance evaluation was carried out in Q3 2019. The results of the evaluation were good, with no major issues identified, but it was felt that there were areas which could be improved, particularly in formalising reporting and risk assessment. As a result, new measures have been put in place. Review Board Evaluation: Period Board composition in terms of skills, experience and balance Annually or as required Board cohesion Annually or as required Board operational effectiveness and decision making Annually Board meetings conduct and content and quality of information The Board’s engagement with shareholders and other stakeholders The corporate vision and business plan Committee Evaluation: Annually or as required Annually Annually Board Committees’ composition in terms of skills, experience and balance Annually or as required Board Committees’ Terms of Reference Board Committees’ effectiveness Individual director evaluation: Annually Annually Executive Director performance in executive role Annually Executive Director performance and contribution to the Board Annually Non-Executive Director performance and contribution to the Board Annually Non-Executive Director’s independence and time served Annually All Directors’ attendance at Board and Committee meetings Annually The Board will, as a whole or in part as appropriate, undertake the evaluation process aided by the Chairman, CEO and independent Non-Executive Director or external advisors as necessary. The Chairman is responsible in ensuring the evaluation process is ‘fit for purpose’, as well as dealing with matters raised during the process. The Chairman will keep under review the frequency, scope and mechanisms for the evaluation process and amend the process as required. Principle 7 Board Evaluation 30 GOVERNANCEBluerock Diamonds Plc Annual Report and Accounts 2019Principle 7 Board Evaluation continued Principle 8 Corporate Culture Principle 9 Governance Structure Where deficiencies are identified these will be addressed in a constructive manner. Where necessary individual Directors will be offered mentoring and training. If deficiencies are identified within the Board as a whole, then changes or additions to the Board will be considered in conjunction with the Nominations Committee. The evaluation process will be focused on the improvement of Board performance, through open and constructive dialogue and the development and implementation of action plans. Succession planning is a vital task for boards and the management of succession planning represents a key measure of the effectiveness of the Board and a key responsibility of both the Nominations Committee and wider Board. The Board recognises that a corporate culture based on sound ethical values and behaviours is an asset and provides competitive advantages. The Company is mindful that respect of individual cultures is critical to corporate success and endeavours to conduct its business in an ethical, professional and responsible manner, treating our employees, customers, suppliers and partners with equal courtesy and respect at all times. The Company is also committed to providing a safe environment for its staff and all other parties for which the Company has a legal or moral responsibility in this area. In order to ensure that these values are continually applied and adopted, the Board seeks to recruit the best talent available and create a diverse talent pool. The Board has implemented a code for Directors' and employees' dealings in securities which it considers to be appropriate for a company whose securities are traded on AIM and is in accordance with the requirements of the Market Abuse Regulation. The Board sets the Company’s strategic aims and ensures that necessary resources are in place in order for the Company to meet its objectives. All members of the Board take collective responsibility for the performance of the Company and all decisions are taken in the interests of the Company. Whilst the PLC Board has delegated the operational management of the Company via the Operational Board to the Executive Directors and other senior management, there are detailed specific matters subject to decision by the PLC Board of Directors. These include acquisitions and disposals, joint ventures and investments, projects of a capital nature and all significant contracts. The Non-Executive Director has a particular responsibility to constructively challenge the strategy proposed by the Executive Directors; to scrutinise and challenge performance; to ensure appropriate remuneration and that succession planning arrangements are in place in relation to Executive Directors and other senior members of the management team. The senior executives enjoy open access to the Non-Executive Director. As noted above, the Company is looking to appoint an additional Non-Executive Director in due course. The Chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role. The Chairman sets the Board’s agenda and ensures that adequate time is available for discussion of all agenda items, in particular strategic issues. The Chairman promotes a culture of openness and debate by facilitating the effective contribution of Non-Executive Directors in particular and ensuring constructive relations between Executive and Non-Executive Directors. The Chairman is also responsible for ensuring that the directors receive accurate, timely and clear information. Given the current absence of a CEO, the Chairman is also responsible for running the business, implementing the decisions and policies of the Board and for the overall operational performance of the Company and ensuring the Company’s communication with shareholders is timely, informative and accurate with due regard to commercial sensitivity and regulatory requirements. The Finance Director is responsible for the Company’s finances and the operations and technical requirements of the Company. The role of Company Secretary is undertaken by the Finance Director. The CEO of Kareevlei is responsible for the day to day running of the Company's main asset, Kareevlei and is also COO of the Company. 31 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceCorporate Governance Continued Principle 9 Governance Structure continued The CEO of Kareevlei is responsible for the day to day running of the Company’s main asset, Kareevlei. The Non-Executive Directors are appointed not only to provide independent oversight and constructive challenge to the Executive Directors but also chosen to provide strategic advice and guidance. This is particularly important given the Company operates overseas in challenging markets. All directors are able to allocate sufficient time to the Company to discharge their duties. There is a rigorous and transparent procedure for the appointment of new directors to the Board. The search for Board candidates is conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the Board. The Board is responsible for ensuring that a sound system of internal control exists to safeguard shareholders’ interests and the Company’s assets. It is responsible for the regular review of the effectiveness of the systems of internal control. Internal controls are designed to manage rather than eliminate risk and therefore even the most effective system cannot provide assurance that each and every risk, present and future, has been addressed. The key features of the system that operated during the year are described below. The Board has established the following committees to assist with oversight and governance: Audit Committee The Audit Committee consists of Tim Leslie (chair) and will be augmented in due course. It oversees and reviews the Company’s financial reporting and internal control processes, its relationship with external auditors and the conduct of the audit process together with its process for ensuring compliance with laws, regulations and corporate governance. It is composed entirely of non- executive directors but other individuals such as the Company’s CFO, Chairman and COO may be invited to attend all or any part of any meeting when deemed appropriate. The Company’s external auditors will be invited to attend meetings of the Committee on a regular basis. There is currently no internal audit function in view of the size of the Company, although this is kept under annual review. The Audit Committee has been involved with the planning of the audit for the year ended December 2019 and has discussed the audit findings with the Company’s external auditors. Remuneration Committee The Remuneration Committee consists of Tim Leslie (chair) and will be augmented in due course. The Remuneration Committee is responsible for establishing a formal and transparent procedure for developing policy on executive remuneration and to set the remuneration packages of individual Directors. This includes agreeing with the Board the framework for remuneration of the Executive Chairman and CFO and such other members of the executive management of the Company as it is designated to consider. It is furthermore responsible for determining the total individual remuneration packages of each Director including, where appropriate, bonuses, incentive payments and share options. The Committee’s policy is to provide a remuneration package which will attract and retain Directors and management with the ability and experience required to manage the Company and to provide superior long-term performance. It is the aim of the Committee to reward Directors competitively and on the broad principle that their remuneration should be in line with the remuneration paid to senior management of comparable companies. In addition to paying fees in cash, fees have been paid also in shares and share options as a method of preserving cash within the business. 32 GOVERNANCEBluerock Diamonds Plc Annual Report and Accounts 2019Principle 10 Stakeholder Communication Nomination Committee The Nominations Committee comprises Tim Leslie (chairman) and will be augmented in due course. The Nominations Committee leads the process for Board Appointments and is responsible for review of the board size, structure and composition (both executive and non-executive) including any potential new applicants to ensure the board contains the right balance of skills, knowledge and experience to manage and grow the business. The Nominations Committee will make recommendations to the Board on any proposed or suggested changes to the Board with a view on the leadership needs of the business including succession planning. The Board is committed to maintaining good communication and having constructive dialogue with all of its stakeholders, including shareholders, providing them with access to information to enable them to come to informed decisions about the Company. The Investors section of the Company’s website provides all required regulatory information as well as additional information shareholders may find helpful including: information on Board members, advisors and significant shareholdings, a historical list of the Company’s Announcements, its corporate governance information, the Company’s publications including historic annual reports and notices of annual general meetings, together with share price information. Results of shareholder meetings and details of votes cast will be publicly announced through the regulatory system and displayed on the Company’s website with suitable explanations of any actions undertaken as a result of any significant votes against resolutions. Audit Committee Report An important part of the role of the Audit Committee is its responsibility for reviewing the effectiveness of the Group’s financial reporting, internal control policies, and procedures for the identification, assessment and reporting of risk. The Committee devotes significant time to their review and further information on the risk management and internal control systems is provided within the Strategic Report. A key governance requirement of the Group’s financial statements is for the report and accounts to be fair, balanced and understandable. The co-ordination and review of the Group-wide input into the Annual Report and Accounts is a sizeable exercise performed within an exacting timeframe. It runs alongside the formal audit process undertaken by external Auditors and is designed to arrive at a position where initially the Audit Committee, and then the Board, is satisfied with the overall fairness, balance and clarity of the document underpinned by the following: • detailed guidance issued to contributors at operational levels; • a verification process dealing with the factual content of the reports; • thorough review undertaken at different levels that aim to ensure consistency and overall balance; and • a comprehensive review by the senior management team. An essential part of the integrity of the financial statements are the key assumptions and estimates or judgements that have to be made. The Committee reviews key judgements prior to publication of the financial statements at the full and half year, as well as considering significant issues throughout the year. In particular, this includes reviewing any materially subjective assumptions within the Group’s activities to enable an appropriate determination of asset valuation and provisioning. The Committee reviewed and was satisfied that the judgements exercised by management on material items contained within the Annual Report were reasonable. The Committee conluded that the estimates about future production, sales volumes, diamond prices, grades, operating costs and capital expenditures used in the review were reasonable. It was also concluded that waste stripping costs did not meet the criteria for capitalisation under IFRS and thus that these costs should be fully expensed in 2019. 33 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceCorporate Governance Continued Principle 10 Stakeholder Communication continued The Committee focussed heavily on management’s assessment of going concern with respect to the Group’s cash position and its commitments for the next 12 months. The Committee considered the higher level of uncertainty resulting from the impact of the COVID-19 pandemic particularly in relation to production, the market value of its diamonds and the timing of their sale. The Committee looked at various scenarios to test the management’s views and concluded that the wording contained in the Going concern section of the Directors’ Report was appropriate. The Audit Committee has considered the Group’s internal control and risk management policies and systems, their effectiveness and the requirements for an internal audit function in the context of the Group’s overall risk management system. The Committee is satisfied that the Group does not currently require an internal audit function. The Committee has recommended to the Board that shareholders support the re-appointment of the Auditors at the 2020 AGM. Remuneration committee report The Remuneration Committee (“Committee”) has been engaged on all matters of corporate remuneration. Over the past year and into 2019, the Committee has considered the following matters: • Executive compensation including base compensation, bonus and equity incentives; • Non-Executive Director remuneration As a result of the Remuneration Committee’s deliberations it has been agreed that share based incentive schemes should be reserved for the executive team only and that non-executive directors should be paid a market rate for their services which hitherto have been provided largely for no payment. The remuneration committee will meet formally in July 2020 in order to approve remuneration for the following year. The annual remuneration for the Directors is noted in the Directors’ report. 34 GOVERNANCEBluerock Diamonds Plc Annual Report and Accounts 2019Directors’ Report The directors present their report for the year ended 31 December 2019. 1. Review of activities Principal activities and results The principal activity of the Group is diamond mining in the Kimberley region of South Africa. There were no major changes herein during the year. The operating results and consolidated statement of financial position of the Group are fully set out in the attached financial statements together with a review of the Group's performance and prospects contained in the chairman's statement. 2. 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. 3. Events after reporting date Refer to note 28 of the Consolidated Financial Statements for a detailed discussion of events that occurred after the reporting date. 35 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceDirectors’ Report Continued 4. Directors’ interests The holdings of the Directors and their related parties in the share capital of the Group are as follows: T Leslie D Facey M Houston AT Simbanegavi Number of ordinary shares Percentage of share capital Number of ordinary shares subject to share options Percentage of share capital subject to share options 21,274 48,000 30,000 10,000 0.40% 0.91% 0.57% 0.19% - 65,160 97,740 65,160 0.00% 1.24% 1.86% 1.24% Other than as disclosed above, none of the Directors, nor any persons connected with them, is interested in any related financial product (as defined in the AIM Rules) whose value in whole or in part is determined directly or indirectly by reference to the price of the ordinary shares, including a contract for difference or a fixed odds bet. There are no outstanding loans granted or guarantees provided by any member of the Group to or for the benefit of any of the Directors, nor are there any outstanding loans or guarantees provided by the Directors to or for the benefit of the Group, other than what is disclosed in note 27. Other than as disclosed in this Annual Report and Accounts, no Director has any interest, whether direct or indirect, in any transaction which is or was unusual in its nature or conditions or significant to the business of the Group taken as a whole and which was effected by the Group during the current or immediately preceding financial year, or during any earlier financial year and which remains in any respect outstanding or unperformed. In the case of those Directors or key managers who have roles as directors of companies which are not a part of the Group, although there are no current conflicts of interest, it is possible that the fiduciary duties owed by those Directors to companies of which they are directors from time to time may give rise to conflicts of interest with the duties owed to the Group. Except as expressly referred to in this Annual Report and Accounts, there are no potential conflicts of interest between the duties owed by the Directors to the Group and their private duties or duties to third parties. 5. Dividend No dividend was declared or paid to shareholders during the year. 6. Directors The Directors of the Group in office during the year, and up to the date of signing this report, are as follows: Name MJ Houston (Executive Chairman) TG Leslie (Non-Executive Director) DA Facey (Chief Financial Officer) AT Simbanegavi (Chief Operating Officer) 7. Financial Risk Management Nationality Appointment Date British British British Zimbabwean 02-Nov-18 04-Sep-17 01-Dec-17 19-Feb-20 Details of the Group’s financial risk management is set out in note 29. 8. Significant shareholders as at the date of this report Other than as set out below, the Group is not aware of any holding in the Group’s ordinary share capital which amounts to 3 per cent or more of the Group’s issued share capital: Name Teichman Company Limited Spreadex Ltd 36 Number of ordinary shares Percentage of share capital 1,357,767 245,224 25.82% 4.66% GOVERNANCEBluerock Diamonds Plc Annual Report and Accounts 2019The Takeover Panel executive has opined that a concert party exists which comprises of the following members with a current aggregate shareholding of 29.6%. Details of which are: Name Teichman Group Teichmann Company Limited T-Three Drilling (Mauritius) Limited Gold Finger Investments Ltd G Teichmann J te Riele K Gibbs A Garvey M Houston C Holton B Nicolay A McKinney Total Number of ordinary shares Percentage of share capital - 1,063,216 433,252 26,000 - - - - 30,000 28,235 18,824 23,529 - 19.4% 7.9% 0.5% - - - - 0.6% 0.5% 0.3% 0.4% 1,623,056 29.6% The above holdings will become applicable after the AGM when further shares are due to be issued to members of the Teichmann Group concert party. M Houston is not considered to be part of the Teichmann Group but is considered part of the concert party. 9. Auditor BDO LLP were the independent auditors for the year under review. 10. Annual General Meeting The annual general meeting will take place on 14 July 2020 at 10.00a.m. (BST). 11. Directors’ and officers’ insurance The Group maintains insurance cover for all Directors and officers of Group companies against liabilities which may be incurred by them while acting as Directors and officers. 12. Directors’ remuneration Details of the remuneration of the Directors for the financial year are set out below: MJ Houston - received fees of £55,417 (2018: £nil) TG Leslie - received fees of £10,000 (2018: £nil) A Waugh - received fees of £40,000 (2018: £96,320) D Facey - received fees of £56,000 (2018: £36,000) 13. Directors’ responsibility statement The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have elected to prepare the Group and Company Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on AIM. • Select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that: • so far as each Director is aware there is no relevant audit information of which the Group’s auditors are unaware; and • the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board Michael Houston Executive Chairman 19 June 2020 37 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceIndependent Auditor’s Report Independent auditor’s report to the members of BlueRock Diamonds plc Opinion We have audited the financial statements of BlueRock Diamonds plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2019 which comprise Consolidated and Company Statements of Financial Position, Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated Statement of Changes in Equity - Group, Statement of Changes in Equity - Company, Consolidated and Company Statements of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • • • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2019 and of the Group’s loss for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to note 1 in the financial statements which sets out the Directors’ considerations of the potential impact on the Group’s business of the COVID-19 pandemic and the resulting need to raise additional funds should such adverse scenarios materialise. As stated in note 1, these events or conditions, along with other matters as set out in note 1, indicate that a material uncertainty exists that may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. We have highlighted going concern as a key audit matter as a result of the uncertainty created by the COVID-19 pandemic and resulting potential implications for our audit strategy. Our audit procedures in response to this key audit matter included: • We discussed the impact that COVID-19 has had on the Group with management and the Audit Committee, including the impact of the Government restrictions implemented in South Africa and their assessment of any future risks and uncertainties that are relevant to the Group’s business model and operations. We formed our own assessment of risks and uncertainties based on our understanding of the business and diamond mining sector. • We performed reverse stress testing analysis to determine the point at which liquidity breaks and considered whether such scenarios, including significant reductions in diamond prices, sustained production interruption or delays to sale tenders without access to the non-binding bridge finance facility, were possible given the potential impacts of COVID-19 and the level of uncertainty. • We critically assessed management’s base case cash flow forecasts and the underlying assumptions which have been approved by the Board. Our testing included a comparison of forecast prices to historical achieved data and market outlook reports. • We evaluated the forecast production levels against post year end actuals and considered the impact of recent plant upgrades on the achievability of forecasts. • We reviewed the non-binding bridge finance agreement to obtain an understanding of the terms. • We reviewed and considered the adequacy of the disclosure within the financial statements relating to the Directors’ assessment of the going concern basis of preparation. 38 GOVERNANCEBluerock Diamonds Plc Annual Report and Accounts 2019Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How our audit addressed the key audit matter Carrying value of mining assets The Group's Kareevlei project non-current assets, as disclosed further in note 5, 6 and 7 represents the Group’s significant assets as at 31 December 2019. Management and the Board are required to assess whether there are any potential impairment triggers which would indicate that the carrying value of the assets at 31 December 2019 may not be recoverable. As detailed in note 3.1.4. there are judgements and inherent uncertainties involved in assessing the mining assets for indicators of impairment. We determined the carrying value of mining assets to be a key audit matter given the significant judgements required in respect of the assessment of indicators of impairment. We reviewed and challenged management’s impairment indicator assessment which was carried out in accordance with relevant accounting standards in order to determine whether there were any indicators of impairment. In doing so, we have performed the following: We compared the current year financial performance against budget to identify potential impairment indicators and to evaluate the accuracy of management forecasts. We compared the Group’s market capitalisation at year end to its net assets. We reviewed the Competent Person’s Report to support the mineral resource and performed an assessment of the independence and competence of the expert. We obtained management’s Life of Mine forecast to confirm that significant headroom existed over the asset carrying value as part of our assessment of potential impairment indicators. As part of our review, we evaluated the appropriateness of key estimates and assumptions used by management against market data and historical trends. We performed sensitivity analysis on key assumptions such as diamond pricing to confirm that the forecast headroom is not sensitive to reasonably possible changes in the assumptions. We reviewed and considered the adequacy of the disclosures in relation to the Group’s impairment indicator assessment on the carrying value of mining assets. Key observations We found management’s conclusion that no impairment indicator was present at 31 December 2019 to be appropriate. 39 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceIndependent Auditor’s Report Continued Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Component Materiality Basis for materiality Group £62,000 (2018: £92,000) 1.5% of Revenue (2018: 5% of the group’s normalised loss before taxation (excluding foreign exchange losses of £607,060 given the volatility of exchange rates)). We consider revenue to be the most significant determinant of the Group’s financial performance used by shareholders given the focus on increasing production. We had previously used normalised loss before tax as the basis for materiality, however in 2019 revenue was deemed to be a more appropriate measure due to the volatility of using a profit or loss based measure. Parent company £43,000 70% of group materiality (2018: 75% of group materiality). (2018: £69,000) Performance materiality is the application of materiality at the individual account or balance level set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality was set at 75% (2018: 70%) of the above materiality levels for the group and the parent company being £46,500 and £32,250 (2018: £64,400 and £48,300) respectively. Significant components of the group was audited to a lower level of materiality of between £43,000 and £52,000 (2018:£51,000 and £69,000). We agreed with the Audit Committee that we would report to them all individual audit differences identified during the course of our audit in excess of £1,200 (2018: £1,400). We also agreed to report differences below these thresholds that, in our view warranted reporting on qualitative grounds. An overview of the scope of our audit Our audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements at Group level. Whilst BlueRock Diamonds plc is a Company registered in England and listed on the Alternative Investment Market in the UK, the Group’s principal operations are located in South Africa. In approaching the audit, we considered how the Group is organised and managed. We assessed there to be two significant components, being the Parent Company and Kareevlei Mining Limited, which includes the Group’s mining operations. The remaining component was considered non-significant to the Group audit and we performed analytical review procedures in respect of this component. A full scope audit for Group reporting purposes was performed on the significant component Kareevlei Mining Limited by BDO South Africa. BDO LLP performed a full scope audit of the Parent Company, specific procedures over key risk areas including the Key Audit Matters detailed above and performed the audit of the consolidation. As part of our Group audit strategy, as Group auditors: • We held planning meetings with the component auditors and local management at Kareevlei Mining Limited. • Detailed Group reporting instructions were sent to the component auditors, which included the significant areas to be covered by their audit, and set out the information to be reported to the Group audit team. • We received and reviewed Group reporting submissions and performed a review of the component auditors’ file. Our review was performed remotely using our online audit software as a result of travel restrictions due to Covid-19. • We held clearance meetings remotely with the component auditors and local management to discuss significant audit and accounting issues and judgements. 40 GOVERNANCEBluerock Diamonds Plc Annual Report and Accounts 2019Other information Responsibilities of Directors The Directors are responsible for the other information. The other information comprises the information included in the annual report and financial statements other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. As explained more fully in the Directors’ responsibilities statement set out on page 39 the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Ryan Ferguson Senior Statutory Auditor London, UK 19 June 2020 For and on behalf of BDO LLP, Statutory Auditor BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 41 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceConsolidated and Company Statements of Financial Position As at 31 December 2019 Assets Non-current assets Property, plant and equipment Right-of-use assets Mining assets Investments in subsidiaries Other receivables Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents (including restricted cash of £223,914 (2018: £210,128)) Total current assets Total assets Equity and liabilities Equity Share capital Share premium Accumulated loss Other reserves Total equity attributable to owners of parent Non-controlling interests Total equity Liabilities Non-current liabilities Provisions Borrowings Lease liabilities Total non-current liabilities Current liabilities Trade and other payables Borrowings Lease liabilities Total current liabilities Total liabilities Total equity and liabilities 5 6 7 8 10 9 10 11 12 12 13 8 14 16 6 15 16 6 Group 2019 Group 2018 Company 2019 Company 2018 Notes £ £ £ 778,920 455,381 406,068 - 344,442 1,984,811 837,347 56,703 389,849 1,283,899 3,268,710 570,803 - 303,377 - 57,458 931,638 191,406 71,864 378,309 641,579 1,573,217 £ - - - 5 - 5 7,352 - - - 5 - 5 - 8,088,725 6,677,637 378,062 8,466,787 8,466,792 275,736 6,960,725 6,960,730 162,900 4,147,980 44,352 3,460,309 (5,120,207) (4,609,485) 3,118,484 2,309,157 2,330,670 1,225,846 162,900 4,147,980 (79,444) 3,100,761 7,332,197 44,352 3,460,309 (62,594) 2,336,847 5,778,914 (1,764,910) (1,599,785) - - 544,247 (373,939) 7,332,197 5,778,914 302,989 916,489 454,508 204,840 1,103,894 - - - 916,490 1,076,835 - - 1,673,986 1,308,734 916,490 1,076,835 880,584 156,698 13,195 1,050,477 2,724,463 3,268,710 587,545 50,877 - 638,422 1,947,156 1,573,217 61,407 156,698 - 218,105 1,134,595 8,466,792 58,734 46,247 - 104,981 1,181,816 6,960,730 These financial statements were approved by the Board and authorised for issue on 19 June 2020 Michael Houston Executive Chairman 42 → Notes on pages 47 to 87 form part of these financial statements. FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2019 Revenue from contracts with customers Other income Administrative expenses Operating expenses Loss from operating activities Finance income Finance costs Other losses Loss before taxation Income tax credit Loss for the year Loss for the year attributable to: Owners of Parent Non-controlling interest Other comprehensive loss net of tax Components of other comprehensive income that may be reclassified to profit or loss Gains on exchange differences on translation Total other comprehensive income Total comprehensive loss Comprehensive loss attributable to: Owners of parent Non-controlling interests Basic and diluted loss per share Basic loss per share Notes 17 19 20 21 18 22 Group 2019 Group 2018 £ £ 4,073,853 911 (128,326) 1,416,699 1,882 (89,498) (4,418,605) (3,132,047) (472,167) (1,802,964) 25,460 (192,350) (45,187) (684,244) 8,600 (145,571) (506,189) (2,446,124) - 4,181 (684,244) (2,441,943) (510,722) (173,522) (684,244) (1,902,842) (539,101) (2,441,943) 32,297 32,297 519,276 519,276 (651,947) (1,922,667) (486,822) (165,125) (651,947) (1,518,578) (404,089) (1,922,667) 24 (0.21) (4.29) 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). → Notes on pages 47 to 87 form part of these financial statements. 43 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceConsolidated Statement of Changes in Equity - Group For the year ended 31 December 2019 Share capital Share premium £ £ Balance at 1 January 2018 1,398,242 2,811,536 Changes in equity Loss for the year Foreign exchange movement Total comprehensive income Issue of equity Share issue costs Share-based payments - - - - - - 649,120 924,480 - - (125,972) (149,735) £ - - - - - - - Capital redemption reserve Foreign currency translation reserve Share-based payment reserve Accumulated loss Attributable to owners of the parent Non- controlling interests £ £ £ £ £ Total £ (390,441) 126,644 (2,706,643) 1,239,338 (1,195,696) 43,642 - 384,264 384,264 - - - - - - - - - 207,193 - (1,902,842) (1,902,842) (539,101) (2,441,943) - 384,264 135,012 519,276 (1,902,842) (1,518,578) (404,089) (1,922,667) - - - - 1,573,600 (125,972) 57,458 - - - - - 1,573,600 (125,972) 57,458 - Share buy-back (2,003,010) - 2,003,010 Balance at 31 December 2018 44,352 3,460,309 2,003,010 (6,177) 333,837 (4,609,485) 1,225,846 (1,599,785) (373,939) Balance at 1 January 2019 44,352 3,460,309 2,003,010 (6,177) 333,837 (4,609,485) 1,225,846 (1,599,785) (373,939) Changes in equity Loss for the year Foreign exchange movement Total comprehensive income - - - - - - Issue of equity 118,548 1,450,452 Share issue expenses Share-based payments - - (113,214) (649,567) - - - - - - - 23,900 23,900 - - - - - - - - 763,914 (510,722) (510,722) (173,522) (684,244) - 23,900 8,397 32,297 (510,722) (486,822) (165,125) (651,947) - - - 1,569,000 (113,214) 114,347 - - - 1,569,000 (113,214) 114,347 Balance at 31 December 2019 162,900 4,147,980 2,003,010 17,723 1,097,751 (5,120,207) 2,309,157 (1,764,910) 544,247 Notes 12 12 13 13 13 44 → Notes on pages 47 to 87 form part of these financial statements. FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019Consolidated Statement of Changes in Equity - Company For the year ended 31 December 2019 Balance at 1 January 2018 1,398,242 2,811,536 Share capital Share premium £ £ Changes in equity Loss for the year Total comprehensive income Issue of equity Share issue expenses Share buy-back Share-based payments Capital redemption reserve Share-based payment reserve Accumulated loss £ £ Total £ £ - - - - - 126,644 305,886 4,642,308 - - - - - 207,193 333,837 (368,480) (368,480) - - - - (368,480) (368,480) 1,573,600 (125,972) - 57,458 (62,594) 5,778,914 - - - - 649,120 - 924,480 (125,972) (2,003,010) - 2,003,010 - (149,735) - Balance at 31 December 2018 44,352 3,460,309 2,003,010 Balance at 1 January 2019 44,352 3,460,309 2,003,010 333,837 (62,594) 5,778,914 Changes in equity Loss for the year Total comprehensive income Issue of share capital Share issue expenses Share-based payments - - - - 118,548 1,450,452 - - (113,214) (649,567) - - - - - - - - - 763,914 (16,850) (16,850) - - - (16,850) (16,850) 1,569,000 (113,214) 114,347 Balance at 31 December 2019 162,900 4,147,980 2,003,010 1,097,751 (79,444) 7,332,197 Notes 12 12 13 13 → Notes on pages 47 to 87 form part of these financial statements. 45 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceConsolidated and Company Statements of Cash Flows For the year ended 31 December 2019 Cash flows used in operations Cash used in operations Net cash flows used in operations Income taxes paid Notes 26 Group 2019 Group 2018 Company 2019 Company 2018 £ £ £ £ (362,022) (362,022) (1,363,407) (1,363,407) (488,330) (488,330) - (17,772) - (492,472) (492,472) (17,772) (510,244) Net cash flows used in operating activities (362,022) (1,381,179) (488,330) Cash flows used in investing activities Purchase of property, plant and equipment Increase in loan advanced to group company Movement in rehabilitation guarantee Cash flows used in investing activities Cash flows from financing activities Proceeds from issuing shares (net of fees: £108,214 (2018: £125,972)) Proceeds from borrowings Repayments of borrowings Repayments of lease liabilities Increase in restricted cash Cash flows from financing activities 10 10 26 26 26 Net increase / (decrease) in cash and cash equivalents Exchange rate changes on cash and cash equivalents Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 11 (569,367) (109,710) - - - (286,984) (856,351) 1,448,786 - (142,262) (63,545) (13,786) 1,229,193 10,820 (13,066) (2,246) 168,181 165,935 - (715,868) (923,172) 60,647 (49,063) - - (715,868) (923,172) 1,447,628 231,400 (134,449) - (210,128) 1,334,451 (95,791) (4,156) (99,947) 268,128 168,181 1,448,786 - (142,262) - (13,786) 1,292,738 1,447,628 231,400 (125,906) - (210,128) 1,342,994 88,540 (90,422) - - 88,540 (90,422) 65,608 154,148 156,030 65,608 46 → Notes on pages 47 to 87 form part of these financial statements. FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019Accounting Policies 1. Basis of preparation The consolidated and separate financial statements of BlueRock Diamonds Plc have been prepared in accordance with International Financial Reporting Standards and as adopted by the European Union and the Companies Act 2006. The consolidated and separate financial statements have been prepared under the historical cost convention except as noted below. 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. 47 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceAccounting Policies Continued 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 48 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019• 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 49 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceAccounting Policies Continued 2.3. Property, plant and equipment continued 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: Asset class Mine infrastructure Leasehold improvements Plant and Machinery Motor vehicles Units of production method Measurement base Method Cost Cost Cost Cost Units of production Term of lease 3-5 years straight line basis 5 years straight line basis 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. 50 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019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. 51 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceAccounting Policies Continued 2.6. Financial instruments continued 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. • • 52 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 20192.8. Inventories continued 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. 53 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceAccounting Policies Continued 2.9. Tax continued 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. 54 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 20192.10. Leases continued 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. 55 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceAccounting Policies Continued 2.11. Provisions and contingencies continued 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 56 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 20192.15. Equity, reserves and dividend payments continued • 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. 57 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Accounting Policies Continued 3.1.4. Impairment of non-current assets continued 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. 58 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019 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 are 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 liabilites 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. 59 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Accounting Policies Continued 4.1. Adoption of new and revised pronouncements continued 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: Operating lease commitments as at 31 December 2018 Effect of discounting of lease payments Finance lease liabilities recognised as at 31 December 2018 Lease liability recognised as at 1 January 2019 Current lease liabilities Non-current lease liabilities Lease liability recognised as at 1 January 2019 1 Jan 2019 - Figures in £ 224,756 (27,614) 31,689 228,831 184,255 44,576 228,831 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: Land and residential buildings Motor vehicles Lease liability recognised as at 1 January 2019 1 Jan 2019 - Figures in £ 197,142 32,907 230,049 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. 60 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 20194.1. Adoption of new and revised pronouncements continued 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. 61 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceNotes to the Annual Report and Financial Statements 5. Property, plant and equipment 5.1. Balances at year end and movements for the year Leasehold improvements Reconciliation for the year ended 31 December 2019 - Group Balance at 1 January 2019 At cost Accumulated depreciation Net book value Movements for the year ended 31 December 2019 Additions Depreciation Transfer of right-of-use assets on 1 January 2019 - Cost Transfer of right-of-use assets on 1 January 2019 - Accumulated depreciation Exchange differences - Cost Exchange difference - Accumulated depreciation Property, plant and equipment at end of year Closing balance at 31 December 2019 At cost Accumulated depreciation Net book value Reconciliation for the year ended 31 December 2018 - Group Balance at 1 January 2018 At cost Accumulated depreciation Net book value Movements for the year ended 31 December 2018 Additions Depreciation Exchange differences - Cost Exchange difference - Accumulated depreciation Property, plant and equipment at end of year Closing balance at 31 December 2018 At cost Accumulated depreciation Net book value £ - - - 5,069 - - - (2) - 5,067 5,067 - 5,067 - - - - - - - - - - - Plant and Machinery £ Motor vehicles £ 1,304,188 (781,426) 522,762 512,185 (279,749) - - (7,008) 4,188 752,378 67,503 (19,462) 48,041 12,498 (6,075) (35,128) 2,220 (174) 93 21,475 Total £ 1,371,691 (800,888) 570,803 529,752 (285,824) (35,128) 2,220 (7,184) 4,281 778,920 1,809,364 (1,056,986) 752,378 44,700 (23,225) 21,475 1,859,131 (1,080,211) 778,920 1,340,648 (569,914) 770,734 95,482 (276,617) (131,942) 65,105 522,762 1,304,188 (781,426) 522,762 35,801 (13,424) 22,377 36,522 (7,613) (4,820) 1,575 48,041 67,503 (19,462) 48,041 1,376,449 (583,338) 793,111 132,004 (284,230) (136,762) 66,680 570,803 1,371,691 (800,888) 570,803 62 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 20195.2. Additional disclosures Assets whose title is restricted and pledged as security The carrying values of assets pledged as security is as follows: Plant and Machinery Group 2019 Group 2018 Comapny 2019 Company 2018 £ £ 102,242 143,428 £ - £ - 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: Motor vehicles Group 2019 Group 2018 Comapny 2019 Company 2018 £ - £ 32,907 £ - £ - 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 Right-of-use assets At 1 January 2019 on adoption of IFRS16 Additions Decrease through net exchange differences Depreciation Effect of modification in lease terms At 31 December 2019 Closing balance at end of year At cost Accumulated depreciation At 31 December 2019 Land and buildings £ 197,142 20,151 (1,127) (51,229) 260,358 425,295 476,501 (51,206) 425,295 Motor vehicles £ 32,907 - (170) (2,651) - 30,086 34,945 (4,859) 30,086 Total £ 230,049 20,151 (1,297) (53,880) 260,358 455,381 511,446 (56,065) 455,381 63 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceNotes to the Annual Report and Financial Statements Continued 6.1. Amounts recognised in the statement of financial position - Group continued Lease liabilities At 1 January 2019 on adoption of IFRS16 Additions Finance costs Effect of modification in lease terms Lease payments Decrease through net exchange differences At 31 December 2019 Lease liabilities Current Non-current At 31 December 2019 Land and buildings £ 197,142 20,151 19,446 260,358 (55,178) (1,134) 440,785 7,966 432,819 440,785 Motor vehicles £ 31,689 - 3,759 - (8,367) (163) 26,918 5,229 21,689 26,918 Total £ 228,831 20,151 23,205 260,358 (63,545) (1,297) 467,703 13,195 454,508 467,703 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 Depreciation on right-of-use assets Interest expense relating to lease liabilities Short term lease expenses Operating leases under IAS 17 Leases All amounts are included in operating expenses. 6.3. Amounts recognised in the statement of cash flows Total cash outflow for leases 6.4. Other information related to leases Group 2019 Group 2018 £ 53,880 23,205 210,596 £ - - - - 189,574 Group 2019 Group 2018 £ 63,545 £ - 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. 64 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019 7. Mining assets 7.1. Reconciliation of changes in mining assets Reconciliation for the year ended 31 December 2019 - Group Balance at 1 January 2019 At cost Accumulated amortisation Net book value Movements for the year ended 31 December 2019 Additions Amortisation Exchange differences - Cost Exchange differences - Accumulated amortisation Mining assets at end of period Closing balance at 31 December 2019 At cost Accumulated amortisation Net book value Reconciliation for the year ended 31 December 2018 - Group Balance at 1 January 2018 At cost Accumulated amortisation Net book value Movements for the year ended 31 December 2018 Additions Amortisation Exchange differences - Cost Exchange differences - Accumulated amortisation Mining assets at end of period Closing balance at 31 December 2018 At cost Accumulated amortisation Net book value → For further details on the mining rehabilitation provision see note 14. Mining assets £ Total £ 384,380 (81,003) 303,377 136,537 (32,223) (2,059) 436 406,068 518,858 (112,790) 406,068 334,004 (61,876) 272,128 85,609 (26,042) (35,233) 6,915 303,377 384,380 (81,003) 303,377 384,380 (81,003) 303,377 136,537 (32,223) (2,059) 436 406,068 518,858 (112,790) 406,068 334,004 (61,876) 272,128 85,609 (26,042) (35,233) 6,915 303,377 384,380 (81,003) 303,377 65 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Notes to the Annual Report and Financial Statements Continued 8. Investments in subsidiaries 8.1. The amounts included on the company statement of financial position comprise the following: Investment in subsidiaries Investment in subsidiaries 8.2. Investment in subsidiaries Company 2019 Company 2018 £ 5 5 £ 5 5 8.2.1. Details of the group’s material subsidiaries at the end of the reporting period are as follows: Name of subsidiary Principal activity Place of incorporation and business Kareevlei Mining Proprietory Limited Diamond Mining Diamond Resources Proprietory Limited Diamond Mining South Africa South Africa 8.2.2. Voting rights: Kareevlei Mining Proprietory Limited Diamond Resources Proprietory Limited 8.2.3. Summary of Group’s interest in subsidiaries Interest 2019 Carrying value 2019 Interest 2018 Carrying value 2018 £ 74.00% 100.00% £ 5 - £ 74.00% 100.00% £ 5 - Kareevlei Mining Proprietory Limited Diamond Resources Proprietory Limited At 31 December 2019 Total assets Total liabilities Retained losses Revenue Loss after tax At 31 December 2018 Total assets Total liabilities Retained losses Revenue Loss after tax £ 2,853,970 (9,641,908) (6,120,545) 4,064,853 (667,393) 1,245,107 (7,397,955) (4,079,384) 1,425,653 (2,073,464) £ - - - - - - 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”). 66 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019 8.2.4. Details of minority continued 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. 9. Inventories Inventories comprise: Consumable stores Work in progress Diamonds on hand 10. Trade and other receivables 10.1. Trade and other receivables comprise: Current Trade receivables Other receivables Prepaid expenses Value added tax Amounts due by subsidiary Total current receivables Non-Current Other receivables Total non-current receivables Group 2019 Group 2018 Comapny 2019 Company 2018 £ 15,167 294,880 527,300 837,347 £ - - 191,406 191,406 £ - - - - £ - - 7,352 7,352 Group 2019 Group 2018 Company 2019 Company 2018 £ - 1,384 4,830 50,489 - 56,703 344,442 344,442 £ 443 10,203 4,136 57,082 - 71,864 57,458 57,458 £ - 497,640 2,816 32,694 7,555,575 8,088,725 £ 443 453,865 1,948 32,429 6,188,952 6,677,637 - - - - 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. 67 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Notes to the Annual Report and Financial Statements Continued 10.2. Items included in trade and other receivables not classified as financial instruments Prepaid expenses Value added tax Total non-financial instruments included in trade and other receivables Total trade and other receivables excluding non- financial assets included in trade and other receivables Total trade and other receivables 10.3. Analysis of trade receivables 90 to 120 days Group 2019 Group 2018 Company 2019 Company 2018 £ £ £ £ 4,830 50,489 55,319 1,384 56,703 4,136 57,082 61,218 10,646 71,864 2,816 32,694 1,948 32,429 35,510 34,377 8,053,215 8,088,725 6,643,260 6,677,637 Group 2019 Group 2018 Company 2019 Company 2018 £ - - £ 443 443 £ - - £ 443 443 11. Cash and cash equivalents (including restricted cash) 11.1. Cash and cash equivalents comprise: Cash Cash on hand Balances with banks Total cash Group 2019 Group 2018 Company 2019 Company 2018 £ £ 471 389,378 389,849 99 378,210 378,309 £ - £ - 378,062 378,062 275,736 275,736 Total cash and cash equivalents included in current assets 389,849 378,309 378,062 275,736 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 Authorised and issued share capital Issued 3,258,004 (2018: 443,524,243) Ordinary shares of 5p (2018: 0.01p) each Share premium 68 Group 2019 Group 2018 Company 2019 Company 2018 £ £ £ £ 162,900 44,352 162,900 44,352 4,147,980 4,310,880 3,460,309 3,504,661 4,147,980 4,310,880 3,460,309 3,504,661 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019 Share reconciliation Details of issue Opening balance Placing and equity issue Placing and equity issue expenses Fair value of warrants - share issue costs Placing and equity issue Issue of shares as repayment of director loan Placing and equity issue for advisory fees Placing and equity issue expenses Fair value of warrants - share issue costs Share consolidation Shares outstanding - closing Share capital Share premium Date Number of ordinary shares 01/01/2019 443,524,243 11/02/2019 191,666,667 11/02/2019 11/02/2019 - - £ 44,352 19,167 - - 16/05/2019 982,000,000 98,200 16/05/2019 16/05/2019 16/05/2019 16/05/2019 6,811,000 5,000,000 - 25/07/2019 (1,625,743,906) 681 500 - - £ 3,460,309 555,833 (36,902) (192,386) 883,800 6,319 4,500 (76,313) (457,180) - 3,258,004 162,900 4,147,980 On 25 July 2019 a share consolidation was approved whereby every 500 ordinary shares of 0.01 pence were consolidated into 1 ordinary share of 5 pence each. The number of ordinary shares in issue were adjusted accordingly at that date. Details of warrants issued The number of shares and price per share were adjusted for the share consolidation that was effected on 25 July 2019 at a ratio of 500:1. On 11 February 2019 1 warrant was issued for each ordinary share issued on that date. A total of 383,333 warrants were issued and exercisable at 200p for a period of 2 years. On 16 May 2019 1 warrant was issued for each ordinary share issued on that date. A total of 1,974,000 warrants were issued and exercisable at 100p for a period of 2 years. Refer to note 27.4 for details of warrants issued to directors as part of the share placements on the above dates. Warrants are valued at the date of grant using the Black-Scholes option pricing model. The fair value per warrant issue during the period and the assumptions used in the calculation are shown below: Date of issue: Number of warrants issued Average grant date share price (p) Average exercise price (p) Share price volatility (p.a) Risk-free interest rate (p.a) Dividend yield (p.a) Average contractual life (years) Average fair value per option (p) 11/02/2019 16/05/2019 383,333 1,974,000 155 200.00 73.16% 0.72% 0 2 67.50 100.00 85.71% 0.73% 0 2 50.19 23.89 69 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceNotes to the Annual Report and Financial Statements Continued 13. Other Reserves 13.1. Analysis of other reserves Group Movement: Balance 1 January 2019 Other comprehensive expense Non-controlling interests Share-based payments Balance 31 December 2019 Movement: Balance 1 January 2018 Other comprehensive expense Non-controlling interests Share-based payments Share buyback Balance 31 December 2018 Company Movement: Balance 1 January 2019 Share-based payments Balance 31 December 2019 Movement: Balance 1 January 2018 Share-based payments Share-buy back Balance 31 December 2018 Capital redemption reserve £ 2,003,010 - - - 2,003,010 - - - - 2,003,010 2,003,010 2,003,010 - 2,003,010 - - 2,003,010 2,003,010 Foreign currency translation reserve £ Share-based payment reserve £ Total £ 333,837 2,330,670 (6,177) 32,297 (8,397) - 17,723 (390,441) 519,276 (135,012) - - - - 763,914 1,097,751 126,644 - 207,193 - (6,177) 333,837 - - - - - - - 333,837 763,914 1,097,751 126,644 207,193 - 333,837 32,297 (8,397) 763,914 3,118,484 (263,797) 519,276 (135,012) 207,193 2,003,010 2,330,670 2,336,847 763,914 3,100,761 126,644 207,193 2,003,010 2,336,847 13.2. Nature and purpose of reserves Foreign currency translation reserve The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of foreign entities. The South African subsidiaries’ functional currencies are different to the Group’s functional currency of British Pound Sterling. The rates used to convert the operating functional currency into British Pound Sterling are as follows: Currency Average rate ZAR to GBP Year end ZAR to GBP Share-based payment reserve 2019 18.43 18.44 2018 17.64 18.34 For details on the share-based equity reserve, refer to note 23. 70 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019 Capital redemption reserve During 2018 the nominal value of ordinary shares was split into 0.01p nominal share capital and 0.99p deferred shares. These were in turn purchased by the company using the proceeds from the issue of one additional ordinary share and immediately cancelled. As such these are held within the capital redemption reserve. 14. Provisions 14.1. Provisions comprise: Rehabilitation cost provision 14.2. Reconciliation of provisions Balance at 1 January 2019 - Group Change in estimate Unwinding of discount rate Exchange differences Total changes Balance at 31 December 2019 Balance at 1 January 2018 - Group Change in estimate Unwinding of discount rate Exchange differences Total changes Balance as at 31 December 2018 14.3. Details of provisions Provision for rehabilitation Group 2019 Group 2018 Comapny 2019 Company 2018 £ £ 302,989 204,840 £ - £ - Provision for rehabilitation £ 204,840 96,922 2,337 (1,110) 98,149 302,989 148,282 68,656 2,175 (14,273) 56,558 204,840 The provision for environmental rehabilitation closure cost was independently assessed by Ndi Mudau of NDI Geological Consulting Services. The closure cost assessment reports over the Remainder of the Farm No. 113 (Skietfontein), Portion of Portion 2 (Kareeboompan) of the Farm 142, Portion 1 (Westhoek) of the Farm 113, and Portion 2 (Klipvlei) of the Farm 113. The financial provision was calculated in accordance with Regulation 54 of the Minerals and Petroleum Resources Development Act 2002 (Act 28 of 2002) during March 2020. In determining the amounts attributable to the rehabilitation provision at the Kareelvei mining area, management used a discount rate of 10% (31 December 2018: 10.25%), estimated rehabilitation timing of 10 years (31 December 2018: 5 years) and an inflation rate of 4.9% (31 December 2018: 5.3%). 71 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Notes to the Annual Report and Financial Statements Continued 15. Trade and other payables 15.1. Trade and other payables comprise: Trade payables Accrued liabilities Account due to former Director Income received in advance Total trade and other payables Group 2019 Group 2018 Company 2019 Company 2018 £ £ £ £ 737,541 119,447 23,596 - 880,584 453,234 37,777 23,720 72,814 587,545 28,007 33,400 - - 27,434 31,300 - - 61,407 58,734 An amount of £175,092 (2018: £176,008) is included within trade payables which are subject to amounts claimed as being due to companies related to the former Director of the company. These amounts are historic and disputed in full by the Company based on legal advice received. The account due to a former Director totalling £23,596 (2018: £23,720) relates to amounts claimed but disputed in full by the Company. 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 was recorded and the liability extinguished. 15.2. Items included in trade and other payables not classified as financial liabilities Income received in advance Total non-financial liabilities included in trade and other payables Total trade and other payables excluding non-financial liabilities included in trade and other payables Total trade and other payables Group 2019 Group 2018 Company 2019 Company 2018 £ - - 880,584 880,584 £ 72,814 72,814 514,731 587,545 £ - - £ - - 61,407 61,407 58,734 58,734 72 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019 16. Borrowings 16.1. Carrying amount of borrowings by category Year ended 31 December 2019 - Group Convertible loans (i) Loan facilities (ii) Embedded derivative (i) Designated at fair value At amortised cost £ - - 10,359 £ 776,704 286,125 - Total £ 776,704 286,125 10,359 Components listed under borrowings on the consolidated and company statements of financial position 10,359 1,062,829 1,073,188 Trade and other payables excluding non-financial liabilities (Note 15) Components listed separately on the consolidated and company statements of financial position Borrowings comprise the following on the consolidated and company statements of financial position: Current portion Non-current portion Year ended 31 December 2018 - Group Convertible loans (i) Loan facilities (ii) Embedded derivative (i) Finance lease obligation (iii) Components listed under borrowings on the consolidated and company statements of financial position Trade and other payables excluding non-financial liabilities (Note 15) Components listed separately on the consolidated and company statements of financial position Borrowings comprise the following on the consolidated and company statements of financial position: Current portion Non-current portion - - 880,584 880,584 880,584 880,584 10,359 1,943,413 1,953,772 - 10,359 10,359 - - 12,463 - 156,698 906,131 156,698 916,490 1,062,829 1,073,188 706,094 404,525 - 31,689 706,094 404,525 12,463 31,689 12,463 1,142,308 1,154,771 - - 514,731 514,731 514,731 514,731 12,463 1,657,039 1,669,502 - 12,463 12,463 50,877 1,091,431 1,142,308 50,877 1,103,894 1,154,771 73 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Notes to the Annual Report and Financial Statements Continued 16.1. Carrying amount of borrowings by category continued Year ended 31 December 2019 - Company Convertible loans (i) Loan facilities (ii) Embedded derivative (i) Components listed under other financial liabilities on the consolidated and company statements of financial position Trade and other payables excluding non-financial liabilities (Note 15) Components listed separately on the consolidated and company statements of financial position Other financial liabilities comprise the following on the consolidated and company statements of financial position: Current portion Non-current portion Year ended 31 December 2018 - Company Convertible loans (i) Loan facilities (ii) Embedded derivative (i) Components listed under other financial liabilities on the consolidated and company statements of financial position Trade and other payables excluding non-financial liabilities (Note 15) Components listed separately on the consolidated and company statements of financial position Other financial liabilities comprise the following on the consolidated and company statements of financial position: Current portion Non-current portion Designated at fair value At amortised cost £ - - 10,359 £ 776,704 286,125 - Total £ 776,704 286,125 10,359 10,359 1,062,829 1,073,188 - - 61,412 61,412 61,412 61,412 10,359 1,124,241 1,134,600 - 10,359 10,359 - - 12,463 156,698 906,131 156,698 916,490 1,062,829 1,073,188 706,094 404,525 - 706,094 404,525 12,463 12,463 1,110,619 1,123,082 - - 58,734 58,734 58,734 58,734 12,463 1,169,353 1,181,816 - 12,463 12,463 46,247 1,064,372 1,110,619 46,247 1,076,835 1,123,082 i) Convertible loans and embedded derivative The movement on each convertible loan liability component can be summarised as follows: Balance 1 January 2018 Finance charge: unwinding of discount factor Fair value adjustment to embedded derivative Balance 31 December 2018 Finance charge: unwinding of discount factor Fair value adjustment to embedded derivative Balance 31 December 2019 Embedded derivative Convertible loans £ 113,333 - (100,870) 12,463 - (2,104) 10,359 £ 641,903 64,191 - 706,094 70,610 - 776,704 Total £ 755,236 64,191 (100,870) 718,557 70,610 (2,104) 787,063 At 31 December 2019 the Group had in issue convertible loan stocks of £925,000 which has a term until 16 October 2021. 74 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019The terms of the convertible loan note provide a mechanism for weighted conversion price revisions should additional funds be raised below the prevailing conversion price. Following the fund raising in February 2020, the current conversion price is 166p. This option to convert the loan into shares has been treated as a separate financial instrument, as an embedded derivative. This is due to a clause in the updated convertible loan note agreement which will require the Company to issue a variable number of shares if future fundraising over life of the convertible loan note raises additional funds at a price per Ordinary share of less than 5p. This requires a separate valuation as it does not relate to the host contract. In addition if the Company sells its interest in Kareevlei Mining Proprietary Limited ("subsidiary") before the final repayment date for consideration equivalent to or greater than 120% of the loan note outstanding then the notes will become redeemable and a 20% premium will be payable to the note holder. Management have carried out an assessment of the terms of the convertible loan and have judged that the instrument consists of two components: • a loan instrument; held at amortised cost • an embedded derivative representing the conversion option as the option fails the fixed for fixed criteria and the embedded redemption feature. The embedded derivative should be recognised separately as a derivative financial instrument at fair value through profit and loss A fair value exercise to determine the value of the two components was undertaken by the Directors at the date the convertible loan was initially drawn down. The fair value of the host loan instrument (including the embedded redemption feature) has been valued as the residual of: • The fair value of the first draw down on 16 October 2014 was discounted at a commercially applicable rate of 9.25%. The fair values of the draw downs on 27 May 2016 and 2 October 2016 have been discounted at a commercially applicable rate of 10.5%. Refer to note 30 for details of the fair value of the embedded derivative. ii) Loan facilities Loan facilities comprise the following: Loan: M Poole Loan: A Waugh Loan: P Beck M Poole Group 2019 Group 2018 Company 2019 Company 2018 £ 116,998 169,127 - 286,125 £ 165,466 191,297 47,762 404,525 £ 116,998 169,127 - 286,125 £ 165,466 191,297 47,762 404,525 In 2017 the Company entered into a loan facility agreement with Mark Poole. A 90 day interest free period was included in the agreement from the date of the first draw down. After this point interest accrues on the capital balance at a rate of 10% per annum, which is payable quarterly in arrears. All capital to be repaid within 5 years from the date of the draw down on the facility. Additionally a security over the property, plant and equipment of Kareevlei Mining (Pty) Limited is held, see note 5 for further detail. During the period ended 31 December 2019 an interest charge of £10,701 (2018: £17,404) was recognised on the total capital drawn down. Outstanding at the period ended 31 December 2019 was £116,103 capital and £1,396 interest. A Waugh and P Beck BlueRock Diamonds Plc and its subsidiary Kareevlei Mining Proprietory Limited entered into a loan agreement with Adam Waugh (Former Non-Executive Director) and Paul Beck (Former Chairman) on 17 August 2018. The loan was fully drawn down on 17 August 2018. The Loan will only be available to satisfy any final determination of any further claim that Mr CB Visser brings. Refer to note 15 and 27 for further details of the claims instituted by Mr Visser. The principal amount of the loan is £231,400 comprising £50,000 from Paul Beck and £181,400 from Adam Waugh. The key provisions of the loan are as follows: • a term of up to three years, but pre-payable in full or in part at any time at the option of the Company; 75 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceNotes to the Annual Report and Financial Statements Continued 16.1. Carrying amount of borrowings by category continued • an arrangement fee of 5 percent of the loan principal; • interest payable of 11 percent per annum on the loan principal payable quarterly, 6 percent payable in cash and the remaining 5 percent payable by a combination of cash and shares (at the Company’s sole discretion); • a repayment premium at an amount equal to 2 percent of the loan principal per month that the loan is outstanding, payable on repayment of the loan in full or in part to be satisfied half in cash and half in shares, at the mid-market price at the time of the relevant repayment, or cash (at the Company’s sole discretion); • and that in the event that the Company raises further funds, preference is given to repaying the loan. It will be the Board’s intention to repay the Loan as soon as practicable On 16 May 2019 it was further agreed with Adam Waugh to repay his loan in £30,000 quarterly instalments in arrears commencing on 31 August 2019. Paul Beck’s loan was paid in full during the year. iii) Finance lease - 2018 During 2018 the Group leased motor vehicles from William van Wyk over a term of 72 months at a rate of 12.5% per annum with the final repayment during February 2024. Finance lease liabilities were included in borrowings until 31 December 2018, but were reclassified to lease liabilities on 1 January 2019 in the process of adopting the new leasing standard. See note 4 for further information about the change in accounting policy for leases. 16.2. Financial liability maturity analysis Between 3 months and 1 year £ Year ended 31 December 2019 - Group Trade and other payables excluding non-financial liabilities (Note 15) 880,584 Convertible loan Loan facilities Embedded derivative Lease liabilties - 156,698 - 13,195 Between 2 and 5 years £ - 776,704 129,427 10,359 110,607 Year ended 31 December 2018 - Group Trade and other payables excluding non-financial liabilities (Note 15) Convertible loan Loan facilities Embedded derivative Finance lease obligation Year ended 31 December 2019 - Company Trade and other payables excluding non-financial liabilities (Note 15) Convertible loan Loan facilities Embedded derivative Year ended 31 December 2018 - Company Trade and other payables excluding non-financial liabilities (Note 15) Convertible loan Loan facilities Derivatives 76 1,050,477 1,027,097 514,731 - 46,247 - 4,630 - 706,094 358,278 12,463 27,059 565,608 1,103,894 61,407 - 156,698 - 218,105 58,734 - 46,247 - - 776,704 129,427 10,359 916,490 - 706,094 358,278 12,463 104,981 1,076,835 - - - - 343,901 343,901 - - - - - - - - - - - Total £ 880,584 776,704 286,125 10,359 467,703 2,421,475 514,731 706,094 404,525 12,463 31,689 1,669,502 61,407 776,704 286,125 10,359 1,134,595 58,734 706,094 404,525 12,463 1,181,816 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 201917. Revenue from contracts with customers 17.1. Revenue comprises: Sale of diamonds Group 2019 Group 2018 £ £ 4,073,853 1,416,699 The revenue from the sale of rough diamonds is recognised at the point in time at which control transfers. 17.2. Segmental reporting Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. The Group's operations relate to the exploration for, and development of mineral deposits in the Kimberley region of South Africa and as such the Group has only one reportable segment. The non-current assets in the Kimberley region are £1,984,809 (2018: £931,639). All revenue consists of sales of diamonds in South Africa through auctions as is customary in the industry. The Group sells its diamonds through auctions run by CS Diamonds. 18. Other gains and losses Other gains and losses comprise: Gain or loss on foreign exchange differences Fair value gains on derivatives Total other gains and losses Group 2019 Group 2018 £ (47,291) 2,104 (45,187) £ (607,058) 100,870 (506,188) 77 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceNotes to the Annual Report and Financial Statements Continued 19. Loss from operating activities Loss from operating activities includes the following separately disclosable items Operating expenses Operational and direct costs Property plant and equipment - depreciation Right-of-use assets - depreciation Mining assets - amortisation Inventory on hand - Diamond stock movement - Stockpiles and cosumables movement Leases - operating lease rentals - Land and Buildings - operating lease rentals - Equipment Share-based payments - Equity-settled share-based payments Staff costs Auditor's remuneration Audit fees - audit of financial statements Audit fees - audit of accounts of subsidiary of company Other audit-related services - Interim review Other services - Agreed upon procedures Staff numbers and costs Directors' remuneration Staff salaries Group 2019 Group 2018 £ £ 3,585,514 2,072,810 285,824 284,230 53,880 - 32,223 26,042 (337,003) (310,184) (100,979) - - - 50,306 139,268 114,348 57,457 991,514 626,528 35,350 8,460 5,125 1,845 50,780 30,000 10,182 - - 40,182 Group 2019 Group 2018 Company 2019 Company 2018 £ £ £ 161,417 830,097 991,514 132,320 494,208 626,528 161,417 4,050 165,467 £ - 132,320 - 132,320 Refer to note 27.3 for further details of directors' remuneration. The table above relates to the Directors remuneration, key management personnel and employees of the Group. Directors Administration and production 78 2019 Number 4 60 64 2018 Number 4 47 51 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019 20. Finance income Finance income comprises: Interest received from financial institutions 21. Finance costs Finance costs included in profit or loss: Finance charges - trade and other payables Finance charges - loan facilities Finance charges - convertible loan notes Finance charges - leases (2018: finance leases) Finance charges - provisions Finance charges - financial institutions Total finance costs 22. Income tax credit 22.1. Income tax recognised in profit or loss: Current tax Current year Prior period overprovision Deferred tax Originating and reversing temporary differences Total income tax credit Group 2019 Group 2018 £ 25,460 £ 8,600 Group 2019 Group 2018 £ 8,578 30,863 70,610 23,205 2,337 56,757 192,350 £ 16,302 26,518 64,191 3,709 2,175 32,676 145,571 Group 2019 Group 2018 £ - - - - - £ - 4,181 4,181 - 4,181 79 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Notes to the Annual Report and Financial Statements Continued 22.2. The income tax for the year can be reconciled to accounting loss as follows: Loss before tax from operations Income tax calculated at 19% (2018: 19%) Tax effect of - Differences in rates (South African tax) - (Income)/Expenses not deductible for tax purposes Effects of group relief Foreign tax losses in subsidiary Unrecognised tax losses and timing differences Group 2019 Group 2018 £ £ (684,244) (130,006) (2,446,124) (464,764) (60,065) 244,664 - 126,174 - (186,612) (5,293) 17,545 282,578 356,546 - 4,181 4,181 Previously unrecognised tax losses utilised to reduce tax expense (180,767) Prior year overprovision Tax charge - 0 The group has tax losses carried forward of £2,921,732 (2018: £3,548,814) for which no deferred tax asset is recorded given insufficient certainty regarding the timing of future taxable profits. 23. Share-based payments 23.1. The company had the following share based payment agreements which are described below: Directors share option plan - Tranche 4 Directors share option plan - Tranche 5 Directors share option plan - Tranche 7 Directors share option plan - Tranche 8 Directors share option plan - Tranche 9 Tranche 4 and 5 have fully vested. Date of grant 01/05/2016 19/01/2017 10/08/2017 27/09/2017 16/05/2019 Number of shares granted Contractual life Exercise price 1,552 4,454 14,314 4,894 228,060 4 years 5 years 5 years 2 years 5 years 5,500p 2,500p 625p 875p 50p Tranche 7 options vest 2 years from the date of grant dependent on the company's mid-market share price reaches 1,500p in that period. All options in Tranche 7 lapsed in the year. Tranche 8 options vest 2 years from the date of grant dependent on the company's mid-market share price reaches 1,500p in that period. All options in Tranche 8 lapsed in the year. Tranche 9 options are split with half vesting 1 year from the date of grant and half vesting immediately on the date of grant. 23.2. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: Outstanding at the beginning of the period Granted during the period Expired during the period Outstanding at the end of the period Exercisable at the end of the period Weighted average exercise price in pence 2019 £ 2,235 50.00 688.70 132.77 211.39 Weighted average exercise price in pence 2018 £ 2,200 - 2,760 2,235 Options 2019 £ 22,961 228,060 (16,955) 234,066 120,037 3,275.00 Options 2018 £ 45,006 - (22,045) 22,961 6,007 The number of shares and price per share were adjusted for the share consolidation that was effected on 25 July 2019 at a ratio of 500:1. 80 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019 23.3. Options granted during the year Options are valued at the date of grant using the Black-Scholes option pricing model. The fair value per option of options granted during 2019 and the assumptions used in the calculation are shown below: Average grant date share price (p) Average exercise price (p) Share price volatility (p.a) Risk-free interest rate (p.a) Dividend yield (p.a) Average contractual life (years) Average fair value per option (p) Tranche 9 67.50 50.00 86 % 0.83% 0 % 5.00 48.43 No new share options were granted and valued during 2018. 23.4. Share based payment expense The total share-based payment expense for the year ended 31 December 2019 was £114,348 (2018: £57,457) in relation to share options. 24. Earnings per share 24.1. Basic earnings per share Group 2019 Group 2018 £ £ Loss for the year attributable to owners of the company (510,722) (1,902,842) Weighted average number of ordinary shares 2,470,871 443,480 Basic loss per share (0.21) (4.29) On 25 May 2019 a share consolidation was approved whereby every 500 ordinary shares of 0.01 pence were consolidated into 1 ordinary share for 5 pence each. The weighted number of ordinary shares for 2018 was adjusted to reflect the change and the comparative figures have been restated. 24.2. Additional disclosures Share options granted to directors could potentially dilute EPS in the future but are not included in a dilutive EPS calculation because they are antidilutive for the period. 25. Contingent liabilities Dispute with former director Estimated financial effect Group 2019 Group 2018 Company 2019 Company 2018 £ 60,067 £ 60,380 £ 60,067 £ 60,380 The amount payable to CB Visser and his related companies as disclosed in Note 15, is currently under dispute. CB Visser is a former director and CEO of both Kareevlei Mining (Pty) Ltd and BlueRock Diamonds Plc. who resigned during September 2016. The total claim submitted by him amounts to £260,108 of which £198,688 has been accounted for under trade and other payables. The Group has given security for the amount of £223,914 in respect of the above claim. This security is held in trust by the group's lawyers. The company's legal advisors are of the opinion that based on current available information, the claims are without merit. 81 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Notes to the Annual Report and Financial Statements Continued 26. Cash used in operations (Loss)/profit before taxation Adjustments for non-cash items Interest accrued on group loan Interest accrued on convertible loan notes Interest accrued on borrowings Interest on rehabilitation provision (Increase) / decrease in inventories Decrease / (increase) in trade and other receivables Increase / (decrease) in trade and other payables Depreciation and amortisation Share-based payments Fair value gains on derivatives Foreign exchange movements Total non-cash adjustments Cash used in operations Reconciliation of liabilities from financing At 1 January 2018 Cash flows: Draw down Repayment Non-cash flows: Finance lease Interest accruing At 31 December 2018 Group 2019 Group 2018 Company 2019 Company 2018 £ £ £ £ (684,244) (2,446,124) (16,850) (372,661) - (694,076) (558,687) - 70,609 54,067 2,337 64,191 59,415 2,175 (647,188) (100,980) 15,024 295,912 371,927 114,347 (2,104) 47,291 322,222 (66,768) 250,766 310,272 57,457 (100,870) 607,059 1,082,717 (362,022) (1,363,407) Loans and borrowings £ 243,325 231,400 (125,906) - 55,706 404,525 £ - - (8,543) 36,523 3,709 31,689 70,609 30,862 - 7,352 (44,466) 2,675 - 114,347 (2,104) 43,321 (471,480) (488,330) £ - - - - - - 228,831 228,831 64,191 55,706 - (7,352) (114,575) (64,671) - 57,457 (100,870) 548,990 (119,811) (492,472) Total £ 243,325 231,400 (134,449) 36,523 59,415 436,214 197,142 633,356 Finance lease Leases Recognised on adoption of IFRS 16 - (31,689) Cash flows: Repayment Non-cash flows: Loans converted into share capital Lease liabilities Interest accruing Decrease through net exchange differences At 31 December 2019 404,525 (142,262) (7,000) - 30,862 - 286,125 - - - - - - - (63,545) (205,807) - 280,509 23,205 (1,297) 467,703 (7,000) 280,509 54,067 (1,297) 753,828 All movements on convertible loan notes and derivatives were non-cash. The Company figures comprise the loans and borrowings above, excluding leases and finance leases. 82 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 201927. Related parties 27.1. Relationships Name William van Wyk Subsidiaries: Nature of relationship Minority interest in Kareevlei Mining (Pty) Ltd Kareevlei Mining Proprietory Limited Diamond Resources Proprietory Limited G Waugh Son of Adam Waugh Teichmann Company Limited Significant shareholder in BlueRock Diamonds Plc Numovista Pty Ltd Common shareholder with significant infuence 27.2. Related party transactions and balances Group 2019 Group 2018 Company 2019 Company 2018 £ £ £ Loan account - Owing by related party Kareevlei Mining Proprietory Limited Management fees owing by related party Kareevlei Mining Proprietory Limited Trade payables due to related party Teichmann Company Limited Transactions with related parties Kareevlei Mining Proprietory Limited - Interest received - Management fees received - Purchases Teichmann Company Limited - Contractor fees paid Numovista Pty Ltd £ - - 179,054 - - - 739,202 - Purchase of plant and equipment (February 2020) 650,000 - - - - - - - - 7,555,575 6,188,951 496,474 443,662 - - 694,076 79,200 - - - - - - 558,686 79,200 (27,133) - - 369 2,413 - Diamond sales - D Facey - G Waugh - - 369 2,413 Diamond sales to related parties were made at a small premium to market value. William van Wyk - Interest paid 3,759 3,709 During March 2018 the Group entered into a lease facility agreement with William van Wyk, whereby motor vehicles are leased over a term of 72 months at a rate of 12.5% per annum with the final repayment during February 2024. As at 31 December 2019 the balance payable on the lease facility was £26,918 (2018: £31,689). A Waugh and P Beck - Interest paid - A Waugh - Interest paid - P Beck 27,741 - 8,338 29,965 27,741 - 8,338 29,965 During August 2018 the Group entered into a loan agreement with A Waugh and P Beck. See note 16 for further details. As at 31 December 2019 the balance payable on the loan agreements were £169,127 (2018: £191,297) and £Nil (2018: £47,522) respectively. 83 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceNotes to the Annual Report and Financial Statements Continued 27.3. Compensation paid to directors and key management personnel Directors: MJ Houston - received fees of £55,417 (2018: £nil) TG Leslie - received fees of £10,000 (2018: £nil) A Waugh - received fees of £40,000 (2018: £96,320) D Facey - received fees of £56,000 (2018: £36,000) Key management personnel: AT Simbanegavi - received salary from Kareevlei Mining Proprietory Limited of £93,237 (2018: £nil) 27.4. Placing and subscriptions The directors subscribed to the following shares during the year: MJ Houston (Executive Chairman) - 16 May 2019 DA Facey (Chief Financial Officer) - 16 May 2019 AT Simbanegavi (Chief Operating Officer) - 16 May 2019 A Waugh (Former Non-Executive Director) - 16 May 2019 PJ Beck (Former Non-Executive Chairman) - 16 May 2019 Number of ordinary shares issued Warrants issued 30,000 30,000 20,000 20,000 10,000 10,000 13,622 13,622 30,000 103,622 30,000 103,622 28. Events after the reporting date 28.1. Fundraising On 18 February 2020 the Company successfully raised an aggregate before expenses of £1,900,000 via the issue of 2,235,289 ordinary shares of 5 pence each in the capital of the Company through a placing and subscription at 85 pence per new share. The Company will use the majority of the funding to develop and expand its ongoing mining activity. 28.2. Purchase of processing plant The Company’s subsidiary, Kareevlei Mining Pty Limited, entered into a rent to buy agreement to acquire a processing plant from Numovista Pty Limited after the reporting date. Under the terms of the agreement, Kareevlei will pay a total of £650,000 over 3 years for the plant. 28.3. Covid 19 pandemic impact 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 by CS Diamonds 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. 84 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 2019 Given the likely ongoing travel restrictions to and within South Africa and the likely ongoing impact of 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-Cousyns 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 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) exceeds its 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. 29. Financial risk management 29.1. Financial risk factors The group's activities expose it to a variety of financial risks: market risk (including currency risk, price risk and cash flow interest rate risk), credit risk and liquidity risk. 29.2. Market Risk 29.2.1. Foreign exchange risk Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the group may use forward contracts. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. Sensitivity analysis At 31 December 2019, if the pound sterling had weakened/strengthened by 12% against the South African Rand with all other variables held constant, post-tax loss for the year would have been £72k lower (2018: £221k) or £91k higher (2018: £282k), mainly as a result of foreign exchange gains or losses on translation of South African Rand denominated trade receivables and intragroup borrowings. The exchange rates used for conversion of South African rand monetary items to Sterling were – 2019: 18.44, 2018: 18.34. 29.2.2. Price risk The profitability of mining operations is directly related to the prevailing diamond price. Historically, diamond prices have been volatile and are affected by numerous factors which the Group is unable to control or predict, including world production levels, international economic trends, industrial and consumer demand, currency exchange fluctuations, seasonality, speculative activity and political events. The Group realises US Dollars for its diamond sales, and reports its results in Pounds Sterling. Should the South African Rand strengthen against the Pound, the costs of the Group’s mining operations, which are largely denominated in South African Rand, may be adversely affected. Should the US Dollar weaken against the Pound, the Group’s revenues may be reduced. 85 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Notes to the Annual Report and Financial Statements Continued 29.2.2. Price risk continued Should market prices for raw materials, services and equipment, such as diesel or mining equipment increase, the Group’s results may be adversely affected. The Group seeks to obtain the best rate for each product or service, taking into account price, service quality and reliability. Sensitivity analysis An increase in the average US Dollar diamond price per carat of 10%, with all other variables held constant would have decreased post-tax loss by £406k (2018: £142k), while a decrease would have increased post-tax losses by £406k (2018: £142k). 29.2.3. Interest rate risk The Group has borrowings that incur interest at fixed rates and therefore does not have significant risk relating to movements in interest rates. The Group’s fixed rate borrowings comprise convertible loan notes and loan facilities which incur interest at fixed interest rates of between 10% and 12.50%. 29.2.4 Covid 19 risk Possible further shutdown There is a risk that the South African Government may impose a second shutdown should the spread of the infection increase. There have been no infections to date at the mine and the Group has taken measures to protect its employees and has plans in place to detect and isolate cases. Availability of tenders and fall in prices There is a risk that tenders will be closed or poorly attended as was seen at the March tender in South Africa which caused a dramatic fall in prices offered. The Group has put in place plans to commence selling in the Antwerp market through the Bonas Group, as discussed above, to mitigate this risk. The Company has also 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 to mitigate this risk. 29.3. Credit risk Credit risk consists mainly of cash deposits and cash equivalents. The Group only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party. The credit risk on receivables from subsidiaries is significant and their recoverability is dependent on the discovery and successful development of economic reserves by these subsidiaries' undertakings. Given the nature of the Group’s business significant amounts are required to be invested in exploration activities. The Directors manage this risk by reviewing expenditure plans and budgets in relation to projects. This review ensures that any expenditure is value-enhancing and as a result the amounts receivable will be recoverable subject to successful discovery and development of economic reserves. The maximum credit exposure of the Company as at 31 December 2019 was £8,466,787 (2018: £6,953,373) of which £7,555,575 (2018: £6,188,852) is related to the subsidiary loan. The maximum credit risk of the Group as at 31 December 2019 was £446,552 (2018: £450,173). The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for the subsidiary loan receivable and considered scenarios including recovery via future production, via sale of licences and a scenario in which the loan cannot be realised. Based on analysis of forecasts and the underlying Inferred Resource value no expected credit loss provision is considered to apply. 29.4. Liquidity risk The Group’s risk to liquidity is a result of the funds available to cover future commitments. The Group manages liquidity risk through an ongoing review of future commitments and credit facilities. The maximum exposure from the Group's financial liabilities, including borrowings, lease liabilities and trade and other payables are set out in note 16.2. 86 FINANCIAL STATEMENTSBluerock Diamonds Plc Annual Report and Accounts 201929.5. Capital risk management The Group's capital management objectives are: • • • to safeguard the Group's ability to continue as a going concern and provide access to adequate funding for its exploration and development project so that it continues to provide returns and benefits to shareholders; to support the Group's growth; and to provide capital for the purpose of strengthening the Group's risk management capability. The Group actively and regularly reviews and manages its capital structure to ensure an optimal capital structure and equity holder returns, taking into consideration the future capital requirements of the Group including planned exploration work and capital efficiency, projected profitability, projected operating cash flows and projected capital expenditures. Management regards total equity as capital and reserves, for capital management purposes. If additional equity funding should be required, the Group may issue new shares. 30. Fair value measurement of financial instruments Financial liabilities measured at fair value in the statement of financial position are grouped into three Levels of a fair value hierarchy. The three Levels are defined based on the observability of significant inputs to the measurement, as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly • Level 3: unobservable inputs for the asset or liability. The following table shows the Levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis as at each year end: Financial liabilities held at fair value through profit and loss: Embedded derivative (level 3) £ 10,359 £ 12,463 £ 10,359 £ 12,463 The Group’s management team perform valuations of financial items for financial reporting purposes, including Level 3 fair values. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. Group 2019 Group 2018 Company 2019 Company 2018 Embedded derivative (level 3) The derivative financial instrument is a level 3 valuation as it is not possible to observe all future additional financing requirements for the Group to perpetuity. Therefore, the future conversion price of the convertible loan notes may be reduced. As a result the derivative has been valued using the Monte-Carlo simulation with 5,000 iterations to anticipate the Group share price movements to provide a valuation for the convertible loan note. Inputs included in the Monte Carlo simulation were: the Company’s historical and current share price, the convertible loan exercise price, the risk-free rate of return, the convertible loan grant date and vesting period. 31. Ultimate controlling party The Group considers that there is no ultimate controlling party. 87 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceNotice of Annual General Meeting (Registration Number 08248437) Notice is hereby given that the Annual General Meeting of BlueRock Diamonds plc (the “Company”) will be held at 10am on 14 July 2020 at the offices of SP Angel, 35- 39 Maddox Street, London, W1S 2PP, for the purposes of considering the business set out below and, if thought fit, passing, the Resolutions set out below, which in the case of Resolution 6 will be proposed as a special resolution and in the case of Resolutions 1, 2, 3, 4, and 5 will be proposed as ordinary resolutions. 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. Further details can be found below. The Company will hold a shareholder call, following the AGM, on the afternoon of the 14 July 2020, details of which will be provided in due course. Ordinary Resolutions 1. THAT the financial statements of the Company for the year ended 31 December 2019 and the reports of the Directors and auditor thereon be received and adopted. 2. THAT David Facey, who retires by rotation, be re-elected as a Director of the Company. 3. THAT Gus Simbanegavi, who is retiring having been appointed by the directors of the Company since the last annual general meeting of the Company and who being eligible offers himself for election as a director of the Company. 4. THAT BDO UK LLP be re-appointed as auditor to the Company to hold office from the conclusion of the Meeting until the conclusion of the next Annual General Meeting and to authorise the Directors to determine the auditor’s remuneration. 5. THAT the Directors be and they are hereby generally and unconditionally authorised for the purposes of Section 551 of the Companies Act 2006 (the “Act”) to exercise all the powers of the Company to allot shares in the Company and grant rights to subscribe for or to convert any securities into shares in the Company subject to the following conditions: 5.1. that the maximum aggregate nominal amount of shares to be allotted in pursuance of such authority shall, be £274,664; and 5.2. that this authority shall expire on the earlier of 14 October 2021 or the conclusion of the Company’s next Annual General Meeting unless revoked, varied or renewed before that date save that the Company may, before such expiry, make an offer or agreement which would or might require shares in the Company to be allotted or rights to subscribe for or to convert any securities into shares in the Company to be granted after such expiry and the Directors may allot shares in the Company or grant rights to subscribe for or to convert any securities into shares in the Company in pursuance of such offer or agreement notwithstanding that the authority conferred hereby has expired. This resolution revokes and replaces all unexercised authorities previously granted to the Directors to allot shares and grant rights to subscribe for or convert any securities into shares in the Company but without prejudice to any allotment of shares or grant of rights already made, offered or agreed to be made pursuant to such authorities. Special Resolution 6. THAT, conditional upon the passing of Resolution 5, the Directors be and they are hereby generally and unconditionally empowered pursuant to Section 570 of the Act to exercise all powers of the Company to allot equity securities (within the meaning of Section 560 of the Act) for cash pursuant to the general authority conferred by Resolution 5 above as if Section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities: 6.1. in connection with an offer of such securities by way of a rights issue, open offer or any other pre-emptive offer to holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings of such shares, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or any legal or practical problems under the laws of any territory, or the requirements of any regulatory body or stock exchange; and 6.2. otherwise than pursuant to paragraph 6.1 above, the allotment of equity securities for cash up to an aggregate nominal amount of £274,664 provided that this authority shall expire on the earlier of 14 October 2021 or the conclusion of the 88 BLUEROCK DIAMONDS PLCBluerock Diamonds Plc Annual Report and Accounts 2019 Company’s next Annual General Meeting unless revoked, varied or renewed before such date, save that the Company may, before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred hereby has expired. This resolution revokes and replaces all unexercised authorities previously granted to the Directors to allot shares and grant rights to subscribe for or convert any securities into shares in the Company but without prejudice to any allotment of shares or grant of rights already made, offered or agreed to be made pursuant to such authorities. PROVISIONS FOR ATTENDANCE AND VOTING Due to the ongoing UK Government “stay at home measures” which at the time of publication of this document include a prevention of public gatherings of more than six people, and with a view to holding the General Meeting in a manner consistent with the need to prevent the spread of Covid-19, the Directors have formed the view, which is supported by the Chartered Governance Institute (ICSA), that attendance in person at a general meeting by a shareholder, other than one specifically required to form the quorum for that meeting, is not essential for work purposes. The Company will procure that a quorum of two Shareholders (currently anticipated to be the Chairman and one other) will be present at the General Meeting. Other Shareholders must not attend the General Meeting in person and any person seeking to attend the General Meeting will be refused entry. The Resolutions will be voted on by way of a poll vote and Shareholders, other than the two Shareholders attending the General Meeting as referred to above, are strongly advised to appoint the chairman of the meeting as a proxy to vote on their behalf if they want their vote to count. Details of how to appoint the chairman of the meeting as your proxy are set out on the Form of Proxy. You are free to appoint someone else as your proxy but if you do they will be refused entry to the General Meeting and in those circumstances your vote would not count. If you do not indicate clearly on the Form of Proxy as to how you wish the chairman of the meeting to vote, the chairman will use his discretion in relation to the resolutions being put before the meeting and Shareholders are being asked to submit their votes by way of proxy, appointing the chairman of the meeting as their proxy. It is not intended that the above arrangements for holding the General Meeting will be altered, even if there is any relaxation of the current UK Government “stay at home measures”. By order of the Board David Facey Company Secretary Registered Office 4th Floor Reading Bridge House George Street Reading Berkshire RG1 8LS Date: 19 June 2020 89 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernance Notice of Annual General Meeting Continued Appointment of proxies 1. As a member of the Company, you are entitled to vote at the meeting but in view of the Covid-19 circumstances all voting will be via proxies, and you should have received a proxy form with this notice of meeting. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. 2. A proxy does not need to be a member of the Company but must attend the meeting to represent you. Details of how to appoint the chairman of the meeting or another person as your proxy using the proxy form are set out in the notes to the proxy form. However, as the AGM will be a closed meeting due to Covid-19, proxies, other than the chairman of the meeting, will be denied entrance and therefore in order for your vote to count you need to appoint the chairman of the meeting. 3. Details of how to appoint the chairman of the meeting as your proxy using the proxy form are set out in the notes to the proxy form. 4. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at their discretion. Your proxy will vote (or abstain from voting) as they think fit in relation to any other matter which is put before the meeting. Appointment of proxy using the proxy form 5. The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote. To appoint a proxy using the proxy form, it must be: 5.1. completed and signed; 5.2. sent or delivered to the Company’s registrars, Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR, or scanned and emailed to voting@shareregistrars.uk.com (please include “BlueRock Diamonds Plc” and your full name in the subject line of the email); and 5.3. received by Share Registrars Limited no later than 10am on 10 July 2020. 6. In the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. 7. Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form. 8. The Company, pursuant to regulation 41 of the Uncertificated Securities Regulations 2001 (SI 2001/3755) and paragraph 18(c) Companies Act 2006 (Consequential Amendments) (Uncertificated Securities) Order 2009, specifies that only those ordinary shareholders registered in the register of members on 9 July 2020 or, in the event the meeting is adjourned, on the register of members 48 hours excluding non business days, before the date of any adjourned meeting, shall be entitled to attend or vote at the meeting in respect of the number of ordinary shares in the capital of the Company registered in their name at that time. Changes to entries on the relevant register of securities after that time will be disregarded in determining the rights of any person to attend or vote at the meeting. Appointment of proxy by joint members 9. In the case of joint holders of shares, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder (being the first named holder in respect of the shares in the Company’s register of members) will be accepted. Changing proxy instructions 10. Where you have appointed a proxy using the hard copy proxy form and would like to change the instructions using another hard copy proxy form, please contact Share Registrars Limited. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. Note that the cut off time for receipt of proxy forms specified in paragraph 5 also applies in relation to amended instructions. Any amended proxy appointment received after the specified cut off time will be disregarded. 90 BLUEROCK DIAMONDS PLCBluerock Diamonds Plc Annual Report and Accounts 2019 Termination of proxy appointments 11. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to Share Registrars. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. 12. The revocation notice must be received by the Company no later than 10.00 a.m. on 10 July 2020. 13. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, your proxy appointment will remain valid. Corporate representatives 14. A corporation which is a member can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a member provided that no more than one corporate representative exercises powers over the same share. Total voting rights 15. As at 6 p.m. (BST) on 18 June 2020 (being the last business day prior to the publication of this notice), the Company’s issued share capital comprised 5,258,004 ordinary shares of £0.05 each. Each ordinary share carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at 6 p.m. (BST) on 18 June 2020 is 5,258,004. Communication Except as provided above, members who have general queries about the meeting should contact the Company’s registrar, Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR. 91 Strategic ReportBluerock Diamonds Plc Annual Report and Accounts 2019Financial StatementsGovernanceGeneral Information Country of Incorporation and Domicile Nominated advisor and Broker United Kingdom Registration Number 08248437 Directors MJ Houston (Executive Chairman) DA Facey (Chief Financial Officer) AT Simbanegavi (Chief Operating Officer) TG Leslie (Non-Executive Director) Registered Office 4th Floor Reading Bridge House George Street Reading Berkshire RG1 8LS SP Angel Corporate Finance LLP Prince Frederick House 35-39 Maddox Street London W1S 2PP Bankers Arbuthnot Latham & Co., Limited Financial Public Relations St Brides Partners Ltd 51 Eastcheap London EC3M 1JP Auditors BDO LLP 55 Baker Street London United Kingdom W1U 7EU 92 BLUEROCK DIAMONDS PLCBluerock Diamonds Plc Annual Report and Accounts 2019Registered Office: 4th Floor Reading Bridge House, George Street, Reading, Berkshire, RG1 8LS T. +44 (0) 207 236 1177 96 www.bluerockdiamonds.co.uk STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019

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