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2023 ReportAnnual Report and Financial Statements 2017 Cover image is of Kuhmo green diamond discovered by Karelian Diamonds. Contents Chairman’s Statement Company Information Board of Directors Directors’ report Independent Auditors’ Report Income Statement Statement of Comprehensive Income Statement of Financial Position Statement of cash flows Statement of Changes in Equity Notes to and forming part of the financial statements 2 5 6 7 13 14 15 16 17 18 19 2 Chairman’s Statement Introduction Your Company’s diamond exploration and development programmes are located in the Karelian Craton in Finland. The diamond prospectivity of this Craton, which lies across Northern Finland and Russia, has been demonstrated by the discovery and development of the world class Lomonosova and Grib Pipe diamond deposits in the Russian sector of the Craton. Your Company’s objective diamonds during the entire period of the diamond discoveries in Canada from early 1990s. As a matter of priority your Company is now engaged in an exploration programme to discover the source of this diamond. The programme includes airborne and ground geophysics and an extensive pitting programme up-ice from the site of the discovery. is to discover, or acquire, and develop Lahtojoki Professor Richard Conroy Chairman I have pleasure in presenting your Company’s Annual Report and financial statements for the financial year ended 31 May 2017. The year was one of great success in the exploration field with the discovery of a diamond in till in the Kuhmo region of Finland. diamond deposits in the Finnish sector of the Craton. Diamond Discovery The outstanding event of the year was the discovery a diamond in a till sample taken in the Kuhmo region of Finland. The diamond is a sparkling clear crystal, greenish in colour and 0.8mm in diameter, forming a 12-sided, curved and twinned dodecahedron. Your Company has acquired a mining concession over the Lahtojoki diamond deposit in the Kaavi region of Finland, and the Company has received a Preliminary Economic Assessment (“PEA”) on the deposit. Analysis of combined microdiamond and mini-bulk sample data suggests a +1mm recoverable grade of 40 Carats Per Hundred Tonnes (“cpht”) and indicates the presence of a high percentage of gem quality stones within the diamonds that have been recovered to date. Kuhmo green diamond discovered by Karelian Diamonds Lahtojoki high gem quality diamonds The discovery of a diamond in a till exploration sample is an extremely rare event. The long established international diamond laboratory ODM, which processed the sample and which has processed more than 50,000 exploration till samples worldwide, including those involved in the major Canadian diamond discoveries at Slave Lake, has recovered less than 10 naturally occurring Previous drilling indicates 5,603,584 tonnes are present to a depth of 160 metres below surface. For the purposes of the PEA US$100/carat was used in the economic evaluation and mine design. A total resource (Non Joint Ore Reserve Committee) estimate of 2,225,000 carats was indicated in the study. Plant recovery of diamonds was estimated at 95% (2.11 million carats recoverable). Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc 3 technical attractiveness of the Lahtojoki diamond deposit. Riihivaarä In addition Karelian Diamonds has discovered a kimberlite body, the first to be discovered in Finland in over 10 years. The discovery was made at Riihivaara, also in the Kuhmo region. The discovery was made through a combination of till sampling and ground geophysics. The kimberlite body has been intersected by five trenches, is interpreted to be a dyke and is open along strike and at depth. Chairman Richard Conroy and Managing Director Maureen Jones examine newly discovered diamond. The Lahtojoki diamond ore body was Finland is recognised by the prestigious acquired from A & G Mining Oy (“AGM”), Fraser Institute as one of the most a private Finnish company. The ore attractive jurisdictions in the world for Riihivaarä Kimberlite body is situated in the Kuopio-Kaavi mining investment and the mine, if region in Finland. The location is highly developed, would be the first diamond favourable for development with mine in Europe (outside Russia). excellent infrastructure including good road access and power distribution and local technical and logistics availability. The Lahtojoki diamond ore body has, we believe, the potential to become a profitable open pit diamond mine and your Company has received a Mining Concession for its development from Kimberlite indicator minerals from Riihivaarä have been analysed using MLA screening followed by laser ablation ICP-MS analysis of trace-elements for grains of higher interest. The results Diamond exploration around Lahtojoki Exploration in the vicinity of the showed that the geotherm is prospective Lahtojoki diamond deposit has for diamonds and the kimberlite has been identified kimberlite boulder fragments. The location of these fragments does not sampled to a model depth of greater than 2000km, well into the diamond coincide with either of the known ice stability field. The kimberlite is therefore the Finnish Safety and Chemical Agency flow directions from the Lahtojoki deposit likely to be diamondiferous. (“TUKES”). Under the terms of the acquisition a royalty of 1% is payable to AGM either in diamonds or cash on cumulative diamond production above 2.5 million carats, in addition to a purchase price of €150,000 (comprising an initial purchase price of €50,000 plus a further €100,000 after twenty four (24) months unless Karelian decides not to develop the project). in the area, also kimberlite is classified as cohesive (hypabyssal) kimberlite, which is Agreement with Rio Tinto an extremely rare kimberlite facies in the Your Company has a Confidentiality Lahtojoki Kimberlite pipe. The Company Agreement (with Back in Rights) with is undertaking an exploration programme Rio Tinto Mining and Exploration Limited in this area to determine the source (“Rio Tinto”). I am delighted that this of these boulders. agreement with Rio Tinto has been The presence of additional diamond resource potential in the area adjacent to Lahtojoki would, if confirmed, further add to the financial and extended to 2020. Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc 4 Chairman’s Statement continued Karelian Craton Location Map Diamond discovery site. Company senior geologist Kevin McNulty with GTK geologists Jukka Marmo and Ahti Nissinen. Under the agreement, Rio Tinto discloses to your Company confidential information and physical geological samples relating to exploration in Finland for the purpose of your Company considering that information in relation to its potential and existing exploration programmes in Finland. In consideration of Rio Tinto disclosing the confidential information to it, your Company has agreed that Rio Tinto will have the option to earn a 51 per cent interest in any project identified by your Company in Finland by Rio Tinto paying the direct cash expenditures incurred in developing the project. Finance The loss after taxation for the year ended 31 May 2017 was €410,814 (2016: €258,734) and the net assets as at 31 May 2017 were €9,456,036 (2016: €8,470,973). On 21 December 2016 your Company raised £425,000 (€505,000) before expenses through the issue of 94,444,444 ordinary shares at 0.45p sterling for each ordinary share, together with 47,222,222 warrants at an exercise price of 0.8p sterling per warrant, exercisable until 29 December 2018. On 12 April 2017, your Company raised £775,000 (€914,500) before expenses through the issue of 172,222,220 ordinary shares at 0.45p sterling for each ordinary share, together with 79,629,631 warrants at an exercise price of 0.8p sterling per warrant, exercisable until 28 April 2019. Following a capital reorganisation pursuant to the Annual General Meeting becoming effective the issued share capital as of 9 December 2016 comprised 317,785,034 ordinary shares and 317,785,034 deferred shares (detailed in Note 14). Auditors I would like to take this opportunity to thank the partners and staff of Deloitte for their services to your Company during the course of the financial year. Directors and Staff I would like to express my deep appreciation of support and dedication of all the Directors, consultants and staff, which has made possible the continued progress and success, which your Company has achieved. Future Outlook Your Company has continued to make excellent progress in what is now a combined diamond exploration and development programme. We look forward to building rapidly on this success in the coming year. Professor Richard Conroy Chairman 28 November 2017 Share consolidation The ordinary shares have recently traded in a range at a fraction of a cent. Shareholders will be asked at the Annual General Meeting to approve the consolidation of the Company’s shares which will reduce the number of shares in issue and, the Board of Directors expect, result in a share price more appropriate for your Company and more attractive to a greater number of investors. The effect of the consolidation is to reduce the number of ordinary shares in issue by a multiple of approximately 25 and, accordingly, assuming normal market conditions, to increase the price at which the new ordinary shares will trade to approximately 25 times the value at which the existing ordinary shares currently trade. Subject to approval by the shareholders at the Annual General Meeting, the Directors propose that the issued and unissued ordinary shares will be consolidated into new ordinary shares (“Consolidated Shares”) of €0.00025 each. Immediately following the proposed consolidation, each existing shareholder will hold 1 new ordinary share in place of each 25 existing ordinary shares. New certificates representing the Consolidated Shares will be issued as soon as practicable after the record date. Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc Company Information 5 Nominated Adviser (NOMAD) Legal Advisers Directors Professor Richard Conroy Chairman* Seamus P. FitzPatrick Deputy Chairman Non-Executive Director+§ Maureen T.A. Jones Managing Director* James P. Jones Finance Director* Dr. Sorċa Conroy Non-Executive Director* Louis J. Maguire Non-Executive Director* +§ Allenby Capital Limited 5 St. Helen’s Place London EC3A 6AB UK Tel: +44 20 33285656 www.allenbycapital.com Broker Beaufort Securities Limited 63 St Mary Axe London EC3A 8AA UK * Member of the Executive Committee + Member of the Remuneration Committee § Member of the Audit Committee Company Registration Number 382499 Company Secretary and Registered Office James P. Jones 3300 Lake Drive, Citywest Business Campus Dublin 24 D24 TD21 Tel: +353 1 4796180 Enterprise Securities Market Adviser* IBI Corporate Finance 2 Burlington Plaza, Dublin 4 D04 EC66 * On 6 November 2017, the Company cancelled the admission of its ordinary shares to trade on the Enterprise Securities Market. Principal Banker AIB 1-4 Lower Baggot Street Dublin 2 D02 X342 William Fry Solicitors 2 Grand Canal Square Dublin 2 D02 A342 Roschier-Holmberg Kaskuskatu 7A 00 100 Helsinki Finland Head Office Karelian Diamond Resources plc 3300 Lake Drive, Citywest Business Campus Dublin 24 D24 TD21 Tel: +353 1 4796180 For further information visit the Company’s website: www.kareliandiamondresources.com Lothbury Financial Services Floor 6, 131 Cannon Street London EC4N 5AX UK Tel: +44 20 32900707 Hall Communications 1 Northumberland Road Dublin 4 D04 F578 Tel: +353 1 6609377 Statutory Audit Firm Deloitte Chartered Accountants and Statutory Audit Firm Deloitte & Touche House Charlotte Quay Limerick V94 X63C London Stock Exchange AIM Market Symbol: KDR SEDOL: BO1ZSK9 ISIN Number: IE00BO1ZSK94 Registrar Link Registrars Limited Link Asset Services 2 Grand Canal Square Dublin 2 D02 A342, Ireland www.linkassetservices.ie Professor Richard Conroy Chairman Seamus P. FitzPatrick Deputy Chairman Maureen T.A. Jones Managing Director James. P. Jones Finance Director and Company Secretary Dr. Sorċa C. Conroy Non-Executive Director Louis J. Maguire Non-Executive Director Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc 6 Board of Directors Professor Richard Conroy Chairman of the Board of Directors Maureen T.A. Jones Managing Director Maureen T.A. Jones has over twenty years’ experience at senior level in the natural resource sector. She is Managing Director of Karelian Diamond Resources P.L.C. and was a founding Director of the Company. Maureen T.A. Jones joined Conroy Petroleum on its foundation in 1980 and was a Director and member of the Board of Directors of Conroy Petroleum/ARCON from 1986 to 1994. Maureen T.A. Jones has a medical background and specialised in the radiographic aspects of nuclear medicine before becoming a manager of International Medical Corporation in 1977. Maureen T.A. Jones is also a Director of Conroy Gold and Natural Resources P.L.C. James P. Jones Finance Director James P. Jones has been associated with the natural resources industry for many years. A Chartered Accountant, he was finance Director of Conroy Petroleum/ARCON from its formation until 1994. James P. Jones was a founding Director of the Company and has served as Finance Director and Secretary of the Company since its inception. James P. Jones is also Secretary of Conroy Gold and Natural Resources P.L.C. Dr. Sorċa Conroy Non-executive Director Dr. Sorċa Conroy was recruited to ING Bank in 2006 and whilst there was ranked second in the Extel Survey for Biotechnology Specialist Sales. Dr. Sorċa Conroy had previously worked in specialist sales for life sciences and institutional equities at Canaccord Adams (2005- 2006; where she ranked fourth in the 2006 Extel survey) and Hoodless Brennan (2004-2005). A medical graduate of The Royal College of Surgeons in Ireland, Dr. Sorċa Conroy held a number of clinical positions between her graduation in 1995 and joining Hoodless Brennan. Louis J. Maguire Non-executive Director Louis J. Maguire is an auctioneer by profession and a land valuation expert with particular expertise in the purchase of mineral rights and in land acquisition for mining. He is a founding Director of Karelian Diamond Resources P.L.C. Professor Richard Conroy has been involved in natural resources for many years. He established Trans-International Oil, which was primarily involved in Irish offshore oil exploration. Trans-International Oil initiated the Deminex Consortium which included Deminex, Mobil, Amoco and DSM. Trans-International Oil was merged with Aran Energy P.L.C. in 1979, which was later acquired by Statoil. Professor Richard Conroy founded Conroy Petroleum and Natural Resources P.L.C. (“Conroy Petroleum”). Conroy Petroleum was involved in both onshore and offshore oil production and exploration and also in mineral exploration. Conroy Petroleum, in 1986, made the significant discovery of the Galmoy zinc deposits in County Kilkenny later developed as a major zinc mine. The discovery at Galmoy led to the revival of the Irish base metal industry and to Ireland becoming an international zinc province. Conroy Petroleum was also a founding member of the Stoneboy consortium, which included Sumitomo Metal Mining Co. Ltd., an exploration group which discovered the world class Pogo gold deposit in Alaska, now in production as a major gold mine. Conroy Petroleum acquired Atlantic Resources P.L.C. in 1992 and subsequently changed its name to ARCON International Resources P.L.C. (“ARCON”). The oil and gas interests in ARCON were transferred to form Providence Resources P.L.C. ARCON was later acquired by Lundin Mining Corporation. Professor Richard Conroy was Chairman and Chief Executive of Conroy Petroleum/ARCON from 1980 to 1994. He founded Karelian Diamond Resources P.L.C. in 1995. Professor Richard Conroy served in the Irish Parliament as a Member of the Senate. He was at various times front bench spokesman for the Government party in the Upper House on Energy, Industry and Commerce, Foreign Affairs and Northern Ireland. Professor Richard Conroy is Emeritus Professor of Physiology in the Royal College of Surgeons in Ireland. Professor Conroy’s research included pioneering work on jet lag, shift working and decision making after intercontinental flights. Professor Conroy co-authored the first text book on circadian rhythms. Séamus P. FitzPatrick Deputy Chairman/Non-executive Director Séamus P. FitzPatrick has worked in both corporate finance and private equity in London and New York with Morgan Stanley, J. P. Morgan and Bankers’ Trust. In 1999 he co-founded CapVest, of which he is Managing Partner (which has raised funds in excess of £2.0 billion). Séamus P. FitzPatrick is Chairman of the Mater Private Hospital and of Valeo Foods and is a board member of Reno Norden. Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc 7 Directors’ report The Board of Directors submit their annual report together with the audited financial statements of Karelian Diamond Resources P.L.C. (the “Company”) for the financial year ended 31 May 2017. Principal activities, business review and future developments Information with respect to the Company’s principal activities and the review of the business and future developments as required by Section 327 of the Companies Act 2014 is contained in the Chairman’s Statement on pages 2 to 4. During the financial year under review, the principal focus of management is to continue to develop the activities of the Company concentrating particularly on diamond exploration. Results for the year and state of affairs at 31 May 2017 The Income Statement for the financial year ended 31 May 2017 and the Statement of Financial Position at that date are set out on pages 14 to 15. The loss for the year amounted to €410,814 (2016: €258,734) and net assets at 31 May 2017 were €9,456,035 (2016: €8,470,973). No dividends or transfers to reserves are recommended by the Board of Directors. Important events since the year end In October 2017, the Company has been informed that TUKES has granted the Company an exploration permit in the Kuhmo region of Finland. The permit covers an area of 601.68 ha surrounding the location where the Company discovered a diamond in till (31 January 2017). The permit has been granted for a period of four years. An exploration permit provides the holder with an exclusive right to apply for a mining permit. The Company announced on 10 October 2017 that it is to cancel the admission of its ordinary shares to trading on the Enterprise Securities Market (“ESM”) on the Irish Stock Exchange on 6 November 2017. This cancellation occurred on 6 November 2017. Directors Dr. Sorċa Conroy retires from the Board of Directors by rotation and, being eligible, offers herself for re-election at the forthcoming Annual General Meeting of the Company. James P. Jones retires from the Board of Directors by rotation and is not seeking re-election at the forthcoming Annual General Meeting of the Company. Except as disclosed in the following tables, neither the Directors nor their families had any beneficial interest in the share capital of the Company. Apart from directors remuneration (detailed in Note 2) and a loan from a shareholder (who is also a Director which is detailed in Note 12), there have been no contracts or arrangements entered into during the financial year in which a Director of the Company had a material interest. There were no loans outstanding to any Director at any time during the year. The Company has confirmed to Conroy Gold and Natural Resources P.L.C. (a company with common Directors) that it will not seek repayment of amounts owed by Conroy Gold and Natural Resources P.L.C. at 31 May 2017 of €273,800 (2016: €168,825) for a period of at least 12 months from the date of approval of the financial statements of Conroy Gold and Natural Resources P.L.C., unless Conroy Gold and Natural Resources P.L.C. has sufficient funds to repay. Secretary James P. Jones acts as Company Secretary to the Company. Directors’ and Secretary’s shareholdings and other interests The interests of the Directors and Secretary and their spouses and minor children in the share capital of the Company, all of which were beneficially held, were as follows: Director Date of signing financial statements Date of signing financial statements 31 May 2017 31 May 2017 31 May 2016 (or date of appointment if later) 31 May 2016 (or date of appointment if later) Ordinary Shares of €0.00001 each Ordinary Shares of €0.00001 each Warrants Ordinary Shares of €0.01 each Warrants Professor Richard Conroy 119,583,938* 19,780,306 119,583,938* 19,780,306 76,806,168* Maureen T.A. Jones 13,221,985 6,561,645 13,221,985 6,561,645 James P. Jones 9,481,539 4,493,577 9,481,539 4,493,577 Séamus P. FitzPatrick Dr. Sorċa Conroy Louis J. Maguire 922,426 470,000 51,668 232,201 – 922,426 470,000 232,201 – 232,201 51,668 232,201 6,110,875 3,814,873 922,426 470,000 51,668 Warrants 5,521,049 4,191,275 2,604,689 232,201 – 232,201 * Of the 119,583,938 (2016: 76,806,168) ordinary shares beneficially held by Professor Richard Conroy, 30,815,030 (2016: 30,815,030) are held by Conroy P.L.C., a company in which Professor Conroy has a controlling interest. Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc 8 Directors’ report continued Details of warrants, all of which are exercisable currently, are as follows: Director Professor Richard Conroy Professor Richard Conroy Professor Richard Conroy Maureen T.A. Jones Maureen T.A. Jones Maureen T.A. Jones James P. Jones FCA James P. Jones FCA James P. Jones FCA Séamus P. FitzPatrick Louis J. Maguire Date of signing financial statements Date of signing financial statements 31 May 2017 31 May 2017 31 May 2016 31 May 2016 Expiry Date Warrants 5,000,000 9,259,257 5,521,049 333,333 2,037,037 4,191,275 222,222 1,666,666 2,604,689 232,201 232,201 Price € Warrants Price € Warrants Price € 0.009 5,000,000 0.009 9,259,257 0.009 0.009 – – – – 29 December 2018 28 April 2019 0.100 5,521,049 0.100 5,521,049 0.100 16 November 2022 0.009 333,333 0.009 2,037,037 0.009 0.009 – – – – 29 December 2018 28 April 2019 0.100 4,191,275 0.100 4,191,275 0.100 16 November 2022 0.009 222,222 0.009 1,666,666 0.009 0.009 – – – – 29 December 2018 28 April 2019 0.100 2,604,689 0.100 2,604,689 0.100 16 November 2022 0.100 0.100 232,201 232,201 0.100 0.100 232,201 232,201 0.100 16 November 2022 0.100 16 November 2022 Substantial Shareholdings In so far as the Board of Directors are aware, no person or company, other than the shareholders listed below, held 3% or more of the issued ordinary share capital of the Company at date of signing accounts. Director Date of signing financial statements Date of signing financial statements 31 May 2017 31 May 2017 31 May 2016 31 May 2016 Ordinary Shares of €0.00001 each Ordinary Shares of €0.00001 each % Ordinary Shares of €0.01 each % Professor Richard Conroy 119,583,938* 20.46 119,583,938* 20.46 76,806,168* Mr. Alan Osbourne Mr. Steven Coomber Mr. Richard Taberner 20,813,224 17,639,111 17,637,548 3.56 3.02 3.02 20,813,224 17,639,111 17,637,548 3.56 3.02 3.02 11,708,566 – – % 24.17 3.68 – – * Of the 119,583,938 (2016: 76,806,168) ordinary shares beneficially held by Professor Richard Conroy, 30,815,030 (2016: 30,815,030) are held by Conroy P.L.C., a company in which Professor Richard Conroy has a controlling interest. Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc 9 Compliance policy statement of Karelian Diamond Resources P.L.C. The Directors, in accordance with Section 225(2) of the Companies Act 2014, acknowledge that they are responsible for securing the Company’s compliance with certain obligations specified in that section (‘relevant obligations’). The Directors confirm that: n a compliance policy statement has been drawn up setting out the Company’s policies that in their opinion are appropriate with regard to such compliance; n appropriate arrangements and structures have been put in place that, in their opinion, are designed to provide reasonable assurance of compliance in all material respects with those relevant obligations; and n a review has been conducted, during the financial year, of those arrangements and structure. It is the policy of the Company to review during the course of each financial year the arrangements and structures referred to above which have been implemented with a view to determining if they provide a reasonable assurance of compliance in all material respects with relevant obligations. Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with the Companies Act 2014 and the applicable regulations. Irish company law requires the Directors to prepare financial statements for each financial year. Under that law, they have elected to prepare the Company’s financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the EU and applicable law. Under company law, the Directors must not approve the Company financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position of the Company and of the Company’s profit or loss for that year and otherwise comply with the Companies Act 2014. In preparing of the Company financial statements, the Directors are required to: n select suitable accounting policies for the Company financial statements and then apply them consistently; n make judgements and estimates that are reasonable and prudent; n state whether the financial statements have been prepared in accordance with the applicable accounting standards, identify those standards, and note the effect and the reason for any material departure from these standards; and n 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 which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Company and which enable them to ensure that the financial statements of the Company are prepared in accordance with applicable IFRS, as adopted by the EU and comply with the provisions of the Companies Act 2014. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. The Directors are also responsible for preparing a Directors’ Report that complies with the requirements of the Companies Act 2014. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Going concern The Company incurred a loss of €410,814 (2016: €258,734) for the financial year ended 31 May 2017. The Company had net current assets of €337,084 (2016: €67,605) at that date. The Directors, have confirmed that they will not seek repayment of amounts owed to them by the Company of €324,013 (2016: €399,007) for a minimum period of 12 months from the date of approval of the financial statements, unless the Company has sufficient funds to repay. The Company has confirmed to Conroy Gold and Natural Resources P.L.C. that it will not seek repayment of amounts owed by Conroy Gold and Natural Resources P.L.C. at 31 May 2017 of €273,800 (2016: €168,825) for a period of at least 12 months from the date of approval of the financial statements of Conroy Gold and Natural Resources P.L.C., unless Conroy Gold and Natural Resources P.L.C. has sufficient funds to repay. There is a commonality of certain Directors and certain shareholders between the Company and Conroy Gold and Natural Resources P.L.C. The Board of Directors have considered carefully the financial position of the Company and in that context, have prepared and reviewed cash flow forecasts for the period to 30 November 2018. As set out further in the Chairman’s statement the Company expects to incur material levels of capital expenditure in 2017 and 2018, consistent with its strategy as an exploration company. In reviewing the proposed work programme for exploration and evaluation assets and on the basis of the equity raised during the financial year, the results obtained from the exploration programme and the prospects for raising additional funds as required, the Board of Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis. Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc 10 Directors’ report continued Corporate Governance The Company is committed to high standards of corporate governance. Although the Company, as an AIM quoted Company, is not required to comply with the UK Corporate Governance Code, the Board of Directors in so far as is practical given the Company’s size, have implemented the following corporate governance provisions for the financial year ended 31 May 2017. Board of Directors The Board of Directors is made up of three executive and three non-executive Directors. Biographies of each of the Directors are set out on page 6. All the Directors bring independent judgement to bear on issues affecting the Company and all have full and timely access to information necessary to enable them to discharge their duties. The Directors have a wide and varying array of experience in the industry. The Board of Directors agrees a schedule of regular meetings to be held in each calendar year and also meets on other occasions as necessary. Meetings are held at the head office in 3300 Lake Drive, Citywest Business Campus, Dublin 24, D24 TD21, Ireland. Board of Directors meetings were held on 10 occasions during all of 2016 and 2017. An agenda and supporting documentation was circulated in advance of each meeting. There is an agreed list of matters which the Board of Directors has formally reserved to itself for decision, such as approval of the Company’s commercial strategy, trading and capital budgets, financial statements, Board membership, major capital expenditure and risk management policies. Responsibility for certain matters is delegated to Board of Directors Committees. There is an agreed procedure for Directors to take independent legal advice. The Company Secretary is responsible for ensuring that Board of Directors procedures are followed, and all Directors have direct access to the Company Secretary. All Directors receive regular Company management financial statements and reports and full Board of Directors papers are sent to each Director in sufficient time before Board of Directors meetings, and any further supporting papers and information are readily available to all Directors on request. The Board of Directors papers include the minutes of all committees of the Board of Directors which have been held since the previous Board of Directors meeting, and, the chairman of each committee is available to give a report on the committee’s proceedings at Board of Directors meetings if appropriate. The Board of Directors has a process whereby each year every Director will meet the Chairman to review the conduct of Board of Directors meetings and the general corporate governance of the Company. The non-executive Directors are independent of management and have no material interest or other relationship with the Company. Each year, one third of the Directors with the exception of the Chairman and the Managing Director, retire from the Board of Directors by rotation. Effectively, therefore, each such Director will retire by rotation within a three year period. Board Committees The Board of Directors has implemented an effective committee structure to assist in the discharge of its responsibilities. The committees and their members are listed on page 5 of this report. Membership of the Audit and Remuneration committees is comprised exclusively of non-executive Directors. The Company Secretary acts as secretary to each of these committees. Audit Committee The Audit Committee’s terms of reference have been approved by the Board of Directors. The Audit Committee, constituted in accordance with Section 167 of the Companies Act 2014, comprises the two non-executive Directors and is chaired by Séamus P. FitzPatrick. The Audit Committee reviews the accounting principles, policies and practices adopted, and areas of management judgement and estimation in the preparation of the interim and annual financial statements and discusses with the Company’s Auditors the results and scope of the audit. The Finance Director attends the Audit Committee meetings. The external auditors have the opportunity to meet with the members of the Audit Committee alone at least once a year. The Audit Committee advises the Board of Directors on the appointment of external auditors and on their remuneration and discusses the nature and scope of the audit with the external auditors. An analysis of the fees payable to the external audit firm in respect of audit services during the financial year is detailed in Note 3 to the financial statements. The Audit Committee also undertakes a review of any non-audit services provided to the Company; and a discussion with the auditors of all relationships with the Company and any other parties that could affect independence or the perception of independence. The Audit Committee is responsible for monitoring the controls which are in force to ensure the information reported to the shareholders is accurate and complete. The Audit Committee considers internal control issues and contributes to the Board of Director’s review of the effectiveness of the Company’s internal control and risk management systems. It also considers the need for an internal audit function, which it believes is not required at present as a result of the size of the Company’s operations. The members of the Audit Committee have agreed to make themselves available should any member of staff wish to make representations to them about the conduct of the affairs of the Company. Executive Committee The Executive Committee comprises of Professor Richard Conroy, Ms. Maureen T.A. Jones, Dr. Sorċa Conroy, James P. Jones and Louis J. Maguire. Its purpose is to support the Managing Director in carrying out the duties delegated to her by the Board of Directors. Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc 11 It also ensures that regular financial reports are presented to the Board of Directors, that effective internal controls are in place and functioning, and that there is an effective risk management process in operation throughout the Company. Remuneration Committee The Remuneration Committee comprises two non-executive Directors and is chaired by Séamus P. FitzPatrick. Emoluments of executive Directors and senior management are determined by the Remuneration Committee. In the course of each financial year, the Remuneration Committee determines any contract terms, remuneration and other benefits, including share options, for each of the executive Directors. The Remuneration Committee applies the same philosophy in determining executive Directors’ remuneration as is applied in respect of all employees. The underlying objective is to ensure that individuals are appropriately rewarded relative to their responsibility, experience and value to the Company. The Board of Directors itself determines the remuneration of the non-executive Directors. Details of Directors’ remuneration for the current period are detailed in Note 2 and Note 4 to the financial statements. Internal Control The Directors have overall responsibility for the Company’s system of internal control to safeguard shareholders’ investments and the Company assets. They operate a system of financial controls which enable the Board of Directors to meet its responsibilities for the integrity and accuracy of the Company’s accounting records. Following the publication of the Turnbull Report, the Board of Directors established a process of compliance which involved an expansion of the Board of Directors’ responsibility to maintain, review and report on all internal controls, including financial, operational and compliance risk management. Among the processes applied in reviewing the effectiveness of the system of internal controls are the following: n The Board of Directors establishes risk policies as appropriate, for implementation by executive management. n All commitments for expenditure and payments are subject to approval by personnel designated by the Board of Directors. n Regular management meetings take place to review financial and operational activities. The Directors, through the Audit Committee, review the effectiveness of the Company’s system of internal financial control. The Board of Directors has considered the requirement for an internal audit function. Based on the scale of the Company’s operations and close involvement of the Board of Directors, the Directors have concluded that an internal audit function is not currently required. Risk Management Refer to Note 18 in relation to the use of financial instruments by the Company, the financial risk management objectives of the Company and the Company’s exposure to interest rate risk, foreign currency risk, liquidity risk and credit risk. Currency Risk Management Management is authorised to achieve best available rates in respect of each forecast currency requirements. General Industry Risk The Company’s business may be affected by the general risks associated with all companies in the diamond exploration industry. These risks (the list of which is not exhaustive) include: general economic activity, the world diamond prices, government and environmental regulations, permits and licenses, fluctuating metal prices, the requirement and ability to raise additional capital through future financings and price volatility of publicly traded securities. All drilling to establish productive diamond reserves is inherently speculative and, therefore, a considerable amount of professional judgement is involved in the selection of any prospect for drilling. In addition, in the event drilling successfully encounters diamonds, unforeseeable operating problems may arise which render it uneconomic to exploit such finds. Estimates of potential reserves include substantial proportions which are undeveloped. These reserves require further capital expenditure in order to bring them into production. No guarantee can be given as to the success of drilling programmes in which the Company has an interest. Communication with shareholders Extensive information about the Company and its activities is given in the annual report and financial statements. Further information is available on the Company’s website, www.kareliandiamondresources.com, which is promptly updated whenever announcements or press releases are made. The Company welcomes all shareholders to participate at general meetings. Board of Directors members attend the Annual General Meeting and are available to answer questions. Separate resolutions are proposed on substantially different issues and the agenda of business to be conducted at the Annual General Meeting includes a resolution to receive and consider the annual report and financial statements. The chairpersons of the Board committees will also be available at the Annual General Meeting, as this forum is a particularly important opportunity for shareholders, directors and management to meet and exchange views. Political donations There were no political donations during the year (2016: Nil). Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc 12 Directors’ report continued Books and accounting records The Directors are responsible for ensuring adequate accounting records, as outlined in Section 281 of the Companies Act 2014, are kept by the Company. The Board of Directors, through the use of appropriate procedures and systems and the employment of competent persons have ensured that measures are in place to secure compliance with these requirements. The accounting records are maintained at the Company’s business address, 3300 Lake Drive, Citywest Business Campus, Dublin 24, D24 TD21, Ireland. Relevant Audit Information The Board of Directors believe that they have taken all steps necessary to make themselves aware of any relevant audit information and have established that the Company’s statutory auditors are aware of that information. In so far as they are aware, there is no relevant audit information of which the Company’s statutory auditors are unaware. Auditors Deloitte will continue in office in accordance with Section 383 (2) of the Companies Act 2014. Shareholders will be asked to authorise the Directors to fix their remuneration. On behalf of the Directors: Professor Richard Conroy Chairman Maureen T.A. Jones Managing Director 28 November 2017 Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc Independent Auditors’ Report 13 We have audited the financial statements of Karelian Diamond Resources plc for the financial year ended 31 May 2017 which comprise the income statement, the statement of comprehensive income, the statement of financial position, the statement of cash flows, the statement of changes in equity and the related notes 1 to 20. The relevant financial reporting framework that has been applied in their preparation is the Companies Act 2014 and International Financial Reporting Standards (IFRS) as adopted by the European Union (“relevant financial reporting framework”). This report is made solely to the company’s members, as a body, in accordance with Section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ 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 company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view and otherwise comply with the Companies Act 2014. Our responsibility is to audit and express an opinion on the financial statements in accordance with the Companies Act 2014 and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Reports and Financial Statements to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion, the financial statements: n give a true and fair view of the assets, liabilities and financial position of the company as at 31 May 2017 and of the loss for the financial year then ended; and n have been properly prepared in accordance with the relevant financial reporting framework and, in particular, with the requirements of the Companies Act 2014. Emphasis of Matter – Realisation of Intangible Assets and Going Concern In forming our opinion on the financial statements, which is not modified, we draw your attention to the disclosures made in: n Notes 1 and 7 to the financial statements concerning the realisation of exploration and evaluation assets included as intangible assets in the statement of financial position. The realisation of intangible assets amounting to €9,276,955 (2016: €8,712,953) is dependent on the successful further development and ultimate production of the mineral reserves and the availability of adequate finance to bring the reserves to economic maturity and profitability. The financial statements do not include any adjustments in relation to these uncertainties and the ultimate outcome cannot at present be determined. n Note 1 to the financial statements concerning the company’s ability to continue as a going concern. The company incurred a loss of €410,814 (2016: €258,734) during the financial year ended 31 May 2017. The directors have reviewed the proposed work programme for exploration and evaluation assets and on the basis of the equity raised during the financial year, the results obtained from the exploration programme and the prospects for raising additional funds as required, they consider it appropriate to prepare the financial statements on a going concern basis. The financial statements do not include any adjustments to the carrying amount, or classification of assets and liabilities that would be necessary, if the group was unable to continue as a going concern. Matters on which we are required to report by the Companies Act 2014 n We have obtained all the information and explanations which we consider necessary for the purposes of our audit. n In our opinion the accounting records of the company were sufficient to permit the financial statements to be readily and properly audited. n The financial statements are in agreement with the accounting records. n In our opinion the information given in the directors’ report is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the provisions in the Companies Act 2014 which require us to report to you if, in our opinion, the disclosures of directors’ remuneration and transactions specified by law are not made. Gerard Casey For and on behalf of Deloitte Chartered Accountants and Statutory Audit Firm Limerick 28 November 2017 Annual Report and Financial Statements 2017 Karelian Diamond Resources Plc Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Income statement for the financial year ended 31 May 2017 Statement of comprehensive income for the financial year ended 31 May 2017 Continuing operations Operating expenses Finance income – bank interest receivable Loss before taxation Income tax expenses Loss for the financial year Loss per share Basic and diluted loss per share Note 2 3 5 6 2017 € (410,814) - (410,814) - 2016 € (258,904) 170 (258,734) - (410,814) (258,734) €(0.0011) €(0.0008) The total loss for the financial year is entirely attributable to equity holders of the Company. ______________________ Professor Richard Conroy Chairman _______________________ Maureen T.A. Jones Managing Director 2017 € 2016 € Loss for the financial year (410,814) (258,734) Income/expense recognised in other comprehensive income - - Total comprehensive expense for the financial year (410,814) (258,734) The total comprehensive expense for the financial year is entirely attributable to equity holders of the Company. The accompanying notes form an integral part of these audited financial statements. The accompanying notes form an integral part of these audited financial statements. 14 15 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Income statement for the financial year ended 31 May 2017 Statement of comprehensive income for the financial year ended 31 May 2017 Continuing operations Operating expenses Finance income – bank interest receivable Loss before taxation Income tax expenses 2017 € (410,814) (410,814) - - 2016 € (258,904) 170 (258,734) - 2017 € 2016 € Loss for the financial year (410,814) (258,734) Income/expense recognised in other comprehensive income - - Total comprehensive expense for the financial year (410,814) (258,734) The total comprehensive expense for the financial year is entirely attributable to equity holders of the Company. Note 2 3 5 6 Loss for the financial year (410,814) (258,734) Loss per share Basic and diluted loss per share €(0.0011) €(0.0008) The total loss for the financial year is entirely attributable to equity holders of the Company. ______________________ Professor Richard Conroy Chairman _______________________ Maureen T.A. Jones Managing Director The accompanying notes form an integral part of these audited financial statements. The accompanying notes form an integral part of these audited financial statements. 14 15 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Statement of financial position as at 31 May 2017 Statement of cash flows for the financial year ended 31 May 2017 Expense recognised in income statement in respect of equity settled share Cash flows from operating activities Loss for the financial year Adjustments for: Interest income based payments (Decrease)/increase in creditors (Increase)/decrease in debtors Net cash (used in)/provided by operating activities Cash flows from investing activities Investment in exploration and evaluation Cash used in investing activities Cash flows from financing activities Issue of share capital Share issue costs Shareholder loan repayment Interest received Net cash provided by financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year 2017 € 2016 € (410,814) (258,734) - 74,280 (6,698) (81,194) (424,426) (537,432) (537,432) 1,412,749 (117,723) (151,581) - 1,143,445 181,587 341,737 523,324 (170) 18,301 219,878 190,754 170,029 (607,251) (607,251) 317,904 (13,141) - 170 304,933 (132,289) 474,026 341,737 Assets Non-current assets Intangible assets Financial assets Total non-current assets Current assets Cash and cash equivalents Other receivables Total current assets Total assets Equity Capital and reserves Called up share capital Called up deferred share capital Share premium Share based payments reserve Retained losses Total equity Liabilities Non-current liabilities Trade and other payables: amounts falling due after more than one year Total non-current liabilities Current liabilities Trade and other payables: amounts falling due within one year Total current liabilities Total liabilities Note 7 8 10 11 14 14 14 12 13 31 May 2017 € 9,276,955 4 9,276,959 523,324 292,562 815,886 31 May 2016 € 8,712,953 4 8,712,957 341,737 211,368 553,105 10,092,845 9,266,062 5,844 3,174,672 8,201,664 765,977 (2,692,122) 9,456,035 158,008 158,008 478,802 478,802 636,810 3,177,850 - 6,791,581 665,127 (2,163,585) 8,470,973 309,589 309,589 485,500 485,500 795,089 Total equity and liabilities 10,092,845 9,266,062 The financial statements were approved by the Board of Directors on 28 November 2017 and authorised for issue on 28 November 2017. They are signed on its behalf by: ______________________ Professor Richard Conroy Chairman _______________________ Maureen T.A. Jones Managing Director The accompanying notes form an integral part of these audited financial statements. The accompanying notes form an integral part of these audited financial statements. 16 17 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Statement of financial position as at 31 May 2017 Statement of cash flows for the financial year ended 31 May 2017 Cash flows from operating activities Loss for the financial year Adjustments for: Interest income Expense recognised in income statement in respect of equity settled share based payments (Decrease)/increase in creditors (Increase)/decrease in debtors Net cash (used in)/provided by operating activities Cash flows from investing activities Investment in exploration and evaluation Cash used in investing activities Cash flows from financing activities Issue of share capital Share issue costs Shareholder loan repayment Interest received Net cash provided by financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year 2017 € 2016 € (410,814) (258,734) - 74,280 (6,698) (81,194) (424,426) (537,432) (537,432) 1,412,749 (117,723) (151,581) - 1,143,445 181,587 341,737 523,324 (170) 18,301 219,878 190,754 170,029 (607,251) (607,251) 317,904 (13,141) - 170 304,933 (132,289) 474,026 341,737 Assets Non-current assets Intangible assets Financial assets Total non-current assets Current assets Cash and cash equivalents Other receivables Total current assets Total assets Equity Capital and reserves Called up share capital Called up deferred share capital Share premium Share based payments reserve Retained losses Total equity Liabilities Non-current liabilities more than one year Total non-current liabilities Current liabilities one year Total current liabilities Total liabilities Trade and other payables: amounts falling due after Trade and other payables: amounts falling due within Note 7 8 10 11 14 14 14 12 13 31 May 2017 € 4 9,276,955 9,276,959 523,324 292,562 815,886 5,844 3,174,672 8,201,664 765,977 (2,692,122) 9,456,035 158,008 158,008 478,802 478,802 636,810 31 May 2016 € 4 8,712,953 8,712,957 341,737 211,368 553,105 3,177,850 - 6,791,581 665,127 (2,163,585) 8,470,973 309,589 309,589 485,500 485,500 795,089 10,092,845 9,266,062 Total equity and liabilities 10,092,845 9,266,062 The financial statements were approved by the Board of Directors on 28 November 2017 and authorised for issue on 28 November 2017. They are signed on its behalf by: ______________________ Professor Richard Conroy Chairman _______________________ Maureen T.A. Jones Managing Director The accompanying notes form an integral part of these audited financial statements. The accompanying notes form an integral part of these audited financial statements. 16 17 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Statement of changes in equity for the financial year ended 31 May 2017 to and forming part of the financial statements for the financial year ended 31 May 2017 Share capital € 3,177,850 2,666 - - - Share premium € 6,791,581 1,410,083 - - - Share-based payment reserve € 665,127 - - 100,850 Retained deficit € (2,163,585) - (117,723) - - (410,814) 3,180,516 8,201,664 765,977 (2,692,122) 2,865,350 312,500 - - - 3,177,850 6,786,177 5,404 - - - 6,791,581 570,256 - - 94,871 - 665,127 (1,891,710) - (13,141) - (258,734) (2,163,585) Total € 8,470,973 1,412,749 (117,723) 100,850 (410,814) 9,456,035 8,330,073 317,904 (13,141) 94,871 (258,734) 8,470,973 Balance at 1 June 2016 Share issue Share issue costs Share-based payments Loss for the financial year Balance at 31 May 2017 Balance at 1 June 2015 Share issue Share issue costs Share-based payments Loss for the financial year Balance at 31 May 2016 Share capital The share capital comprises of the nominal value share capital issued for cash and non-cash consideration. The share capital also comprises deferred share capital. The deferred share capital arose through the restructuring of share capital which was approved at an Extraordinary General Meeting held on 9 December 2016. A detailed breakdown of the share capital figure is included in Note 14. Share premium The share premium reserve comprises of the excess consideration received in respect of share capital over the nominal value of shares issued. Share based payment reserve The share based payment reserve represents the amount expensed to the income statement and the amount capitalised as part of intangible assets of share-based payments granted which are not yet exercised and issued as shares. Retained deficit This reserve represents the accumulated losses absorbed by the Company to the statement of financial position date. The accompanying notes form an integral part of these audited financial statements. 18 19 Notes 1 Accounting policies Reporting entity Basis of preparation Karelian Diamond Resources P.L.C. (the “Company”) is a company domiciled in Ireland. The financial statements are presented in Euro (“€”). The € is the functional currency of the Company. The financial statements are prepared under the historical cost basis except for derivative financial instruments which, if any, are measured at fair value at each reporting date. The preparation of financial statements requires the Board of Directors and management to use judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Details of critical judgements are disclosed in the accounting The financial statements were authorised for issue by the Board of Directors on 28 November 2017. policies. Going concern The Company incurred a loss of €410,814 (2016: €258,734) for the financial year ended 31 May 2017. The Company had net current assets of €337,084 (2016: €67,605) at that date. The Directors, have confirmed that they will not seek repayment of amounts owed to them by the Company of €324,013 (2016: €399,007) within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. The Company has confirmed to Conroy Gold and Natural Resources P.L.C. that it will not seek repayment of amounts owed by Conroy Gold and Natural Resources P.L.C. at 31 May 2017 of €273,800 (2016: €168,825) for a period of at least 12 months from the date of approval of the financial statements of Conroy Gold and Natural Resources P.L.C., unless Conroy Gold and Natural Resources P.L.C. has sufficient funds to repay. There is a commonality of certain Directors and certain shareholders between the Company and Conroy Gold and Natural Resources P.L.C. The Board of Directors have considered carefully the financial position of the Company and in that context, have prepared and reviewed cash flow forecasts for the period to 30 November 2018. As set out further in the Chairman’s statement, the Company expects to incur material levels of capital expenditure in 2018, consistent with its strategy as an exploration company. In reviewing the proposed work programme for exploration and evaluation assets and on the basis of the equity raised during the financial year, the results obtained from the exploration programme and the prospects for raising additional funds as required, the Board of Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis. The Company’s financial statements have been prepared in accordance with IFRS as adopted by the European Statement of compliance Union (“EU”). Recent accounting pronouncements The following are amendments to existing standards and interpretations that are effective for the Company’s financial year from 1 June 2016: • Annual Improvements to IFRSs 2012-2014 cycle • • • • • IFRS 11: Accounting for acquisitions of interests in Joint Operations IFRS 14: Regulatory Deferral Accounts IAS 16: Property, Plant and Equipment and IAS 41: Bearer Plants IAS 16 and 38: Acceptable methods of depreciation/amortisation IAS 27: Equity method in Separate Financial Statements Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Statement of changes in equity for the financial year ended 31 May 2017 Notes to and forming part of the financial statements for the financial year ended 31 May 2017 Share capital Share Share-based Total premium 1 Accounting policies Reporting entity Karelian Diamond Resources P.L.C. (the “Company”) is a company domiciled in Ireland. Basis of preparation The financial statements are presented in Euro (“€”). The € is the functional currency of the Company. The financial statements are prepared under the historical cost basis except for derivative financial instruments which, if any, are measured at fair value at each reporting date. The preparation of financial statements requires the Board of Directors and management to use judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Details of critical judgements are disclosed in the accounting policies. The financial statements were authorised for issue by the Board of Directors on 28 November 2017. Going concern The Company incurred a loss of €410,814 (2016: €258,734) for the financial year ended 31 May 2017. The Company had net current assets of €337,084 (2016: €67,605) at that date. The Directors, have confirmed that they will not seek repayment of amounts owed to them by the Company of €324,013 (2016: €399,007) within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. The Company has confirmed to Conroy Gold and Natural Resources P.L.C. that it will not seek repayment of amounts owed by Conroy Gold and Natural Resources P.L.C. at 31 May 2017 of €273,800 (2016: €168,825) for a period of at least 12 months from the date of approval of the financial statements of Conroy Gold and Natural Resources P.L.C., unless Conroy Gold and Natural Resources P.L.C. has sufficient funds to repay. There is a commonality of certain Directors and certain shareholders between the Company and Conroy Gold and Natural Resources P.L.C. The Board of Directors have considered carefully the financial position of the Company and in that context, have prepared and reviewed cash flow forecasts for the period to 30 November 2018. As set out further in the Chairman’s statement, the Company expects to incur material levels of capital expenditure in 2018, consistent with its strategy as an exploration company. In reviewing the proposed work programme for exploration and evaluation assets and on the basis of the equity raised during the financial year, the results obtained from the exploration programme and the prospects for raising additional funds as required, the Board of Directors are satisfied that it is appropriate to prepare the financial statements on a going concern basis. Statement of compliance The Company’s financial statements have been prepared in accordance with IFRS as adopted by the European Union (“EU”). Recent accounting pronouncements The following are amendments to existing standards and interpretations that are effective for the Company’s financial year from 1 June 2016: • Annual Improvements to IFRSs 2012-2014 cycle • • • • • IFRS 11: Accounting for acquisitions of interests in Joint Operations IFRS 14: Regulatory Deferral Accounts IAS 16: Property, Plant and Equipment and IAS 41: Bearer Plants IAS 16 and 38: Acceptable methods of depreciation/amortisation IAS 27: Equity method in Separate Financial Statements 18 19 3,177,850 2,666 6,791,581 1,410,083 665,127 (2,163,585) payment reserve € 100,850 - - - - - - 94,871 € - - - - - - Retained deficit € - - - - (117,723) (410,814) (13,141) (258,734) € 8,470,973 1,412,749 (117,723) 100,850 (410,814) 9,456,035 317,904 (13,141) 94,871 (258,734) 8,470,973 3,180,516 8,201,664 765,977 (2,692,122) 2,865,350 312,500 6,786,177 5,404 570,256 (1,891,710) 8,330,073 3,177,850 6,791,581 665,127 (2,163,585) € - - - - - - The share capital comprises of the nominal value share capital issued for cash and non-cash consideration. The share capital also comprises deferred share capital. The deferred share capital arose through the restructuring of share capital which was approved at an Extraordinary General Meeting held on 9 December 2016. A detailed breakdown of the share capital figure is included in Note 14. The share premium reserve comprises of the excess consideration received in respect of share capital over the nominal The share based payment reserve represents the amount expensed to the income statement and the amount capitalised as part of intangible assets of share-based payments granted which are not yet exercised and issued as This reserve represents the accumulated losses absorbed by the Company to the statement of financial position date. Balance at 1 June 2016 Share issue Share issue costs Share-based payments Loss for the financial year Balance at 31 May 2017 Balance at 1 June 2015 Share issue Share issue costs Share-based payments Loss for the financial year Balance at 31 May 2016 Share capital Share premium value of shares issued. Share based payment reserve shares. Retained deficit The accompanying notes form an integral part of these audited financial statements. Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 1 Accounting policies (continued) Recent accounting pronouncements (continued) • • The adoption of these amendments did not have a significant impact on the Company’s financial statements. IAS 1: Disclosure initiative IFRS 10, IFRS 12 and IAS 28: Investment entities: Applying the consolidation exception. 1 Accounting policies (continued) (a) Intangible assets (continued) (ii) Impairment Standards endorsed by the EU that are not yet required to be applied but can be early adopted are set out below. None of these standards have been applied in the current period. The Board of Directors are currently assessing whether these standards will have a material impact on the financial statements. • • • IAS 7: Disclosure initiative – effective 1 January 2017 IAS 12: Recognition of deferred tax assets for unrealised losses – effective 1 January 2017 IFRS 15: Revenue from contracts with customers (May 2014) including amendments to IFRS 15 - effective 1 January 2018 IFRS 9: Financial Instruments - effective 1 January 2018 • IFRS 14 : Regulatory Deferral Accounts The following standards have been issued by the IASB but have not yet been endorsed by the EU, accordingly none of these standards have been applied in the current period and the Board of Directors are currently assessing whether these standards will have a material impact on the financial statements. • • Clarification to IFRS 15: Revenue from contracts with customers • Amendments to IFRS 2: Classification and measurement of share-based payment transactions • Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts • Annual Improvements to IFRS 2014 - 2016 Cycle • • Amendments to IAS 40: Foreign Currency transaction and advance consideration • • Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or joint IFRIC 22: Foreign Currency transaction and advance consideration IFRS 16: Leases venture (a) Intangible assets The Company accounts for mineral expenditure in accordance with IFRS 6: Exploration For and Evaluation of Mineral Resources. (i) Capitalisation Certain costs (other than payments to acquire the legal rights to explore) incurred prior to acquiring the rights to explore are charged directly to the income statement. Exploration, appraisal and development expenditure incurred on exploring, and testing exploration prospects are accumulated and capitalised as intangible exploration and evaluation (“E&E”) assets. E&E capitalised costs include geological and geophysical costs, and other direct costs of exploration (drilling, trenching, sampling and technical feasibility and commercial viability activities). In addition, E&E capitalised costs include an allocation from operating expenses, including share based payments, all such costs being necessary for exploration and evaluation activities. E&E capitalised costs are not amortised prior to the conclusion of appraisal activities. At completion of appraisal activities if technical feasibility is demonstrated and commercial reserves are discovered, then the carrying amount of the relevant E&E asset will be reclassified as a development and production asset, once the carrying value of the asset has been assessed for impairment. If following completion of appraisal activities in an area, it is not possible to determine technical feasibility and commercial viability, or if the right to explore expires, then the costs of such unsuccessful exploration and evaluation is written off to the income statement in the period in which the event occurred. 20 21 If facts and circumstances indicate that the carrying value of an E&E asset may exceed its recoverable amount, an impairment review is performed. The following are considered to be key indicators of impairment in relation to E&E assets: • • • • the specific area. development or by sale. The period for which the entity has the right to explore in the specific area has expired or will expire in the near future, and is not expected to be renewed. neither budgeted nor planned. Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful For E&E assets, where the above indicators exist, an impairment test is carried out. The E&E assets are categorised into Cash Generating Units (“CGU”). The carrying value of the CGU is compared to its recoverable amount and any resulting impairment loss is written off to the income statement. The recoverable amount of the CGU is assessed as the higher of its fair value, less costs to sell, and its value in use. Transaction costs arising on the issue of share capital are accounted for as a deduction from equity against Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is provided on a straight line basis to write off the cost less estimated residual value of the (b) Transaction costs retained earnings. (c) Property, plant and equipment assets over their estimated useful lives as follows: Plant and office equipment 10 years (d) Income taxation expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in the statement of comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities on a net basis or their tax assets and liabilities will be settled simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) Impairment • • • 1 Accounting policies (continued) (a) Intangible assets (continued) (ii) If facts and circumstances indicate that the carrying value of an E&E asset may exceed its recoverable amount, an impairment review is performed. The following are considered to be key indicators of impairment in relation to E&E assets: • The period for which the entity has the right to explore in the specific area has expired or will expire in the near future, and is not expected to be renewed. Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned. Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area. Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. 1 Accounting policies (continued) Recent accounting pronouncements (continued) IAS 1: Disclosure initiative • • • • • • IFRS 10, IFRS 12 and IAS 28: Investment entities: Applying the consolidation exception. The adoption of these amendments did not have a significant impact on the Company’s financial statements. Standards endorsed by the EU that are not yet required to be applied but can be early adopted are set out below. None of these standards have been applied in the current period. The Board of Directors are currently assessing whether these standards will have a material impact on the financial statements. IAS 7: Disclosure initiative – effective 1 January 2017 IAS 12: Recognition of deferred tax assets for unrealised losses – effective 1 January 2017 IFRS 15: Revenue from contracts with customers (May 2014) including amendments to IFRS 15 - effective 1 January 2018 IFRS 9: Financial Instruments - effective 1 January 2018 The following standards have been issued by the IASB but have not yet been endorsed by the EU, accordingly none of these standards have been applied in the current period and the Board of Directors are currently assessing whether these standards will have a material impact on the financial statements. • IFRS 14 : Regulatory Deferral Accounts • Clarification to IFRS 15: Revenue from contracts with customers • Amendments to IFRS 2: Classification and measurement of share-based payment transactions • Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts • Annual Improvements to IFRS 2014 - 2016 Cycle • IFRIC 22: Foreign Currency transaction and advance consideration • Amendments to IAS 40: Foreign Currency transaction and advance consideration • Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or joint • IFRS 16: Leases venture (a) Intangible assets Mineral Resources. (i) Capitalisation Certain costs (other than payments to acquire the legal rights to explore) incurred prior to acquiring the rights to explore are charged directly to the income statement. Exploration, appraisal and development expenditure incurred on exploring, and testing exploration prospects are accumulated and capitalised as intangible exploration and evaluation (“E&E”) assets. E&E capitalised costs include geological and geophysical costs, and other direct costs of exploration (drilling, trenching, sampling and technical feasibility and commercial viability activities). In addition, E&E capitalised costs include an allocation from operating expenses, including share based payments, all such costs being necessary for exploration and evaluation activities. E&E capitalised costs are not amortised prior to the conclusion of appraisal activities. At completion of appraisal activities if technical feasibility is demonstrated and commercial reserves are discovered, then the carrying amount of the relevant E&E asset will be reclassified as a development and production asset, once the carrying value of the asset has been assessed for impairment. If following completion of appraisal activities in an area, it is not possible to determine technical feasibility and commercial viability, or if the right to explore expires, then the costs of such unsuccessful exploration and evaluation is written off to the income statement in the period in which the event occurred. The Company accounts for mineral expenditure in accordance with IFRS 6: Exploration For and Evaluation of Plant and office equipment 10 years For E&E assets, where the above indicators exist, an impairment test is carried out. The E&E assets are categorised into Cash Generating Units (“CGU”). The carrying value of the CGU is compared to its recoverable amount and any resulting impairment loss is written off to the income statement. The recoverable amount of the CGU is assessed as the higher of its fair value, less costs to sell, and its value in use. (b) Transaction costs Transaction costs arising on the issue of share capital are accounted for as a deduction from equity against retained earnings. (c) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is provided on a straight line basis to write off the cost less estimated residual value of the assets over their estimated useful lives as follows: (d) Income taxation expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in the statement of comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities on a net basis or their tax assets and liabilities will be settled simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 20 21 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 1 Accounting policies (continued) (e) Share based payments For equity-settled share based payment transactions (i.e. the granting of share options and share warrants), the Company measures the services and the corresponding increase in equity at fair value at the measurement date (which is the grant date) using a recognised valuation methodology for the pricing of financial instruments (Binomial Lattice Model). Given that the share options and warrants granted do not vest until the completion of a specified period of service, the fair value is determined on the basis that the services to be rendered by employees as consideration for the granting of share options and warrants will be received over the vesting period, which is assessed as the grant date. The fair value determined at the grant date of the equity settled share based payments is expensed on a straight line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. (f) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. (g) Trade and other receivables and payables Trade and other receivables and payables are measured at initial recognition at fair value, and subsequently measured at amortised cost. (h) Earnings per share The Company presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all potentially dilutive ordinary shares. (i) Cash and cash equivalents Cash and cash equivalents consist of cash at bank held by the Company and short-term bank deposits with a maturity of three months or less. Cash and cash equivalents are held for the purpose of meeting short-term cash commitments. (j) Pension costs The Company provides for pensions for certain employees through a defined contribution pension schemes. The amounts charged to the income statement and statement of financial position is the contribution payable in that financial year. Any difference between amounts charged and contributions paid to the pension scheme is included in receivables or payables in the statement of financial position. (k) Foreign currencies Transactions denominated in foreign currencies relating to costs and non-monetary assets are translated into € at the rates of exchange ruling on the dates on which the transactions occurred. Monetary assets and liabilities denominated in foreign currencies are translated into € at the rate of exchange ruling at the statement of financial position date. The resulting profits or losses are dealt with in the income statement. (l) Shareholder loan The shareholder loan is initially measured at fair value, net of transaction costs and subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount of initial recognition. 1 Accounting policies (continued) (m) Ordinary shares Ordinary shares are classified as equity. Costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from retained earnings, net of any tax effects. (n) Critical accounting judgements and key sources of estimation uncertainty Critical judgements in applying the Company’s accounting policies In the process of applying the Company’s accounting policies above, the Board of Directors have identified the judgemental areas that have the most significant impact on the amounts recognised in the financial statements (apart from those involving estimations), which are dealt with as follows: Exploration and evaluation assets The assessment of whether operating costs and salary costs are capitalised or expensed involves judgement. The Board of Directors consider the nature of each cost incurred and whether it is deemed appropriate to capitalise it within exploration and evaluation assets. Given that the activity of management and the resultant administration and salary costs are primarily focused on the Company’s diamond prospects, the Board of Directors consider it appropriate to capitalise a portion of such costs. Intangible assets As outlined in the intangible assets accounting policy, the exploration and evaluation assets should be allocated to CGU’s. The determination of what constitutes a CGU requires judgement. The carrying value of each CGU is compared to its recoverable amount. The recoverable amount of the CGU is assessed as the higher of its fair value less costs to sell and its value in use. The determination of value in use requires the following judgements: • • • Estimation of future cash flows expected to be derived from the asset. Expectation about possible variations in the amount or timing of the future cash flows. The determination of an appropriate discount rate. Going concern The preparation of financial statements requires an assessment on the validity of the going concern assumption. The validity of the going concern assumption is dependent on the successful further development and ultimate production of the mineral reserves and the availability of sufficient finance to bring the reserves to economic maturity and profitability. The Board of Directors have reviewed the proposed programme for exploration and evaluation assets and on the basis the equity raised during the financial year, the encouraging results from the exploration programme and the prospects for raising additional funds as required, consider it appropriate to prepare the financial statements on the going concern basis. Refer to page 19 for further details. Key sources of estimation uncertainty The preparation of the financial statements requires the Board of Directors to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the statement of financial position date and the amounts reported for revenues and expenses during the financial year. The nature of estimation means that actual outcomes could differ from those estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed overleaf. 22 23 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. to and forming part of the financial statements for the financial year ended 31 May 2017 Notes (continued) 1 Accounting policies (continued) (e) Share based payments For equity-settled share based payment transactions (i.e. the granting of share options and share warrants), the Company measures the services and the corresponding increase in equity at fair value at the measurement date (which is the grant date) using a recognised valuation methodology for the pricing of financial instruments (Binomial Lattice Model). Given that the share options and warrants granted do not vest until the completion of a specified period of service, the fair value is determined on the basis that the services to be rendered by employees as consideration for the granting of share options and warrants will be received over the vesting period, which is assessed as the grant date. The fair value determined at the grant date of the equity settled share based payments is expensed on a straight line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. (f) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. (g) Trade and other receivables and payables Trade and other receivables and payables are measured at initial recognition at fair value, and subsequently measured at amortised cost. (h) Earnings per share The Company presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the Cash and cash equivalents consist of cash at bank held by the Company and short-term bank deposits with a maturity of three months or less. Cash and cash equivalents are held for the purpose of meeting short-term cash effects of all potentially dilutive ordinary shares. (i) Cash and cash equivalents commitments. (j) Pension costs The Company provides for pensions for certain employees through a defined contribution pension schemes. The amounts charged to the income statement and statement of financial position is the contribution payable in that financial year. Any difference between amounts charged and contributions paid to the pension scheme is included in receivables or payables in the statement of financial position. (k) Foreign currencies Transactions denominated in foreign currencies relating to costs and non-monetary assets are translated into € at the rates of exchange ruling on the dates on which the transactions occurred. Monetary assets and liabilities denominated in foreign currencies are translated into € at the rate of exchange ruling at the statement of financial position date. The resulting profits or losses are dealt with in the income statement. (l) Shareholder loan The shareholder loan is initially measured at fair value, net of transaction costs and subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount of initial recognition. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) 1 Accounting policies (continued) (m) Ordinary shares Ordinary shares are classified as equity. Costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from retained earnings, net of any tax effects. (n) Critical accounting judgements and key sources of estimation uncertainty Critical judgements in applying the Company’s accounting policies In the process of applying the Company’s accounting policies above, the Board of Directors have identified the judgemental areas that have the most significant impact on the amounts recognised in the financial statements (apart from those involving estimations), which are dealt with as follows: Exploration and evaluation assets The assessment of whether operating costs and salary costs are capitalised or expensed involves judgement. The Board of Directors consider the nature of each cost incurred and whether it is deemed appropriate to capitalise it within exploration and evaluation assets. Given that the activity of management and the resultant administration and salary costs are primarily focused on the Company’s diamond prospects, the Board of Directors consider it appropriate to capitalise a portion of such costs. Intangible assets As outlined in the intangible assets accounting policy, the exploration and evaluation assets should be allocated to CGU’s. The determination of what constitutes a CGU requires judgement. The carrying value of each CGU is compared to its recoverable amount. The recoverable amount of the CGU is assessed as the higher of its fair value less costs to sell and its value in use. The determination of value in use requires the following judgements: • • • Estimation of future cash flows expected to be derived from the asset. Expectation about possible variations in the amount or timing of the future cash flows. The determination of an appropriate discount rate. Going concern The preparation of financial statements requires an assessment on the validity of the going concern assumption. The validity of the going concern assumption is dependent on the successful further development and ultimate production of the mineral reserves and the availability of sufficient finance to bring the reserves to economic maturity and profitability. The Board of Directors have reviewed the proposed programme for exploration and evaluation assets and on the basis the equity raised during the financial year, the encouraging results from the exploration programme and the prospects for raising additional funds as required, consider it appropriate to prepare the financial statements on the going concern basis. Refer to page 19 for further details. Key sources of estimation uncertainty The preparation of the financial statements requires the Board of Directors to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the statement of financial position date and the amounts reported for revenues and expenses during the financial year. The nature of estimation means that actual outcomes could differ from those estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed overleaf. 22 23 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 1 Accounting policies (continued) 2 Operating expenses (continued) (n) Critical accounting judgements and key sources of estimation uncertainty (continued) Key sources of estimation uncertainty (continued) Exploration and evaluation assets The carrying value of exploration and evaluation assets was €9,276,955 (2016: €8,712,953) at 31 May 2017. The Board of Directors carried out an assessment, in accordance with IFRS 6: Exploration for and Evaluation of Mineral Resources relating to the remaining licence or claim terms, likelihood of renewal, likelihood of further expenditure, possible discontinuation of activities over specific claims and available data which may suggest that the recoverable value of an exploration and evaluation asset is less than its carrying amount. Based on this assessment the Board of Directors is satisfied as to the carrying value of these assets and is satisfied that these are recoverable, acknowledging however that their recoverability is dependent on future successful exploration efforts. Employee benefits - Share based payment transactions The Company operates an equity-settled share based payment arrangements with non-market performance conditions which fall within the scope of and are accounted for under the provisions of IFRS 2: Share Based Payment. Accordingly, the grant date fair value of the options under these schemes is recognised as a personnel expense with a corresponding increase in the “Share based payment reserve”, within equity, over the vesting period. The estimation of share-based payment costs requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The Company has made estimates as to the volatility of its own shares, the probable life of options granted and the time of exercise of those options. The model used by the Company is the Binomial Lattice Model. The fair value of these options is measured using an appropriate option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest, except where forfeiture is only due to share prices not achieving the threshold for vesting. Deferred tax No deferred tax asset has been recognised in respect of tax losses as it is not considered probable that future taxable profit will be available against which the related temporary differences can be utilised. 2 Operating expenses (a) Analysis of operating expenses Operating expenses Transfer to intangible assets Operating expenses are analysed as follows: Wages, salaries and related costs Share based payments Auditor remuneration Other operating expenses 2017 € 718,854 (308,040) 410,814 289,008 100,850 12,500 316,496 718,854 2016 € 617,067 (358,163) 258,904 240,831 94,871 12,500 268,865 617,067 Of the above costs, a total of €308,040 (2016: €358,163) is capitalised to intangible assets based on a review of the nature and quantum of the underlying costs. 24 (b) Wages, salaries and related costs as disclosed above is analysed as follows: 2017 € 264,671 337 24,000 - 289,008 2017 3 3 20,120 12,520 8,072 524 524 - 12,460 9,459 5,878 524 524 - 161 15,000 9,000 15,000 9,000 - - - - - - - - - 2016 € 216,581 250 24,000 - 240,831 2016 3 3 Total € 105,120 87,520 57,072 10,524 10,524 10,000 Total € 97,460 84,459 54,878 10,524 10,524 10,000 5,546 Amount of wages and salaries capitalised to intangible assets during the financial year was €146,274 (2016: The average number of persons employed during the year (including executive Directors) by activity was as An analysis of remuneration for each Director of the Company in the current financial year (prior to amounts transferred to intangible assets) is as follows: Salary Share based Pension payment € contributions € 145,000 41,760 24,000 280,760 An analysis of remuneration for each Director of the Company in the prior financial year (prior to amounts transferred to intangible assets) is as follows: Salary Share based Pension payment € contributions € Wages and salaries Social insurance costs Retirement benefit costs Other compensation costs €197,934). follows: Corporate management and administration Professor Richard Conroy Maureen T.A. Jones James P. Jones Louis J. Maguire Séamus P. Fitzpatrick Dr. Sorċa Conroy Professor Richard Conroy Maureen T.A. Jones James P. Jones Louis J. Maguire Séamus P. Fitzpatrick Dr. Sorċa Conroy Roger I. Chaplin Fees € 20,000 10,000 10,000 10,000 10,000 10,000 70,000 Fees € 20,000 10,000 10,000 10,000 10,000 10,000 5,385 75,385 € 65,000 50,000 30,000 € 65,000 50,000 30,000 - - - - - - - 25 145,000 29,006 24,000 273,391 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) 1 Accounting policies (continued) (n) Critical accounting judgements and key sources of estimation uncertainty (continued) Key sources of estimation uncertainty (continued) Exploration and evaluation assets The carrying value of exploration and evaluation assets was €9,276,955 (2016: €8,712,953) at 31 May 2017. The Board of Directors carried out an assessment, in accordance with IFRS 6: Exploration for and Evaluation of Mineral Resources relating to the remaining licence or claim terms, likelihood of renewal, likelihood of further expenditure, possible discontinuation of activities over specific claims and available data which may suggest that the recoverable value of an exploration and evaluation asset is less than its carrying amount. Based on this assessment the Board of Directors is satisfied as to the carrying value of these assets and is satisfied that these are recoverable, acknowledging however that their recoverability is dependent on future successful exploration efforts. Employee benefits - Share based payment transactions The Company operates an equity-settled share based payment arrangements with non-market performance conditions which fall within the scope of and are accounted for under the provisions of IFRS 2: Share Based Payment. Accordingly, the grant date fair value of the options under these schemes is recognised as a personnel expense with a corresponding increase in the “Share based payment reserve”, within equity, over the vesting period. The estimation of share-based payment costs requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The Company has made estimates as to the volatility of its own shares, the probable life of options granted and the time of exercise of those options. The model used by the Company is the Binomial Lattice Model. The fair value of these options is measured using an appropriate option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest, except where forfeiture is only due to share prices not achieving the No deferred tax asset has been recognised in respect of tax losses as it is not considered probable that future taxable profit will be available against which the related temporary differences can be utilised. threshold for vesting. Deferred tax 2 Operating expenses (a) Analysis of operating expenses Operating expenses Transfer to intangible assets Operating expenses are analysed as follows: Wages, salaries and related costs Share based payments Auditor remuneration Other operating expenses 2017 € 718,854 (308,040) 410,814 289,008 100,850 12,500 316,496 718,854 2016 € 617,067 (358,163) 258,904 240,831 94,871 12,500 268,865 617,067 Of the above costs, a total of €308,040 (2016: €358,163) is capitalised to intangible assets based on a review of the nature and quantum of the underlying costs. 24 2 Operating expenses (continued) (b) Wages, salaries and related costs as disclosed above is analysed as follows: Wages and salaries Social insurance costs Retirement benefit costs Other compensation costs 264,671 337 24,000 - 289,008 2017 € 2016 € 216,581 250 24,000 - 240,831 Amount of wages and salaries capitalised to intangible assets during the financial year was €146,274 (2016: €197,934). The average number of persons employed during the year (including executive Directors) by activity was as follows: Corporate management and administration 2017 3 3 2016 3 3 An analysis of remuneration for each Director of the Company in the current financial year (prior to amounts transferred to intangible assets) is as follows: Professor Richard Conroy Maureen T.A. Jones James P. Jones Louis J. Maguire Séamus P. Fitzpatrick Dr. Sorċa Conroy Fees € 20,000 10,000 10,000 10,000 10,000 10,000 70,000 Salary € 65,000 50,000 30,000 - - - 145,000 Share based payment € 20,120 12,520 8,072 524 524 - 41,760 Pension contributions € - 15,000 9,000 - - - 24,000 Total € 105,120 87,520 57,072 10,524 10,524 10,000 280,760 An analysis of remuneration for each Director of the Company in the prior financial year (prior to amounts transferred to intangible assets) is as follows: Professor Richard Conroy Maureen T.A. Jones James P. Jones Louis J. Maguire Séamus P. Fitzpatrick Dr. Sorċa Conroy Roger I. Chaplin Fees € 20,000 10,000 10,000 10,000 10,000 10,000 5,385 75,385 Salary € 65,000 50,000 30,000 - - - - 145,000 25 Share based payment € 12,460 9,459 5,878 524 524 - 161 29,006 Pension contributions € - 15,000 9,000 - - - - 24,000 Total € 97,460 84,459 54,878 10,524 10,524 10,000 5,546 273,391 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 2 Operating expenses (continued) The total share based payment charge of €100,850 (2016: €94,871) is accounted for as shown below: 4 Directors’ remuneration Share based payment charge expensed to income statement Share based payment charge transferred to intangible assets 2017 € 74,280 26,570 100,850 2016 € 18,301 76,570 94,871 In the opinion of the Directors, approximately 63% (2016: 80%) of the share based payment charge is directly related to exploration and evaluation activities, and has been capitalised within intangible assets. 3 Loss before taxation The loss before taxation is arrived at after charging the following items, which are stated at amounts prior to the transfer to intangible assets: Depreciation Auditor’s remuneration The analysis of the auditor’s remuneration is as follows: • Audit of financial statements 2017 € - 2016 € - 12,500 12,500 Aggregate emoluments paid to or receivable by Directors in respect of qualifying services Aggregate amount of gains by Directors on exercise of share options during the financial year Aggregate amount of money or value of other assets including shares, but excluding share options, paid to or receivable by the Directors under long term incentive schemes in respect of qualifying services Aggregate contributions paid, treated as paid, or payable during the financial year to a retirement benefit scheme in respect of qualifying services of Directors: • Defined contribution scheme – for 2 Directors (2016: 2) • Defined benefit scheme Compensation paid, or payable, or other termination payments in respect of loss of office to Directors of the Company in the financial year: • Officer of Director of the Company • Other offices Amounts paid or payable to past Directors of the Company or its holding undertaking: • • For retirement benefits in relation to services as Directors For other retirement benefits Compensation paid or payable for loss of office or other termination benefits: • Office of Director • Other offices 2017 € 2016 € 215,000 220,385 - - 41,760 2017 € 24,000 - 2017 € - - - - - - 29,006 2016 € 24,000 - 2016 € - - - - - - 2017 € 2016 € 2017 € 2016 € 26 27 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) 2 Operating expenses (continued) The total share based payment charge of €100,850 (2016: €94,871) is accounted for as shown below: 4 Directors’ remuneration Share based payment charge expensed to income statement Share based payment charge transferred to intangible assets In the opinion of the Directors, approximately 63% (2016: 80%) of the share based payment charge is directly related to exploration and evaluation activities, and has been capitalised within intangible assets. The loss before taxation is arrived at after charging the following items, which are stated at amounts prior to the 3 Loss before taxation transfer to intangible assets: Depreciation Auditor’s remuneration The analysis of the auditor’s remuneration is as follows: • Audit of financial statements 2017 € 74,280 26,570 100,850 2016 € 18,301 76,570 94,871 2017 € - 2016 € - 12,500 12,500 Aggregate emoluments paid to or receivable by Directors in respect of qualifying services Aggregate amount of gains by Directors on exercise of share options during the financial year Aggregate amount of money or value of other assets including shares, but excluding share options, paid to or receivable by the Directors under long term incentive schemes in respect of qualifying services Aggregate contributions paid, treated as paid, or payable during the financial year to a retirement benefit scheme in respect of qualifying services of Directors: • Defined contribution scheme – for 2 Directors (2016: 2) • Defined benefit scheme Compensation paid, or payable, or other termination payments in respect of loss of office to Directors of the Company in the financial year: • Officer of Director of the Company • Other offices Amounts paid or payable to past Directors of the Company or its holding undertaking: • • For retirement benefits in relation to services as Directors For other retirement benefits Compensation paid or payable for loss of office or other termination benefits: • Office of Director • Other offices 2017 € 2016 € 215,000 220,385 - - 41,760 2017 € 24,000 - 2017 € - - 2017 € - - 2017 € - - 29,006 2016 € 24,000 - 2016 € - - 2016 € - - 2016 € - - 26 27 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 5 Income tax expense No taxation charge arose in the current or prior financial year due to losses incurred. 7 Intangible assets Exploration and evaluation assets Factors affecting the tax charge for the financial year: The total tax charge for the financial year is different to the standard rate of Irish corporation tax. This is due to the following: Loss on ordinary activities before tax Irish standard tax rate Tax credit at the Irish standard rate Effects of: Losses carried forward for future utilisation Tax charge for the financial year 2017 € (410,814) 12.50% (51,352) 51,352 - 2016 € (258,734) 12.50% (32,342) 32,342 - No deferred tax asset has been recognised on accumulated tax losses as it cannot be considered probable that future taxable profit will be available against which the deferred tax asset can be utilised. Unutilised losses may be carried forward from the date of the origination of the losses, but may only be offset against taxable profits earned from the same trade. 6 Loss per share Basic earnings per share Loss for the year attributable to equity holder of the Company Number of ordinary shares at start of financial year Number of ordinary shares issued during the financial year Number of ordinary shares at end of financial year 2017 € (410,814) 2016 € (258,734) 317,785,034 266,666,664 584,451,698 286,535,034 31,250,000 317,785,034 Weighted average number of ordinary shares for the purposes of basic earnings per share 382,564,333 287,219,281 Cost At 1 June • • At 31 May Expenditure during the financial year Licence and appraisal costs • Other operating expenses (Note 2) Equity settled share based payments (Note 2) 2017 € 2016 € 8,712,953 8,029,132 255,962 281,470 26,570 9,276,955 325,658 281,413 76,750 8,712,953 Exploration and evaluation assets relate to expenditure incurred in the development of mineral exploration opportunities. These assets are carried at historical cost and have been assessed for impairment in particular with regard to the requirements of IFRS 6: Exploration for and Evaluation of Mineral Resources relating to remaining licence or claim terms, likelihood of renewal, likelihood of further expenditure, possible discontinuation of activities as a result of specific claims and available data which may suggest that the recoverable value of an exploration and evaluation asset is less than its carrying amount. The Board of Directors have considered the proposed work programmes for the underlying mineral reserves. They are satisfied that there are no indications of impairment. The Board of Directors note that the realisation of the intangible assets is dependent on further successful development and ultimate production of the mineral reserves and the availability of sufficient finance to bring the resources to economic maturity and profitability. 8 Financial assets Investment in subsidiaries 31 May 2017 € 4 31 May 2016 € 4 Financial assets represent investments of €2 in each of the Company’s wholly owned subsidiary undertakings, Karelian Diamonds Limited and Nordic Diamonds Limited. The net asset of each entity is €2. Certain diamond claims in Finland are held in the name of the Company’s subsidiaries. The registered office of both non-trading Basic loss per ordinary share (€0.0011) (€0.0008) subsidiaries is 3300 Lake Drive, Citywest Business Campus, Dublin 24, D24 TD21, Ireland. Diluted earnings per share The effect of share options and warrants is anti-dilutive. The above subsidiaries have not been consolidated on the basis that they are not trading, and the net asset of each entity is €2. 28 29 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) 5 Income tax expense No taxation charge arose in the current or prior financial year due to losses incurred. Factors affecting the tax charge for the financial year: The total tax charge for the financial year is different to the standard rate of Irish corporation tax. This is due to the following: Loss on ordinary activities before tax Irish standard tax rate Tax credit at the Irish standard rate Effects of: Losses carried forward for future utilisation Tax charge for the financial year 2017 € (410,814) 12.50% (51,352) 51,352 - 2016 € (258,734) 12.50% (32,342) 32,342 - No deferred tax asset has been recognised on accumulated tax losses as it cannot be considered probable that future taxable profit will be available against which the deferred tax asset can be utilised. Unutilised losses may be carried forward from the date of the origination of the losses, but may only be offset against taxable profits earned from the same trade. 6 Loss per share Basic earnings per share 2017 € 2016 € Loss for the year attributable to equity holder of the Company (410,814) (258,734) Number of ordinary shares at start of financial year Number of ordinary shares issued during the financial year Number of ordinary shares at end of financial year 317,785,034 266,666,664 584,451,698 286,535,034 31,250,000 317,785,034 Weighted average number of ordinary shares for the purposes of basic earnings per share 382,564,333 287,219,281 Basic loss per ordinary share (€0.0011) (€0.0008) Diluted earnings per share The effect of share options and warrants is anti-dilutive. 7 Intangible assets Exploration and evaluation assets Cost At 1 June Expenditure during the financial year Licence and appraisal costs • • Other operating expenses (Note 2) • At 31 May Equity settled share based payments (Note 2) 2017 € 8,712,953 255,962 281,470 26,570 9,276,955 2016 € 8,029,132 325,658 281,413 76,750 8,712,953 Exploration and evaluation assets relate to expenditure incurred in the development of mineral exploration opportunities. These assets are carried at historical cost and have been assessed for impairment in particular with regard to the requirements of IFRS 6: Exploration for and Evaluation of Mineral Resources relating to remaining licence or claim terms, likelihood of renewal, likelihood of further expenditure, possible discontinuation of activities as a result of specific claims and available data which may suggest that the recoverable value of an exploration and evaluation asset is less than its carrying amount. The Board of Directors have considered the proposed work programmes for the underlying mineral reserves. They are satisfied that there are no indications of impairment. The Board of Directors note that the realisation of the intangible assets is dependent on further successful development and ultimate production of the mineral reserves and the availability of sufficient finance to bring the resources to economic maturity and profitability. 8 Financial assets Investment in subsidiaries 31 May 2017 € 4 31 May 2016 € 4 Financial assets represent investments of €2 in each of the Company’s wholly owned subsidiary undertakings, Karelian Diamonds Limited and Nordic Diamonds Limited. The net asset of each entity is €2. Certain diamond claims in Finland are held in the name of the Company’s subsidiaries. The registered office of both non-trading subsidiaries is 3300 Lake Drive, Citywest Business Campus, Dublin 24, D24 TD21, Ireland. The above subsidiaries have not been consolidated on the basis that they are not trading, and the net asset of each entity is €2. 28 29 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 9 Property, plant and equipment Cost At 1 June Additions At 31 May Accumulated depreciation At 1 June Charge for the financial year At 31 May Net Book Value At 31 May 10 Cash and cash equivalents Cash held in bank accounts 2017 € 1,677 - 1,677 1,677 - 1,677 - 31 May 2017 € 523,324 523,324 2016 € 1,677 - 1,677 1,677 - 1,677 - 31 May 2016 € 341,737 341,737 The cash held in bank accounts is held solely with AIB, in both sterling and € bank accounts (2016: solely with AIB). 11 Other receivables Amount due from related party Vat receivable Other debtors 31 May 2017 € 273,800 18,762 - 292,562 31 May 2016 € 168,825 39,833 2,710 211,368 payables approximates to their fair value. 14 Called up share capital and share premium Authorised: 182,532,751,034 ordinary shares of €0.00001 each* 317,785,034 deferred shares of €0.00999 each* 500,000,000 ordinary shares of €0.01 each It is the Company’s practice to agree terms of transactions, including payment terms with suppliers. It is the Company’s policy that payment is made according to the agreed terms. The carrying value of the trade and other The Company has confirmed to Conroy Gold and Natural Resources P.L.C. that it will not seek repayment of amounts owed by Conroy Gold and Natural Resources P.L.C. at 31 May 2017 of €273,800 (2016: €168,825) for a period of at least 12 months from the date of approval of the financial statements of Conroy Gold and Natural Resources P.L.C., unless Conroy Gold and Natural Resources P.L.C. has sufficient funds to repay. There is a commonality of certain Directors and certain shareholders between the Company and Conroy Gold and Natural Resources P.L.C. 30 31 12 Trade and other payables: amounts falling due after more than one year Shareholder loan Prior to the various placings of shares, the immediate funding requirements of the Company had been financed by advances from Professor Richard Conroy (executive chairman and major shareholder). This loan is interest free and is repayable on demand. Professor Richard Conroy has undertaken to not seek repayment of this amount within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. 13 Trade and other payables: amounts falling due within one year Opening balance 1 June Loan repayment Closing balance 31 May Accrued Directors’ remuneration Fees and other emoluments Pension contributions Other accruals 31 May 2017 € 309,589 (151,581) 158,008 31 May 2017 € 96,013 228,000 154,789 478,802 31 May 2017 € 1,825,328 3,174,672 - 5,000,000 31 May 2016 € - 309,589 309,589 31 May 2016 € 195,007 204,000 86,493 485,500 31 May 2016 € - - 5,000,000 5,000,000 *Capital reorganisation: Following approval at the Annual General Meeting held on 9 December 2016, the Company reorganised its share capital by subdividing and reclassifying each issued ordinary share of €0.01 as one ordinary share of €0.00001 each and one deferred share of €0.00999 each. The Deferred Shares have no right to vote, attend or speak at general meetings of the Company and will have no right to receive any dividend or other distribution and will have only limited rights to participate in any return of capital on a winding-up or liquidation of the Company, which will be of no material value. No application was made to the London Stock Exchange or the Irish Stock Exchange for admission of the Deferred Shares to trading on AIM or the ESM. On 6 November 2017, the Company cancelled the admission of its ordinary shares to trade on the ESM of the Irish Stock Exchange. This cancellation occurred on 6 November 2017. Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. to and forming part of the financial statements for the financial year ended 31 May 2017 Notes (continued) Cost At 1 June Additions At 31 May 9 Property, plant and equipment Accumulated depreciation Charge for the financial year At 1 June At 31 May Net Book Value At 31 May 10 Cash and cash equivalents Cash held in bank accounts 11 Other receivables Amount due from related party Vat receivable Other debtors 2017 € 1,677 - 1,677 1,677 1,677 - - 31 May 2017 € 523,324 523,324 31 May 2017 € 273,800 18,762 - 292,562 2016 € 1,677 - 1,677 1,677 1,677 - - 31 May 2016 € 341,737 341,737 31 May 2016 € 168,825 39,833 2,710 211,368 The cash held in bank accounts is held solely with AIB, in both sterling and € bank accounts (2016: solely with AIB). The Company has confirmed to Conroy Gold and Natural Resources P.L.C. that it will not seek repayment of amounts owed by Conroy Gold and Natural Resources P.L.C. at 31 May 2017 of €273,800 (2016: €168,825) for a period of at least 12 months from the date of approval of the financial statements of Conroy Gold and Natural Resources P.L.C., unless Conroy Gold and Natural Resources P.L.C. has sufficient funds to repay. There is a commonality of certain Directors and certain shareholders between the Company and Conroy Gold and Natural Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) 12 Trade and other payables: amounts falling due after more than one year Shareholder loan Opening balance 1 June Loan repayment Closing balance 31 May 31 May 2017 € 309,589 (151,581) 158,008 31 May 2016 € 309,589 - 309,589 Prior to the various placings of shares, the immediate funding requirements of the Company had been financed by advances from Professor Richard Conroy (executive chairman and major shareholder). This loan is interest free and is repayable on demand. Professor Richard Conroy has undertaken to not seek repayment of this amount within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. 13 Trade and other payables: amounts falling due within one year Accrued Directors’ remuneration Fees and other emoluments Pension contributions Other accruals 31 May 2017 € 96,013 228,000 154,789 478,802 31 May 2016 € 195,007 204,000 86,493 485,500 It is the Company’s practice to agree terms of transactions, including payment terms with suppliers. It is the Company’s policy that payment is made according to the agreed terms. The carrying value of the trade and other payables approximates to their fair value. 14 Called up share capital and share premium Authorised: 182,532,751,034 ordinary shares of €0.00001 each* 317,785,034 deferred shares of €0.00999 each* 500,000,000 ordinary shares of €0.01 each 31 May 2017 € 1,825,328 3,174,672 - 5,000,000 31 May 2016 € - - 5,000,000 5,000,000 *Capital reorganisation: Following approval at the Annual General Meeting held on 9 December 2016, the Company reorganised its share capital by subdividing and reclassifying each issued ordinary share of €0.01 as one ordinary share of €0.00001 each and one deferred share of €0.00999 each. The Deferred Shares have no right to vote, attend or speak at general meetings of the Company and will have no right to receive any dividend or other distribution and will have only limited rights to participate in any return of capital on a winding-up or liquidation of the Company, which will be of no material value. No application was made to the London Stock Exchange or the Irish Stock Exchange for admission of the Deferred Shares to trading on AIM or the ESM. On 6 November 2017, the Company cancelled the admission of its ordinary shares to trade on the ESM of the Irish Stock Exchange. This cancellation occurred on 6 November 2017. 30 31 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 14 Called up share capital and share premium (continued) Issued and fully paid – Current financial year Start of current financial year Reclassified Share issue (b) Share issue (c) End of current financial year Number of ordinary shares Called up share capital € Called up deferred share capital € Share premium € 317,785,034 3,177,850 - 6,791,581 317,785,034 94,444,444 172,222,220 584,451,698 3,178 944 1,722 5,844 3,174,672 - - 6,791,581 498,307 911,776 3,174,672 8,201,664 Issued and fully paid – Prior financial year 15 Commitments and Contingencies At 31 May 2017, there were no capital commitments or contingent liabilities (2016: €Nil). Should the Company decide to develop the Lahtojoki project, an amount of €100,000 is payable by the Company. 16 Related party transactions (a) Details of a shareholder loan advanced by Professor Richard Conroy are outlined in Note 12 of the financial statements. Professor Richard Conroy has undertaken to not seek repayment of this amount within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. (b) The Company shares accommodation with Conroy Gold and Natural Resources P.L.C. which has certain common Directors and shareholders. For the financial year ended 31 May 2017, Conroy Gold and Natural Resources P.L.C. incurred costs totalling €278,810 (2016: €245,733) on behalf of the Company. These costs were recharged to the Company by Conroy Gold and Natural Resources P.L.C. of previous Start financial year Share issue (a) End of previous financial year Number of ordinary shares Called up share capital € Called up deferred share capital € Share premium € 286,535,034 31,250,000 2,865,350 312,500 317,785,034 3,177,850 - - - 6,786,177 5,404 6,791,581 Exploration costs Other operating expenses Office salaries Travel and subsistence Rent and rates Legal and professional (a) On 16 May 2016, 31,250,000 ordinary shares of €0.01 were issued each at 0.8p sterling (€0.010173) per ordinary share resulting in a premium of €0.000173 per share. Further, on 16 May 2016, 31,500,000 warrants at an exercise price of 1.6p sterling per warrant were issued. The warrants can be exercised at any time up to 24 May 2018. The warrants also contain a mandatory exercise clause if the closing price of the ordinary shares remains at 5p sterling or higher for 10 or more consecutive business days. (b) On 21 December 2016, 94,444,444 ordinary shares of €0.00001 were issued, each at 0.45p sterling (€0.00534188) per ordinary share resulting in a premium of €0.00533188 per share. Further, on 21 December 2016, 47,222,222 warrants at an exercise price of 0.8p sterling per warrant were issued. The warrants can be exercised at any time up to 29 December 2018. (c) On 12 April 2017, 172,222,220 ordinary shares of €0.00001 were issued, each at 0.45p sterling (€0.00527364) per ordinary share resulting in a premium of €0.00526364 per share. Further, on 12 April 2017, 79,629,631 warrants at an exercise price of 0.8p sterling per warrant were issued. The warrants can be exercised at any time up to 28 April 2019. (d) At 31 May 2017 and 31 May 2016, warrants over 12,852,677 ordinary shares exercisable at €0.10 at any time up to 16 November 2022 were also outstanding. (e) At 31 May 2017, 800,000 (2016: 1,000,000) options were outstanding, exercisable at €0.0761 (2016: prices exercisable prices ranged from €0.0761 to €0.0975) and will expire on 14 January 2018. (f) The ordinary share price at 31 May 2017 was 0.53525p sterling (after capital reorganisation) (2016:1.0000p sterling). During the financial year the ordinary share price ranged from 0.42013p sterling to 1.02500p sterling (2016: 0.52500p sterling to 1.2000p sterling). 32 33 2017 € 87,493 47,196 46,343 41,313 31,793 24,672 278,810 2016 € 118,964 46,958 6,344 16,776 34,876 21,815 245,733 (c) At 31 May 2017, Conroy Gold and Natural Resources P.L.C. owed €273,800 (2016: €168,825) to the Company. Amounts owed from to Conroy Gold and Natural Resources P.L.C. are included within other receivables in the current and previous financial years. The Company has confirmed to Conroy Gold and Natural Resources P.L.C. that it will not seek the repayment of the amounts owed by Conroy Gold and Natural Resources P.L.C. at 31 May 2017 for a period of at least 12 months from the date of approval of the financial statements of Conroy Gold and Natural Resources P.L.C. unless Conroy Gold and Natural Resources P.L.C. has sufficient funds to repay. There is a commonality of certain Directors and certain shareholders between the Company and Conroy Gold and Natural Resources P.L.C. (d) At 31 May 2017, Maureen T.A. Jones was owed €80 (2016: €80) by the Company. (e) Details of key management compensation which comprises Directors remuneration are detailed in Note 2 to the financial statements. (f) Details of share capital transactions with the Directors are disclosed in the Directors Report. (g) Apart from Directors remuneration (detailed in Note 2 and Note 4), a loan from a shareholder (who is also a Director which is detailed in Note 12), and share capital transaction (which are detailed within the Directors Report), there here have been no contracts or arrangements entered into during the financial year in which a Director of the Company had a material interest. Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) 14 Called up share capital and share premium (continued) Issued and fully paid – Current financial year Number of Called up Called up deferred ordinary shares share capital share capital Share premium 317,785,034 3,177,850 Start of current financial year Reclassified Share issue (b) Share issue (c) End of current financial year 317,785,034 94,444,444 172,222,220 584,451,698 Issued and fully paid – Prior financial year € 3,178 944 1,722 5,844 Start of previous financial year Share issue (a) End of previous financial year 286,535,034 31,250,000 € 2,865,350 312,500 317,785,034 3,177,850 3,174,672 3,174,672 8,201,664 € - - - € - - - € 6,791,581 6,791,581 498,307 911,776 € 6,786,177 5,404 6,791,581 Number of Called up Called up deferred ordinary shares share capital share capital Share premium (a) On 16 May 2016, 31,250,000 ordinary shares of €0.01 were issued each at 0.8p sterling (€0.010173) per ordinary share resulting in a premium of €0.000173 per share. Further, on 16 May 2016, 31,500,000 warrants at an exercise price of 1.6p sterling per warrant were issued. The warrants can be exercised at any time up to 24 May 2018. The warrants also contain a mandatory exercise clause if the closing price of the ordinary shares remains at 5p sterling or higher for 10 or more consecutive business days. (b) On 21 December 2016, 94,444,444 ordinary shares of €0.00001 were issued, each at 0.45p sterling (€0.00534188) per ordinary share resulting in a premium of €0.00533188 per share. Further, on 21 December 2016, 47,222,222 warrants at an exercise price of 0.8p sterling per warrant were issued. The warrants can be exercised at any time up to 29 December 2018. (c) On 12 April 2017, 172,222,220 ordinary shares of €0.00001 were issued, each at 0.45p sterling (€0.00527364) per ordinary share resulting in a premium of €0.00526364 per share. Further, on 12 April 2017, 79,629,631 warrants at an exercise price of 0.8p sterling per warrant were issued. The warrants can be exercised at any time up to 28 April 2019. (d) At 31 May 2017 and 31 May 2016, warrants over 12,852,677 ordinary shares exercisable at €0.10 at any time up to 16 November 2022 were also outstanding. (e) At 31 May 2017, 800,000 (2016: 1,000,000) options were outstanding, exercisable at €0.0761 (2016: prices exercisable prices ranged from €0.0761 to €0.0975) and will expire on 14 January 2018. (f) The ordinary share price at 31 May 2017 was 0.53525p sterling (after capital reorganisation) (2016:1.0000p sterling). During the financial year the ordinary share price ranged from 0.42013p sterling to 1.02500p sterling (2016: 0.52500p sterling to 1.2000p sterling). 15 Commitments and Contingencies At 31 May 2017, there were no capital commitments or contingent liabilities (2016: €Nil). Should the Company decide to develop the Lahtojoki project, an amount of €100,000 is payable by the Company. 16 Related party transactions (a) Details of a shareholder loan advanced by Professor Richard Conroy are outlined in Note 12 of the financial statements. Professor Richard Conroy has undertaken to not seek repayment of this amount within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. (b) The Company shares accommodation with Conroy Gold and Natural Resources P.L.C. which has certain common Directors and shareholders. For the financial year ended 31 May 2017, Conroy Gold and Natural Resources P.L.C. incurred costs totalling €278,810 (2016: €245,733) on behalf of the Company. These costs were recharged to the Company by Conroy Gold and Natural Resources P.L.C. Exploration costs Other operating expenses Office salaries Travel and subsistence Rent and rates Legal and professional 2017 € 87,493 47,196 46,343 41,313 31,793 24,672 278,810 2016 € 118,964 46,958 6,344 16,776 34,876 21,815 245,733 (c) At 31 May 2017, Conroy Gold and Natural Resources P.L.C. owed €273,800 (2016: €168,825) to the Company. Amounts owed from to Conroy Gold and Natural Resources P.L.C. are included within other receivables in the current and previous financial years. The Company has confirmed to Conroy Gold and Natural Resources P.L.C. that it will not seek the repayment of the amounts owed by Conroy Gold and Natural Resources P.L.C. at 31 May 2017 for a period of at least 12 months from the date of approval of the financial statements of Conroy Gold and Natural Resources P.L.C. unless Conroy Gold and Natural Resources P.L.C. has sufficient funds to repay. There is a commonality of certain Directors and certain shareholders between the Company and Conroy Gold and Natural Resources P.L.C. (d) At 31 May 2017, Maureen T.A. Jones was owed €80 (2016: €80) by the Company. (e) Details of key management compensation which comprises Directors remuneration are detailed in Note 2 to the financial statements. (f) Details of share capital transactions with the Directors are disclosed in the Directors Report. (g) Apart from Directors remuneration (detailed in Note 2 and Note 4), a loan from a shareholder (who is also a Director which is detailed in Note 12), and share capital transaction (which are detailed within the Directors Report), there here have been no contracts or arrangements entered into during the financial year in which a Director of the Company had a material interest. 32 33 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 17 Share based payments The Company operates a share option scheme for key individuals who devote a substantial amount of their time to the business of the Company. Financial risk management objectives, policies and processes The Company has exposure to the following risks from its use of financial instruments: Options granted generally have a vesting period of ten years. Details of the share options outstanding during the financial year are as follows: 2017 No. of Share Options 1,000,000 (200,000) 800,000 2017 Weighted Average Exercise Price € 0.0803 0.0975 0.0761 2016 No. of Share Options 1,000,000 - 1,000,000 2016 Weighted Average Exercise Price € 0.0803 - 0.0803 At 1 June Lapsed during the financial year At 31 May Warrants granted generally have a vesting period of ten years. Warrants granted during the financial year vested immediately, and with an expiry period of 2 years. Details of the warrants outstanding during the financial year are as follows: The Company’s Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures and framework in relation to the risks faced. 2017 No. of Share Warrants 44,102,677 126,851,853 - 170,954,530 2017 Weighted Average Exercise Price € 0.0440 0.0092 - 0.0171 2016 No. of Share Warrants 16,852,677 31,250,000 (4,000,000) 44,102,677 2016 Weighted Average Exercise Price € 0.0919 0.0210 0.0659 0.0440 At 1 June Granted during the financial year Lapsed during the financial year At 31 May The Company estimated the fair value of options and warrants awards using the Binomial Lattice Model. The determination of the fair value of share based payment awards on the date of grant using the Binomial Lattice Model is affected by Karelian Diamond Resources P.L.C. stock price as well as assumptions regarding a number of subjective variables. These variables include the expected term of the awards, the expected stock price volatility over the term of the awards, the risk free interest rate associated with the expected term of the awards and the expected dividends. The Company’s Binomial Lattice Model included the following weighted average assumptions for the Company’s employee stock option and warrants. Dividend yield Expected volatility Risk free interest rate Expected life (in years) 2017 Stock Options 0% 70% 4.2% 10 2017 Stock Warrants 0% 53% 0.1% 2 2016 Stock Options 0% 70% 4.2% 10 2016 Stock Warrants 0% 70% 4.1% 10 This calculation results in a share based payment reserved movement of €41,971 (2016: €94,871). 34 35 18 Financial instruments (a) Interest rate risk; (b) Foreign currency risk; (c) Liquidity risk; and (d) Credit risk. management framework. Company’s activities. (a) Interest rate risk The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the The Company currently finances its operations through shareholders’ funds. Short term cash funds are invested, if appropriate, in short term interest bearing bank deposits. The Company did not enter into any hedging transactions with respect to interest rate risk. The interest rate profile of these interest bearing financial instruments was as follows: Variable rate instruments: Financial assets – cash and cash equivalents 2017 € 523,324 523,324 2016 € 341,737 341,737 Cash flow sensitivity analysis for variable rate instruments An increase of 100 basis points (“bps”) in interest rates at 31 May 2017 and 31 May 2016 would have decreased the reported loss by €5,233 (2016: €3,417). A decrease of 100 basis points would have had an equal and opposite effect. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. (b) Foreign currency risk The Company is exposed to currency risk on purchases, loans and bank deposits that are denominated in a currency other than the functional currency of the entities of the Company. It is Company policy to ensure that foreign currency risk is managed wherever possible by matching foreign currency income and expenditure. During the years ended 31 May 2017 and 31 May 2016 the Company did not utilise foreign currency forward contracts or other derivatives to manage foreign currency risk. Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. to and forming part of the financial statements for the financial year ended 31 May 2017 Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) 18 Financial instruments Financial risk management objectives, policies and processes The Company has exposure to the following risks from its use of financial instruments: (a) Interest rate risk; (b) Foreign currency risk; (c) Liquidity risk; and (d) Credit risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company’s Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures and framework in relation to the risks faced. (a) Interest rate risk The Company currently finances its operations through shareholders’ funds. Short term cash funds are invested, if appropriate, in short term interest bearing bank deposits. The Company did not enter into any hedging transactions with respect to interest rate risk. The interest rate profile of these interest bearing financial instruments was as follows: Variable rate instruments: Financial assets – cash and cash equivalents 2017 € 523,324 523,324 2016 € 341,737 341,737 Cash flow sensitivity analysis for variable rate instruments An increase of 100 basis points (“bps”) in interest rates at 31 May 2017 and 31 May 2016 would have decreased the reported loss by €5,233 (2016: €3,417). A decrease of 100 basis points would have had an equal and opposite effect. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. (b) Foreign currency risk The Company is exposed to currency risk on purchases, loans and bank deposits that are denominated in a currency other than the functional currency of the entities of the Company. It is Company policy to ensure that foreign currency risk is managed wherever possible by matching foreign currency income and expenditure. During the years ended 31 May 2017 and 31 May 2016 the Company did not utilise foreign currency forward contracts or other derivatives to manage foreign currency risk. 35 Notes (continued) 17 Share based payments to the business of the Company. financial year are as follows: The Company operates a share option scheme for key individuals who devote a substantial amount of their time Options granted generally have a vesting period of ten years. Details of the share options outstanding during the 2017 No. of Share Options 2017 Weighted Average Exercise Price Lapsed during the financial year At 1 June At 31 May 1,000,000 (200,000) 800,000 € 0.0803 0.0975 0.0761 2016 No. of Share Options 2016 Weighted Average Exercise Price 1,000,000 0.0803 - 1,000,000 0.0803 € - Warrants granted generally have a vesting period of ten years. Warrants granted during the financial year vested immediately, and with an expiry period of 2 years. Details of the warrants outstanding during the financial year are as follows: 2017 No. of Share Warrants 44,102,677 126,851,853 - 170,954,530 2017 Weighted Average Exercise Price 2016 No. of Share Warrants 2016 Weighted Average Exercise Price 0.0440 0.0092 € - 0.0171 16,852,677 31,250,000 (4,000,000) 44,102,677 € 0.0919 0.0210 0.0659 0.0440 At 1 June At 31 May Granted during the financial year Lapsed during the financial year The Company estimated the fair value of options and warrants awards using the Binomial Lattice Model. The determination of the fair value of share based payment awards on the date of grant using the Binomial Lattice Model is affected by Karelian Diamond Resources P.L.C. stock price as well as assumptions regarding a number of subjective variables. These variables include the expected term of the awards, the expected stock price volatility over the term of the awards, the risk free interest rate associated with the expected term of the awards and the expected dividends. The Company’s Binomial Lattice Model included the following weighted average assumptions for the Company’s employee stock option and warrants. Dividend yield Expected volatility Risk free interest rate Expected life (in years) Stock Options Stock Warrants Stock Options Stock Warrants 2017 0% 53% 0.1% 2 2016 0% 70% 4.2% 10 2016 0% 70% 4.1% 10 This calculation results in a share based payment reserved movement of €41,971 (2016: €94,871). 2017 0% 70% 4.2% 10 34 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 18 Financial instruments (continued) Financial risk management objectives, policies and processes (continued) (b) Foreign currency risk (continued) The Company’s foreign currency risk exposure in respect of the principal foreign currencies in which the Company operates was as follows at 31 May 2017: Amount due from related party Cash and cash equivalents Trade and other payables Shareholder loan Total exposure GBP exposure denominated in € - 308,256 - - 308,256 Not at risk € 273,800 215,068 (478,802) (158,008) (147,942) Total € 273,800 523,324 (478,802) (158,008) 160,314 The Company’s foreign currency risk exposure in respect of the principal foreign currencies in which the Company operates was as follows at 31 May 2016: Other debtor Amount due from related party Cash and cash equivalents Trade and other payables Shareholder loan Total exposure GBP exposure denominated in € - - 316,059 - - 316,059 Not at risk € 2,710 168,825 25,678 (485,500) (309,589) (597,876) Total € 2,710 168,825 341,737 (485,500) (309,589) (281,817) The following are the significant exchange rates that applied against €1 during the financial year: Average Rate 2017 Average Rate 2016 Spot rate 31 May 2017 Spot Rate 31 May 2016 GBP 0.852 0.743 0.874 0.762 Sensitivity analysis A 10% strengthening of the € against sterling, based on outstanding financial assets and liabilities at 31 May 2017 would have increased the reported loss by €30,826 (2016: €31,606) as a consequence of the retranslation of foreign currency denominated financial assets at those dates. A weakening of 10% of the € against sterling would have had an equal and opposite effect. It is assumed that all other variables, especially interest rates, remain constant in the analysis. 18 Financial instruments (continued) Financial risk management objectives, policies and processes (continued) (c) Liquidity risk Liquidity is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and adverse conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company manages liquidity risk by regularly monitoring cash flow projections. The nature of the Company’s exploration and appraisal activities can result in significant differences between expected and actual cash flows. Contractual maturities of financial liabilities as at 31 May 2017 were as follows: Item Trade and other payables Item Trade and other payables Carrying amount € Contractual cash flows € less € 6 months or 6 -12 months 1-2 years 2-5 years 636,810 636,810 478,802 158,008 Carrying amount € Contractual cash flows € less € 6 months or 6 -12 months 1-2 years 2-5 years 795,089 795,089 485,500 309,589 € - € - € € € - € - Contractual maturities of financial liabilities as at 31 May 2016 were as follows: The Directors, have confirmed that they will not seek repayment of amounts owed to them by the Company of €324,013 (2016: €399,007) within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. Professor Richard Conroy has undertaken to not seek repayment of monies advanced by him as a shareholder loan of €158,008 (2016: €309,589) within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. The Company had cash and cash equivalents of €523,324 at 31 May 2017 (31 May 2016: €341,737). (d) Credit risk Credit risk is the risk of financial loss to the Company if a cash deposit is not recovered. Company deposits are placed only with banks with appropriate credit ratings. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to The Company’s cash and cash equivalents are held at AIB Bank which has a credit rating of “BBB-” as determined 2017 € - 523,324 523,324 2016 € 341,737 2,710 344,447 credit risk at 31 May was: Cash and cash equivalents Other debtors by Fitch. 36 37 Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Notes (continued) to and forming part of the financial statements for the financial year ended 31 May 2017 Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) - - - - - - - 316,059 316,059 18 Financial instruments (continued) Financial risk management objectives, policies and processes (continued) (b) Foreign currency risk (continued) The Company’s foreign currency risk exposure in respect of the principal foreign currencies in which the Company operates was as follows at 31 May 2017: Amount due from related party Cash and cash equivalents Trade and other payables Shareholder loan Total exposure GBP exposure denominated in € 308,256 308,256 Not at risk € 273,800 215,068 (478,802) (158,008) (147,942) The Company’s foreign currency risk exposure in respect of the principal foreign currencies in which the Company operates was as follows at 31 May 2016: Other debtor Amount due from related party Cash and cash equivalents Trade and other payables Shareholder loan Total exposure GBP exposure denominated in € Not at risk € 2,710 168,825 25,678 (485,500) (309,589) (597,876) The following are the significant exchange rates that applied against €1 during the financial year: Average Rate Average Rate 2017 0.852 2016 0.743 Spot rate 31 May 2017 Spot Rate 31 May 2016 0.874 0.762 GBP Sensitivity analysis A 10% strengthening of the € against sterling, based on outstanding financial assets and liabilities at 31 May 2017 would have increased the reported loss by €30,826 (2016: €31,606) as a consequence of the retranslation of foreign currency denominated financial assets at those dates. A weakening of 10% of the € against sterling would have had an equal and opposite effect. It is assumed that all other variables, especially interest rates, remain constant in the analysis. Total € 273,800 523,324 (478,802) (158,008) 160,314 Total € 2,710 168,825 341,737 (485,500) (309,589) (281,817) 18 Financial instruments (continued) Financial risk management objectives, policies and processes (continued) (c) Liquidity risk Liquidity is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and adverse conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company manages liquidity risk by regularly monitoring cash flow projections. The nature of the Company’s exploration and appraisal activities can result in significant differences between expected and actual cash flows. Contractual maturities of financial liabilities as at 31 May 2017 were as follows: Item Trade and other payables Carrying amount € Contractual cash flows € 6 months or less € 6 -12 months € 1-2 years € 2-5 years € 636,810 636,810 478,802 - 158,008 - Contractual maturities of financial liabilities as at 31 May 2016 were as follows: Item Trade and other payables Carrying amount € Contractual cash flows € 6 months or less € 6 -12 months € 1-2 years € 2-5 years € 795,089 795,089 485,500 - 309,589 - The Directors, have confirmed that they will not seek repayment of amounts owed to them by the Company of €324,013 (2016: €399,007) within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. Professor Richard Conroy has undertaken to not seek repayment of monies advanced by him as a shareholder loan of €158,008 (2016: €309,589) within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. The Company had cash and cash equivalents of €523,324 at 31 May 2017 (31 May 2016: €341,737). (d) Credit risk Credit risk is the risk of financial loss to the Company if a cash deposit is not recovered. Company deposits are placed only with banks with appropriate credit ratings. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 May was: Cash and cash equivalents Other debtors 2017 € 523,324 - 523,324 2016 € 341,737 2,710 344,447 The Company’s cash and cash equivalents are held at AIB Bank which has a credit rating of “BBB-” as determined by Fitch. 36 37 Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2017 (continued) 18 Financial instruments (continued) Financial risk management objectives, policies and processes (continued) (e) Fair values versus carrying amounts Due to the short term nature of all of the Company’s financial assets and liabilities at 31 May 2017 and 31 May 2016, the fair value equals the carrying amount in each case. (f) Capital management The Company has historically funded its activities through share issues and placings. The Company’s capital structure is kept under review by the Board of Directors and it is committed to capital discipline and continues to maintain flexibility for future growth. 19 Post balance sheet events In October 2017, the Company has been informed that TUKES has granted the Company an exploration permit in the Kuhmo region of Finland. The permit covers an area of 601.68 ha surrounding the location where the Company discovered a diamond in till (31 January 2017). The permit has been granted for a period of four years as from July 2017. An exploration permit provides the holder with an exclusive right to apply for a mining permit. The Company announced on 10 October 2017 that it is to cancel the admission of its ordinary shares to trading on the Enterprise Securities Market (“ESM”) on the Irish Stock Exchange on 6 November 2017. This cancellation occurred on 6 November 2017. 20 Approval of the audited financial statements for the financial year ended 31 May 2017 These audited financial statements were approved by the Board of Directors on 28 November 2017. A copy of the audited financial statements will be available on the Company’s website www.kareliandiamondresources.com and will be available from the Company’s registered office at 3300 Lake Drive, Citywest Business Campus, Dublin 24, D24 TD21, Ireland. 38
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