Annual Report and
Financial Statements 2020
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
1
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
Changes in Equity
Statement of Cash Flows
Notes to and Forming Part of
the Financial Statements
2
5
6
8
16
22
23
24
25
26
27
2
Chairman’s Statement
Professor Richard Conroy
Chairman
Dear Shareholder,
I have great pleasure in presenting
your Company’s Annual Report
and Financial Statements for
the year ended 31st May 2020.
The year has been one of further
progress at the Company’s two
major diamond projects in Finland.
One is the development of the Lahtojoki
diamond deposit, in the Kuopio Kaavi region
of Finland, over which the Company has been
granted a mining concession. The Directors
believe that the Lahtojoki deposit is one of
the few diamond deposits in the world at
a relatively advanced stage of development.
It is situated in a highly favourable location
with excellent infrastructure including
good road access and power distribution,
combined with local technical and logistics
availability, thereby significantly reducing
the potential mine capital and operating
costs. A Preliminary Economic Assessment
(“PEA”) of the deposit was completed by
the Company in 2017 and is technically and
financially positive with a projected 2.11M
carats recoverable over a 9 year mine life.
The Company’s other major project is its
diamond exploration programme in the
emerging kimberlite field in the Kuhmo
region of Finland. Again the location allows
exploration to be conducted at a far lower
cost than were it, for example, to be high up
in a Canadian Arctic setting, in the Australian
outback or elsewhere in the world without
supporting infrastructure. Equally should a
discovery be made in the Kuhmo area it too
will have similar infrastructural advantages
as at Lahtojoki.
The Company’s main diamond projects
are located in the Finnish section of the
Karelian Craton. The Archean-aged Karelian
Craton stretches across Eastern Russia and
Northern Finland and is highly prospective
for diamonds. The world class Lomonosov
and Grib Pipe diamond deposits have been
discovered in the Russian sector of the Craton
and ALROSA, the major Russian diamond
company, has indicated that this region
is expected to represent most of its future
growth. The Finnish section of the Craton,
covering an area of over 180,000 sq. km.,
is comparable in size to the diamond rich
Slave Lake Craton in Canada.
Finland has an established mining
tradition and is politically and economically
stable. There is security of tenure and fiscal
framework and Finland regularly ranks
in the top ten in the prestigious Fraser
Institute Mining ratings.
Lahtojoki Diamond Deposit
During the year the regulatory processes
of obtaining a full Mining Permit over the
Lahtojoki diamond deposit have reached an
advanced stage despite the inevitable delays
caused by the COVID-19 pandemic.
The Mining Concession over the Lahtojoki
diamond deposit has already been approved
by TUKES (The Finnish Mining Authority).
The National Land Survey, on the order of
TUKES, is currently undertaking the process
of establishing the mining concession for
the applied area. This has to be completed
prior to TUKES issuing a full Mining Permit.
This process by the National Land Survey has
involved a series of public meetings and also
submissions by the relevant landowners and
the Company. It is now in its final stages but
due to COVID-19 will not be completed by
the National Land Survey until 2021.
Also, in July 2020, the National Land Survey
of Finland formally granted to the Company
rights of way to the entire Nariskangas
private forest road, together with a side
road, giving vehicular access to the deposit,
the adjacent Lahtojoki South exploration
permit area and the surrounding reservation
in the Kaavi region of Finland. The granting
of vehicular rights of way will facilitate the
Company in its technical assessment of the
deposit. The grant of vehicular rights gained
legal force in August 2020.
A further and possibly highly important
feature of the Lahtojoki deposit which has
been receiving particular attention during the
year is the presence of coloured stones and,
especially, the occurrence of pink diamonds in
the deposit. The importance of pink diamonds
may be put into context when one considers
that pink diamonds, although accounting
for less than five per cent of the diamond
production of what was the world’s biggest
diamond mine, the Argyle diamond mine in
Western Australia, accounted for nearly fifty
per cent of its revenue.
Analysis of available data and reports in
relation to Lahtojoki suggest that coloured
stones could amount to as much as seven
per cent of the diamond content of the
deposit and that perhaps three per cent
could be pink diamonds.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc 3
Diamond Deposit Site.
Karelian Craton.
Additionally examination of a pink diamond
from the Lahtojoki deposit made available
for inspection by the Company, together with
photographs of diamonds from the deposit,
indicates that the pink diamonds in the
Lahtojoki deposit are of high quality.
Coloured diamonds, especially pink diamonds,
which have recently been achieving very
high prices, are expected to increase further
in price due to the closure of the Argyle Mine
which has been the main global source of
high quality pink diamonds.
Diamond Exploration
Programmes
Lahtojoki
Kimberlite boulders discovered to the
south of the Lahtojoki diamond deposit
are comprised of material which does not
appear to be derived from the Lahtojoki
kimberlite. This suggests that these boulders
may come from an undiscovered kimberlite
up ice. The Company, therefore, applied for,
and has been granted, an exploration permit
over the relevant area.
The possible existence of a further
diamondiferous kimberlite nearby, if
confirmed, would, in the Board’s view,
further increase the attractiveness of the
Lahtojoki diamond deposit. The Company
has therefore commenced an exploration
programme in the area.
Kuhmo
COVID-19 Update
The Company’s exploration programme
in the Kuhmo region of eastern Finland,
close to the Russian border, has already
led to the discovery of a new kimberlite
body, at Riihivaara, and a series of kimberlite
anomalies. On one of these, Anomaly 5,
a green diamond has been discovered by
the Company in till. Such a discovery is a
very rare event.
The Company has applied for, and been
granted, by TUKES two diamond reservations
around the Company’s Riihivaara kimberlite
discovery and also around the Anomaly 5
diamond discovery. These reservations secure
the adjacent ground to licences already
held by the Company over known kimberlite
bodies. The relevance of this is that kimberlites
tend to occur in clusters and in both of these
areas there are indications of the possible
presence of additional kimberlites.
The results to date encourage the Company
to believe that the Kuhmo region in Eastern
Finland, could be part of a new kimberlite
province.
Ireland
The historic discovery of the Brookeborough
diamond in Ireland together with more
recent reports of the presence of indicator
minerals has led the Company to apply for
and obtain an exploration licence over the
area. Preliminary assessment is underway.
Since the outbreak of the COVID-19
pandemic, the Company has taken necessary
measures in accordance with Government
guidelines to protect the health, safety and
wellbeing of its employees, contractors and
partners in Finland and Ireland. COVID-19
continues to limit field and laboratory work
given the restrictions on operations and
movement and other work also continues
in relation to the Company’s exploration
and development programme.
Directors and executives took a 50%
reduction in fees and salaries while technical
and field staff took a 25% reduction in salaries.
Appointment of Director
I am very pleased that Howard M. Bird, who
was previously a geoscience consultant
to the Company, joined the Board as a
non-executive director in September 2019.
Howard has extensive experience in both
diamond exploration and development.
He was Senior Vice President of Global
Exploration for TSX and AIM listed
SouthernEra Diamonds Ltd., where he
spent over 15 years in the diamond industry.
He managed 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 2020 Karelian Diamond Resources Plc 4
Chairman’s Statement continued
Lahtojoki Diamonds.
Lahtojoki Pink Diamonds.
Mr. Bird was involved in the discovery to
production success of several new economic
diamond deposits while at SouthernEra,
including the Marsfontein pipe, Sugerbird
Blow and Klipspringer mine in South Africa,
and he worked on one of the world’s largest
pipes, the Camafuca kimberlite in Angola.
Howard will continue to act as a geoscience
consultant to the Company.
Extraordinary General Meetings
During the year under review the Company
has 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”) in July 2019 and October
2019 following requisitions being received
from these shareholders. The requisitionists,
in association with a former employee/
consultant to 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, nominated
by them, to the Board.
The resolutions were rejected by shareholders
of the Company at the first EGM and the
same resolutions were defeated by an
even larger majority at the second EGM.
Financials
The loss after taxation for the financial
year ended 31 May 2020 was €446,710
(2019: €370,654) and the net assets
as at 31 May 2020 were €9,126,781
(2019: €9,189,779).
During the year the Company raised
£150,000 (approximately €167,777)
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 4 pence per share, while
1,428,571 shares were subscribed for at a
price of 3.5 pence per share. The Company
raised a further £240,000 through a
subscription for £120,000 at a price of
4 pence per share and a convertible loan
of £120,000 convertible at a price of
10 pence per share.
Subsequent to the year-end the Company
also raised £420,000 through a placing of
10,500,000 ordinary shares at a price of
4 pence per ordinary share.
Directors and Staff
I would also 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.
Future Outlook
I look forward to continued success and
in particular to progress in the development
of a mine at Lahtojoki and further exploration
success.
Professor Richard Conroy
Chairman
30 November 2020
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc Company Information
5
Directors
Professor Richard Conroy
Chairman*
Seamus P. FitzPatrick
Deputy Chairman
Non-Executive Director +§
Maureen T.A. Jones
Managing Director*
Howard M. Bird
Non-Executive Director *§
(Appointed 17 September 2019)
Dr. Sorċa C. Conroy
Non-Executive Director *§
Brendan McMorrow
Non-Executive Director *+§
Louis J. Maguire
Non-Executive Director *+§
(Resigned 16 December 2019)
* Member of the Executive Committee
+ Member of the Remuneration Committee
§ Member of the Audit Committee
Company Registration Number
382499
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
6 Lapp’s Quay
Cork, T12 VY7W, Ireland
London Stock Exchange
AIM 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 (NOMAD)
Allenby Capital Limited
5 St. Helen’s Place
5th Floor
London, EC3A 6AB, UK
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
FL-00100, Helsinki
Finland
Head Office
Karelian Diamond Resources plc
3300 Lake Drive
Citywest Business Campus
Dublin 24, D24 TD21, Ireland
For further information visit
the Company’s website at:
www.kareliandiamondresources.com
or contact:
Hall Communications
1 Northumberland Road
Dublin 4, D04 F578, Ireland
Tel: +353 1 6609377
or
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
Howard M. Bird
Non-Executive Director
Brendan McMorrow
Non-Executive Director
Annual Report and Financial Statements 2020 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
which was 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 Richard Conroy’s research
included pioneering work on jet lag, shift
working and decision making in business after
intercontinental flights. He co-authored the
first textbook 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 Eight Fifty Food
Group. He was formerly chairman of Findus,
Vaasan & Vaasan, Mater Private, Youngs
Bluecrest, and a Director of Scandi Standard
and Curium Pharma.
Prior to the founding of 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’
of 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.
Dr. Sorċa C. Conroy
Non-executive Director
Dr. Sorċa C. 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 C. Conroy was recruited to ING
Bank in 2006 and whilst there was ranked
second in the Extel Survey for Biotechnology
Specialist Sales. Dr. Sorċa C. 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 C. 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.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc 7
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.
Howard M. Bird
Non-executive Director
Howard M. 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 M. 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 2020 Karelian Diamond Resources Plc 8
Directors’ Report
The Board of Directors submit their annual
report together with the audited financial
statements of Karelian Diamond Resources
P.L.C. (the “Company”) for the financial year
ended 31 May 2020.
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
discovering world class ore 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.
By co-ordinating all of the above, this should
result in a satisfactory return and value for
shareholders.
Results for the year and state
of affairs at 31 May 2020
The income statement for the financial
year ended 31 May 2020 and the statement
of financial position at that date are set out
on pages 22 and 24 respectively. The loss for
the financial year amounted to €446,710
(2019: a loss of €370,654) and net assets
at 31 May 2020 were €9,126,781 (2019:
€9,189,779). No interim or final dividends
have been or are recommended by the
Board of Directors.
The Company is not yet in a production
stage and so has no income. Consequently,
the Company is not expected to report profits
until it disposes of or is able to profitably
develop or otherwise turn to account its
exploration projects. The Board of Directors
monitor the activities and performance of
the Company on a regular basis and uses
both financial and non-financial indicators
to assess the Company’s performance.
Important events since the
year-end
Subsequent to the year-end, the Company
raised a total of €465,761 (£420,000) through
subscriptions for 10,500,000 ordinary shares
in the capital of the Company. 10,500,000 of
these shares were subscribed for at a price
of £0.04 per share.
COVID-19 continues to limit field and
laboratory work given the restrictions on
operations and movement and other work
also continues in relation to the Company’s
exploration and development programme.
Directors
The Directors who served throughout the
financial year unless otherwise indicated
are as noted below:
n Professor Richard Conroy
n Séamus P. FitzPatrick
n Maureen T.A. Jones
n Dr. Sorċa C. Conroy
n Brendan McMorrow
n Howard M. Bird
(appointed 17 September 2019)
n Louis J. Maguire
(resigned 16 December 2019)
Dr. Sorċa C. 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.
Howard M. 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 12), 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.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc 9
Directors’ shareholdings and other interests
The interests of the Directors and their spouses and children in the share capital of the Company were as follows:
Director
Date of signing
financial
statements
Date of signing
financial
statements
31 May 2020
31 May 2020
1 June 2019
(or date of
appointment
if later)
1 June 2019
(or date of
appointment
if later)
Ordinary Shares
of €0.00025
each
Ordinary Shares
of €0.00025
each
Warrants
Ordinary Shares
of €0.00025
each
Warrants
Warrants
Professor Richard Conroy
8,413,912*
220,841
8,413,912*
220,841
5,338,912*
220,841
Dr. Sorċa C. Conroy
1,129,911
–
1,129,911
–
1,129,911
Maureen T.A. Jones
639,990
167,651
639,990
167,651
Séamus P. FitzPatrick
Brendan McMorrow
481,341
285,000
9,288
481,341
9,288
–
285,000
–
639,990
481,341
–
–
167,651
9,288
–
* Of the 8,413,912 (2019: 5,338,912) ordinary shares beneficially held by Professor Richard Conroy at 31 May 2020, 1,232,601 (2019: 1,232,601) are held by
Conroy P.L.C., a company in which Professor Richard Conroy has a controlling interest.
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
2020
31 May
2020
1 June
2019
1 June
2019
Expiry Date
Warrants
Price £
Warrants
Price £
Warrants
Price £
Professor Richard Conroy
Maureen T.A. Jones
Séamus P. FitzPatrick
220,841
167,651
9,288
2.20
220,841
2.20
167,651
2.20
9,288
2.20
2.20
2.20
220,841
2.20 16 November 2022
167,651
2.20 16 November 2022
9,288
2.20 16 November 2022
Annual Report and Financial Statements 2020 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
2020
31 May
2020
31 May
2019
31 May
2019
Ordinary Shares
of €0.00025
each
Professor Richard Conroy
8,413,912*
Spreadex Limited
Mr. Kevin Taylor
Martello Holdings Limited
Mr. Fredrik Björnberg
Mr. Steven Coomber
Mr. Alan Osborne
6,868,430
5,000,000
3,928,571
3,000,000
2,300,000
1,692,819
Ordinary Shares
of €0.00025
each
8,413,912*
–
3,022,939
3,928,571
3,000,000
1,750,000
2,000,000
%
15.71
12.83
9.34
7.34
5.60
4.30
3.16
Ordinary Shares
of €0.00025
each
5,388,912
–
1,332,586
–
–
1,410,519
1,832,257
%
19.55
–
7.02
9.13
6.97
4.07
4.65
%
15.62
–
3.86
–
–
4.09
5.31
* Of the 8,413,912 (2019: 5,338,912) ordinary shares beneficially held by Professor Richard Conroy at 31 May 2020, 1,232,601 (2019: 1,232,601) are held by
Conroy P.L.C., a company in which Professor Richard Conroy has a controlling interest.
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 annual report, including 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’s financial
statements, the Directors are required to:
n select suitable accounting policies for
the Company’s financial statements and
then apply them consistently;
n make judgements and estimates that
are reasonable and prudent;
n state whether the financial statements
have been prepared in accordance with
the applicable accounting standards,
identify those standards, and note the
effect and the reason for any material
departure from these standards; and
n prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc 11
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 the relevant accounting framework 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 €446,710
(2019: a loss of €370,654) for the financial
year ended 31 May 2020. The Company had
net assets of €9,126,781 (2019: €9,189,779)
at that date. The Company had net current
liabilities of €1,247,702 (2019: net current
liabilities of €962,958) at that date. The
Company had cash and cash equivalents
of €15,942 (2019: €30,833) at 31 May 2020.
The Directors, namely Professor Richard
Conroy, Séamus P. FitzPatrick, Maureen T.A.
Jones, Dr. Sorċa C. Conroy and Brendan
McMorrow, and former Directors, namely
James P. Jones and Louis J. Maguire, have
confirmed that they will not seek repayment
of amounts owed to them by the Company of
€902,805 (2019: €738,429) 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
€465,761 (£420,000) 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 November 2021. As set out
in the Chairman’s statement, the Company
expects to incur capital expenditure in 2021,
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 funds received
after the financial 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
The Board adopted the QCA Corporate
Governance Code (“QCA Code”), which
is derived from the 2018 UK Corporate
Governance Code and the Guidance on
Board Effectiveness (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 four non-executive Directors.
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 14 occasions from 1 June 2019 to 31
May 2020 and attendance at these meetings
is set out in the table below. An agenda and
supporting documentation were circulated in
advance of each meeting.
Meetings held during the year
14
Board
Professor Richard Conroy
Séamus P. FitzPatrick
Maureen T.A. Jones
Dr. Sorċa C. Conroy
Brendan McMorrow
Howard M. Bird (appointed
17 September 2019)
Louis J. Maguire (resigned
16 December 2019)
13 out
of 14
11 out
of 14
14 out
of 14
14 out
of 14
13 out
of 14
7 out
of 7
7 out
of 7
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc 12
Directors’ Report continued
There is an agreed list of matters which the
Board of Directors has formally reserved to
itself for decision, such as approval of the
Company’s commercial strategy, trading
and capital budgets, financial statements,
Board of Directors 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’s
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’s 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 by the Board
of Directors and have no material interest
or other relationship with the Company
(Dr. Sorċa C. 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 will
be undertaken annually, after the end of each
financial year but prior to the publication of
the respective annual report and accounts.
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.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc 13
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:
Audit
Committee
Remuneration
Committee
Meetings held
during the year
Seamus P.
FitzPatrick
Brendan
McMorrow**
Sorċa C. Conroy*
Howard M. Bird
(appointed
17 September
2019)**
Louis J. Maguire
(resigned
16 December
2019)***
3
3
3
–*
–
–
–
n/a**
n/a
n/a**
–***
–***
* Sorċa C. Conroy was appointed as a member
of the Audit Committee on 28 August 2020
** Brendan McMorrow and Howard M. Bird were
both appointed as members of the
Remuneration Committee on 28 August 2020
*** Louis J. Maguire resigned as a member of
both the Audit Committee and Remuneration
on 16 December 2019
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 1097 of the
Companies Act 2014, comprises three
independent 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 also advises the
Board of Directors on the appointment of
external auditors and on their remuneration.
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 also reviews internal
controls and reviews the effectiveness of
the Company’s internal controls and risk
management systems. It also considers
the need for an internal audit function,
which it believes is not primarily required at
present because 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, Sorċa C. Conroy,
Ms. Maureen T.A. Jones and Howard M. Bird.
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; and
n Regular management meetings take
place to review financial and operational
activities.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc 14
Directors’ Report continued
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.
Risks and uncertainties
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.
General Industry Risk
The Company’s business may be affected
by the general risks associated with all
companies in the diamond exploration
industry. These risks (the list of which is
not exhaustive) include: general economic
activity, the world diamond prices,
government and environmental regulations,
permits and licenses, fluctuating metal prices,
the requirement and ability to raise additional
capital through future financings and price
volatility of publicly traded securities. 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.
Pandemic Risk
Since the outbreak of the COVID-19
pandemic, the Company has taken necessary
measures in accordance with Government
guidelines to protect the health, safety and
wellbeing of its employees, contractors and
partners in Finland and Ireland. COVID-19
continues to limit field and laboratory work
given the restrictions on operations and
movement and other work also continues
in relation to the Company’s exploration
and development programme.
Communication with
shareholders
The Company gives high priority to
communication with both shareholders
and all other stakeholder groups. This
is achieved through publications such
as the annual and interim report, and
news releases on the Company’s website
www.kareliandiamondresources.com,
which is regularly updated.
The Company encourages shareholders to
attend the Annual General Meeting (AGM)
to meet, exchange views and discuss the
progress of the Company. The Directors
are available after the conclusion of the
formal business of the AGM to meet, listen
to shareholders and discuss any relevant
matters arising.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc 15
Political donations
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
30 November 2020
There were no political donations during
the financial year (2019: €Nil).
Accounting records
The Board of 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 2020 Karelian Diamond Resources Plc 16
Independent Auditor’s Report
to the Members of Karelian Diamond Resources Plc
Independent auditor’s report to the members of Karelian Diamond Resources Plc
Report on the audit of the financial statements
Opinion on the financial statements of Karelian Diamond Resources Plc (the ‘Company’)
In our opinion the financial statements:
•
•
give a true and fair view of the assets, liabilities and financial position of the Company as at 31
May 2020 and of the loss of the Company for the financial year then ended; and
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:
•
•
•
•
•
•
the income statement;
the statement of comprehensive income;
the statement of financial position;
the statement of changes in equity;
the statement of cash flows; and
the related Notes 1 to 20, 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”).
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:
• Going concern (see material uncertainty related to going concern section).
• Valuation of intangible assets.
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 €273,000 which was
determined on the basis of approximately 3% of Shareholders Equity.
We determined the scope of our audit by obtaining an understanding of the
Company and its environment and assessing the risks of material
misstatement.
Significant changes
in our approach
There were no significant changes in our approach.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
17
Material uncertainty relating to going concern
We draw your attention to Note 1 in the financial statements, which indicates that the Company incurred
a net loss of €466,710 during the financial year ended 31 May 2020 and, as of that date, the Company
had net current liabilities of €1,247,702.
In response to this, we:
• 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;
Evaluated directors’ plans and their feasibility by challenging the key assumptions used in the
cash flow forecast provided by agreeing the inputs to expenditure commitments and other
supporting documentation;
•
• Obtained an understanding of directors’ plans to enable the Company to raise the funds required
•
to meet the expenditure commitments of the Company;
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;
Assessed the mechanical accuracy of the cash flow forecast model; and
Assessed the adequacy of the disclosures made in the financial statements.
•
•
• We obtained evidence of the post year end share issues supporting the cash flow projections for
the Company.
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.
Valuation of Intangible Assets
Key audit matter
description
At 31 May 2020, the carrying value of Exploration and evaluation assets
included in Intangible assets in the Statement of financial position amounted
to €10,523,570.
We draw your attention to the disclosures made in Notes 1 and 7 to the
financial statements concerning the valuation of Intangible assets held. The
valuation of Intangible assets by the Company is dependent on the 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.
The valuation of Intangible assets in the Statement of financial position was
assessed as a significant risk and is therefore considered a key audit matter.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
18
Independent Auditor’s Report continued
How the scope of
our audit
responded to the
key audit matter
We performed the following procedures:
• We evaluated the directors’ procedures for assessing indicators of
impairment of intangible assets in line with the accounting policies;
• We evaluated the design and determined the implementation of
controls in place over the capitalisation and subsequent valuation of
Intangible assets.
• 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;
• We performed a review of the proposed exploration programme in
respect of the Company’s assets; including:
-
discussing and challenging the allocation of capitalised costs for
their reasonableness,
assessing the reasonableness of the assets capitalised in the
current year, and
reviewing and considering indicators of impairment.
-
-
• We obtained a listing of Intangible asset additions in the financial year
and selected a sample of additions to ensure the capitalisation was in
line with accounting policies.
• 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;
• We performed a review of budgeted expenditure for the next 12
months; and
• We also considered the adequacy of the disclosure in the financial
statements.
Key observations
A significant 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 Notes 1
and 7 to the financial statements concerning the valuation of Intangible
assets. The valuation of Intangible assets by the Company is dependent on the
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. 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.
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 €273,000 which is approximately 3% of Shareholders
Equity. We have considered Shareholders Equity to be the critical component for determining materiality
as we determined the Shareholders Equity position to be of most importance to the principal external
users of the financial statements. Raising equity funding is of key importance to the Company in
continuing its current operations and is reflective of the current business life cycle of the Company. 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.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
19
Shareholder's
Equity
€10mln
Shareholder's
Equity
Materiality
Materialty
€273,000
Audit Committee
Reporting
Threshold
€13,650
We agreed with the Audit Committee that we would report to them any audit differences in excess of
€13,650, 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.
An overview of the scope of our audit
We determined the scope of our audit by obtaining an understanding of the Company and its
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.
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.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
20
Independent Auditor’s Report continued
As part of an audit in accordance with ISAs (Ireland), we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
•
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 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.
• 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.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
• 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.
•
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.
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.
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
21
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:
• We have obtained all the information and explanations which we consider necessary for the
•
•
•
purposes of our audit.
In our opinion the accounting records of the Company were sufficient to permit the financial
statements to be readily and properly audited.
The financial statements are in agreement with the accounting records.
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
Matters on which we are required to report by exception
Based on the knowledge and understanding of the Group and the Parent Company and its environment
obtained in the course of the audit, we have not identified material misstatements in the directors'
Based on the knowledge and understanding of the Company and its environment obtained in the course
report.
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
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.
report to you if, in our opinion, the disclosures of directors’ remuneration and transactions specified by
law are not made.
Kevin Butler
Kevin Butler
For and on behalf of Deloitte Ireland LLP
For and on behalf of Deloitte Ireland LLP
Chartered Accountants and Statutory Audit Firm
Chartered Accountants and Statutory Audit Firm
No. 6 Lapp’s Quay
6 Lapp’s Quay
Cork
Cork
Date: 30 November 2020
30 November 2020
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
22
Karelian Diamond Resources P.L.C.
Income statement
for the financial year ended 31 May 2020
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
2020
€
(446,710)
(446,710)
-
2019
€
(370,654)
(370,654)
-
(446,710)
(370,654)
(0.0111)
(0.0109)
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
23
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
23
Karelian Diamond Resources P.L.C.
Statement of comprehensive income
for the financial year ended 31 May 2020
Loss for the financial year
2020
€
2019
€
(446,710)
(370,654)
Income recognised in other comprehensive income
-
-
Total comprehensive loss for the financial year
(446,710)
(370,654)
The total comprehensive loss for the financial year is entirely attributable to equity holders of the Company.
24
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
24
Karelian Diamond Resources P.L.C.
Statement of financial position
as at 31 May 2020
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
Share capital presented as equity
Share premium
Share-based payments reserve
Retained deficit
Total equity
Liabilities
Non-current liabilities
Convertible loan
Derivative liability
Total non-current liabilities
Current liabilities
Trade and other payables
Related party loans
Total current liabilities
Total liabilities
Note
31 May
2020
31 May
2019
As restated
€
€
31 May
2018
As restated
€
7
8
9
10
13
13
16
11
11
12
12
10,523,570
4
10,523,574
10,152,733
4
10,152,737
9,661,559
4
9,661,563
15,942
118,991
134,933
30,833
102,989
133,822
18,703
241,859
260,562
10,658,507
10,286,559
9,922,125
3,185,432
9,150,829
456,624
(3,666,104)
9,126,781
3,183,294
8,768,276
456,624
(3,218,415)
9,189,779
3,180,516
8,201,664
519,159
(2,844,872)
9,016,467
148,945
146
149,091
-
-
-
-
-
-
1,288,973
93,662
1,382,635
938,693
158,087
1,096,780
713,169
192,489
905,658
1,531,726
1,096,780
605,658
Total equity and liabilities
10,658,507
10,286,559
9,922,125
The financial statements were approved by the Board of Directors on 30 November 2020 and authorised for issue on 30
November 2020. They are signed on its behalf by:
______________________ __________________
Professor Richard Conroy
Chairman
Maureen T.A. Jones
Managing Director
25
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
25
Karelian Diamond Resources P.L.C.
Statement of changes in equity
for the financial year ended 31 May 2020
Balance at 1 June 2019
Share issue
Share issue costs
Loss for the financial year
Balance at 31 May 2020
Balance at 1 June 2018
Share issue
Share issue costs
Share-based payments
Transfer from share-based
payment reserve to
retained deficit
Loss for the financial year
Balance at 31 May 2019
Share
capital
€
3,183,294
2,138
-
-
3,185,432
3,180,516
2,778
-
-
-
-
3,183,294
Share
premium
€
8,768,276
382,553
-
-
9,150,829
8,201,664
566,612
-
-
-
-
8,768,276
Share-based
payment reserve
€
456,624
-
-
-
456,624
519,159
-
-
5,966
Retained
deficit
€
(3,218,415)
-
(979)
(446,710)
(3,666,104)
(2,884,872)
-
(31,390)
-
(68,501)
-
456,624
68,501
(370,654)
(3,218,415)
Total
equity
€
9,189,779
384,691
(979)
(446,710)
9,126,781
9,016,467
569,390
(31,390)
5,966
-
(370,654)
9,189,779
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 16 July 2019, the Company raised €111,377 (£100,000) through the issue of 2,500,000 ordinary shares of €0.00025
in the capital of the Company at a price of £0.04 per Subscription Share.
On 3 September 2019, Professor Richard Conroy capitalised loans amounting to €71,429 (£65,000) into 1,625,000 new
ordinary shares of nominal value €0.00025 each.
On 7 October 2019, the Company raised €56,060 (£50,000), through the issue of 1,428,571 ordinary shares of €0.00025
in the capital of the Company at a price of £0.035 per Subscription Share.
On 10 December 2019, the Company raised €145,829 (£120,000), through the issue of 3,000,000 ordinary shares of
€0.00025 in the capital of the Company.
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 deficit.
Retained deficit
This reserve represents the accumulated losses absorbed by the Company to the statement of financial position date.
26
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
26
Karelian Diamond Resources P.L.C.
Statement of cash flows
for the financial year ended 31 May 2020
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
Interest expense
Increase in trade and other payables
(Increase)/decrease in other receivables
Net cash used in operating activities
Cash flows from investing activities
Investment in exploration and evaluation
Repayments from Conroy Gold and Natural Resources P.L.C.
Payments to Conroy Gold and Natural Resources P.L.C.
Net cash used in investing activities
Cash flows from financing activities
Issue of share capital
Share issue costs
Proceeds from convertible loan issue
Net cash provided by financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Cash and cash equivalents at end of financial year
2020
€
2019
€
(446,710)
(370,654)
-
3,262
(443,448)
350,280
(11,774)
(104,942)
(370,837)
40,818
(45,046)
(375,065)
320,266
(979)
145,829
465,116
(14,891)
30,833
15,942
5,966
-
(364,688)
225,524
79,974
(59,190)
(491,174)
148,293
(89,397)
(432,278)
534,988
(31,390)
-
503,598
12,130
18,703
30,833
27
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
27
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2020
1
Accounting policies
Reporting entity
Karelian Diamond Resources P.L.C. (the “Company”) is a company domiciled in Ireland. The Company is a public
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 significant judgements are disclosed in the
accounting policies.
The financial statements were authorised for issue by the Board of Directors on 30 November 2020.
Going concern
The Company incurred a loss of €446,710 (2019: a loss of €370,654) for the financial year ended 31 May 2020. The
Company had net assets of €9,126,781 (2019: €9,189,779) at that date. The Company had net current liabilities of
€1,247,702 (2019: net current liabilities of €962,958) at the statement of financial position date.
The Directors, Professor Richard Conroy, Séamus P. FitzPatrick, Maureen T.A. Jones, Dr. Sorċa Conroy, Brendan
McMorrow, Howard Bird and former directors James P. Jones and Louis J. Maguire, have confirmed that they will
not seek repayment of amounts owed to them by the Company of €902,805 (2019: €738,429) within 12 months of
the date of approval of the financial statements, unless the Company has sufficient funds to repay.
Subsequent to the year-end, the Company raised a total of €465,761 (£420,000) through subscriptions for
10,500,000 ordinary shares in the capital of the Company (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 November 2021. As set out further in the Chairman’s
statement, the Company expects to incur capital expenditure in 2021, consistent with its strategy as an
exploration company. The Directors recognise that net current liabilities of €1,247,702 is a material uncertainty
that may cast significant doubt on the Company’s ability to continue as a going concern and, therefore, that it may
be unable to realise its assets and discharge its liabilities in the normal course of business. 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 2020 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 2020
(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 2019:
• 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 IFRS 9, IAS 39 and IFRS 7 – Interest Rate Benchmark Reform – Effective date 1 January 2020
• Amendment to IFRS 16 about providing lessees with an exemption from assessing whether a COVID-19-related
rent concession is a lease modification – Effective date 1 June 2020
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 IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or
•
joint venture – Postponed indefinitely
IFRS 1 amendments resulting from Annual Improvements to IFRS Standards 2018–2020 (subsidiary as a first-
time adopter) – Effective date 1 January 2022
IFRS 3 amendments updating a reference to the Conceptual Framework – Effective date 1 January 2022
IFRS 4 amendments regarding the expiry date of the deferral approach – Effective date 1 January 2023
•
•
• Amendments to IFRS 4, IFRS 7, IFRS 9, IFRS 16, and IAS 39 regarding replacement issues in the context of the
•
•
•
•
•
IBOR reform – Effective date 1 January 2021
IFRS 9 amendments resulting from Annual Improvements to IFRS Standards 2018–2020 (fees in the ‘10 per
cent’ test for derecognition of financial liabilities) – Effective date 1 January 2022
IFRS 17: Insurance contracts – Effective date deferred to 1 January 2023
IAS 1 amendments regarding the classification of liabilities - Effective date 1 January 2023
IAS 16 amendments prohibiting a company from deducting from the cost of property, plant and equipment
amounts received from selling items produced while the company is preparing the asset for its intended use –
Effective date 1 January 2022
IAS 37 amendments regarding the costs to include when assessing whether a contract is onerous – Effective
date 1 January 2022
(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 in-
curred on exploring, and testing exploration prospects are accumulated and capitalised as intangible exploration
and evaluation (“E&E”) assets.
29
Annual Report and Financial Statements 2020 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 2020
(continued)
1
Accounting policies (continued)
(a) Intangible assets (continued)
(i) Capitalisation (continued)
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 are written off to the
income statement in the period in which the event occurred.
(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 or on an annual basis, an impairment test is carried out. The E&E
assets are categorised into Cash Generating Units (“CGU”) on a country-by-country basis (31 May 2020: Finland).
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) 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 2020 and 31 May 2019.
(c) 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.
30
Annual Report and Financial Statements 2020 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 2020
(continued)
1
Accounting policies (continued)
(c) Income taxation expense (continued)
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.
(d) 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). As the exercise prices for warrants are denominated in sterling, the risk-free rate
assumption is based on a sterling gilts zero-coupon yield curve at the date of issue. 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 at 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.
(e) Trade and other receivables and payables
Trade and other receivables are measured at transaction price. Trade payables are measured at initial recognition
at fair value, and subsequently measured at amortised cost.
(f) 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.
(g) 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.
(h) Pension costs
The Company provides for pensions for certain employees through a defined contribution pension scheme. The
amount charged to the income statement 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.
(i) 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.
31
Annual Report and Financial Statements 2020 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 2020
(continued)
1
Accounting policies (continued)
(j) 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 interest rate
method. 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 to the net carrying amount of
initial recognition.
As the convertible loan is made up of both liability and derivative components, it is considered to be a compound
financial instrument. At initial recognition, the carrying amount of a compound financial instrument is allocated to
its liability and derivative components. The fair value of the liability, which is the difference between the
transaction price and the fair value of the conversion feature, and derivative is recognised as a liability in the
statement of financial position. The conversion feature is subsequently measured at fair value with changes
recognised in profit or loss. The liability is subsequently measured at amortised cost. The Company accounts for
the interest expense of the convertible loan note at the effective interest rate. The difference between the
effective interest rate and interest rate increases the carrying amount of the liability so that, on maturity, the
carrying amount is equal to the capital cash repayment that the Company may be required to pay.
(k) Ordinary shares
Ordinary shares are classified as equity. Costs directly attributable to the issue of ordinary shares and share
options are recognised as a deduction from retained earnings, net of any tax effects.
(l) Impairment - financial assets are measured at amortised cost
Financial assets measured at amortised cost are reviewed for impairment loss at each reporting date. The
Company applies the simplified approach in accordance with IFRS 9.
The Company measures the loss allowance at an amount equal to the lifetime expected credit losses as required
under a simplified approach for trade receivables that do not contain a financing component.
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 for increases in credit risks.
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. Any contractual payment which is more than
90 days past due is considered credit impaired.
(m) Significant accounting judgements and key sources of estimation uncertainty
Significant 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:
32
Annual Report and Financial Statements 2020 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 2020
(continued)
1
Accounting policies (continued)
(m) Significant accounting judgements and key sources of estimation uncertainty (continued)
Significant judgements in applying the Company’s accounting policies (continued)
Exploration and evaluation assets
The assessment of whether operating costs and salary costs are capitalised to exploration and evaluation 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.
Cash generating units
As outlined in the intangible assets accounting policy, the exploration and evaluation assets should be allocated to
CGU’s. The determination of what constitutes 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 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 28 for further details.
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.
Key sources of estimation uncertainty
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 €10,523,570 (2019: €10,152,733) at 31 May 2020. 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.
33
Annual Report and Financial Statements 2020 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 2020
(continued)
1 Accounting policies (continued)
(m) Significant accounting judgements and key sources of estimation uncertainty (continued)
Key sources of estimation uncertainty (continued)
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.
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.
2 Operating expenses
Analysis of operating expenses
Operating expenses
Transfer to intangible assets
Operating expenses are analysed as follows:
Other operating expenses
Wages, salaries and related costs
Auditor’s remuneration
2020
€
609,169
(162,459)
446,710
338,515
244,519
26,135
609,169
2019
€
562,999
(192,345)
370,654
227,540
315,459
20,000
562,999
Of the above costs, a total of €162,459 (2019: €192,345) is capitalised to intangible assets based on a review of the
nature and quantum of the underlying costs. Refer to Note 1(a)(i) for further details.
Wages, salaries and related costs as disclosed above is analysed as follows:
Wages and salaries
Social insurance costs
Retirement benefit costs
2020
€
237,512
7,007
-
244,519
2019
€
290,209
10,250
15,000
315,459
The amount of wages, salaries and related costs capitalised to intangible assets during the financial year was
€131,280 (2019: €165,848).
34
Annual Report and Financial Statements 2020 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 2020
(continued)
2 Operating expenses (continued)
The average number of persons employed during the year (including executive Directors) by activity was as
follows:
Corporate management and administration
Exploration and evaluation
2020
2019
2
-
2
3
1
4
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
Brendan McMorrow
Séamus P. FitzPatrick
Dr. Sorċa Conroy
Howard Bird
Louis J. Maguire
Fees
€
17,500
8,750
8,750
8,750
8,750
5,833
5,417
63,750
Salary
€
56,875
43,750
-
-
-
-
-
100,625
Share-based
payment €
-
-
-
-
-
-
-
-
Pension
contributions €
-
-
-
-
-
-
-
-
Total
€
74,375
52,500
8,750
8,750
8,750
5,833
5,417
164,375
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
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
35
Annual Report and Financial Statements 2020 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 2020
(continued)
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
2020
€
2019
€
26,135
20,000
No fees were incurred for other assurance; tax advisory or other non-audit services in respect of the current or prior
financial years.
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 (2019: 1)
• 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:
• Office 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
2020
€
2019
€
164,376
180,833
-
-
-
-
-
-
-
-
-
-
-
-
15,000
-
-
-
-
-
-
-
No amounts have been paid or are payable to past Directors of the Company or its holding undertakings (2019:
€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 (2019: €Nil).
36
Annual Report and Financial Statements 2020 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 2020
(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 taxation
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
2020
€
(446,710)
12.50%
(55,839)
55,839
-
2019
€
(370,654)
12.50%
(46,332)
46,332
-
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. Unutilised losses carried forward amounted to EUR12,003,834
at 31 May 2019.
6
Loss per share
Basic loss per share
Loss for the year attributable to equity holders of the Company
Number of ordinary shares at start of the financial year
Number of ordinary shares issued during the financial year
Number of ordinary shares at end of the financial year
2020
€
(446,710)
34,489,178
8,553,571
43,042,749
2019
€
(370,654)
23,378,067
11,111,111
34,489,178
Weighted average number of ordinary shares for the purposes of
basic loss per share
40,243,826
34,154,324
Basic and diluted loss per ordinary share
(0.0111)
(0.0109)
Diluted loss per share
The effect of share options and warrants is anti-dilutive.
37
Annual Report and Financial Statements 2020 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 2020
(continued)
37
7
Intangible assets
Exploration and evaluation assets
Finland
Cost
At 1 June
Expenditure during the financial year:
• Licence and appraisal costs
• Other operating expenses (Note 2)
At 31 May
31 May
2020
€
10,152,733
208,378
162,459
10,523,570
31 May
2019
€
9,661,559
298,829
192,345
10,152,733
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
2020
€
4
31 May
2019
€
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 immaterial as the net asset of each
entity is €2. The subsidiaries are not trading and have no contingencies or commitments other than intercompany
balances of €2.
38
Annual Report and Financial Statements 2020 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 2020
(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
2020
€
15,942
15,942
31 May
2020
€
58,469
37,957
22,379
186
118,991
31 May
2019
€
30,833
30,833
31 May
2019
€
54,241
36,840
11,722
186
102,989
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 2020 of €58,469 (2019: €54,241) 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. As this amount is receivable from the Group company, the Directors consider that the probability
of default is close to zero.
11 Non-current liabilities – as restated
Convertible loan
On 10 December 2019, the Company has entered into a convertible loan note agreement for a total amount of
€145,829 (£120,000) with one of its shareholders. The convertible loan note is unsecured, has a term of three
years and attracts interest at a rate of 5% per annum which is payable on the maturity or conversion of the
convertible loan. The conversion price is 10 pence. The shareholder has the right to seek conversion of the
principal amount outstanding on the convertible loan note and all interest accrued at any time during the term.
Any conversion of the convertible loan note will be a for a minimum of €60,761 (£50,000) of loan notes. The
amount of €146 relates to derivative liability attached to the convertible loan note. Interest incurred on this
convertible loan note is €3,262 for the period.
39
Annual Report and Financial Statements 2020 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 2020
(continued)
39
12 Current liabilities – as restated
Trade and other payables
Accrued Directors’ remuneration
Fees and other emoluments
Pension contributions
Other creditors and accruals
31 May
2020
€
639,555
263,250
386,168
1,288,973
31 May
2019
€
475,179
263,250
200,264
938,693
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.
Related party loans
Opening balance 1 June
Loan conversion into shares*
Loan advances**
Closing balance 31 May
31 May
2020
€
158,087
(71,425)
7,000
93,662
31 May
2019
€
192,489
(34,402)
-
158,087
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 2020 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.
*On 3 September 2019, Professor Richard Conroy capitalised loans amounting to €71,425 (£65,000) into 1,625,000
new ordinary shares of nominal value €0.00025 each.
**This amount relates to a loan provided by Maureen T.A. Jones to the Company.
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
2020
€
-
1,825,328
3,174,672
5,000,000
31 May
2019
€
-
1,825,328
3,174,672
5,000,000
The deferred shares do not entitle the holder to receive a dividend or other distribution. Furthermore, the
deferred shares do not entitle the shareholder to receive notice of or vote at any general meeting of the Company,
and do not entitle the shareholder to any proceeds on a return of capital or winding up of the Company.
40
Annual Report and Financial Statements 2020 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 2020
(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 (b)
Loan conversion into shares (c)
Share issue (d)
Share issue (e)
Number of
ordinary shares
Called up
share capital
€
Called up deferred
share capital
€
Share
premium
€
34,489,178
8,622
3,174,672
8,768,276
2,500,000
1,625,000
1,428,571
3,000,000
625
405
358
750
-
-
-
-
110,752
71,019
55,703
145,079
End of current financial year
43,042,749
10,760
3,174,672
9,150,829
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 €0.00025 each
Share issue (a)
End of prior financial year
23,378,067
11,111,111
34,489,178
5,844
2,778
8,622
3,174,672
8,201,664
-
566,612
3,174,672
8,768,276
(a) On 11 June 2018, 11,111,111 ordinary shares of €0.00025 were issued, each at €0.05172 sterling (£0.045) 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.
(b) On 16 July 2019, the Company raised €111,377 (£100,000), through the issue of 2,500,000 ordinary shares of
€0.00025 in the capital of the Company at a price of £0.04 per Subscription Share resulting in a total premium of
€110,752 per issue.
(c) On 3 September 2019, Professor Richard Conroy capitalised loans amounting to €71,429 into 1,625,000 new
ordinary shares of nominal value €0.00025 each resulting in a total premium of €71,019 per issue.
(d) On 7 October 2019, the Company raised €56,060 (£50,000), through the issue of 1,428,571 ordinary shares of
€0.00025 in the capital of the Company at a price of £0.035 per Subscription Share resulting in a total premium of
€55,703 per issue.
(e) On 10 December 2019, the Company raised €291,659 (£240,000), through the issue of 3,000,000 ordinary
shares of €0.00025 in the capital of the Company and the issue of an unsecured convertible loan note resulting in a
total premium of €145,079 per issue.
(f) At 31 May 2020 and 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. There were no
warrants issued during the year ended 31 May 2020.
(g) At 31 May 2020 and 31 May 2019, there are no options outstanding.
(h) The share price at 31 May 2020 was £0.0395 sterling (2019: £0.0240 sterling). The ordinary share price ranged
from £0.0172 sterling to £0.0470 sterling (2019: £0.0225 sterling to £0.0675 sterling).
41
Annual Report and Financial Statements 2020 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 2020
(continued)
14 Commitments and contingencies
At 31 May 2020, there were no capital commitments or contingent liabilities (2019: €Nil) recognised at the
reporting date. Should the Company decide to further develop the Lahtojoki project, an amount of €60,000 is
payable by the Company to the vendors of the Lahtojoki mining concession.
15 Related party transactions
(a) Details of Directors’ loans advanced by Professor Richard Conroy and Maureen T.A. Jones are outlined in Note
12 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 2020, Conroy Gold and Natural
Resources P.L.C. incurred costs totalling €40,818 (2019: €148,293) 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
2020
€
80,144
9,851
(49,177)*
40,818
*This amount is rechargeable by Conroy Gold and Natural Resources P.L.C. from the Company
2019
€
108,541
12,397
27,355
148,293
(c) At 31 May 2020, Conroy Gold and Natural Resources P.L.C. owed €58,469 (2019: €54,241) 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 2020, €45,046 (2019: €89,397) was paid
by the Company to Conroy Gold and Natural Resources P.L.C. During the financial year ended, the Company was
charged €40,818 (2019: €148,293) by Conroy Gold and Natural Resources P.L.C. in respect of the allocation of cer-
tain 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 2020
for a period of at least 12 months from the date of approval of the financial statements of Conroy Gold and Natu-
ral 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 2020, Brendan McMorrow was owed €20,417 (2019: €2,700) in respect of his services.
This amount is included in the trade and other payables balance in the statement of financial position.
(d) 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
Brendan McMorrow
Séamus P. FitzPatrick
Dr. Sorċa Conroy
Howard Bird
Louis J. Maguire
Fees
€
17,500
8,750
8,750
8,750
8,750
5,833
5,417
63,750
Salary
€
56,875
43,750
-
-
-
-
-
100,625
Share-based
payment €
-
-
-
-
-
-
-
-
Pension
contributions €
-
-
-
-
-
-
-
-
Total
€
74,375
52,500
8,750
8,750
8,750
5,833
5,417
164,375
42
Annual Report and Financial Statements 2020 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 2020
(continued)
15 Related party transactions (continued)
(d) (continued)
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
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
(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 12), convertible loan from a shareholder (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.
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.
At 31 May 2020, there were no share options outstanding (2019: €Nil).
Warrants granted generally have a vesting period of two and half years. Details of the warrants outstanding during
the financial year are as follows:
2020
No. of Share
Warrants
900,139
-
-
900,139
2020
Weighted
Average
Exercise Price
€
0.0815
-
-
0.0815
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
At 1 June
Granted during the financial year
Lapsed during the financial year
At 31 May
The Company estimated the fair value of options and warrants awards using the Binomial Lattice Model. The
determination of the fair value of share-based payment awards on the date of grant using the Binomial Lattice
Model is affected by Karelian Diamond Resources P.L.C. stock price as well as assumptions regarding a number of
subjective variables.
These variables include the expected term of the awards, the expected stock price volatility over the term of the
awards, the risk-free interest rate associated with the expected term of the awards and the expected dividends.
43
Annual Report and Financial Statements 2020 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 2020
(continued)
16 Share-based payments (continued)
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)
2020
Stock Options
N/a
N/a
N/a
N/a
2020
Stock Warrants
0%
50%
0.7%
2.5
2019
Stock Options
N/a
N/a
N/a
N/a
2019
Stock Warrants
0%
50%
0.7%
2.5
This calculation results in a share-based payment of €Nil (2019: €5,966). Amounts relating to share warrants which
lapsed during the year and which are reclassified to retained deficit were €Nil (2019: €68,501).
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 and loan finance. Short term cash
funds are invested, if appropriate, in short-term interest-bearing bank deposits at 31 May 2020 and 2019. The
Company did not enter into any hedging transactions with respect to interest rate risk.
(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. As the exercise prices for warrants are denominated
in sterling, the risk-free rate assumption is based on a sterling gilts zero-coupon yield curve at the date of issue.
It is the 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 2020 and 31 May 2019, the Company did not
utilise foreign currency forward contracts or other derivatives to manage foreign currency risk.
44
Annual Report and Financial Statements 2020 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 2020
(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 2020:
Cash and cash equivalents
Amount due from related party
Other debtors
Convertible loan
Derivative liability
Related party loans
Trade and other payables
Total exposure
Sterling exposure
denominated in €
409
-
-
(148,945)
(146)
-
(41,493)
(190,175)
Not at risk
€
15,533
58,469
22,379
-
-
(93,662)
(1,247,480)
(1,244,761)
Total
€
15,942
58,469
22,379
(148,945)
(146)
(93,662)
(1,288,973)
(1,434,936)
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:
Cash and cash equivalents
Amount due from related party
Other debtors
Directors’ loans
Trade and other payables
Total exposure
Sterling exposure
denominated in €
1,449
-
-
-
(20,986)
(19,537)
Not at risk
€
29,384
54,241
11,722
(158,087)
(917,707)
(980,447)
Total
€
30,833
54,241
11,722
(158,087)
(938,693)
(999,984)
The following are the significant exchange rates that applied against €1 during the financial year:
Average Rate
2020
Average Rate
2019
Spot Rate
31 May
2020
Spot Rate
31 May
2019
GBP
0.875
0.881
0.899
0.887
Sensitivity analysis
A 10% strengthening of the Euro against Sterling, based on outstanding financial assets and liabilities at 31 May
2020 would have decreased the reported loss by €4,123 (2019 decreased by: €1,954) 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.
It is assumed that all other variables, especially interest rates, remain constant in the analysis.
(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.
45
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
45
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2020
(continued)
17 Financial instruments (continued)
Financial risk management objectives, policies and processes (continued)
(c) Liquidity risk (continued)
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 2020 were as follows:
Trade and other
payables (including
related party loans)
Derivative liability
Convertible loan
Carrying
amount €
Contractual
cash flows €
6 months or
less €
6-12 months
€
1-2 years
€
2-5 years
€
1,382,635
1,382,635
386,168*
93,662** 902,805**
-
146
148,945
146
167,835
-
-
-
-
146***
-
- 148,945***
1,531,726
1,550,616
386,168*
93,662** 902,805** 149,091***
Contractual maturities of financial liabilities as at 31 May 2019 were as follows:
Carrying
amount €
Contractual
cash flows €
6 months or
less €
6-12 months
€
1-2 years
€
2-5 years
€
1,096,780
1,096,780
200,264*
158,087**
738,429**
-
Trade and other
payables (including
related party loans)
*The amount of €386,168 (2019: €200,264) relates to other trade payables.
**The Directors, Professor Richard Conroy, Séamus P. FitzPatrick, Maureen T.A. Jones, Dr. Sorċa Conroy and
Brendan McMorrow, and former directors James P. Jones and Louis J. Maguire, have confirmed that they will not
seek repayment of amounts owed to them by the Company of €902,805 (2019: €738,429) within 12 months of the
date of approval of the financial statements, unless the Company has sufficient funds to repay. The related party
loans amounts consist of monies owed to Professor Richard Conroy amounting to €86,583 (2019: €158,007) and
Maureen T.A. Jones amounting to €7,079 (2019: €80).
***On 10 December 2019, the Company has entered into a convertible loan note agreement for a total amount of
€145,829 (£120,000) with one of its shareholders. Please refer to Note 11 for further details.
The Company had cash and cash equivalents of €15,942 at 31 May 2020 (2019: €30,833).
(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.
46
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
46
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2020
(continued)
17 Financial instruments (continued)
Financial risk management objectives, policies and processes (continued)
(d) Credit risk (continued)
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to
credit risk was as follows:
Cash and cash equivalents
Other debtors
Amount due from related party
2020
€
15,942
22,379
58,469
96,790
2019
€
30,833
11,722
54,241
96,796
The Company’s cash and cash equivalents are held at AIB Bank which has a credit rating of “BBB” as determined
by Fitch.
Expected credit loss
The Company 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 2020 and 31 May 2019, 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 the amount due from related party is receivable from the Group companies, the Directors of the Company
consider the probability of default to be close to zero. As a result, no loss allowance has been recognised based on
lifetime expected credit losses under simplified approach 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 2020 and 31 May
2019, the fair value equals the carrying amount in each case. The carrying value of non-current financial assets
and liabilities is a reasonable approximation of fair value.
(f) Capital management
The principal activities of the Company are concentrating particularly on diamond exploration and evaluation.
The Company has historically funded its activities through share issues and placings and loans. 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.
The capital structure of the Company consists of equity of the Company (refer to the statement of changes in
equity and Note 13). The Company is not subject to any externally imposed capital requirements.
47
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
47
Karelian Diamond Resources P.L.C.
Notes
to and forming part of the financial statements for the financial year ended 31 May 2020
(continued)
18
Post balance sheet events
Subsequent to the year-end, the Company raised a total of €465,761 (£420,000) through subscriptions for
10,500,000 ordinary shares in the capital of the Company. 10,500,000 of these shares were subscribed for at a
price of £0.04 per share. In addition, the Company broker, Brandon Hill Capital Ltd, will be granted warrants to
subscribe for 525,000 new ordinary shares in the Company at an exercise price of 4 pence per Ordinary Share for a
period of 30 months from admission date.
COVID-19 continues to limit field and laboratory work given the restrictions on operations and movement and
other work also continues in relation to the Company’s exploration and development programme.
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 Prior year adjustment
The Statement of Financial Position as at 31 May 2019 previously presented related party loans amounting to
€158,087 within non-current liabilities. Following a review of the applicable terms and conditions, the Directors
determined that these amounts should, more appropriately, be classified within current liabilities. The Statement
of Financial Position as at 31 May 2019 have therefore been adjusted to reflect the impact of this reclassification.
In line with the requirements of IAS 8 Accounting policies, changes in accounting estimates and errors, the
comparative figures for the year ended 31 May 2019 have been restated as follows:
Balance Sheet
Non-current liabilities
Related party loans
Total non-current liabilities
Current liabilities
Trade and other payables
Related party loans
Total current liabilities
As previously
stated 31 May
2019
€
Effect of
restatement 31
May 2019
€
As
restated 31 May
2019
€
158,087
158,087
938,693
-
938,693
(158,087)
(158,087)
-
158,087
158,087
-
-
938,693
158,087
1,096,780
There is no impact on Net Assets, Total equity and liabilities or the Statement of Comprehensive Income.
20 Approval of the audited financial statements for the financial year ended 31 May 2020
These audited financial statements were approved by the Board of Directors on 30 November 2020. 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.
48
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc
48
Annual Report and Financial Statements 2020 Karelian Diamond Resources Plc