Bluerock Diamonds Plc
Annual Report & Accounts
2019
PRODUCING
EXCEPTIONAL
QUALITY DIAMONDS
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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
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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
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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
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BLUEROCK DIAMONDS PLCBluerock Diamonds Plc Annual Report and Accounts 2019 Strategic Report
Governance
Financial Statements
Bluerock Diamonds Plc Annual Report and Accounts 2019
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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
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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
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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
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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
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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.
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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.
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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
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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
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www.bluerockdiamonds.co.uk
STRATEGIC REPORTBluerock Diamonds Plc Annual Report and Accounts 2019