Annual Report and Financial Statements 2019
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
8
16
20
21
22
23
24
25
2
Chairman’s Statement
Professor Richard Conroy
Chairman
I have pleasure in presenting
your Company’s Annual Report
and Financial Statements for the
financial year ended 31 May 2019.
The year has been one of successful
progress for the Company’s
diamond exploration and mining
development programmes, both in
relation to the Lahtojoki diamond
deposit, which the Company hopes
to develop as Europe’s first diamond
mine (outside Russia) and also in
the Company’s diamond exploration
programme in Finland.
Business Development
The Company’s diamond exploration and
mining 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. The Company’s
objective is to discover, or acquire, and
develop diamond deposits in the Finnish
sector of the Karelian Craton.
A careful, measured approach by your
Company over a number of years led to
the acquisition of the Lahtojoki diamond
project. Karelian has gained the benefit,
at minimal cost, of the multi-million Euro
expenditure, technical and financial by
previous operators at Lahtojoki. The same
careful, measured approach is essential to
achieve the successful development of the
Lahtojoki diamond deposit as a mine. Few
other diamond exploration companies hold
a potential diamond mine in their portfolio. I
appreciate the patience and effort shown by
the Company’s technical staff and the Board
in achieving this result and look forward to
the development of Lahtojoki as the first
diamond mine in Europe.
In this context, I am delighted that Howard
Bird, who has wide experience of the diamond
industry, and in particular of successful
exploration and diamond mine development,
has now joined the Board as a non-executive
director in addition to his previously
announced role as a geo-science consultant.
Howard will assist the Company on technical
plans for the development of the diamond
deposit at Lahtojoki as a mine. Howard is
an internationally experienced professional
geoscientist (diamonds, gold, platinum and
base metals) and has over 30 years’ diverse
junior and senior company exploration,
development and mining experience,
including over 15 years at the senior
executive management level.
The Company’s exploration programme
in the Kuhmo area has yielded highly
promising results during the year, particularly
in the Anomaly 5 and Riihivaara target
areas, in both of which Orangeite (Group II
kimberlite) has been discovered. Orangeite is
a potentially diamondiferous kimberlite rock.
Karelian has achieved a great deal relative to
the funds available through a well thought-
out and carefully planned and focused
exploration and acquisition programme.
The Lahtojoki Diamond Deposit
The Lahtojoki diamond deposit is
situated in the Kuopio–Kaavi region in
Finland. The location is highly favourable
for development with excellent infrastructure,
including good roads and power distribution
and local technical and logistic availability.
The Company has been granted a mining
concession over the deposit.
Since acquiring the Lahtojoki diamond
deposit, the Board has reviewed in detail
the previous technical work on the project
and commissioned a Preliminary Economic
Assessment which indicated the financial
and technical attractiveness of the project.
Over the course of the year the Company
has carried out necessary and highly
encouraging technical work in relation to
the deposit. The Company has also made
extensive progress with the Finnish regulatory
authorities and, very importantly, with the
landowners in the area. Such administrative
and regulatory procedures are an essential
part of the mining permit process in Finland.
A particularly interesting feature of the
Lathojoki deposit is the presence of coloured
diamonds and, notably, pink diamonds. If
present in sufficient amounts the presence
of pink diamonds, which sell at a premium,
could add significantly to the financial
attractiveness of the Lahtojoki diamond
deposit.
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 3
It is perhaps worth noting that the world’s
biggest diamond mine, the Argyll mine in
Western Australian, is closing. The Argyll
mine is famous for its production of pink
diamonds, which although contributing less
than five per cent of the mine’s production of
diamonds, accounts for nearly fifty per cent
of its revenues.
Diamond Potential
around Lahtojoki
Exploration in the vicinity of the Lahtojoki
diamond deposit has identified kimberlite
boulder fragments. The location of these
fragments does not coincide with either
of the known ice flow directions from the
Lahtojoki deposit. In addition, the kimberlite
in the boulder fragments is classified as a
type of kimberlite which is rarely found in
the Lahtojoki kimberlite pipe. These findings
suggest that another kimberlite body may be
present nearby. The Company has therefore
applied for exploration acreage in the area.
The presence of additional diamond resource
potential adjacent to Lahtojoki would, if
confirmed, add further to the financial and
technical attractiveness of the Lahtojoki
diamond deposit.
Diamond Exploration
Karelian Diamond’s exploration programme
continues to be a success. It has taken time,
but successful exploration does take time. It
has included the discovery of a diamond – the
best possible indicator of a diamond source. It
has also resulted in the discovery of two new
kimberlite bodies and has identified a series
of 21 kimberlite indicator anomalies in the
Kuhmo region of Finland and has shown the
Seitapera kimberlite body (at 6.9 hectares) to
be the largest discovered to date in Finland.
The diamond discovered by the Company is a
sparkling clear crystal greenish in colour and
0.8mm in diameter, forming a12-sided, curved
and twinned dodecahedron diamond. It was
discovered in a till exploration sample taken
on the Company’s Anomaly 5 exploration
area near Kuhmo in eastern Finland. Such
a discovery in diamond exploration is an
extremely rare event.
The Company continues with its exploration
programme to discover the source of this
diamond. The programme has included
airborne and ground geophysics and an
extensive pitting programme up-ice from
the site of the discovery. This has led to
the discovery of kimberlite indicator trains,
suggesting that the diamond source may
be close.
During the year the pitting programme in
Anomaly 5 was followed up by a drilling
programme. Five drill holes, totalling 274.9
metres (“m”), varying in depth from 16.1m
to 74.5m were drilled up ice from the green
diamond discovery. This drilling programme
was highly encouraging as it has intersected
Orangeite (Group II Kimberlite) a potentially
diamondiferous rock (the drill core material
intersected was confirmed as Orangeite by
scanning electron microscopy (“SEM”) of thin
sections at the Geological Survey of Finland
(‘GTK’) laboratories). The best-known example
of Orangeite is the Finsch diamond mine in
South Africa. Interestingly, in its early days
of production, the Finsch mine also produced
green diamonds.
The Riihivaara Kimberlite
The discovery by the Company of a
kimberlite body at Riihivaara in the Kuhmo
region of Finland, the first new kimberlite to
be discovered in Finland in over 10 years, was
made through a combination of till sampling
and ground geophysics. The kimberlite body
has, to date, been intersected by five trenches
and is still open along strike and at depth.
During the year a drilling programme to
follow up on the trenching results was
carried out. A total of 56.2m was drilled
in five inclined holes, ranging in depth from
5.50m to 14.30m, three of which intersected
kimberlite at a deeper level than in the
trenches and provided kimberlite material for
SEM analysis and thin section studies. This
drilling at Riihivaara also led to the discovery
of Orangeite (Group II Kimberlite) again
indicating diamondiferous potential.
Geological Survey of Finland
The staff and consultants work in close
association with consultants from the GTK
both in relation to its technical work at the
Lahtojoki diamond deposit and in its overall
diamond exploration programme in Finland.
The support and advice of the GTK is very
much appreciated by the Company.
Agreement with Rio Tinto
The Company has a Confidentiality Agreement
(with Back in Rights) with Rio Tinto Mining
and Exploration Limited (“Rio Tinto”). This
agreement with Rio Tinto has been extended
to 2020.
Under the agreement, Rio Tinto discloses
confidential information and physical
geological samples relating to exploration
in Finland, for the purpose of the 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, the Company
has agreed that Rio Tinto will have the option
to earn a 51 per cent interest in any project
identified by the Company in Finland by Rio
Tinto paying the direct cash expenditures
incurred in developing the project.
Extraordinary General Meetings
The Company has, since just before the
close of its financial year, had to contend
with a series of actions by a group of
shareholders which have hindered the
Board of Directors and management from
pursuing the Company’s business objectives
as planned during the period.
These actions culminated in the holding
of two separate Extraordinary General
Meetings (“EGM”) requisitioned by those
shareholders. The Requisitionists, in
association with a former employee/
consultant of the Company, endeavoured to
gain control of the Company by removing all
but two of the current members of the Board
and electing four replacements to the Board.
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 4
Chairman’s Statement continued
Future Outlook
I look forward to the Company continuing
with its record of success in exploration and
development, to the successful development
of a diamond mine at Lahtojoki and becoming
a profitable Company. In turn I would hope
to see a share price that will reflect what I,
and your Board, consider to be the true value
of the Company, having regard to the assets
the Company has acquired and its exploration
success.
Professor Richard Conroy
Chairman
22 November 2019
The resolutions were rejected at the first EGM
and the same resolutions were defeated by
an even larger majority at the second EGM.
Finance
The loss after taxation for the financial year
ended 31 May 2019 was €370,654 (2018:
€439,568) and the net assets as at 31 May
2019 were €9,189,779 (2018: €9,016,467).
Subsequent to the year-end the Company
raised a total of £150,000 (€167,377) in two
separate tranches through subscriptions for
3,928,571 ordinary shares in the capital of
the Company. 2,500,000 of these shares were
subscribed for at a price of £0.04 per share,
while 1,428,571 shares were subscribed for
at a price of £0.035 per share.
Directors and Staff
I would like to express my deep appreciation
of the support and dedication of all the
directors, consultants and staff, which has
made possible the continued progress and
success which the Company has achieved.
I particularly welcome Howard Bird to the
Board.
I would especially like to express appreciation
and thanks to Louis Maguire who is not going
forward for re-election as a director at the
forthcoming annual general meeting. Louis
was a founding director of the Company and
has played a major role in its development
and success
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc Company Information
5
Directors
Professor Richard Conroy
Chairman*
Seamus P. FitzPatrick
Deputy Chairman
Non-Executive Director +§
Howard Bird
Non-Executive Director
Dr. Sorċa Conroy
Non-Executive Director
Maureen T.A. Jones
Managing Director*
Louis J. Maguire
Non-Executive Director*+§
Brendan McMorrow
Non-Executive Director§
* Member of the Executive Committee
+ Member of the Remuneration Committee
§ Member of the Audit Committee
Company Secretary and
Registered Office
Maureen T.A. Jones
3300 Lake Drive,
Citywest Business Campus,
Dublin 24, D24 TD21,
Ireland
Statutory Audit Firm
Deloitte Ireland LLP
Chartered Accountants
and Statutory Audit Firm
Deloitte & Touche House,
Charlotte Quay,
Limerick, V94 X63C, Ireland
London Stock Exchange
AIM Market Symbol: KDR
SEDOL: BD09HK6
ISIN number: IE00BD09HK61
Registrars
Link Registrars Limited
2 Grand Canal Square,
Grand Canal Harbour,
Dublin 2, D02 A342,
Ireland
www.linkassetservices.com
enquiries@linkgroup.ie
Nominated Adviser
Allenby Capital Limited
5 St. Helen’s Place,
5th Floor,
London, EC3A 6AB,
UK
Tel: +44 20 3328 5656
www.allenbycapital.com
Principal Banker
AIB
1-4 Lower Baggot Street,
Dublin 2, D02 X342,
Ireland
Broker
Brandon Hill Capital Ltd
1 Tudor Street,
London, EC4Y 0AH,
UK
Legal Advisers
William Fry Solicitors
2 Grand Canal Square,
Dublin 2, D02 A342,
Ireland
Roschier, Attorneys Ltd.
Kasarmikatu 21 A
FI-00130
Helsinki
Finland
HPP Attorneys Ltd
Bulevardi 1 A FI-00100
Helsinki
Finland
Head Office
Karelian Diamond Resources plc
3300 Lake Drive,
Citywest Business Campus,
Dublin 24, D24 TD21,
Ireland
Tel: +353-1-479 6180
For further information visit
the Company’s website at:
www.kareliandiamondresources.com
or contact:
Lothbury Financial Services
Floor 6, 131 Cannon Street,
London, EC4N 5AX,
UK
Tel: +44 20 3290 0707
Professor Richard Conroy
Chairman
Seamus P. FitzPatrick
Deputy Chairman
Dr. Sorċa C. Conroy
Non-Executive Director
Maureen T.A. Jones
Managing Director
Louis J. Maguire
Non-Executive Director
Howard Bird
Non-Executive Director
Brendan McMorrow
Non-Executive Director
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
6
Board of Directors
Professor Richard Conroy
Chairman of the Board of Directors
Professor Richard Conroy is responsible for
leading the Board and ensuring it operates
in an effective manner whilst promoting
communication with Shareholders. He has
over 40 years experience of founding and
growing companies in the natural resources
industry with a track record in making
discoveries of global significance.
Experience
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 human
circadian rhythms.
Séamus P. FitzPatrick
Deputy Chairman/
Non-executive Director
Séamus P. FitzPatrick is the Managing Partner
and co-founder of CapVest, a private equity
investment firm established in London in
1999. He is currently chairman of Valeo Foods,
and is a director of Curium Pharma and the
Eight Fifty Food Group. He was formerly
Chairman of Findus, Vaasan & Vaasan, Mater
Private, Youngs Bluecrest, and was a director
of Scandi Standard.
Prior to founding CapVest,
Séamus P. FitzPatrick worked in M&A at
Morgan Stanley in London. Thereafter he
worked for Chase Capital Partners in New
York.
Séamus P. FitzPatrick holds an honours
degree in English and Psychology from Trinity
College Dublin.
Maureen T.A. Jones
Managing Director
Maureen T.A. Jones oversees all of the
Company’s business and is responsible for
formulating the Company’s objectives and
strategy. She is also the Company Secretary
for the Company.
Experience
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.
Howard Bird
Non-Executive Director
Howard Bird brings a broad range of
knowledge gained through holding senior
positions in a variety of different roles in the
natural resources sector. He was appointed to
the Board on 17 September 2019.
Experience
Howard Bird is an internationally experienced
Professional Geoscientist (diamonds, gold,
platinum and base metals) and has over
30 years’ diverse junior and senior mining
company exploration, development and
mining experience, including over 15 years at
senior executive management level. Howard
has extensive worldwide experience and was
involved in programmes that have led to the
discovery of over 100 kimberlites, working in
Canada, Australia, Brazil, South Africa, Angola,
Zimbabwe, Democratic Republic of Congo,
Botswana and Gabon.
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 7
Dr. Sorċa Conroy
Non-executive Director
Brendan McMorrow
Non-executive Director
Brendan McMorrow brings a broad range of
knowledge gained through holding senior
financial roles in a variety of listed public
companies in the natural resources sector. He
was appointed to the Board on 15 November
2018.
Experience
Brendan McMorrow has over 25 years’
experience in a number of public companies
in the oil and gas and base metals mining
sectors listed in London, Toronto and Dublin
where he held senior executive finance roles.
He is currently Finance Director of Dunraven
Resources P.L.C., an oil and gas exploration
and development company. Prior to that he
was Chief Financial Officer of Circle Oil P.L.C.
from 2005 to 2015, an AIM listed oil and gas
exploration, development and production
company, with operations in North Africa
and the Middle East. Brendan is a Fellow
of the Chartered Association of Certified
Accountants. He is also a Director of Conroy
Gold and Natural Resources P.L.C.
Dr. Sorċa Conroy brings a broad range of
knowledge to bear on the Company through
her capital markets experience and her
experience in the natural resources sector.
Experience
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 and was a director of
Conroy Gold and Natural Resources P.L.C. for
over 10 years.
Louis J. Maguire
Non-executive Director
Louis J. Maguire has a wealth of experience
gained in financial and commercial roles
across diverse industries including natural
resources.
Experience
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.
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 8
Directors’ Report
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.
Louis J. Maguire who retires from the Board of
Directors by rotation will not seek re-election
at the forthcoming Annual General Meeting
of the Company.
Howard Bird, who was appointed to the Board
of Directors on 17 September 2019, retires in
accordance with the Company’s Articles of
Association and, being eligible, offers himself
for 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 Note
4) and loans from shareholders (who are also
Directors which are detailed in Note 11), 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.
Company Secretary
Maureen T.A. Jones served as Company
Secretary throughout the year.
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 2019.
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
was to continue to develop the activities of
the Company concentrating particularly on
diamond exploration and evaluation.
The challenges facing the Company in
achieving this strategy, are world commodity
prices and general economic activity,
ensuring compliance with governmental and
environmental legislation and meeting work
commitments under exploration permits
and licences sufficient to maintain the
Company’s interest therein. To accomplish
its strategy and manage the challenges
involved, the Company employs experienced
individuals with a track record of success
of working with resource bodies together
with suitably qualified technical personnel
and consultants, experienced drilling and
geophysical and other contractors and uses
accredited international laboratories and
technology to interpret and assay technical
results. Additionally, the Company ensures as
far as possible to obtain adequate working
capital to carry out its work obligations and
commitments.
Results for the year and state of
affairs at 31 May 2019
The income statement for the financial year
ended 31 May 2019 and the statement of
financial position at that date are set out
on pages 20 and 22. The loss for the year
amounted to €370,654 (2018: €439,568) and
net assets at 31 May 2019 were €9,189,779
(2018: €9,016,467). No interim or final
dividends or transfers have been or are
recommended by the Board of Directors.
Important events since the
year-end
With effect from 17 September 2019, the
Board of Directors of the Company appointed
Howard Bird as a non-executive Director of
the Company. Subsequent to the year-end,
the Company raised a total of £150,000
(€167,377) in two separate tranches through
subscriptions for 3,928,571 ordinary shares
in the capital of the Company. 2,500,000 of
these shares were subscribed for at a price
of £0.04 per share, while 1,428,571 shares
were subscribed for at a price of £0.035 per
share. Subsequent to the year-end, €71,429
of the Directors’ loan balance of €158,087
was converted into ordinary shares in the
Company.
Directors
The Directors who served throughout the
financial year are as noted below:
n Professor Richard Conroy
n Séamus P. FitzPatrick
n Maureen T.A. Jones
n Dr. Sorċa Conroy
n Louis J. Maguire
n Brendan McMorrow (appointed 15
November 2018)
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 9
Directors’ shareholdings and other interests
The interests of the Directors and their spouses and minor children in the share capital of the Company, were as follows:
Director
Date of signing
financial
statements¥
Date of signing
financial
statements¥
31 May 2019¥ 31 May 2019¥
1 June 2018 (or
date of appointment
if later)
1 June 2018 (or
date of appointment
if later)¥
Ordinary Shares of
€0.00025 each
Ordinary Shares
of €0.00025
each
Warrants
Warrants
Ordinary Shares of
€0.001 each
Warrants
Professor Richard Conroy
8,413,912*
220,841
5,338,912
220,841
4,783,358*
791,212
Dr. Sorċa Conroy
1,129,911
-
1,129,911
-
18,800
-
Maureen T.A. Jones
639,990
167,651
639,990
167,651
528,879
262,466
Séamus P. FitzPatrick
Brendan McMorrow
481,341
285,000
9,288
481,341
9,288
36,897
-
-
-
Louis J. Maguire
2,067
9,288
2,067
9,288
-
2,067
9,288
-
9,288
* Of the 5,338,912 (2018: 4,783,358) ordinary shares beneficially held by Professor Richard Conroy at 31 May 2019, 1,232,601 (2018: 1,232,601) are held by Conroy
P.L.C., a company in which Professor Richard Conroy has a controlling interest.
¥ At the Annual General Meeting held on 21 December 2017, the Directors proposed that the issued and unissued ordinary shares would be consolidated into
new ordinary shares (“Consolidated Shares”) of €0.00025 each. This proposal was accepted by the shareholders, and thereafter each existing shareholder held
1 new ordinary share in place of each 25 existing ordinary shares.
Details of warrants, all of which are exercisable currently, are as follows:
Director
Date of signing
financial
statements
Date of signing
financial
statements
31 May
2019
31 May
2019
1 June
2018
1 June
2018
Expiry Date
Warrants
Price £
Warrants
Price £
Warrants
Price £
Professor Richard Conroy
220,841
2.20
220,841
2.20
220,841
2.20 16 November 2022
Professor Richard Conroy
Professor Richard Conroy
-
-
-
-
-
-
-
-
370,370
0.22
28 April 2019
200,000
0.22
29 December 2018
Maureen T.A. Jones
167,651
2.20
167,651
2.20
167,651
2.20 16 November 2022
Maureen T.A. Jones
Maureen T.A. Jones
Séamus P. FitzPatrick
Louis J. Maguire
-
-
9,288
9,288
-
-
2.20
2.20
-
-
9,288
9,288
-
-
2.20
2.20
81,482
13,333
9,288
9,288
0.22
28 April 2019
0.22
29 December 2018
2.20 16 November 2022
2.20 16 November 2022
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 10
Directors’ Report continued
Substantial shareholdings
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.
Shareholder
Date of signing
financial
statements¥
Date of signing
financial
statements¥
31 May 2019¥ 31 May 2019¥
31 May 2018¥
31 May 2018¥
Ordinary Shares of
€0.00025 each
Ordinary Shares of
€0.00025 each
%
Ordinary Shares of
€0.01 each
%
Professor Richard Conroy
Martello Holdings Limited
Mr. Alan Osbourne
Mr. Steven Coomber
Mr. Kevin Taylor
Dr. Sorċa Conroy
Mr. Richard Taberner
J&E Davy
8,413,912
6,428,571
2,000,000
1,643,340
1,606,732
1,129,911
1,054,312
-
21.01
16.05
4.99
4.10
4.01
2.82
2.63
-
5,388,912
15.62
4,783,358*
-
1,832,257
1,410,519
1,332,586
1,129,911
2,420,114
1,045,114
-
5.31
4.09
3.86
3.28
7.02
3.03
-
935,786
936,066
935,125
18,800
1,405,000
-
%
20.46
-
4.00
4.00
4.00
0.08
6.01
-
* Of the 5,338,912 (2018: 4,783,358) ordinary shares beneficially held by Professor Richard Conroy at 31 May 2019, 1,232,601 (2018: 1,232,601) are held by Conroy
P.L.C., a company in which Professor Richard Conroy has a controlling interest.
¥ At the Annual General Meeting held on 21 December 2017, the Directors proposed that the issued and unissued ordinary shares would be consolidated into new
ordinary shares (“Consolidated Shares”) of €0.00025 each. This proposal was accepted by the shareholders, and thereafter each existing shareholder held 1 new
ordinary share in place of each 25 existing ordinary shares.
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 compliance with relevant
obligations;
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 structures.
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 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;
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 11
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 €370,654
(2018: €439,568) for the financial year ended
31 May 2019. The Company had net current
liabilities of €804,871 (2018: liabilities of
€452,607) at that date.
The Directors, Professor Richard Conroy,
Séamus P. FitzPatrick, Maureen T.A. Jones, Dr.
Sorċa Conroy, Louis J. Maguire and Brendan
McMorrow, and former Director James P.
Jones, have confirmed that they will not seek
repayment of amounts owed to them by the
Company of €738,429 (2018: €542,597) for a
minimum period of 12 months from the date
of approval of the financial statements, unless
the Company has sufficient funds to repay.
Subsequent to the statement of financial
position date, the Company has raised
€167,377 (£150,000) through the issue
of shares (see Note 18 for details).
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 2020. The Board of
Directors notes the potential difficulty for the
Company of raising funds through an issue
of shares, given the current share price of the
Company. As set out further in the Chairman’s
statement, the Company expects to incur
capital expenditure in 2020, consistent with
its strategy as an exploration company. In
reviewing the proposed work programme
for exploration and evaluation assets and,
on the basis of the equity raised during the
financial year, the funds raised subsequent to
the year-end, 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.
Corporate governance
In July 2018, the Financial Reporting
Council released the 2018 UK Corporate
Governance Code and the Guidance on
Board Effectiveness (the “Code”). The Code
emphasises the importance of demonstrating,
through reporting, how the governance
of a company contributes to its long-term
sustainable success and achieves wider
objectives. The Board has adopted the QCA
Corporate Governance Code (“QCA Code”),
which is derived from the Code but adapted
to the needs of smaller quoted companies.
The Company agrees that good governance
contributes to sustainable success and
recognise the renewed emphasis on business
building trust by forging strong relationships
with key stakeholders. The Company
understands the importance of a corporate
culture that is aligned with the Company’s
purpose and business strategy, and which
promotes integrity and includes diversity.
The Company conducts its business with
integrity, honesty and fairness and requires
its partners, contractors and suppliers to meet
similar ethical standards. It is an objective
of the Company that all individuals are
aware of their responsibilities in applying
and maintaining these standards in all their
actions. The Board ensures that support is
available in the form of staff training and
updating its employee handbook such that
staff members understand what is expected of
them. The Company’s Corporate Governance
Code is available on the Company’s website
www.kareliandiamondresources.com.
Board of Directors
The Board of Directors is made up of two
executive and five non-executive Directors
as at the date of approval of these financial
statements. Biographies of each of the
Directors are set out on pages 6 and 7.
The Board of Directors agree a schedule of
regular meetings to be held in each calendar
year and also meets on other occasions as
necessary. Meetings are usually held at the
head office in 3300 Lake Drive, Citywest
Business Campus, Dublin 24, D24 TD21,
Ireland. Board of Directors’ meetings were
held on 9 occasions from 1 June 2018 to 31
May 2019 and attendance at these meetings
is set out in the table below.
Meetings held during the year
9
Board
Professor Richard Conroy
Séamus P. FitzPatrick
Maureen T.A. Jones
Dr. Sorċa Conroy
Louis J. Maguire
Brendan McMorrow
(appointed 15 November 2018)
9/9
9/9
9/9
9/9
5/9
6/9
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 12
Directors’ Report continued
There is an agreed list of matters which the
Board of Directors has formally reserved for
itself, 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. Executive Directors
spend as much time on Company matters
as is necessary for the proper performance
of their duties. Non-executive Directors are
expected to spend a minimum of one day a
month on Company activities in addition to
preparation for and attendance at Board and
sub-committee meetings.
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 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 may 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 regarded
as independent and have no material
interest or other relationship with the
Company (Dr. Sorċa Conroy is a daughter
of Professor Richard Conroy).
The Board, having fully considered
the corporate needs of the Company, is
satisfied that it has an appropriate balance
of experience and skills to carry out its duties.
The Chairman of the Company oversees this
process and reviews the Board composition to
ensure it has the necessary experience, skills
and capabilities.
The current non-executive Directors have a
wide range of financial and technical skills
based on both qualifications and experience;
including significant fundraisings, financial
management, technical expertise and the
discovery and bringing into production of
operating mines. Each board member keeps
their skills up to date through a combination
of courses, continuing professional
development through professional
bodies and reading.
The Company Secretary provides Directors
with updates on key developments relating
to the Company, the sector in which the
Company operates, legal and governance
matters including advice from the Company’s
broker, lawyers and advisors.
Board performance
The Board, through its Chairman, will,
in the coming year evaluate its ongoing
performance based on the requirements
of the business and corporate governance
standards.
It is envisaged that the review process will
include the use of internal reviews and
periodic external facilitation. The results
of such reviews will be used to determine
whether any alterations are needed at either a
board or senior management level or whether
any additional training would be beneficial. It
is intended that with effect from the end of
the next financial year, these evaluations shall
be undertaken annually, after the end of each
financial year but prior to the publication of
the respective annual report and accounts.
The Company had planned to implement
this during the financial year covered by this
Annual Report, but was unable to do so in
time.
Director’s performance will be measured
by way of such matters as:
n Commitment
n
Independence
n Relevant experience
n
Impartiality
n Specialist knowledge
n Effectiveness on the Board
As set out in the Constitution of 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.
Ethical values and behaviours
The Board of Directors is committed to
high standards of corporate governance
and integrity in all its activities and operations
and promotes a culture of good ethical values
and behaviour. The Company conducts its
business with integrity, honesty and fairness
and requires its partners, contractors and
suppliers to meet similar ethical standards.
Individual staff members must ensure that
they apply and maintain these standards
in all their actions.
The Chairman of the Board of Directors
regularly monitors and reviews the Company’s
ethical standards and cultural environment
and where necessary takes appropriate
action to ensure proper standards are
maintained. Due to the size and available
resources of the Company, the Chairman of
the Board of Directors carries out executive
functions. The Company is fully committed to
complying with all relevant health, safety and
environment rules and regulations as these
apply to its operations. It is an objective of
the Company that all individuals are aware
of their responsibilities in providing a safe
and secure working environment.
Board Committees
The Board of Directors have 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. Attendance at the Audit and
Remuneration Committee meetings is
set out in the table below:
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 13
Audit
Committee
Remuneration
Committee
Meetings held
during the year
Seamus
P. FitzPatrick
Louis J. Maguire
Brendan
McMorrow
(appointed 15
November 2018)
2
2/2
2/2
–
–
–
2/2
N/A
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 three
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 during the
preparation of the interim and annual
financial statements and discusses with the
Company’s Auditors the results and scope
of the audit. 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.
Remuneration Committee
The Remuneration Committee’s terms
of reference have been approved by the
Board of Directors and is in accordance with
the QCA Remuneration Committee Guide
for Small and Mid-Size Quoted Companies.
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.
Executive Committee
The Executive Committee comprises of
Professor Richard Conroy, Ms. Maureen T.A.
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. 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.
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. 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 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.
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 14
Directors’ Report continued
Risks and uncertainties
General industry risk
The Company is subject to a number of
potential risks and uncertainties, which could
have a material impact on the long-term
performance of the Company and could
cause actual results to differ materially from
expectation. The management of risk is
the collective responsibility of the Board of
Directors. An ongoing process for identifying,
evaluating and managing or mitigating the
principal risks faced by the Company has
been in place throughout the financial year
and has remained in place up to the approval
date of the report and accounts. The Board
intends to keep its risk control procedures
under constant review, particularly with
regard to the need to embed internal control
and risk management procedures further into
the operations of the business and to deal
with areas of improvement which come to
management’s and the Board’s attention.
As might be expected in a Company of this
size, a key control procedure is the day-to-day
supervision of the business by the Executive
Directors, supported by the senior managers
with responsibility for key operations. The
Board has considered the impact of the values
and culture of the Company and ensures that,
through staff communication and training,
the Board’s expectations and attitude to risk
and internal control are embedded in the
business. The Board of Directors consider
the following risks to be the principal
risks affecting the business:
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. As
such there is no guarantee that future
market conditions will permit the raising
of the necessary funds by way of issue
of new equity, debt financing or farming
out of interests. To mitigate this risk, the
Board regularly reviews Company cash flow
projections and considers different sources
of funds.
Environmental risk
Environmental and safety legislation may
change in a manner that may require stricter
or additional standards than those now
in effect. These could result in heightened
responsibilities for the Company and
could cause additional expense, capital
expenditures, restrictions and delays in the
activities of the Company, the extent of which
cannot be predicted. The Company employs
staff experienced in the requirements of
the relevant environmental authorities and
seeks through their experience to mitigate
the risk of non-compliance with accepted
best practice.
Exploration Risk
All drilling to establish productive diamond
resources 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 resources include substantial
proportions which are undeveloped. These
resources 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. The Company employs highly
competent experienced staff and uses a range
of techniques to minimise risk prior to drilling
and utilises independent experts to assess the
results of exploration activity.
Financial Risk
Refer to Note 17 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. Management is
authorised to achieve best available rates in
respect of each forecast currency requirement.
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. The 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 financial year (2018: €Nil).
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 15
Accounting records
Auditors
Deloitte Ireland LLP 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
22 November 2019
The Directors are responsible for ensuring
adequate accounting records, as outlined in
Section 281 to 285 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.
Disclosure of information
to auditors
So far as each of the Directors in office at the
date of approval of the financial statements
is aware:
n There is no relevant audit information
of which the company’s auditors are
unaware; and
n The Directors have taken all steps that
they ought to have taken as directors in
order to make themselves aware of any
relevant audit information and to establish
that the Company’s auditors are aware of
that information.
This information is given and should be
interpreted in accordance with the provisions
of Section 330 of the Companies Act 2014.
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 16
Independent Auditors’ Report
Opinion on the financial
statements of Karelian Diamond
Resources Plc (the ‘company’)
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 2019 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.
The financial statements we have
audited comprise:
n the Income Statement;
n the Statement of Comprehensive Income;
n the Statement of Financial Position;
n the Statement of Changes in Equity;
n the Statement of Cash Flows; and
n the related Notes 1 to 19, including
a summary of significant accounting
policies as set out in Note 1.
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 (“the
relevant financial reporting framework”).
Material uncertainty related
to going concern
We draw your attention to Note 1 in the
financial statements, which indicates that
the Company incurred a net loss of €370,654
during the year ended 31 May 2019 and, as
of that date, the Company had net current
liabilities of €804,871.
In response to this, we:
n Obtained an understanding of the
Company’s controls over the preparation
of cash flow forecasts and approval
of the projections and assumptions
used in cash flow forecasts to support
the going concern assumption and
assessed the design and determined the
implementation of these controls;
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(Ireland) (ISAs (Ireland)) and applicable law.
Our responsibilities under those standards
are described below in the “Auditor’s
responsibilities for the audit of the financial
statements” section of our report.
We are independent of the company in
accordance with the ethical requirements
that are relevant to our audit of the financial
statements in Ireland, including the Ethical
Standard issued by the Irish Auditing and
Accounting Supervisory Authority as applied
to listed entities, and we have fulfilled our
other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
n Going concern (see material uncertainty related to going concern
section)
n Realisation of intangible assets
n Within this report, any new key audit matters are identified with
and any key audit matters which are the same as the prior year
identified with
.
Materiality
Scoping
The materiality that we used in the current year was €275,000
which was determined on the basis of a percentage of Net Assets.
We identified one significant component, which was the company,
Karelian Diamond Resources Plc.
Significant changes
in our approach
There were no significant changes in our approach.
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 17
Realisation of Intangible Assets
Key audit
matter
description
At 31 May 2019, the carrying value of Exploration and Evaluation Assets
included in Intangible Assets in the Statement of Financial Position amounted
to €10,152,733.
We draw your attention to the disclosures made in Notes 1 and 7 to
the financial statements concerning the realisation of intangible assets held.
The realisation of intangible assets held by the Company is dependent on the
further successful development and ultimate production of the mineral reserves
and the availability of sufficient finance to bring the reserves to economic
maturity and profitability.
The realisation of intangible assets in the Statement of Financial Position
was assessed as a signicant risk.
How the
scope of
our audit
responded to
the key audit
matter
We performed the following procedures:
n We have evaluated management’s procedures for assessing indicators of
impairment of intangible assets;
n We inspected documentation in respect of licences held and considered
and challenged the directors’ assessment of indicators of impairment in
relation to exploration and evaluation assets;
n We performed a review of proposed exploration programme in respect
of the Company’s assets
n We performed a review of Board of Directors Meeting Minutes and press
releases issued by the Company in relation to the status of exploration and
evaluation assets;
n We performed a review of budgeted expenditure for the next 12 months;
n We obtained an understanding of management’s plans to enable the company
to raise the funds required to meet the expenditure commitments of the
company; and
n We also considered the adequacy of the disclosure in the financial statements.
Key
observations
An uncertainty exists in relation to the ability of the Company to realise the
exploration and evaluation assets capitalised to intangible assets.
As noted above, we draw your attention to the disclosures made in Note 1 and
7 to the financial statements concerning the realisation of intangible assets.
The realisation of intangible assets by the Company, is dependent on the further
successful development and ultimate production of the mineral reserves and
the availability of sufficient 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. Our opinion is not modified in respect of this matter.
Material uncertainty related to
going concern (continued)
n Evaluated management’s plans and
their feasibility by challenging the key
assumptions used in the cash flow forecast
provided by agreeing the inputs to historical
run rates, expenditure commitments and
other supporting documentation;
n Obtained an understanding of
management’s plans to enable the company
to raise the funds required to meet the
expenditure commitments of the company
n
Inspected confirmations received by
the Company from the Directors and former
Directors that they will not seek repayment
of amounts owed to them by the Company
within 12 months of the date of approval
of the financial statements, unless the
Company has sufficient funds to repay;
n Tested the clerical accuracy of the cash
flow forecast model;
n Assessed the adequacy of the disclosures
made in the financial statements.
As stated in Note 1, these events or conditions
along with other matters as set forth in Note 1
indicate that a material uncertainty exists that
may cast significant doubt on the Company’s
ability to continue as a going concern. Our
opinion is not modified in respect of this
matter.
Key Audit Matters
Key audit matters are those matters that,
in our professional judgment, were of most
significance in our audit of the financial
statements of the current financial year and
include the most significant assessed risks
of material misstatement (whether or not
due to fraud) we identified, including those
which had the greatest effect on: the overall
audit strategy, the allocation of resources
in the audit; and directing the efforts of
the engagement team. These matters were
addressed in the context of our audit of
the financial statements as a whole, and in
forming our opinion thereon, and we do not
provide a separate opinion on these matters.
In addition to the matter described in the
material uncertainty relating to going concern
section, we have determined the matters
described below to be the key audit matters to
be communicated in our report.
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 18
Independent Auditors’ report continued
An overview of the scope
of our audit
Our audit was scoped by obtaining an
understanding of the Company’s environment
and assessing the risks of material
misstatement.
Other information
The directors are responsible for the other
information. The other information comprises
the information included in the annual report,
other than the financial statements and our
auditor’s report thereon. Our opinion on the
financial statements does not cover the other
information and, except to the extent otherwise
explicitly stated in our report, we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements
or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If we identify such material inconsistencies
or apparent material misstatements, we
are required to determine whether there
is a material misstatement in the financial
statements or a material misstatement of
the other information. If, based on the work
we have performed, we conclude that there
is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Our audit procedures relating to these matters
were designed in the context of our audit of
the financial statements as a whole, and not
to express an opinion on individual accounts
or disclosures. Our opinion on the financial
statements is not modified with respect to
any of the risks described above, and we do
not express an opinion on these individual
matters.
Our application of materiality
We define materiality as the magnitude of
misstatement that makes it probable that
the economic decisions of a reasonably
knowledgeable person, relying on the
financial statements, would be changed
or influenced. We use materiality both in
planning the scope of our audit work and
in evaluating the results of our work.
We determined materiality for the company
to be €275,000 which is approximately 3%
of Net Assets. We have considered Net Assets
to be the critical component for determining
materiality as we determined the net asset
position to be of most importance to the
principal external users of the financial
statements. We have considered
quantitative and qualitative factors such as
understanding the entity and its environment,
history of misstatements, complexity
of the company and reliabity of control
environment.
We agreed with the Audit Committee that we
would report to them any audit differences
in excess of €13,750, as well as differences
below that threshold which, in our view,
warranted reporting on qualitative grounds.
We also report to the Audit Committee on
disclosure matters that we identified when
assessing the overall presentation of the
financial statements.
Net Assets €10M
Net Assets
Materiality
Materiality – €275,000
Audit Committee Reporting
Threshold – €13,750
Responsibilities of directors
As explained more fully in the Directors’
Report, 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, and for such internal
control as the directors determine is necessary
to enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements,
the directors are responsible for assessing
the company’s ability to continue as a going
concern, disclosing, as applicable, matters
related to going concern and using the
going concern basis of accounting unless
the directors either intend to liquidate the
company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from material
misstatement, whether due to fraud or
error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance
is a high level of assurance, but is not a
guarantee that an audit conducted in
accordance with ISAs (Ireland) will always
detect a material misstatement when it exists.
Misstatements can arise from fraud or error
and are considered material if, individually
or in the aggregate, they could reasonably
be expected to influence the economic
decisions of users taken on the basis of
these financial statements.
As part of an audit in accordance with ISAs
(Ireland), we exercise professional judgment
and maintain professional scepticism
throughout the audit. We also:
n
Identify and assess the risks of material
misstatement of the financial statements,
whether due to fraud or error, design and
perform audit procedures responsive to
those risks, and obtain audit evidence
that is sufficient and appropriate to
provide a basis for our opinion. The risk
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 19
For listed entities and public interest entities,
the auditor also provides those charged
with governance with a statement that the
auditor has complied with relevant ethical
requirements regarding independence,
including the Ethical Standard for Auditors
(Ireland) 2016, and communicates with them
all relationships and other matters that
may reasonably be thought to bear on the
auditor’s independence, and where applicable,
related safeguards.
Where the auditor is required to report
on key audit matters, from the matters
communicated with those charged with
governance, the auditor determines those
matters that were of most significance in
the audit of the financial statements of the
current period and are therefore the key
audit matters. The auditor describes these
matters in the auditor’s report unless law
or regulation precludes public disclosure
about the matter or when, in extremely
rare circumstances, the auditor determines
that a matter should not be communicated
in the auditor’s report because the adverse
consequences of doing so would reasonably
be expected to outweigh the public interest
benefits of such communication.
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 auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone
other than the company and the company’s
members as a body, for our audit work, for
this report, or for the opinions we have
formed.
Report on other legal and
regulatory requirements
Opinion on other matters prescribed
by the Companies Act 2014
Based solely on the work undertaken in the
course of the audit, we report that:
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 is in agreement
with the accounting records.
n
In our opinion the information given in
the directors’ report is consistent with the
financial statements and the directors’
report has been prepared in accordance
with the Companies Act 2014.
Matters on which we are
required to report by exception
Based on the knowledge and understanding
of the company and its environment obtained
in the course of the audit, we have not
identified material misstatements in the
directors’ report.
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 Ireland LLP
Chartered Accountants and
Statutory Audit Firm
Deloitte & Touche House,
Charlotte Quay
Limerick
22 November 2019
of not detecting a material misstatement
resulting from fraud is higher than for one
resulting from error, as fraud may involve
collusion, forgery, intentional omissions,
misrepresentations, or the override of
internal control.
n Obtain an understanding of internal
control relevant to the audit in order
to design audit procedures that are
appropriate in the circumstances, but not
for the purpose of expressing an opinion
on the effectiveness of the company’s
internal control.
n Evaluate the appropriateness of
accounting policies used and the
reasonableness of accounting estimates
and related disclosures made by the
directors.
n Conclude on the appropriateness of the
directors’ use of the going concern basis
of accounting and, based on the audit
evidence obtained, whether a material
uncertainty exists related to events or
conditions that may cast significant doubt
on the company’s ability to continue as
a going concern. If we conclude that
a material uncertainty exists, we are
required to draw attention in our auditor’s
report to the related disclosures in the
financial statements or, if such disclosures
are inadequate, to modify our opinion.
Our conclusions are based on the audit
evidence obtained up to the date of the
auditor’s report. However, future events or
conditions may cause the entity (or where
relevant, the group) to cease to continue
as a going concern.
n Evaluate the overall presentation, structure
and content of the financial statements,
including the disclosures, and whether
the financial statements represent the
underlying transactions and events in a
manner that achieves fair presentation.
We communicate with those charged with
governance regarding, among other matters,
the planned scope and timing of the audit
and significant audit findings, including any
significant deficiencies in internal control
that the auditor identifies during the audit.
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
20
Karelian Diamond Resources P.L.C.
Income statement
for the financial year ended 31 May 2019
Continuing operations
Operating expenses
Loss before taxation
Income tax expense
Loss for the financial year
Loss per share
Basic and diluted loss per share
Note
2
3
5
6
2019
€
(370,654)
(370,654)
-
2018
€
(439,568)
(439,568)
-
(370,654)
(439,568)
(€0.0109)
(€0.0188)
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.
23
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
21
Karelian Diamond Resources P.L.C.
Statement of comprehensive income
for the financial year ended 31 May 2019
Loss for the financial year
2019
€
2018
€
(370,654)
(439,568)
Income/expense recognised in other comprehensive loss
-
-
Total comprehensive loss for the financial year
(370,654)
(439,568)
The total comprehensive loss 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.
24
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
22
Karelian Diamond Resources P.L.C.
Statement of financial position
as at 31 May 2019
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 deficit
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
Total equity and liabilities
Note
7
8
9
10
13
13
13
16
11
12
31 May
2019
€
10,152,733
4
10,152,737
30,833
102,989
133,822
31 May
2018
€
9,661,559
4
9,661,563
18,703
241,859
260,562
10,286,559
9,922,125
8,622
3,174,672
8,768,276
456,624
(3,218,415)
9,189,779
158,087
158,087
938,693
938,693
1,096,780
5,844
3,174,672
8,201,664
519,159
(2,884,872)
9,016,467
192,489
192,489
713,169
713,169
905,658
10,286,559
9,922,125
The financial statements were approved by the Board of Directors on 21 November 2019 and authorised for issue on 22
November 2019. 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.
25
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
23
Karelian Diamond Resources P.L.C.
Statement of cash flows
for the financial year ended 31 May 2019
Cash flows from operating activities
Loss for the financial year
Adjustments for:
Expense recognised in income statement in respect of equity settled share-
based payments
Increase in trade and other payables
Decrease/(increase) in other receivables
Net cash used in operating activities
Cash flows from investing activities
Investment in exploration and evaluation
Cash used in investing activities
Cash flows from financing activities
Repayments from Conroy Gold and Natural Resources P.L.C.
Advances to Conroy Gold and Natural Resources P.L.C.
Issue of share capital
Share issue costs
Advances from Directors
Repayments of loans to Directors
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
2019
€
2018
€
(370,654)
(439,568)
5,966
225,524
79,974
(59,190)
(491,174)
(491,174)
148,293
(89,397)
534,988
(31,390)
-
-
562,494
12,130
18,703
30,833
-
234,367
(109,960)
(315,161)
(384,604)
(384,604)
160,663
-
-
-
34,561
(80)
195,144
(504,621)
523,324
18,703
The accompanying notes form an integral part of these audited financial statements.
26
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
24
Karelian Diamond Resources P.L.C.
Statement of changes in equity
for the financial year ended 31 May 2019
Share capital
€
3,180,516
2,778
-
-
-
Share
premium
€
8,201,664
-
-
566,612
-
Share-based
payment
reserve
€
519,159
-
-
-
5,966
Retained
deficit
Total equity
€
(2,884,872)
-
(31,390)
-
-
€
9,016,467
2,778
(31,390)
566,612
5,966
-
-
-
-
3,183,294
8,768,276
456,624
(3,218,415)
-
(370,654)
(370,654)
9,189,779
(68,501)
68,501
-
3,180,516
8,201,664
765,977
(2,692,122)
9,456,035
-
-
-
-
3,180,516
8,201,664
519,159
(2,884,872)
-
(439,568)
(439,568)
9,016,467
(246,818)
246,818
-
Balance at 1 June 2018
Share issue
Share issue costs
Share premium
Share-based payments
Transfer from share-
based payment reserve
to retained deficit
Loss for the financial
year
Balance at 31 May 2019
Balance at 1 June 2017
Transfer from share-
based payment reserve
to retained deficit
Loss for the financial
year
Balance at 31 May 2018
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 the Annual General Meeting held on 9 December 2016. A detailed breakdown of the
share capital figure is included in Note 13.
Share issues during the year:
On 11 June 2018, the Company raised €569,390, (before expenses), through the issue of 11,111,111 ordinary shares of
€0.00025 in the capital of the Company at a price of £0.045 per Subscription Share. 388,889 broker warrants were also
issued on 11 June 2018.
Share premium
The share premium reserve comprises 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 comprises of the fair value of all share options and warrants which have been
charged over the vesting period, net of amounts relating to share options and warrants forfeited, exercised or lapsed
during the year, which are reclassified to retained earnings.
Retained 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.
27
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
25
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
1
Accounting policies
Reporting entity
Karelian Diamond Resources P.L.C. (the “Company”) is a company domiciled in Ireland. The Company is a limited
company incorporated in Ireland under registration number 382499. The registered office is located at 3300 Lake
Drive, Citywest Business Campus, Dublin 24, D24 TD21, 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 21 November 2019.
Going concern
The Company incurred a loss of €370,654 (2018: a loss of €439,568) for the financial year ended 31 May 2019. The
Company had net current liabilities of €804,871 (2018: net current liabilities of €452,607) at the statement of
financial position date.
The Directors, Professor Richard Conroy, Séamus P. FitzPatrick, Maureen T.A. Jones, Dr. Sorċa Conroy, Louis J.
Maguire and Brendan McMorrow, and former director James P. Jones, have confirmed that they will not seek
repayment of amounts owed to them by the Company of €738,429 (2018: €542,597) within 12 months of the date
of approval of the financial statements, unless the Company has sufficient funds to repay.
Subsequent to the statement of financial position date, the Company has raised €167,377 (£150,000) through the
issue of shares (please see Note 18 for details).
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 2020. The Board of Directors notes the
potential difficulty for the Company of raising funds through an issue of shares, given the current share price of
the Company. As set out further in the Chairman’s statement, the Company expects to incur capital expenditure in
2020, consistent with its strategy as an exploration company. In reviewing the proposed work programme for
exploration and evaluation assets and, on the basis of the equity raised during the financial 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 financial statements do not include any adjustments to the carrying value and classification of assets and
liabilities that would arise if the Company was unable to continue as going concern.
Statement of compliance
The Company’s financial statements have been prepared in accordance with IFRS as adopted by the European
Union (“EU”).
28
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
26
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
1
Accounting policies (continued)
Recent accounting pronouncements
The following new standards, amendments to standards and interpretations adopted and endorsed by the EU
have been issued to date and are not yet effective for the financial year from 1 June 2018:
• Amendments to IFRS 9: Prepayment features with negative compensation – Effective date 1 January 2019
• Amendments to IAS 28: Long-term interests in associates and joint ventures – Effective date 1 January 2019
• Annual improvements to IFRS Standards 2015-2017 Cycle: Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23-
Effective date 1 January 2019
• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement – Effective date 1 January 2019
•
IFRIC 23: Uncertainty over income tax treatments – Effective date 1 January 2019
The adoption of the above amendments to standards and interpretations is not expected to have a significant
impact on the financial statements either due to being not applicable or immaterial.
The following new standard and amendments to standards have been issued by the International Accounting
Standards Board but have not yet been endorsed by the EU, accordingly none of these standards have been
applied in the current year. The Board of Directors are currently assessing whether these standards once endorsed
by the EU will have any impact or a material impact on the financial statements.
• Amendments to references to the Conceptual Framework in IFRS Standards – Effective date 1 January 2020
•
• Amendments to IFRS 3 Business Combinations – Definition of a Business – Effective date 1 January 2020
• Amendments to IAS 1 and IAS 8 – Definition of Material – Effective date 1 January 2020
• Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest Rate Benchmark Reform – Effective date 1 January 2020
• Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or
IFRS 17: Insurance contracts – Effective date 1 January 2021
joint venture – postponed indefinitely.
(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 are 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 resources 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.
29
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
27
1
Accounting policies (continued)
(a) Intangible assets (continued)
(ii) Impairment
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 exists 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.
•
•
•
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:
Plant and office equipment
10 years
The plant and office equipment are fully depreciated at 31 May 2019 and 31 May 2018.
(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 loss, 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.
30
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
28
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(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) 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.
(g) 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.
(h) 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.
(i) Pension costs
The Company provides for pensions for certain employees through a defined contribution pension scheme. 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.
(j) 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.
(k) Directors’ loans
The directors’ loans are 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 at initial recognition.
31
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
29
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
1
Accounting policies (continued)
(l) 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.
(m) Impairment - financial assets that are measured at amortised cost
Financial assets that are measured at amortised cost are reviewed for impairment loss at each reporting date. The
Company applies the general approach in accordance with IFRS 9.
The Company measures the loss allowance at an amount equal to the lifetime expected credit losses if the credit
risk has increased significantly since initial recognition. If, at the reporting date, the credit risk has not increased
significantly since initial recognition, the Company shall measure the loss allowance at an amount equal to 12-
month expected credit losses.
The Company’s approach to expected credit losses (“ECL”) reflects a probability-weighted outcome, the time value
of money and reasonable and supportable information that is available without undue cost or effort at the
reporting date about past events, current conditions and forecasts of future economic conditions. Significant
financial difficulties of the counterparty, probability that the counterparty will enter bankruptcy or financial re-
organisation and default in payments are all considered indicators that a loss allowance may be required.
If the credit risk increases to the point that it is considered to be credit impaired, interest income will be calculated
based on the gross carrying amount adjusted for the loss allowance. A significant increase in credit risk is defined
by management as any contractual payment which is more than 30 days past due or if the credit rating of the
counterparty deteriorates to below investment grade. Any contractual payment which is more than 30 days past
due is considered credit impaired.
(n) Critical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying the Company’s accounting policies
The preparation of the financial statements requires the Board of Directors to make judgements and estimates and
form assumptions that affect the amounts of assets, liabilities, contingent liabilities, revenues and expenses
reported in the financial statements. On an ongoing basis, the Board of Directors evaluates its judgements and
estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. The Board of Directors bases
its judgements and estimates on historical experience and on other factors it believes to be reasonable under the
circumstances, the results of which form the basis of the reported amounts that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions and conditions. 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 to licence and appraisal costs 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. These costs are
reviewed on a line by line basis with the resultant calculation of the amount to be capitalised being specific to the
activities of the Company in any given year.
32
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 30
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
1
Accounting policies (continued)
(n) Critical accounting judgements and key sources of estimation uncertainty (continued)
Critical judgements in applying the Company’s accounting policies (continued)
Cash generating units (“CGUs”)
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 resources and the availability of sufficient finance to bring the resources to economic
maturity and profitability. The Board of Directors have reviewed the proposed programme for exploration and
evaluation assets and, on the basis of the equity raised after 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 25 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 below.
Exploration and evaluation assets
The carrying value of exploration and evaluation assets was €10,152,733 (2018: €9,661,559) at 31 May 2019. 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 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.
33
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 31
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
1 Accounting policies (continued)
(n) Critical accounting judgements and key sources of estimation uncertainty (continued)
Employee benefits – Share-based payment transactions
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.
(o) 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.
2
Operating expenses
Analysis of operating expenses
Operating expenses
Transfer to intangible assets
2019
€
562,999
(192,345)
370,654
2018
€
623,476
(183,908)
439,568
Operating expenses are analysed as follows:
Wages, salaries and related costs
Other operating expenses
Auditor remuneration
Share-based payments
304,826
297,150
21,500
-
623,476
Of the above costs, a total of €192,345 (2018: €183,908) is capitalised to intangible assets based on a review of the
nature and quantum of the underlying costs.
315,459
227,540
20,000
-
562,999
Wages, salaries and related costs as disclosed above is analysed as follows:
Wages and salaries
Social insurance costs
Retirement benefit costs
Other compensation costs
2019
€
290,209
10,250
15,000
-
315,459
2018
€
277,092
7,484
20,250
-
304,826
The amount of wages, salaries and related costs capitalised to intangible assets during the financial year was
€165,848 (2018: €183,908).
The average number of persons employed during the year (including executive Directors) by activity was as
follows:
Corporate management and administration
Exploration and evaluation
34
2019
2018
3
1
4
3
1
4
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc 32
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
2 Operating expenses (continued)
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
Louis J. Maguire
Séamus P. FitzPatrick
Dr. Sorċa Conroy
Brendan McMorrow
Fees
€
20,000
10,000
10,000
10,000
10,000
5,833
65,833
Salary
€
65,000
50,000
-
-
-
-
115,000
Share-based
payment €
-
-
-
-
-
-
-
Pension
contributions €
-
15,000
-
-
-
-
15,000
Total
€
85,000
75,000
10,000
10,000
10,000
5,833
195,833
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
Fees
€
20,000
10,000
5,833
10,000
10,000
10,000
65,833
Salary
€
65,000
50,000
17,500
-
-
-
132,500
Share-based
payment €
-
-
-
-
-
-
-
Pension
contributions €
-
15,000
5,250
-
-
-
20,250
Total
€
85,000
75,000
28,583
10,000
10,000
10,000
218,583
3 Loss before taxation
The loss before taxation is arrived at after charging the following items;
Auditor’s remuneration
The analysis of the auditor’s remuneration is as follows:
•
Audit of financial statements
2019
€
2018
€
20,000
21,500
No fees were incurred for other assurance; tax advisory or other non-audit services in respect of the current or
prior financial years.
35
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
33
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
4
Directors’ remuneration
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 1 Director (2018: 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
2019
€
2018
€
180,833
198,333
-
-
2019
€
15,000
2019
€
-
-
2019
€
-
-
2019
€
-
-
-
-
2018
€
20,250
-
2018
€
-
-
2018
€
-
-
2018
€
-
-
No amounts have been paid or are payable to past Directors of the Company or its holding undertakings (2018:
€Nil). No compensation has been paid or is payable for the loss of office or other termination benefit in respect of
the loss of office of Director or other offices (2018: €Nil).
36
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
34
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(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
2019
€
(370,654)
12.50%
(46,332)
46,332
-
2018
€
(439,568)
12.50%
(54,946)
54,946
-
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
Restructured number of ordinary shares*
Number of ordinary shares issued during the financial year
Number of ordinary shares at end of financial year
Weighted average number of ordinary shares for the purposes of
basic earnings per share
Basic loss per ordinary share
2019
€
(370,654)
23,378,068
-
11,111,111
34,489,179
2018
€
(439,568)
584,451,698
23,378,068
-
23,378,068
34,154,324
23,378,068
(€0.0109)
(€0.0188)
On 11 June 2018, the Company raised €569,390 (before expenses) through the issue of 11,111,111 ordinary
shares of €0.00025 in the capital of the Company at a price of £0.045 per Subscription Share.
Diluted earnings per share
The effect of share options and warrants is anti-dilutive.
*Please refer to Note 13 for an explanation concerning the share capital restructuring.
37
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
35
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
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)
• Equity settled share-based payments (Note 2)
At 31 May
31 May
2019
€
9,661,559
298,829
192,345
-
10,152,733
31 May
2018
€
9,276,955
200,696
183,908
-
9,661,559
Exploration and evaluation assets relate to expenditure incurred in the development of mineral exploration
opportunities. These assets are carried at historical cost and have been assessed for impairment in particular with
regard to the requirements of IFRS 6: Exploration for and Evaluation of Mineral Resources relating to remaining
licence or claim terms, likelihood of renewal, likelihood of further expenditure, possible discontinuation of
activities as a result of specific claims and available data which may suggest that the recoverable value of an
exploration and evaluation asset is less than its carrying amount.
The Board of Directors have considered the proposed work programmes for the underlying mineral resources.
They are satisfied that there are no indications of impairment.
The Board of Directors note that the realisation of the intangible assets is dependent on further successful
development and ultimate production of the mineral resources and the availability of sufficient finance to bring
the resources to economic maturity and profitability.
8
Financial assets
Investment in subsidiaries
31 May
2019
€
4
31 May
2018
€
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.
38
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
36
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
9
Cash and cash equivalents
Cash held in bank accounts
10 Other receivables
Amount due from related party
Vat receivable
Other debtors
PAYE receivable
31 May
2019
€
30,833
30,833
31 May
2019
€
54,241
36,840
11,722
186
102,989
31 May
2018
€
18,703
18,703
31 May
2018
€
113,138
51,737
11,852
65,132
241,859
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 2019 of €54,241 (2018: €113,138) 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.
11 Trade and other payables: amounts falling due after more than one year
Directors’ loans
Opening balance 1 June
Loan conversion into shares*/repayments to Directors
Loan advances
Closing balance 31 May
31 May
2019
€
192,489
(34,402)
-
158,087
31 May
2018
€
158,008
(80)
34,561
192,489
Prior to the various placings of shares, the immediate funding requirements of the Company had been financed by
advances from Professor Richard Conroy (Director, executive chairman and major shareholder) and Maureen T.A.
Jones (Director, managing director and shareholder). The Directors’ have confirmed that they will not seek
repayment of amounts owed by the Company at 31 May 2019 within 12 months of the date of approval of the
financial statements, unless the Company has sufficient funds to repay. There is no interest payable in respect of
these loans, no security has been attached to these loans and there is no repayment or maturity terms. After the
year-end, €71,429 of the balance owed was converted into ordinary shares in the Company.
* The conversion of Directors’ loans into ordinary shares in the Company was a non-cash transaction during the
year.
39
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
37
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
12 Trade and other payables: amounts falling due within one year
Accrued Directors’ remuneration
Fees and other emoluments
Pension contributions
Other creditors and accruals
31 May
2019
€
475,179
263,250
200,264
938,693
31 May
2018
€
294,347
248,250
170,572
713,169
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.
13 Called up share capital and share premium
Authorised:
182,532,751,034 ordinary shares of €0.00001 each*
7,301,310,041 consolidated ordinary shares of €0.00025 each¥
317,785,034 deferred shares of €0.00999 each* ∞
31 May
2019
€
-
1,825,328
3,174,672
5,000,000
31 May
2018
€
-
1,825,328
3,174,672
5,000,000
Share restructuring:
*Following approval at the Annual General Meeting held on 9 December 2016, the Company restructured 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.
¥At the Annual General Meeting held on 21 December 2017, the Directors proposed that the issued and unissued
ordinary shares would be consolidated into new ordinary shares (“Consolidated Shares”) of €0.00025 each. This
proposal was accepted by the shareholders, and thereafter each existing shareholder held 1 new ordinary share in
place of each 25 existing ordinary shares.
∞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 for admission of the Deferred Shares to trading on AIM.
On 6 November 2017, the Company cancelled the admission of its ordinary shares to trade on the ESM of the Irish
Stock Exchange.
40
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
38
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
13 Called up share capital and share premium (continued)
Issued and fully paid – Current financial year
Start of current financial year –
shares of €0.00025 each
Share issue
End of current financial year
Number of
ordinary shares
Called up
share capital
€
Called up deferred
share capital
€
Share premium
€
23,378,068
11,111,111
34,489,179
5,844
2,778
8,622
3,174,672
8,201,664
-
566,612
3,174,672
8,768,276
Issued and fully paid – Prior financial year
Number of
ordinary shares
Called up
share capital
€
Called up deferred
share capital
€
Share premium
€
Start of prior financial year –
shares of €0.00001 each
Conversion
consolidated
to
shares -shares of €0.00025 each
584,451,698
23,378,068
End of prior financial year
23,378,068
5,844
5,844
5,844
3,174,672
8,201,664
3,174,672
8,201,664
3,174,672
8,201,664
(a) On 21 December 2016, 94,444,444 ordinary shares of €0.00001 were issued, each at £0.0045 sterling (€0.0053)
per ordinary share resulting in a premium of €0.00533188 per share. Further, on 21 December 2016, 1,888,887
warrants (adjusted for capital reorganisation on 21 December 2017) at an exercise price of £0.2000 sterling per
warrant (adjusted for capital reorganisation on 21 December 2017) were issued. The warrants expired during the
year ended 31 May 2019.
(b) On 12 April 2017, 172,222,220 ordinary shares of €0.00001 were issued, each at £0.0045 sterling (€0.0053) per
ordinary share resulting in a premium of €0.00526364 per share. Further, on 12 April 2017, 3,185,182 warrants
(adjusted for capital reorganisation on 21 December 2017) at an exercise price of £0.2000 sterling per warrant
(adjusted for capital reorganisation on 21 December 2017) were issued. The warrants expired during the year
ended 31 May 2019.
(c) On 11 June 2018, 11,111,111 ordinary shares of €0.00025 were issued, each at £0.045 sterling (€0.05172) per
ordinary share resulting in a premium of €0.05147 per share. Further, on 11 June, 388,889 warrants at an exercise
price of £0.05 sterling per warrant were issued. The warrants can be exercised at any time up to 11 December
2020.
(d) At 31 May 2019, warrants over 900,139 ordinary shares exercisable at prices varying from £1.1250 sterling to
£2.2000 sterling at any time up to 16 November 2022 were outstanding. At 31 May 2018, warrants over 5,585,324
ordinary shares exercisable at prices varying from £0.2000 sterling to £2.2000 sterling at any time up to 16
November 2022 were outstanding.
(e) At 31 May 2019 and 31 May 2018, there are no options outstanding.
(f) The consolidated ordinary share price at 31 May 2019 was £0.0240 sterling (2018: £0.0582 sterling). The
ordinary share price ranged from £0.0225 sterling to £0.0675 sterling (2018: £0.0500 sterling to £0.0725 sterling).
41
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
39
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
14 Commitments and Contingencies
At 31 May 2019, there were no capital commitments or contingent liabilities (2018: €Nil) recognised at the
reporting date. Should the Company decide to further develop the Lahtojoki project, an amount of €80,000 is
payable by the Company.
15 Related party transactions
(a) Details of Directors’ loans advanced by Professor Richard Conroy and Maureen T.A. Jones are outlined in Note
11 of the financial statements.
(b) The Company shares office accommodation with Conroy Gold and Natural Resources P.L.C. which has certain
common Directors and shareholders. For the financial year ended 31 May 2019, Conroy Gold and Natural
Resources P.L.C. incurred costs totalling €148,293 (2018: €202,494) on behalf of the Company. These costs were
recharged to the Company by Conroy Gold and Natural Resources P.L.C.
These costs are analysed as follows:
Office salaries
Other operating expenses
Rent and rates
Legal and professional
Travel and subsistence
Exploration costs
2019
€
108,541
12,397
27,355
-
-
-
148,293
2018
€
74,482
31,480
29,690
28,388
26,059
12,395
202,494
(c) At 31 May 2019, Conroy Gold and Natural Resources P.L.C. owed €54,241 (2018: €113,138) to the Company.
Amounts owed from Conroy Gold and Natural Resources P.L.C. are included within other receivables in the cur-
rent and previous financial years. During the financial year ended 31 May 2019, €89,397 (2018: €41,832) was paid
by the Company to Conroy Gold and Natural Resources P.L.C. During the financial year ended, the Company was
charged €148,293 (2018: €202,494) by Conroy Gold and Natural Resources P.L.C. in respect of the allocation of
certain costs as detailed in Note 15(b). 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
2019 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. At 31 May 2019, Brendan McMorrow was owed €2,700 (2018: €Nil) in respect of his services. This
amount is included in the trade and other payables balance in the statement of financial position.
(d) Details of key management compensation which comprises Directors’ remuneration are detailed in Note 2 and
Note 4 to the financial statements.
(e) Details of share capital transactions with the Directors are disclosed in the Directors’ Report.
(f) Apart from Directors’ remuneration (detailed in Note 2 and Note 4), loans from two shareholders (who are
also Directors which is detailed in Note 11) and share capital transactions (which are detailed within the Directors’
Report), there have been no contracts or arrangements entered into during the financial year in which a Director
of the Company had a material interest.
42
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
40
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
16 Share-based payments
The Company operated a share option scheme for key individuals who devoted a substantial amount of their time
to the business of the Company.
Options granted generally had a vesting period of ten years. Details of the share options outstanding during the
financial year are as follows:
2019
No. of Share
Options
At 1 June
Lapsed during the financial year
(Note 13)
At 31 May
-
-
-
2019
Weighted
Average
Exercise Price
€
-
-
-
2018
No. of Share
Options
800,000
(800,000)
-
2018
Weighted
Average
Exercise Price
€
0.0761
0.0761
-
Warrants granted generally have a vesting period of two years. Details of the warrants outstanding during the
financial year are as follows:
2019
No. of Share
Warrants
5,585,324
-
388,889
(5,074,074)
900,139
2019
Weighted
Average
Exercise Price
€
0.0044
-
0.0244
0.0508
0.0815
2018
No. of Share
Warrants
170,954,530
6,838,181
-
(1,252,857)
5,585,324
2018
Weighted
Average
Exercise Price
€
0.0171
0.0040
-
0.0023
0.0044
At 1 June
Conversion to consolidated shares
(Note 13)
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)
2019
Stock Options
N/a
N/a
N/a
N/a
2019
Stock Warrants
0%
50%
0.7%
2.5
2018
Stock Options
N/a
N/a
N/a
N/a
2018
Stock Warrants
0%
53%
0.1%
2
This calculation results in a share-based payment of €5,966 (2018: €Nil). Amounts relating to share warrants which
lapsed during the year and which are reclassified to retained earnings were €68,501 (2018: €246,818).
43
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
41
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
17 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
31 May
2019
€
30,833
30,833
31 May
2018
€
18,703
18,703
Cash flow sensitivity analysis for variable rate instruments
An increase of 100 basis points (“bps”) in interest rates at 31 May 2019 and 31 May 2018 would have decreased
the reported loss by €308 (2018: €187). 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 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 2019 and 31 May 2018 the Company did not
utilise foreign currency forward contracts or other derivatives to manage foreign currency risk.
44
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
42
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
17 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 2019:
Amount due from related party
Other debtors
Cash and cash equivalents
Trade and other payables
Directors’ loans
Total exposure
Sterling exposure
CAD exposure
denominated in € denominated in €
-
-
-
-
-
-
-
-
1,449
(20,986)
-
(19,537)
Not at risk €
54,241
11,722
29,384
(917,707)
(158,087)
(980,447)
Total
€
54,241
11,722
30,833
(938,693)
(158,087)
(999,984)
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 2018:
Amount due from related party
Other debtors
Cash and cash equivalents
Trade and other payables
Directors’ loans
Total exposure
Sterling exposure
CAD exposure
denominated in € denominated in €
-
-
-
(3,455)
-
(3,455)
-
-
359
(6,575)
-
(6,216)
Not at risk €
113,138
11,852
18,344
(703,139)
(192,489)
(752,294)
Total
€
113,138
11,852
18,703
(713,169)
(192,489)
(761,965)
The following are the significant exchange rates that applied against €1 during the financial year:
Average Rate
2019
Average Rate
2018
Spot rate
31 May
2019
Spot Rate
31 May
2018
GBP
0.881
0.886
0.887
0.875
Sensitivity analysis
A 10% strengthening of the Euro against Sterling, based on outstanding financial assets and liabilities at 31 May
2019 would have decreased the reported loss by €1,954 (2018 decreased by: €622) as a consequence of the
retranslation of foreign currency denominated financial assets at those dates. A weakening of 10% of the Euro
against Sterling would have had an equal and opposite effect.
At 31 May 2018, a 10% strengthening of the Euro against Canadian Dollars (“CAD”), based on outstanding financial
assets and liabilities at 31 May 2018 would had decreased the reported loss by €345 as a consequence of the
retranslation of foreign currency denominated financial assets at those dates. A weakening of 10% of the Euro
against CAD would have had an equal and opposite effect.
It is assumed that all other variables, especially interest rates, remain constant in the analysis.
45
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
43
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
17 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 2019 were as follows:
Item
Carrying
amount €
Contractual
cash flows €
6 months or
less €
6 -12
months €
1-2 years
€
2-5 years
€
Trade and
other payables
1,096,780
1,096,780
938,693*
-
158,087**
-
Contractual maturities of financial liabilities as at 31 May 2018 were as follows:
Item
Carrying
amount €
Contractual
cash flows €
6 months or
less €
6 -12
months €
1-2 years
€
2-5 years
€
Trade and
other payables
905,658
905,658
713,169*
-
192,489**
-
*The Directors, Professor Richard Conroy, Séamus P. FitzPatrick, Maureen T.A. Jones, Dr. Sorċa Conroy, Louis J.
Maguire and Brendan McMorrow, and former director James P. Jones, have confirmed that they will not seek
repayment of amounts owed to them by the Company of €738,429 (2018: €542,597) within 12 months of the date
of approval of the financial statements, unless the Company has sufficient funds to repay.
**The Directors’ loans amounts relate to monies owed to Professor Richard Conroy amounting to €158,007 (2018:
€186,743), Maureen T.A. Jones amounting to €80 (2018: €5,746).
The amount of €200,264 (2018: €170,572) relates to other trade payables. The Company had cash and cash
equivalents of €30,833 at 31 May 2019 (2018: €18,703).
(d) Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing
to discharge on obligation.
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
2019
€
30,833
11,722
42,555
2018
€
18,703
11,852
30,555
The Company’s cash and cash equivalents are held at AIB Bank which has a credit rating of “BBB-” as determined
by Fitch.
46
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc
44
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2019
(continued)
17 Financial instruments (continued)
Financial risk management objectives, policies and processes (continued)
(d)Credit risk (continued)
Expected credit loss
The Group measures credit risk and expected credit losses on financial assets measured at amortised cost using
probability of default, exposure at default and loss given default. Management consider both historical analysis
and forward-looking information in determining any expected credit loss. At 31 May 2019 and 31 May 2018, all
cash is accessible on demand and held with counterparties with a credit rating of BBB- or higher. Management
consider the probability of default to be close to zero as these instruments have a low risk of default and the
counterparties have a strong capacity to meet their contractual obligations in the near term.
As a result of the above, no loss allowance has been recognised based on 12-month expected credit losses as any
such impairment would be wholly insignificant to the Company.
(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 2019 and 31 May
2018, 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.
18 Post balance sheet events
Subsequent to the year-end, two separate Extraordinary General Meetings of the Company were held. Full details
are set out on page 5 of the Chairman's Statement.
With effect from 17 September 2019, the Board of Directors of the Company appointed Howard Bird as a non-
executive Director of the Company.
Subsequent to the year-end, the Company raised a total of £150,000 (€167,377) in two separate tranches through
subscriptions for 3,928,571 ordinary shares in the capital of the Company. 2,500,000 of these shares were
subscribed for at a price of £0.04 per share, while 1,428,571 shares were subscribed for at a price of £0.035 per
share.
Subsequent to the year-end, €71,429 of the Directors’ loan balance of €158,087 was converted into ordinary
shares in the Company.
There were no other material events subsequent to the reporting date which necessitate revision of the figures or
disclosures included in the financial statements.
19 Approval of the audited financial statements for the financial year ended 31 May 2019
These audited financial statements were approved by the Board of Directors on 21 November 2019. 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.
47
Annual Report and Financial Statements 2019 Karelian Diamond Resources Plc