Karelian Diamond Resources
Annual Report 2022

Plain-text annual report

Annual Report and Financial Statements 2022 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc 1 Contents Chairman’s Statement Company Information Board of Directors Directors’ Report Independent Auditor’s 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 4 5 7 16 22 23 24 25 26 27 2 Chairman’s Statement Professor Richard Conroy Chairman Dear Shareholder, I have pleasure in presenting the Company’s Annual Report and Financial Statements for the year ended 31 May 2022. Lahtojoki Diamond deposit – Site visit The Company’s exploration programmes during the year yielded excellent results in both Finland and Ireland. A drone based geophysical survey in Finland resulted in the identification of twenty-three kimberlite targets in the Kuhmo area, where the Company has previously discovered a diamond and in till and in Ireland, during the course of a stream sediment survey to investigate the historically reported discovery of a diamond, nickel, copper and platinum group metal indicators were discovered. Diamond Exploration and Development in Finland Diamond deposits only form beneath areas of the earth’s crust known as Cratons. The Karelian Craton stretches across Finland and north-western Russia and is one of the largest Cratons in the world. In the Russian sector of the Craton, two world class diamond deposits - Lomonosova and the Grib Pipe, have been found. Both are now in production as major diamond mines. The Company’s objective is to find comparable deposits in the similar geology which is present in the Finnish sector of the Karelian Craton. The identification of a large number of kimberlite targets close to where the Company discovered a diamond in till is a significant step towards achieving this objective. Kimberlite pipes enable diamonds, which are formed deep under the earth’s crust, to reach the surface. There is of course no guarantee that a kimberlite pipe will contain diamonds, most kimberlites in fact are not diamondiferous. However, the presence of the diamond discovered by the Company down-ice of the kimberlite targets is a very positive sign that the kimberlites which have been identified by the Company in the Kuhmo area of Finland may be diamondiferous. The newly discovered kimberlite targets followed from a high resolution, drone based, magnetic survey. The survey was carried out up-ice of the location where the Company has previously discovered a diamond in till. During the survey over eighty flight lines (250km) were flown. Interpretation of the resultant data from the survey has led to the identification of the twenty-three kimberlite targets. Many of the targets are extensive in size, ranging from 0.5 hectares to over 4.5 hectares, and appear highly prospective. On the diamond mining development side, it is very much to be hoped in relation to the Lahtojoki diamond deposit, which the Company has acquired and which is known to contain a percentage of the very valuable pink diamonds, that the Company will soon receive its long awaited land valuation decisions. These decisions are required under Finnish law for mine permitting but have been greatly delayed by the COVID-19 pandemic. The Company has just been notified that the required public meeting will be held in December 2022. Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc3 Stream sediment sampling, Northern Ireland Two Kimberlite targets identified by UAV geophysics – magnetics Ireland - Nickel, Copper and Platinum Prospectivity the Company’s exploration and development programmes in both Finland and Ireland. The discovery in Northern Ireland, during the course of a diamond exploration programme by the Company on its Licence in Co. Fermanagh, of highly anomalous numbers of indicators, particularly chromites, suggestive of the presence of nickel, copper and platinum group metals, adds a new and very exciting dimension to the Company’s mineral exploration interests and will be actively followed up during the course of the coming year. Ireland is already an international base metals province and significant gold discoveries have also been made. Management has been involved in both previous gold and base metal discoveries in Ireland. Such discoveries of other minerals during diamond exploration programmes are not unknown, the most famous being the Voisey Bay world class nickel discovery in Canada. COVID-19 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 and, as described previously, has delayed permitting at the Company’s diamond deposit at Lahtojoki. Despite these restrictions on operations, work has continued in relation to Environmental, Social and Governance Issues Great emphasis is placed by the Company on Environmental, Social and Governance issues. The Company is committed to high standards of corporate governance and integrity in all of its activities and operations including rigorous health and safety compliance and environmental consciousness 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. It is a requirement that the Chairman of the Board regularly monitors and reviews the Company’s ethical standards and cultural environment and where necessary takes appropriate action to ensure proper standards are maintained. The Company is fully committed to complying with all relevant health, safety and environment rules and regulations as these apply to its operations and all individuals working for the Company are aware of their responsibilities in providing a safe and secure working environment. Finance The profit after taxation from continuing operations for the financial year ended 31 May 2022 was €13,597 (31 May 2021: loss of €422,192) and the net assets of the Company at 31 May 2022 were €9,480,807 (31 May 2021: €9,495,866). The profit is generated as a result of the movement in fair value of warrants totalling €389,904. Directors and Staff I would like to express my deep appreciation of the support and dedication of Directors, staff, and consultants which has made possible the continued progress and success which the Company has achieved. Outlook I look forward to continued success both in relation to the Company’s diamond interests in Finland, which are now at a particularly exciting stage, and also to the Company’s new exploration programme for nickel, copper and platinum group metals in Northern Ireland. We also look forward to receiving the necessary land valuation decisions in addition to the planned diamond exploration work in Finland. Professor Richard Conroy Chairman 28 November 2022 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc4 Company Information 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 *+§ Dr. Sorc˙a C. Conroy Non-Executive Director *§ Brendan McMorrow Non-Executive Director *+§ * 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 Nominated Adviser (NOMAD) Allenby Capital Limited 5 St. Helen’s Place 5th Floor London, EC3A 6AB, UK 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 Registrars Avenir Registrars Limited No. 1 Main Street, Blessington Co Wicklow, W91 V82T, Ireland www.avenir-registrars.ie Bankers AIB 1-4 Lower Baggot Street Dublin 2, D02 X342, Ireland Nordea Satamaradankatu 5, Helsinki, Finland Broker First Equity Ltd. Salisbury House, Finsbury London, EC2 M5QQ, 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 Professor Richard Conroy Chairman . Seamus P. FitzPatrick Deputy Chairman Dr. Sorc˙a 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 2022 Karelian Diamond Resources Plc Karelian Diamond Resources P.L.C. Board of Directors Board of Directors 5 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. Since then, Professor Richard Conroy has utilised his extensive experience in the exploration industry in his role as Chairman of the Board. 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. Experience 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. 5 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc 6 Board of Directors (continued) Karelian Diamond Resources P.L.C. Board of Directors (continued) 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 and ensures all filings and requirements of the Companies Acts are fulfilled. Experience Maureen T.A. Jones joined Conroy Petroleum on its foundation in 1980 and was a Director and a 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 has over twenty years’ experience at senior level in the natural resource sector. She is Managing Director of Karelian Diamond Resources P.L.C. and was a founding Director of the Company. Maureen T.A. Jones brings a vast amount of managerial experience to the Board along with extensive experience of the exploration industry. Dr. Sorċa Conroy - Non-executive Director Dr. Sorċa Conroy brings a broad range of knowledge to bear on the Company through her capital markets experience and her experience in the natural resources sector. Experience Dr. Sorċa Conroy was recruited to ING Bank in 2006 and whilst there was ranked second in the Extel Survey for Biotechnology Specialist Sales. Dr. Sorċa Conroy had previously worked in specialist sales for life sciences and institutional equities at Canaccord Adams (2005-2006; where she ranked fourth in the 2006 Extel survey) and Hoodless Brennan (2004-2005). A medical graduate of The Royal College of Surgeons in Ireland, Dr. Sorċa Conroy held a number of clinical positions between her graduation in 1995 and joining Hoodless Brennan and is a director of Conroy Gold and Natural Resources P.L.C. for over 10 years. 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. 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 Chief Executive Officer of Ormonde Mining P.L.C., a natural resources exploration 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. Howard Bird - Non-executive Director Howard Bird brings a broad range of knowledge gained through holding senior positions in a variety of different roles in the natural resources sector. He was appointed to the Board on 17 September 2019. Experience Howard Bird is an internationally experienced Professional Geoscientist (diamonds, gold, platinum and base metals) and has over 30 years’ diverse junior and senior mining company exploration, development and mining experience, including over 15 years at senior executive management level. Howard has extensive worldwide experience and was involved in programmes that have led to the discovery of over 100 kimberlites, working in Canada, Australia, Brazil, South Africa, Angola, Zimbabwe, Democratic Republic of Congo, Botswana and Gabon. Together, the Directors form the Board of Directors with a gender balance of four and two. The mix of experience that the Directors bring to the Board include financial and managerial experience, mining, development and natural resources experience which are crucial to the business of the Company and crucial to the smooth running of a Board of Directors and company. 6 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc Directors’ Report Karelian Diamond Resources P.L.C. Directors’ Report 7 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 2022. 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 3 to 4. The Company is a mineral exploration and development company whose objective and strategy is to discover and develop world class diamond projects in politically stable and geographically attractive countries such as Finland and Ireland in order to create value for shareholders. 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. Please refer to the section on risks and uncertainities on pages 13, 14 and 15 for further details. 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 2022 The income statement for the financial year ended 31 May 2022 and the statement of financial position at that date are set out on pages 22 and 24 respectively. The profit for the financial year amounted to €13,593 (31 May 2021: a loss of €422,192) and net assets at 31 May 2022 were €9,480,803 (31 May 2021: €9,495,866). 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 material profits until it disposes of or is able to profitably develop or otherwise turn to account its exploration projects. The 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 Post year end, the Company announced that the geophysical interpretation of drone based aeromagnetic data has identified twenty three Kimberlite targets in the area surveyed. The Company’s application for two additional mineral prospecting licences in Northern Ireland were granted, as announced on 6 October 2022. The final meeting related to land valuations regarding the Company’s diamond mine development at Lahtojoki with the National Land Survey of Finland was postponed from June 2022 and is expected in December 2022. There were no further important events to note post year end. Directors Please refer to pages 1, 5 and 6 for a listing of Directors and further details. 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), 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. Refer to Note 15 for further details. 7 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc8 Karelian Diamond Resources P.L.C. Directors’ Report (continued) Karelian Diamond Resources P.L.C. Karelian Diamond Resources P.L.C. Directors’ Report (continued) Directors’ Report (continued) Directors’ Report (continued) 31 May 2021 31 May 2021 31 May 2021 Warrants Warrants 2,070,841 Warrants - 2,070,841 317,651 - 2,070,841 9,288 317,651 - - 9,288 317,651 - 9,288 - Director Director Director Director Director Director 31 May 2022 31 May 2022 31 May 2022 Warrants Warrants 2,070,841 Warrants - 2,070,841 317,651 - 2,070,841 9,288 317,651 - - 9,288 317,651 - 9,288 - Ordinary Shares of €0.00025 each Ordinary Shares 10,263,912 of €0.00025 each Ordinary Shares 1,129,911 10,263,912 of €0.00025 each 789,990 1,129,911 10,263,912 481,341 789,990 1,129,911 285,000 481,341 789,990 285,000 481,341 285,000 Professor Richard Conroy Dr. Sorċa Conroy Professor Richard Conroy Maureen T.A. Jones Dr. Sorċa Conroy Professor Richard Conroy Séamus P. FitzPatrick Maureen T.A. Jones Dr. Sorċa Conroy Brendan McMorrow Séamus P. FitzPatrick Maureen T.A. Jones Brendan McMorrow Séamus P. FitzPatrick Brendan McMorrow 31 May 2022 31 May 2022 31 May 2022 Ordinary Shares of €0.00025 each Ordinary Shares 10,263,912 of €0.00025 each Ordinary Shares 1,129,911 10,263,912 of €0.00025 each 789,990 1,129,911 10,263,912 481,341 789,990 1,129,911 285,000 481,341 789,990 285,000 481,341 285,000 Company secretary Maureen T.A. Jones served as Company Secretary throughout the year. Company secretary Maureen T.A. Jones served as Company Secretary throughout the year. Company secretary Maureen T.A. Jones served as Company Secretary throughout the year. Directors’ shareholdings and other interests The interests of the Directors and their connected persons in the share capital of the Company were as follows: Directors’ shareholdings and other interests The interests of the Directors and their connected persons in the share capital of the Company were as follows: Directors’ shareholdings and other interests 31 May 2021 Date of Date of signing The interests of the Directors and their connected persons in the share capital of the Company were as follows: signing financial Date of Date of signing 31 May 2021 statements financial signing financial 31 May 2021 Date of Date of signing statements statements financial signing financial Warrants Ordinary Shares statements statements financial of €0.00025 each statements Warrants Ordinary Shares 2,070,841 10,263,912* of €0.00025 each Warrants Ordinary Shares - 1,129,911 2,070,841 10,263,912* of €0.00025 each 317,651 789,990 - 1,129,911 2,070,841 10,263,912* 9,288 481,341 317,651 789,990 - 1,129,911 - 285,000 9,288 481,341 317,651 789,990 * Of the 10,263,912 (31 May 2021: 10,263,912) ordinary shares beneficially held by Professor Richard Conroy at 31 May 2022, 1,232,601 (31 May 2021: - 285,000 9,288 481,341 1,232,601) are held by Conroy P.L.C., a company in which Professor Richard Conroy has a controlling interest. * Of the 10,263,912 (31 May 2021: 10,263,912) ordinary shares beneficially held by Professor Richard Conroy at 31 May 2022, 1,232,601 (31 May 2021: - 285,000 1,232,601) are held by Conroy P.L.C., a company in which Professor Richard Conroy has a controlling interest. * Of the 10,263,912 (31 May 2021: 10,263,912) ordinary shares beneficially held by Professor Richard Conroy at 31 May 2022, 1,232,601 (31 May 2021: 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: Details of warrants, all of which are exercisable currently, are as follows: Date of Details of warrants, all of which are exercisable currently, are as follows: signing Date of financial signing Date of statements financial signing Warrants statements financial 1,850,000 statements Warrants 220,841 1,850,000 Warrants 150,000 220,841 1,850,000 167,651 150,000 220,841 9,288 167,651 150,000 9,288 167,651 9,288 Professor Richard Conroy Professor Richard Conroy Professor Richard Conroy Maureen T.A. Jones Professor Richard Conroy Professor Richard Conroy Maureen T.A. Jones Maureen T.A. Jones Professor Richard Conroy Séamus P. FitzPatrick Maureen T.A. Jones Maureen T.A. Jones Séamus P. FitzPatrick Maureen T.A. Jones Séamus P. FitzPatrick Substantial shareholdings So far as the Board of Directors are aware, no person or company, other than the shareholders listed below, held 3% or Substantial shareholdings more of the issued ordinary share capital of the Company. So far as the Board of Directors are aware, no person or company, other than the shareholders listed below, held 3% or Substantial shareholdings more of the issued ordinary share capital of the Company. So far as the Board of Directors are aware, no person or company, other than the shareholders listed below, held 3% or Date of more of the issued ordinary share capital of the Company. signing Date of financial signing Date of statements financial signing % statements financial % statements 14.97 % 8.02 14.97 14.97 6.10 8.02 7.01 8.02 6.10 7.01 6.10 6.99 7.01 4.38 6.99 * Of the 10,263,912 (31 May 2021: 10,263,912) ordinary shares beneficially held by Professor Richard Conroy at 31 May 2022, 1,232,601 (31 May 2021: 6.99 4.38 1,232,601) are held by Conroy P.L.C., a company in which Professor Richard Conroy has a controlling interest. * Of the 10,263,912 (31 May 2021: 10,263,912) ordinary shares beneficially held by Professor Richard Conroy at 31 May 2022, 1,232,601 (31 May 2021: 4.38 1,232,601) are held by Conroy P.L.C., a company in which Professor Richard Conroy has a controlling interest. * Of the 10,263,912 (31 May 2021: 10,263,912) ordinary shares beneficially held by Professor Richard Conroy at 31 May 2022, 1,232,601 (31 May 2021: 1,232,601) are held by Conroy P.L.C., a company in which Professor Richard Conroy has a controlling interest. 31 May 2022 31 May 2022 31 May 2022 Ordinary Shares of €0.00025 each Ordinary Shares 10,263,912* of €0.00025 each Ordinary Shares 5,500,000 10,263,912* of €0.00025 each 10,263,912* 4,178,571 5,500,000 4,801,690 5,500,000 4,178,571 4,801,690 4,178,571 4,789,201 4,801,690 3,000,000 4,789,201 4,789,201 3,000,000 3,000,000 31 May 2021 31 May 2021 31 May 2021 Ordinary Shares of €0.00025 each Ordinary Shares 10,263,912* of €0.00025 each Ordinary Shares 10,263,912* 5,360,000 of €0.00025 each 10,263,912* 3,928,571 5,360,000 2,300,000 5,360,000 3,928,571 3,928,571 5,861,939 2,300,000 2,300,000 3,000,000 5,861,939 5,861,939 3,000,000 3,000,000 Date of signing financial Date of signing statements financial Date of signing statements financial Ordinary Shares statements of €0.00025 each Ordinary Shares 10,263,912* of €0.00025 each Ordinary Shares 5,500,000 10,263,912* of €0.00025 each 10,263,912* 4,178,571 5,500,000 4,801,690 5,500,000 4,178,571 4,801,690 4,178,571 4,789,201 4,801,690 3,000,000 4,789,201 4,789,201 3,000,000 3,000,000 Professor Richard Conroy Mr. Kevin Taylor Professor Richard Conroy Professor Richard Conroy Martello Holdings Limited Mr. Kevin Taylor Mr. Steven Coomber Mr. Kevin Taylor Martello Holdings Limited Martello Holdings Limited Spreadex Limited Mr. Steven Coomber Mr. Steven Coomber Mr. Fredrik Björnberg Spreadex Limited Spreadex Limited Mr. Fredrik Björnberg Mr. Fredrik Björnberg 31 May 2021 31 May 2021 31 May 2021 Warrants 1,850,000 Warrants 220,841 1,850,000 Warrants 150,000 220,841 1,850,000 167,651 150,000 220,841 9,288 167,651 150,000 9,288 167,651 9,288 31 May 2022 31 May 2022 31 May 2022 Warrants 1,850,000 Warrants 220,841 1,850,000 Warrants 150,000 220,841 1,850,000 167,651 150,000 220,841 9,288 167,651 150,000 9,288 167,651 9,288 Date of signing Date of financial signing Date of statements financial signing Price £ statements financial 0.08 statements Price £ 2.20 0.08 Price £ 0.08 2.20 0.08 2.20 0.08 2.20 2.20 2.20 0.08 2.20 2.20 2.20 31 May 2022 31 May 2022 31 May 2022 Price £ 0.08 Price £ 2.20 0.08 Price £ 0.08 2.20 0.08 2.20 0.08 2.20 2.20 2.20 0.08 2.20 2.20 2.20 31 May 2021 31 May 2021 31 May 2021 Price £ 0.08 Price £ 2.20 0.08 Price £ 0.08 2.20 0.08 2.20 0.08 2.20 2.20 2.20 0.08 2.20 2.20 2.20 % 14.97 % 8.02 14.97 14.97 6.10 8.02 7.01 8.02 6.10 7.01 6.10 6.99 7.01 4.38 6.99 6.99 4.38 4.38 Shareholder Shareholder Shareholder 31 May 2022 31 May 2022 31 May 2022 % 09 December 2023 16 November 2022 09 December 2023 09 December 2023 16 November 2022 09 December 2023 16 November 2022 09 December 2023 16 November 2022 16 November 2022 16 November 2022 09 December 2023 16 November 2022 16 November 2022 16 November 2022 % 14.97 % 14.97 7.82 14.97 5.73 7.82 3.36 7.82 5.73 5.73 8.55 3.36 3.36 4.38 8.55 8.55 4.38 4.38 Expiry Date Expiry Date Expiry Date 31 May 2021 31 May 2021 31 May 2021 % 8 8 8 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc9 Karelian Diamond Resources P.L.C. Directors’ Report (continued) 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: • • • 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; 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 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: select suitable accounting policies for the Company’s financial statements and then apply them consistently; • • make judgements and estimates that are reasonable and prudent; • 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 prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. • The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Company and which enable them to ensure that the financial statements of the Company are prepared in accordance with 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 recorded a profit of €13,593 (31 May 2021: a loss of €422,192) for the financial year ended 31 May 2022. The Company had net assets of €9,480,803 (31 May 2021: €9,495,866) at that date. The Company had net current liabilities of €1,429,982 (31 May 2021: €721,166) at that date. The Company had cash and cash equivalents of €117,868 (31 May 2021: €61,778) at 31 May 2022. 9 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc10 Directors’ Report (continued) Karelian Diamond Resources P.L.C. Directors’ Report (continued) Going concern (continued) The Directors, namely Professor Richard Conroy, Séamus P. FitzPatrick, Maureen T.A. Jones, Dr. Sorċa Conroy, Howard Bird, Brendan McMorrow, and former Director, namely James P. Jones, have confirmed that they will not seek repayment of amounts owed to them by the Company of €1,106,970 (31 May 2021: €921,969) for a minimum period of 12 months from the date of approval of the financial statements, unless the Company has sufficient funds to repay. The Directors are aware that the term of the convertible loan note expires on 10 December 2022 and have started discussions with the loan note holder in relation to extension or conversion. The directors are confident that these discussions will be satisfactorily concluded. Conroy Gold and Natural Resources P.L.C. have confirmed that it will not seek repayment of amounts owed to it by the Company of €199,806 (31 May 2021: €169,933) for a minimum period of 12 months from the date of approval of the financial statements, unless the Company has sufficient funds to repay. The Board of Directors have considered carefully the financial position of the Company and in that context, have prepared and reviewed cash flow forecasts for the period to 30 November 2023. As set out in the Chairman’s statement, the Company expects to incur capital expenditure in 2022 and 2023, consistent with its strategy as an exploration company. In reviewing the proposed work programme for exploration and evaluation assets, 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 recognises 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. The Board is satisfied that its corporate culture and culture of its employees aligns the Company’s objectives, strategy and business model. 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 Statement of Compliance with the QCA Code is available on the Company’s website www.kareliandiamondresources.com/corporate-governance. 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 5 and 6. The Board of Directors agrees a schedule of regular meetings to be held in each calendar year and also meets on other occasions as necessary. Meetings are usually held at the head office in 3300 Lake Drive, Citywest Business Campus, Dublin 24, D24 TD21, Ireland. Due to COVID-19 a number of these meetings were held by way of Zoom and teleconference calls. Board of Directors’ meetings were held on 6 occasions from 1 June 2021 to 31 May 2022 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 Professor Richard Conroy Séamus P. FitzPatrick Maureen T.A. Jones Dr. Sorċa Conroy Brendan McMorrow Howard Bird 10 Board 6 6 4 6 6 6 5 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc11 Karelian Diamond Resources P.L.C. Directors’ Report (continued) Board of Directors (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 Director’s 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 Director’s meetings, and any further supporting papers and information are readily available to all Directors on request. The Board of Director’s papers include the minutes of all committees of the Board of Directors which have been held since the previous Board of Director’s meeting, and, the Chairman of each committee is available to give a report on the committee’s proceedings at Board of Director’s 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 Director’s meetings and the general corporate governance of the Company. The non-executive Directors (other than Dr. Sorċa Conroy) are regarded as independent by the Board of Directors and have no material interest or other relationship with the Company (Dr. Sorċa Conroy is a daughter of Professor Richard Conroy). The Board, having fully considered the corporate needs of the Company, is satisfied that it has an appropriate balance of experience and skills to carry out its duties. The Chairman of the Company oversees this process and reviews the Board composition to ensure it has the necessary experience, skills and capabilities. The current non-executive Directors have a wide range of financial and technical skills based on both qualifications and experience, including significant fundraisings, financial management, technical expertise and the discovery and bringing into production of operating mines. Each board member keeps their skills up to date through a combination of courses, continuing professional development through professional bodies and reading. The Company Secretary provides Directors with updates on key developments relating to the Company, the sector in which the Company operates, legal and governance matters including advice from the Company’s broker, lawyers and advisors. Board performance The Board, through its Chairman, will, in the coming year evaluate its ongoing performance, based on the requirements of the business and corporate governance standards. It is envisaged that the review process will include the use of internal reviews and periodic external facilitation. The results of such reviews will be used to determine whether any alterations are needed at either a board or senior management level or whether any additional training would be beneficial. It is intended that with effect from the end of the next financial year, these evaluations 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: • • • • • • Commitment; Independence; Relevant experience; Impartiality; Specialist knowledge; and Effectiveness on the Board. 11 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc 12 Directors’ Report (continued) Karelian Diamond Resources P.L.C. Directors’ Report (continued) Board of Directors (continued) Board performance (continued) As set out in the Constitution of the Company, each year, one third of the Directors with the exception of the Chairman and the Managing Director, retire from the Board of Directors by rotation. Effectively, therefore, each such Director will retire by rotation within a three-year period. Ethical values and behaviours The Board of Directors is committed to high standards of corporate governance and integrity in all its activities and operations and promotes a culture of good ethical values and behaviour. The Company conducts its business with integrity, honesty and fairness and requires its partners, contractors and suppliers to meet similar ethical standards. Individual staff members must ensure that they apply and maintain these standards in all their actions. The Chairman of the Board of Directors regularly monitors and reviews the Company’s ethical standards and cultural environment and where necessary takes appropriate action to ensure proper standards are maintained. Due to the size and available resources of the Company, the Chairman of the Board of Directors carries out executive functions. The Company is fully committed to complying with all relevant health, safety and environment rules and regulations as these apply to its operations. It is an objective of the Company that all individuals are aware of their responsibilities in providing a safe and secure working environment. Board Committees The Board of Directors has implemented an effective committee structure to assist in the discharge of its responsibilities. The committees and their members are listed on page 1 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: Meetings held during the year Séamus P. FitzPatrick Brendan McMorrow Dr. Sorca Conroy Howard Bird Audit Committee Audit Committee 3 2 3 3 n/a Remuneration Committee - - - n/a - 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 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 Auditor the results and scope of the audit. The external auditor has 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 the external auditor 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. There were no such non-audit services provided during the period under review. 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. 12 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc13 Karelian Diamond Resources P.L.C. Directors’ Report (continued) Board of Directors (continued) Remuneration Committee The Remuneration Committee’s terms of reference have been approved by the Board of Directors and are in accordance with the QCA Remuneration Committee Guide for Small and Mid-Size Quoted Companies. The Remuneration Committee comprises three 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. During the year ended 31 May 2021, the Directors made the decision to decrease their remuneration due to the impact of Covid-19. During the year ended 31 May 2022, Directors' remuneration has returned to the pre-agreed rates. No actual increases occurred during the year ended 31 May 2022. Executive Committee The Executive Committee comprises Professor Richard Conroy, Dr. Sorċa Conroy, Ms. Maureen T.A. Jones, Brendan McMorrow and Howard 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. The three non-executive directors are not involved in the daily management of 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 enables 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: • • • The Board of Directors establishes risk policies as appropriate, for implementation by executive management; All commitments for expenditure and payments are subject to approval by personnel designated by the Board of Directors; and Regular management meetings take place to review financial and operational activities. The Board of Directors has considered the requirement for an internal audit function. Based on the scale of the Company’s operations and close involvement of the Board of Directors, the Directors have concluded that an internal audit function is not currently required. 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 and is considered as part of all Board meetings. 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. 13 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc14 Directors’ Report (continued) Karelian Diamond Resources P.L.C. Directors’ Report (continued) Risks and uncertainties (continued) 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 primary area that is expected to impact the Company is in the area of climate change and the impact of this risk will continue to be monitored by the Directors and management. Management will continue to closely monitor any regulatory updates in this area and its potential impact on the Company. 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 inflation, 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 The COVID-19 pandemic continued to have some impact on the Company’s activities during the financial year. Since the outbreak of the COVID-19 pandemic, the Company has taken necessary measures in accordance with Government’s guidelines to protect the health, safety and wellbeing of its employees, contractors and partners in Finland and Ireland including for a period, staff working remotely. The field and laboratory work were not impacted as much in this financial year end. The Company’s exploration and development programme continued. 14 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc 15 Karelian Diamond Resources P.L.C. Directors’ Report (continued) Risks and uncertainties (continued) Russia/Ukraine war Risk Since February 2022, the world has been watching closely the situation between Russia and the Ukraine and the impact on Europe and the rest of the world. The main impacts seen to date are on the energy prices and any supply issues that may occur in the energy sector as a result of restrictions imposed. Directors and management will continue to closely monitor the situation and in particular the impact which it may have on the operations of the business. 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. Political donations There were no political donations during the financial year (31 May 2021: €Nil). Accounting records The Board of Directors are responsible for ensuring adequate accounting records, as outlined in Sections 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 auditor So far as each of the Directors in office at the date of approval of the financial statements is aware: • • There is no relevant audit information of which the Company’s auditor is unaware; and 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 auditor is 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. Auditor 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) 28 November 2022 15 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc16 Independent auditor’s report to the members of Karelian Diamond Resources Plc Independent Auditor’s Report RReeppoorrtt oonn tthhee aauuddiitt ooff tthhee ffiinnaanncciiaall ssttaatteemmeennttss 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 2022 and of the profit 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 19, including a summary of significant accounting policies as set out in note 1. The relevant financial reporting framework that has been applied in their preparation is the Companies Act 2014 and International Financial Reporting Standards (IFRS) as adopted by the European Union (“the relevant financial reporting framework”). BBaassiiss ffoorr ooppiinniioonn We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable in the “Auditor's responsibilities for the audit of the financial statements” section of our report. law. Our responsibilities under those standards are described below 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. MMaatteerriiaall uunncceerrttaaiinnttyy rreellaatteedd ttoo ggooiinngg ccoonncceerrnn In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. We draw attention to Note 1 in the financial statements, which indicates that as at 31 May 2022 the company had net current liabilities of €1,429,982. As stated in Note 1, these events or conditions 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. 16 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc17 Independent auditor’s report to the members of Karelian Diamond Resources Plc RReeppoorrtt oonn tthhee aauuddiitt ooff tthhee ffiinnaanncciiaall ssttaatteemmeennttss Opinion on the financial statements of Karelian Diamond Resources Plc (the ‘Company’) (continued) Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of accounting included: • • • • • • • • obtaining an understanding of the company’s relevant 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; assessing the design and determining the implementation of these relevant controls; evaluating directors’ plans and their feasibility by agreeing the inputs used in the cash flow forecast to expenditure commitments and other supporting documentation; challenging the reasonableness of the assumptions applied by the directors in their going concern assessment; obtaining confirmations received by the company from the directors and former directors evidencing 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; understanding the status of the discussions in relation to the extension or conversion of the convertible loan note which is due to expire on 10 December 2022; assessing the mechanical accuracy of the cash flow forecast model; and assessing the adequacy of the disclosures made in the financial statements. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. SSuummmmaarryy ooff oouurr aauuddiitt aapppprrooaacchh KKeeyy aauuddiitt mmaatttteerrss The key audit matters that we identified in the current year were: • Going concern (see material uncertainty related to going concern section); and • 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 . The materiality that we used in the current year was €280,000 which was deter- mined on the basis of approximately 3% of Shareholder’s Equity. We determined the scope of our audit by obtaining an understanding of the compa- ny and its environment and assessing the risks of material misstatement. There were no significant changes in our approach. MMaatteerriiaalliittyy SSccooppiinngg SSiiggnniiffiiccaanntt cchhaannggeess iinn oouurr aapppprrooaacchh KKeeyy AAuuddiitt MMaatttteerrss 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. 17 Annual Report and Financial Statements 2022 Karelian Diamond Resources PlcIndependent auditor’s report to the members of Karelian Diamond Resources Plc RReeppoorrtt oonn tthhee aauuddiitt ooff tthhee ffiinnaanncciiaall ssttaatteemmeennttss Opinion on the financial statements of Karelian Diamond Resources Plc (the ‘Company’) (continued) 18 VVaalluuaattiioonn ooff IInnttaannggiibbllee AAsssseettss Independent Auditor’s Report (continued) As at 31 May 2022, the carrying value of Exploration and evaluation assets included in intangible assets in the statement of financial position amounted to €10,910,931 Independent auditor’s report to the members of Karelian Diamond Resources Plc KKeeyy aauuddiitt mmaatttteerr ddeessccrriippttiioonn RReeppoorrtt oonn tthhee aauuddiitt ooff tthhee ffiinnaanncciiaall ssttaatteemmeennttss Opinion on the financial statements of Karelian Diamond Resources Plc (the ‘Company’) (continued) VVaalluuaattiioonn ooff IInnttaannggiibbllee AAsssseettss KKeeyy aauuddiitt mmaatttteerr ddeessccrriippttiioonn HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonndd-- eedd ttoo tthhee kkeeyy aauuddiitt mmaatttteerr HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonndd-- eedd ttoo tthhee kkeeyy aauuddiitt mmaatttteerr KKeeyy oobbsseerrvvaattiioonnss KKeeyy oobbsseerrvvaattiioonnss 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. As at 31 May 2022, the carrying value of Exploration and evaluation assets included in intangible assets in the statement of financial position amounted to €10,910,931 The valuation of intangible assets in the statement of financial position was assessed as a significant risk and given the balance constitutes the majority of the total assets in We draw your attention to the disclosures made in Notes 1 and 7 to the financial the statement of financial position, we considered it a key audit matter. statements concerning the valuation of Intangible assets held. The valuation of intangible assets by the company is dependent on the further successful development We performed the following procedures: and ultimate production of the mineral resources and the availability of sufficient finance to bring the resources to economic maturity and profitability. • We evaluated the design and determined the implementation of relevant controls in place over the capitalisation and subsequent valuation of intangible The valuation of intangible assets in the statement of financial position was assessed assets; as a significant risk and given the balance constitutes the majority of the total assets in • We inspected documentation in respect of licences held and considered and the statement of financial position, we considered it a key audit matter. challenged the directors’ assessment of indicators of impairment in relation to exploration and evaluation assets; We performed the following procedures: We performed the following procedures: • We performed a review of the proposed exploration programme in respect of • We evaluated the design and determined the implementation of relevant • We evaluated the design and determined the implementation of relevant the company’s assets; including: controls in place over the capitalisation and subsequent valuation of intangible controls in place over the capitalisation and subsequent valuation of intangible discussing and challenging the allocation of capitalised costs for their - assets; assets; reasonableness, • We inspected documentation in respect of licences held and considered and • We inspected documentation in respect of licences held (as relevant); assessing the reasonableness of the assets capitalised in the current year, - challenged the directors’ assessment of indicators of impairment in relation to and • We challenged the directors’ assessment of indicators of impairment in relation exploration and evaluation assets; reviewing and considering indicators of impairment. - to exploration and evaluation assets. We also performed a review of the • We performed a review of the proposed exploration programme in respect of • We obtained a listing of intangible asset additions in the financial year and proposed exploration programme in respect of the company’s assets to consider the company’s assets; including: selected a sample of additions to ensure the capitalisation was in line with indicators of impairment; discussing and challenging the allocation of capitalised costs for their - accounting policies; • We performed a review of Board of Directors meeting minutes and press releases reasonableness, • We performed a review of Board of Directors meeting minutes and press issued by the company in relation to the status of exploration and evaluation assessing the reasonableness of the assets capitalised in the current year, - releases issued by the company in relation to the status of exploration and assets; and evaluation assets; reviewing and considering indicators of impairment. - • We performed a review of budgeted expenditure for the next 12 months from • We performed a review of budgeted expenditure for the next 12 months from • We obtained a listing of intangible asset additions in the financial year and the date of approval of the financial statements; and the date of approval of the financial statements; and selected a sample of additions to ensure the capitalisation was in line with • We also considered the adequacy of the disclosure in the financial statements. • We also considered the adequacy of the disclosure in the financial statements. accounting policies; A significant uncertainty exists in relation to the ability of the company to realise the • We performed a review of Board of Directors meeting minutes and press exploration and evaluation assets capitalised to intangible assets. releases issued by the company in relation to the status of exploration and evaluation assets; the date of approval of the financial statements; and As noted above, we draw your attention to the disclosures made in Notes 1 and 7 to • We performed a review of budgeted expenditure for the next 12 months from the financial statements concerning the valuation of intangible assets. The valuation of intangible assets by the company is dependent on the successful renewal of certain • We also considered the adequacy of the disclosure in the financial statements. licences, the further successful development and ultimate production of the A significant uncertainty exists in relation to the ability of the company to realise the mineral resources and the availability of sufficient finance to bring the resources exploration and evaluation assets capitalised to intangible assets. to economic maturity and profitability. The financial statements do not include any adjustments in relation to these uncertainties and the ultimate outcome cannot, at As noted above, we draw your attention to the disclosures made in Notes 1 and 7 to present, be determined. Our opinion is not modified in respect of this matter. the financial statements concerning the valuation of intangible assets. The valuation of intangible assets by the company is dependent on the successful renewal of certain licences, 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. 18 18 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc19 Independent auditor’s report to the members of Karelian Diamond Resources Plc RReeppoorrtt oonn tthhee aauuddiitt ooff tthhee ffiinnaanncciiaall ssttaatteemmeennttss Opinion on the financial statements of Karelian Diamond Resources Plc (the ‘Company’) (continued) 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. OOuurr aapppplliiccaattiioonn ooff mmaatteerriiaalliittyy 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 €280,000 which is approximately 3% of Shareholder’s Equity. We have considered Shareholder’s Equity to be the critical component for determining materiality as we determined the Shareholder’s 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. We agreed with the Audit Committee that we would report to them any audit differences in excess of €14,000, 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. AAnn oovveerrvviieeww ooff tthhee ssccooppee ooff oouurr aauuddiitt We determined the scope of our audit by obtaining an understanding of the company and its environment and assessing the risks of material misstatement within the company. We did not identify any significant changes in the company in the current year therefore there has been no change in audit scope compared with the prior year. The key audit matters we identified have remained consistent with prior year. . 19 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc20 Independent auditor’s report to the members of Karelian Diamond Resources Plc Independent Auditor’s Report (continued) RReeppoorrtt oonn tthhee aauuddiitt ooff tthhee ffiinnaanncciiaall ssttaatteemmeennttss Opinion on the financial statements of Karelian Diamond Resources Plc (the ‘Company’) (continued) OOtthheerr iinnffoorrmmaattiioonn The other information comprises the information included in the Annual Report and Financial Statements, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the Annual Report and Financial Statements. 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. 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. RReessppoonnssiibbiilliittiieess ooff ddiirreeccttoorrss As explained more fully in the Directors’ Report, the directors are responsible for the preparation of the finan- cial 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 prep- aration 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 con- tinue as a going concern, disclosing, as applicable, matters related to going concern and using the going con- cern 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. AAuuddiittoorr’’ss rreessppoonnssiibbiilliittiieess ffoorr tthhee aauuddiitt ooff tthhee ffiinnaanncciiaall ssttaatteemmeennttss 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. A further description of our responsibilities for the audit of the financial statements is located on IAASA’s website at: http://www.iaasa.ie/Publications/Auditing-standards/International-Standards-on-Auditing-for-use- in-Ire/Description-of-the-auditor-s-responsibilities-for. This description forms part of our auditor’s report. 20 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc21 Independent auditor’s report to the members of Karelian Diamond Resources Plc RReeppoorrtt oonn tthhee aauuddiitt ooff tthhee ffiinnaanncciiaall ssttaatteemmeennttss Opinion on the financial statements of Karelian Diamond Resources Plc (the ‘Company’) (continued) RReeppoorrtt oonn ootthheerr lleeggaall aanndd rreegguullaattoorryy rreeqquuiirreemmeennttss OOppiinniioonn oonn ootthheerr mmaatttteerrss pprreessccrriibbeedd bbyy tthhee CCoommppaanniieess AAcctt 22001144 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. MMaatttteerrss oonn wwhhiicchh wwee aarree rreeqquuiirreedd ttoo rreeppoorrtt bbyy eexxcceeppttiioonn Based on the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the directors' report. We have nothing to report in respect of the provisions in the Companies Act 2014 which require us to report to you if, in our opinion, the disclosures of directors’ remuneration and transactions specified by law are not made. UUssee ooff oouurr rreeppoorrtt This report is made solely to the company’s members, as a body, in accordance with Section 391 of the Com- panies 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. KKeevviinn BBuuttlleerr For and on behalf of Deloitte Ireland LLP Chartered Accountants and Statutory Audit Firm No. 6 Lapp’s Quay Cork Date: 28 November 2022 21 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc22 Karelian Diamond Resources P.L.C. Income statement for the financial year ended 31 May 2022 Continuing operations Operating expenses Share-based payment expense Movement in fair value of warrants Profit/(loss) before finance costs and taxation Interest expense Net finance costs Profit/(loss) before taxation Income tax expense Profit/(loss) for the financial year Earnings/(loss) per share Basic and diluted earnings/(loss) per share Note 2 16 16 3 11 5 6 2022 € (369,019) - 389,904 20,885 (7,292) (7,292) 13,593 - 13,593 2021 € (370,370) (46,519) 5,250 (411,639) (10,553) (10,553) (422,192) - (422,192) 0.0002 (0.0082) The total profit/(loss) for the financial year is entirely attributable to equity holders of the Company. ______________________ Professor Richard Conroy Chairman ___________________ Maureen T.A. Jones Managing Director 22 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc23 Karelian Diamond Resources P.L.C. Statement of comprehensive income for the financial year ended 31 May 2022 Profit/(loss) for the financial year 2022 € 2021 € 13,593 (422,192) Income recognised in other comprehensive income - - Total comprehensive profit/(loss) for the financial year 13,593 (422,192) The total comprehensive profit/(loss) for the financial year is entirely attributable to equity holders of the Company. 23 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc24 Karelian Diamond Resources P.L.C. Statement of financial position as at 31 May 2022 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 Derivative liability Convertible loan Warrant liabilities Total non-current liabilities Current liabilities Trade and other payables Convertible Loan Total current liabilities Total liabilities Total equity and liabilities Note 7 8 9 10 13 13 16 11 11 11 12 11, 12 31 May 2022 € 10,910,931 - 10,910,931 117,868 60,178 178,046 31 May 2021 € 10,766,576 4 10,766,580 61,778 652,957 714,735 11,088,977 11,481,315 3,191,807 9,959,181 450,658 (4,120,843) 9,480,803 146 - - 146 1,441,238 166,790 1,608,028 1,608,174 3,191,807 9,959,181 450,658 (4,105,780) 9,495,866 146 159,498 389,904 549,548 1,435,901 - 1,435,901 1,985,449 11,088,977 11,481,315 The financial statements were approved by the Board of Directors on 28 November 2022 and authorised for issue on 28 November 2022. They are signed on its behalf by: ______________________ Professor Richard Conroy Chairman __________________ Maureen T.A. Jones Managing Director 24 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc25 Karelian Diamond Resources P.L.C. Statement of changes in equity for the financial year ended 31 May 2022 Balance at 1 June 2021 Share issue costs Profit for the financial year Balance at 31 May 2022 Balance at 1 June 2020 Share issue Warrant issue Share issue costs Transfer from share- based payment reserve to retained deficit Loss for the financial year Balance at 31 May 2021 Share capital € 3,191,807 - - 3,191,807 3,185,432 6,375 - - - - 3,191,807 Share premium € 9,959,181 - - 9,959,181 9,150,829 1,156,987 (348,635) - - - 9,959,181 Share-based payment reserve € Retained deficit € 450,658 - (4,105,780) (28,656) - 450,658 13,593 (4,120,843) 456,624 - - - (3,666,104) - - (23,450) (5,966) - 450,658 5,966 (422,192) (4,105,780) Total equity € 9,495,866 (28,656) 13,593 9,480,803 9,126,781 1,163,362 (348,635) (23,450) - (422,192) 9,495,866 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 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 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. 25 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc26 Karelian Diamond Resources P.L.C. Statement of cash flows for the financial year ended 31 May 2022 Cash flows from operating activities Profit/(loss) for the financial year Adjustments for: Movement in fair value of warrants Interest expense Expense recognised in income statement in respect of equity settled share-based payments Increase in trade and other payables Increase in other receivables (Repayment to)/advances from Conroy Gold and Natural Resources P.L.C. Net cash used in operating activities Cash flows from investing activities Investment in exploration and evaluation Net cash used in investing activities Cash flows from financing activities Issue of share capital* Share issue costs* Repayment on loans Net cash provided by financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year 2022 € 13,593 (389,904) 7,292 - (369,019) 75,340 (11,872) (70,000) (375,550) (144,355) (144,355) 604,651 (28,656) - 575,995 56,090 61,778 117,868 2021 € (422,192) (5,250) 10,553 46,519 (370,370) 146,927 (762,367) 228,402 (757,408) (243,006) (243,006) 1,068,988 (23,450) 712 1,046,250 45,836 15,942 61,778 * On 27 May 2021, the Company completed a share placing and subscription raising funds amounting to €604,651 with share issue costs of €28,656 being incurred. These funds were received in early June 2021 while the share issue costs were paid in the same period. 26 Annual Report and Financial Statements 2022 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 2022 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 28 November 2022. Going concern The Company recorded a profit of €13,593 (31 May 2021: a loss of €422,192) for the financial year ended 31 May 2022. The Company had net assets of €9,480,803 (31 May 2021: €9,495,866) at that date. The Company had net current liabilities of €1,429,982 (31 May 2021: net current liabilities of €721,166) 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 Director James P. Jones, have confirmed that they will not seek repayment of amounts owed to them by the Company of €1,106,970 (31 May 2021: €921,969) within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. Conroy Gold and Natural Resources P.L.C. have confirmed that it will not seek repayment of amounts owed to it by the Company of €199,806 (31 May 2021: €169,933) for a minimum period of 12 months from the date of approval of the financial statements, unless the Company has sufficient funds to repay. The Directors are aware that the term of the convertible loan note expires on 10 December 2022 and have started discussions with the loan note holder in relation to extension or conversion. The directors are confident that these discussions will be satisfactorily concluded. The Board of Directors have considered carefully the financial position of the Company and in that context, have prepared and reviewed cash flow forecasts for the period to 30 November 2023. As set out further in the Chairman’s statement, the Company expects to incur capital expenditure in 2022 and 2023, consistent with its strategy as an exploration company. The Directors recognise that net current liabilities of €1,429,982 (31 May 2021: €721,166) 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, 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”) and the requirements of the Companies Act 2014. 27 Annual Report and Financial Statements 2022 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 2022 (continued) 1 Accounting policies (continued) Recent accounting pronouncements (i) New and amended standards adopted by the Company The Company has adopted the following amendments to standards for the first time for its annual reporting year commencing 1 June 2021: • • Amendments to IFRS 4, IFRS 7, IFRS 9, IFRS 16, and IAS 39 regarding replacement issues in the context of the IBOR reform – Phase 2 - Effective date 1 January 2021; Amendments to IFRS 4 Insurance Contracts- deferral of IFRS 9 – Effective 1 January 2021; The adoption of the above amendments to standards had no significant impact on the financial statements of the Company either due to being not applicable or immaterial. (ii) New standards and interpretations not yet adopted by the Company Certain new accounting standards and interpretations have been published that are not mandatory for 31 May 2022 reporting periods and have not been early adopted by the Company. The following amendments to standards adopted and endorsed by the EU have been issued by the International Accounting Standards Board to date and are not yet effective for the financial year from 1 June 2021. The Board of Directors is currently assessing whether these standards once adopted by the Company will have any impact on the financial statements of the Company. • • • • • • • • • • IFRS 4 amendments regarding the expiry date of the deferral approach – Effective date 1 January 2023; IAS 8 amendments regarding the definition of accounting estimates – Effective date 1 January 2023; IAS 1 amendments regarding the disclosure of accounting policies - Effective date 1 January 2023; IFRS 17 Insurance contracts – Effective date deferred to 1 January 2023. Amendment to IFRS 16 about providing lessees with an extension of one year to exemption from assessing whether a COVID-19-related rent concession is a lease modification – Effective date 1 April 2021; IFRS 3 amendments updating a reference to the Conceptual Framework – Effective date 1 January 2022; 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. IFRS 1 amendments resulting from Annual Improvements to IFRS Standards 2018–2020 (subsidiary as a first- time adopter) – Effective date 1 January 2022; and 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; The following new standards 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 is currently assessing whether these standards once endorsed by the EU will have any impact on the financial statements of the Company. • • • • Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or joint venture – Postponed indefinitely; Amendments to IAS 12 Income taxes: Deferred tax related to assets and liabilities arising from a single transaction – Effective date 1 January 2023. Amendments to IFRS 16 Leases: Lease liability in a sale and leaseback – Effective date 1 January 2024; and Amendments to IAS 1 Presentation of Financial Statements: Classification of liabilities as current or non- current – Effective date 1 January 2024. 28 Annual Report and Financial Statements 2022 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 2022 (continued) 1 Accounting policies (continued) (a) Intangible assets The Company accounts for mineral expenditure in accordance with IFRS 6: Exploration for and Evaluation of Mineral Resources. (i) Capitalisation Certain costs (other than payments to acquire the legal rights to explore) incurred prior to acquiring the rights to explore are charged directly to the income statement. Exploration, appraisal and development expenditure incurred on exploring, and testing exploration prospects are accumulated and capitalised as intangible exploration and evaluation (“E&E”) assets. E&E capitalised costs include geological and geophysical costs, and other direct costs of exploration (drilling, trenching, sampling and technical feasibility and commercial viability activities). In addition, E&E capitalised costs include an allocation from operating expenses, including share-based payments. All such costs are necessary for exploration and evaluation activities. E&E capitalised costs are not amortised prior to the conclusion of appraisal activities. At completion of appraisal activities if technical feasibility is demonstrated and commercial resources are discovered, then the carrying amount of the relevant E&E asset will be reclassified as a development and production asset, once the carrying value of the asset has been assessed for impairment. If following completion of appraisal activities in an area, it is not possible to determine technical feasibility and commercial viability, or if the right to explore expires, then the costs of such unsuccessful exploration and evaluation 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. 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. 29 Annual Report and Financial Statements 2022 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 2022 (continued) 1 Accounting policies (continued) (b) Income taxation expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in other comprehensive loss, in which case it is recognised in the statement of comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities on a net basis or their tax assets and liabilities will be settled simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (c) Share-based payments The Company classifies instruments issued as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. When the warrants issued (see note 16 for details) have an exercise price in sterling, they are derivative in nature and are liability classified. They do not qualify for equity classification as any cash settlement on exercise of these warrants will be received in a foreign currency. Where warrants are issued in the functional currency of the Company and meet the other necessary conditions, they are recognised as equity instruments. The warrant liabilities are recognised at their fair value on initial recognition and subsequently are measured at fair value through profit or loss. Any incremental direct costs associated with the issuance of warrants are taken as an immediate charge to finance costs through the income statement. See note 11 for further details. 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 or Black Scholes Model). (d) Trade and other receivables and payables Trade and other receivables are measured at their transaction price and subsequently measured at amortised cost. Trade and other payables are measured at initial recognition at fair value, and subsequently measured at amortised cost. (e) 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. 30 Annual Report and Financial Statements 2022 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 2022 (continued) 1 Accounting policies (continued) (f) 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. (g) 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. (h) 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. (i) Directors’ Loans The Directors’ loans are initially measured at fair value, net of transaction costs and subsequently measured at amortised cost using the effective interest method, with interest expense recognised on the 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. (j) Convertible loan 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 attached to the convertible loan 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 warrants are recognised as a deduction from retained earnings, net of any tax effects. Effective 6 July 2022, share issue costs can be deducted from share premium. Costs in relation to the issuance of warrants will continue to be deducted from retained earnings. (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. 31 Annual Report and Financial Statements 2022 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 2022 (continued) 1 Accounting policies (continued) (l) Impairment - financial assets are measured at amortised cost (continued) 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: 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 CGUs. The determination of what constitutes a CGU requires judgement. The carrying value of each CGU is compared to its recoverable amount. The recoverable amount of the CGU is assessed as the higher of its fair value less costs to sell and its value in use. The determination of value in use requires the following judgements: • • • Estimation of future cash flows expected to be derived from the asset. Expectation about possible variations in the amount or timing of the future cash flows. The determination of an appropriate discount rate. 32 Annual Report and Financial Statements 2022 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 2022 (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) 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 27 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 €10,910,931 (31 May 2021: €10,766,576) at 31 May 2022. 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. While uncertainty exists, primarily due to the nature of the mining and exploration business, the Directors will continue to assess the carrying amounts of the exploration and evaluation assets. This assessment includes an assessment of the possible outcomes that can be reasonably expected in the forthcoming financial period. 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 an operating expense with a corresponding increase in the “Share-based payment reserve”, within equity, where the exercise price is granted in EUR or recognised as a liability where a different currency is quoted as the exercise price 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 Black Scholes 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. 33 Annual Report and Financial Statements 2022 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 2022 (continued) 2 Operating expenses Analysis of operating expenses Operating expenses Transfer to intangible assets Operating expenses are analysed as follows: Professional fees Wages and salaries Personnel costs Other operating expenses Auditor’s remuneration 2022 € 503,260 (134,241) 369,019 151,043 187,469 77,722 68,026 19,000 503,260 2021 € 449,671 (79,301) 370,370 184,846 99,721 49,048 97,056 19,000 449,671 Of the above costs, a total of €134,241 (31 May 2021: €79,301) 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. The costs capitalised to intangible assets mainly relate to the costs of geological and on-site personnel together with an appropriate portion of executive management salaries. €57,500 (31 May 2021: €54,039) is charged to the Statement of Comprehensive Income in relation to Directors’ salaries. Wages, salaries and personnel costs as disclosed above is analysed as follows: Wages and salaries and personnel costs Social insurance costs 2022 € 258,044 7,147 265,191 2021 € 144,111 4,658 148,769 The amount of wages, salaries and related costs capitalised to intangible assets during the financial year was €129,969 (31 May 2021: €72,369). The average number of persons employed during the year (including executive Directors) by activity was as follows: Corporate management and administration Exploration and evaluation 2022 2021 2 - 2 2 - 2 34 Annual Report and Financial Statements 2022 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 2022 (continued) 2 Operating expenses (continued) An analysis of remuneration for each Director of the Company in the current financial year (prior to amounts transferred to intangible assets) is as follows: Professor Richard Conroy Maureen T.A. Jones Brendan McMorrow Séamus P. FitzPatrick Dr. Sorċa Conroy Howard Bird Fees € 20,000 10,000 10,000 10,000 10,000 10,000 70,000 Salary € 65,000 50,000 - - - - 115,000 Share-based payment € - - - - - - - Pension contributions € - - - - - - - Total € 85,000 60,000 10,000 10,000 10,000 10,000 185,000 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 Brendan McMorrow Séamus P. FitzPatrick Dr. Sorċa Conroy Howard Bird Fees € 12,500 6,250 6,250 6,250 6,250 6,250 43,750 Salary € 40,625 31,250 - - - - 71,875 Share-based payment € - - - - - - - Pension contributions € - - - - - - - Total € 53,125 37,500 6,250 6,250 6,250 6,250 115,625 During the year ended 31 May 2021, the Directors made the decision to decrease their remuneration due to the impact of Covid-19. During the year ended 31 May 2022, Directors' remuneration has returned to the pre-agreed rates. No actual increases occurred during the year ended 31 May 2022. 3 Profit/(loss) before taxation The profit/(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 2022 € 2021 € 19,000 19,000 No fees were incurred for other assurance; tax advisory or other non-audit services in respect of the current or prior financial years. 35 Annual Report and Financial Statements 2022 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 2022 (continued) 4 Directors’ remuneration Aggregate emoluments paid to or receivable by Directors in respect of qualifying services 2022 € 2021 € 185,000 115,625 During the year ended 31 May 2022 and 31 May 2021, one Director was a member of a defined contribution scheme but no amounts were paid and accordingly, no other disclosures are required by Section 305 of the Companies Act 2014. 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 (31 May 2021: €Nil). 5 Income tax expense No taxation charge arose in the current or prior financial year due to losses incurred in prior years and carried forward to the current year. 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: Profit/(loss) on ordinary activities before taxation Irish standard tax rate Tax credit at the Irish standard rate Effects of: Losses carried forward utilised Losses carried forward for future utilisation Tax charge for the financial year 2022 € 13,593 12.50% 1,699 (1,699) - - 2021 € (422,192) 12.50% (52,774) - 52,774 - 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 €12,859,143 at 31 May 2022 and €12,872,736 at 31 May 2021. 36 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc37 Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2022 (continued) 6 Profit/(loss) per share Basic profit/(loss) per share Profit/(loss) for the year attributable to equity holders of the Company 2022 € 13,593 2021 € (422,192) 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 68,542,749 - 68,542,749 43,042,749 25,500,000 68,542,749 Weighted average number of ordinary shares for the purposes of basic and diluted loss per share 68,542,749 51,434,530 Basic and diluted profit/(loss) per ordinary share 0.0002 (0.0082) Diluted profit/(loss) per share The effect of share options and warrants is anti-dilutive. 7 Intangible assets Exploration and evaluation assets Finland Cost At 1 June Expenditure during the financial year: • • Other operating expenses (Note 2) At 31 May Licence and appraisal costs 31 May 2022 € 10,766,576 10,114 134,241 10,910,931 31 May 2021 € 10,523,570 163,705 79,301 10,766,576 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. 37 Annual Report and Financial Statements 2022 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 2022 (continued) 8 Financial assets Investment in subsidiaries 31 May 2022 € - 31 May 2021 € 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. At 31 May 2021, the above subsidiaries have not been consolidated on the basis that they are immaterial as the net asset of each entity is €2. During the year ended 31 May 2022, the two subsidiaries were dissolved. 9 Cash and cash equivalents Cash held in bank accounts 31 May 2022 € 117,868 117,868 31 May 2021 € 61,778 61,778 During the year ended 31 May 2022, four new Nordea Bank accounts were opened for the purpose of holding collateral deposits related to the Finnish licenses. As at 31 May 2022, a total amount of €24,500 (31 May 2021: €Nil) relates to these collateral deposits and are treated as restricted cash balances. 10 Other receivables VAT receivable Other receivables Share subscriptions receivable 11 Non-current liabilities Warrant liabilities 31 May 2022 € 43,664 16,514 - 60,178 31 May 2021 € 31,283 17,023 604,651 652,957 During the year ended 31 May 2022, no new warrants were issued. During the prior year, 16,775,000 warrants were issued with a sterling exercise price and expiry of thirty months. The fair value amount at grant date was valued using the Black Scholes Model and recorded as warrant liabilities. At 31 May 2022, the warrants in issue were fair valued with the movement in fair value being recorded in the income statement. See Note 16 for further details. Convertible loan On 10 December 2019, the Company 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. 38 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc39 Karelian Diamond Resources P.L.C. Notes to and forming part of the financial statements for the financial year ended 31 May 2022 (continued) 11 Non-current liabilities (continued) Convertible loan (continued) 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 (31 May 2021: €146) relates to derivative liability attached to the convertible loan note. The convertible loan amounted to €166,790 (31 May 2021: €159,498) at 31 May 2022 and is classified as a current liability. Opening Balance Interest payable Derivative liability element 12 Current liabilities Trade and other payables Accrued Directors’ remuneration Fees and other emoluments Pension contributions Amount due to related party (see note 15 (c)) Other creditors and accruals 31 May 2022 € - - - - 31 May 2022 € 843,720 263,250 199,806 134,462 1,441,238 31 May 2021 € 148,945 10,553 - 159,498 31 May 2021 € 658,720 263,250 169,933 343,998 1,435,901 As at 31 May 2022, director fees amounting to €34,167 (31 May 2021: € 24,167) due to Brendan McMorrow is included in Fees and other emoluments. As at 31 May 2022, an amount of €2,500 (31 May 2021: €13,700) payable to Brendan McMorrow for other services rendered by him is included in other creditors and accruals. 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. Convertible loan See note 11 for details, . The convertible loan is classified as a current liability for the year ended 31 May 2022. Opening Balance Interest payable Derivative liability element 31 May 2022 € 159,498 7,292 - 166,790 31 May 2021 € 148,945 10,553 - 159,498 The Directors are aware that the term of the convertible loan note expires on 10 December 2022 and are in regular contact with the loan note holder who is both supportive and a significant shareholder in the Company. Related party loans Opening balance 1 J une Loan conversion to equity* Loan repayment Closing balance 31 May 31 May 2022 € - - - - 31 May 2021 € 93,662 (92,950) (712) - Annual Report and Financial Statements 2022 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 2022 (continued) 12 Current liabilities (continued) Related party loans (continued) 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). 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 27 May 2021, Professor Richard Conroy capitalised loans amounting to €85,979 (£74,000) into 1,850,000 new ordinary shares of nominal value €0.00025 each. On 27 May 2021, Maureen Jones capitalised loans amounting to €6,971 (£6,000) into 150,000 new ordinary shares of nominal value €0.00025 each. 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 2022 € - 1,825,328 3,174,672 5,000,000 31 May 2021 € - 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. Issued and fully paid – Current financial year Number of ordinary shares Called up share capital € Called up deferred share capital € Share premium € Start of current financial year – shares of €0.00025 each 68,542,749 17,135 3,174,672 9,959,181 End of current financial year 68,542,749 17,135 3,174,672 9,959,181 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 43,042,749 10,760 3,174,672 9,150,829 Share issue (a) Share issue (b) 10,500,000 13,000,000 Warrants issued (see note 16) - Loan conversion into shares (c) 2,000,000 2,625 3,250 - 500 - - - - 463,136 601,401 (348,635) 92,450 End of prior financial year 68,542,749 17,135 3,174,672 9,959,181 Annual Report and Financial Statements 2022 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 2022 (continued) 13 14 15 Called up share capital and share premium (continued) (a) On 25 August 2020, the Company raised €465,761 (£420,000) through the issue of 10,500,000 ordinary shares of €0.00025 in the capital of the Company at a price of £0.04 per Subscription Share. (b) On 27 May 2021, the Company raised €604,651 (£520,000), through the issue of 13,000,000 ordinary shares of €0.00025 in the capital of the Company at a price of £0.04 per Subscription Share. (c) On 27 May 2021, Professor Richard Conroy capitalised loans amounting to €85,979 (£74,000) into 1,850,000 new ordinary shares of nominal value €0.00025 each. On 27 May 2021, Maureen Jones capitalised loans amounting to €6,971 (£6,000) into 150,000 new ordinary shares of nominal value €0.00025 each. Warrants: At 31 May 2022, warrants over 17,286,250 shares exercisable at prices varying from £0.04 to £0.08 and €0.10 at any time up to 27 November 2023 were outstanding. There were no new warrants issued during the year ended 31 May 2022 (31 May 2021: 16,775,000 warrants were issued). Options: At 31 May 2022 and 31 May 2021, there are no options outstanding. Share price: The share price at 31 May 2022 was £0.025 (31 May 2021: £0.0475). The share price ranged from £0.0205 to £0.0475 (31 May 2021: £0.0230 to £0.0650) during the year under review. Commitments and contingencies At 31 May 2022, there were no capital commitments or contingent liabilities (31 May 2021: €Nil) recognised at the balance sheet date. Should the Company decide to further develop the Lahtojoki project, an amount of €40,000 is payable by the Company to the vendors of the Lahtojoki mining concession. Related party transactions (a) Details of Directors’ loans previously 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 2022, Conroy Gold and Natural Resources P.L.C. incurred costs totalling €100,313 (31 May 2021: €54,872) 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 Rent and rates Other operating expenses 2022 € 72,469 15,850 11,994 100,313 2021 € 49,048 - 5,824 54,872 (c) At 31 May 2022, the Company owed €199,806 to Conroy Gold and Natural Resources P.L.C. (31 May 2021: €169,933 owed to). Amounts owed to Conroy Gold and Natural Resources P.L.C. were included within trade and other payables during the current year. During the financial year ended 31 May 2022, the Company paid €70,000 to (31 May 2021: €173,530 was received from) Conroy Gold and Natural Resources P.L.C. During the financial year ended 31 May 2022, the Company was charged €99,873 (31 May 2021: €54,872) by Conroy Gold and Natural Resources P.L.C. in respect of the allocation of certain costs as detailed in Note 15(b). (d) At 31 May 2022, Brendan McMorrow was owed €34,167 (31 May 2021: €24,167) in respect of his services as a director and also an amount of €2,500 (31 May 2021: €13,700) payable to him for other services rendered. These amounts are included in the trade and other payables balance in the statement of financial position. (e) Refer Note 2 for an analysis of remuneration for each Director of the Company. (f) Details of share capital transactions with the Directors are disclosed in the Directors’ Report. (g) Apart from Directors’ remuneration (detailed in Note 2 and Note 4), 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. 41 Annual Report and Financial Statements 2022 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 2022 (continued) 16 Share-based payments Warrants granted generally have a vesting period of two and half years. Details of the warrants outstanding during the financial year are as follows: 2022 No. of Share Warrants 17,286,250 - - 17,286,250 2022 Weighted Average Exercise Price € 0.0918 - - 0.0918 2021 No. of Share Warrants 900,139 16,775,000 (388,889) 17,286,250 2021 Weighted Average Exercise Price € 0.0815 0.09 (0.06) 0.0918 At 1 June Granted during the financial year Lapsed during the financial year At 31 May As a result of the valuation performed at year end, the fair value of the sterling based warrants was Nil (31 May 2021: €389,904) and accordingly €389,904 was credited to the Income Statement as a movement in the fair value of warrants. The Company estimated the fair value of warrants awards using the Black Scholes Model. The determination of the fair value of share-based payment awards on the date of grant and on revaluation at each year end using the Black Scholes Model is affected by Karelian Diamond Resources P.L.C. stock price, share price volatility as well as assumptions regarding a number of subjective variables. These variables include the expected term of the awards, the stock price volatility, the risk-free interest rate and the expected dividends. The following key input assumptions were used to calculate the fair value of the sterling based warrants: Dividend yield Share price volatility Risk free interest rate Expected life (in years) 2022 Warrants 0% 61% 1.24% 2.0 2021 Warrants 0% 90% 0.1% 2.0 During the prior year, warrants were granted to the broker as part of the share issuances in August 2020 and May 2021. During the prior year, an amount of €46,519 was recognised in the income statement based on the fair value of these warrants at grant date. No warrants lapsed during the current year. Amounts relating to share warrants which lapsed during the prior year and which are reclassified to retained deficit were €5,966. 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) Inflation; (b) Interest rate risk; (c) Foreign currency risk; (d) Liquidity risk; and (e) Credit risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. 42 Annual Report and Financial Statements 2022 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 2022 (continued) 17 Financial instruments (continued) Financial risk management objectives, policies and processes (continued) 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) Inflation The Company is exposed to the risk associated with inflation such as the impact of increased operating expenses including rent, light & heat and wages and salaries. The Chairman and Managing Director monitor costs on an ongoing basis. (b) Interest rate risk The Company currently finances its operations through shareholders’ funds and loan finance. The loan finance at 31 May 2022 relates to a convertible loan therefore any fluctuations in interest rates will not have an impact on the results of the Company and no sensitivity analysis has been performed. The Company did not enter into any hedging transactions with respect to interest rate risk. (c) 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. The Company is further exposed to foreign currency risk through the warrants denominated in sterling which is not the Company’s functional currency. It is the Company’s policy to ensure that foreign currency risk is managed wherever possible by matching foreign currency income and expenditure. During the years ended 31 May 2022 and 31 May 2021, the Company did not utilise foreign currency forward contracts or other derivatives to manage foreign currency risk. 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 2022: Cash and cash equivalents Convertible loan Trade and other payables Derivative liability Other receivables Amount due to related party Total exposure Sterling exposure denominated in € 67,138 (166,790) (7,046) (146) - - (106,844) Not at risk € 50,730 - (1,434,192) - 16,514 (199,806) (1,566,754) Total € 117,868 (166,790) (1,441,238) (146) 16,514 (199,806) (1,673,598) 43 Annual Report and Financial Statements 2022 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 2022 (continued) 17 Financial instruments (continued) Financial risk management objectives, policies and processes (continued) (c) 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 2021: Cash and cash equivalents Share subscriptions receivable Amount due to related party Other receivables Convertible loan Derivative liability Trade and other payables Warrant liabilities Total exposure Sterling exposure denominated in € 10,294 604,651 - - (159,498) (146) (30,132) (389,904) 35,265 Not at risk € 51,484 - (169,933) 17,023 - - (1,405,769) - (1,507,195) Total € 61,778 604,651 (169,933) 17,023 (159,498) (146) (1,435,901) (389,904) (1,471,930) The following are the significant exchange rates that applied against €1 during the financial year: Average Rate 2022 Average Rate 2021 Spot Rate 31 May 2022 Spot Rate 31 May 2021 GBP 0.844 0.888 0.851 0.860 Sensitivity analysis A 10% strengthening of the Euro against Sterling, based on outstanding financial assets and liabilities at 31 May 2022 would have decreased the reported loss by €10,684 (31 May 2021 decreased by: €3,527) 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. (d) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and adverse conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company manages liquidity risk by regularly monitoring cash flow projections. The nature of the Company’s exploration and appraisal activities can result in significant differences between expected and actual cash flows. 44 Annual Report and Financial Statements 2022 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 2022 (continued) 17 Financial instruments (continued) Financial risk management objectives, policies and processes (continued) (d) Liquidity risk (continued) Contractual maturities of financial liabilities as at 31 May 2022 were as follows: Trade and other payables (including amounts owed to related party) Derivative liability Convertible loan Carrying amount € Contractual cash flows € 6 months or less € 6-12 months € 1-2 years € 2-5 years € 1,441,238 146 166,790 1,441,238 146 166,790 1,608,174 1,608,174 334,268* - - 334,268* - - - - 1,106,970** - - - 146*** 166,790*** 1,106,970** 166,936*** Contractual maturities of financial liabilities as at 31 May 2021 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 € 1,435,901 146 159,498 1,435,901 146 159,498 1,595,545 1,595,545 513,932* - - 513,932* - - - - 921,969** - - - 146*** 159,498*** 921,969** 159,644*** *The amount of €334,268 (31 May 2021: €513,932) relates to other creditors and accruals (including amounts owed to Conroy Gold and Natural Resources P.L.C.). **The Directors, Professor Richard Conroy, Séamus P. FitzPatrick, Maureen T.A. Jones, Dr. Sorċa Conroy, Howard Bird and Brendan McMorrow, and former Director James P. Jones, have confirmed that they will not seek repayment of amounts owed to them by the Company of €1,106,970 (31 May 2021: €921,969) within 12 months of the date of approval of the financial statements, unless the Company has sufficient funds to repay. There were no related party loans in existence at 31 May 2022 and 31 May 2021 relating to monies owed to any of the Directors. ***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 €117,868 at 31 May 2022 (31 May 2021: €61,778). 45 Annual Report and Financial Statements 2022 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 2022 (continued) 17 Financial instruments (continued) Financial risk management objectives, policies and processes (continued) (e) 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 its obligation. Credit risk is the risk of financial loss to the Company if a cash deposit is not recovered. Company deposits are placed only with banks with appropriate credit ratings. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk was as follows: Cash and cash equivalents Other receivables Share subscriptions receivable 2022 € 117,868 16,514 - 134,382 2021 € 61,778 17,023 604,651 683,452 The Company’s cash and cash equivalents are held at AIB Bank which has a credit rating of “BBB” (31 May 2021: ‘’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 2022 and 31 May 2021, all cash is accessible on demand and held with counterparties with a credit rating of BBB or higher. Having considered the credit rating of the counterparties and the outstanding balances, management have determined that for both financial years presented, the amount of ECL is immaterial. (f) Fair values versus carrying amounts Due to the short-term nature of the majority of the Company’s financial assets and liabilities held at amortised cost at 31 May 2022 and 31 May 2021, 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. (g) 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. 46 Annual Report and Financial Statements 2022 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 2022 (continued) 18 Post balance sheet events Post year end, the Company announced that the geophysical interpretation of drone based aeromagnetic data has identified twenty three Kimberlite targets in the area surveyed. The Company’s application for two additional mineral prospecting licences in Northern Ireland were granted. The final meeting in relation to the Company’s diamond mine development at Lahtojoki with the National Land Survey of Finland was postponed from June 2022 until December 2022. There were no further material events subsequent to the reporting date which necessitate revision of the figures or disclosures included in the financial statements. 19 Approval of the audited financial statements for the financial year ended 31 May 2022 the These audited financial statements were approved by the Board of Directors on 28 November 2022. A copy of 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. statements will available financial audited the on be 47 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc48 Annual Report and Financial Statements 2022 Karelian Diamond Resources Plc

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