Consolidated and Company Statements of Cash Flows

Notes to the Financial Statements

1. Basis of preparation

The financial information set out herein does not constitute the Group's statutory financial statements for the year ended 31 December 2021, but is derived from the Group's audited financial statements. The auditors have reported on the 2020 financial statements and their reports were unqualified and did not contain statements under s498(2) or (3) Companies Act 2006 but did contain a material uncertainty in relation to going concern. The 2021 Annual Report was approved by the Board of Directors on 30 June 2022. The financial information in this statement is audited but does not have the status of statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Group's consolidated financial statements, which form part of the 2021 Annual Report, have been prepared in accordance with applicable law and UK adopted international accounting standards and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. The consolidated financial statements have been prepared under the historical cost convention except for items held at fair value. They are presented in British Pounds Sterling (Pounds) which is also the functional currency of the Company. BlueRock Diamonds Plc is incorporated in England and Wales with company number 08248437 with registered office, 4th Floor, Reading Bridge House, George Street, Reading, Berkshire, RG1 8LS. The preparation of financial statements in conformity with UK adopted IAS and Companies Act 2006 requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies.

2. Going concern

The Group and parent Company have prepared forecasts covering the period to 31 December 2023. Appropriate diligence has been applied by the Directors who believe that the forecasts are prepared on a realistic basis using the best available information.

As announced on 1 June 2022, the impact of the unusually high rainfall in the first five months of 2022 has resulted in a significant reduction in production compared to our forecasts, resulting in a severe impact on the Group's cash resources, leaving the Group and parent Company requiring additional funding in the immediate future, whilst it completes its mining development.

Discussions are ongoing with an existing shareholder for BlueRock to issue a new Loan Note ("LN") for £1.6m as well as the provision of debt funding facility to Kareevlei for up to ZAR30m to be drawn as and when required. The forecasts indicate that the combination of the LN and debt funding facility will be sufficient to meet the Group's cash requirements over the going concern period, however, until the LN has been issued and the debt funding facility finalised, there remains an uncertainty that this financing will be available.

After review of the uncertainty, the Directors have a reasonable expectation, based on discussions and correspondence with the existing shareholder, that the additional funding will be received and the Group and parent Company will then have adequate resources to continue in operational existence for the foreseeable future, based on its assessment of the forecasts, principal risks and uncertainties and mitigating actions considered available to the Group and parent Company in the event of downside scenarios. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.

However, at the date of approval of these financial statements, uncertainties relating to completing the issue of the funding arrangements indicate the existence of a material uncertainty which may cast significant doubt about the Group and parent Company's ability to continue as a going concern, and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The financial statements do not include the adjustments that would result if the Group and parent Company were unable to continue as a going concern.

3. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

3.1 Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

3.1.1 Ore reserves and associated Life of Mine (LoM)

There are numerous uncertainties inherent in estimating ore reserves and the associated LoM. Therefore, the Group must make a number of assumptions in making those estimations, including assumptions as to the prices of diamonds, exchange rates, production costs and recovery rates. Assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of diamonds, exchange rates, production costs or recovery rates may change the economic status of ore reserves and may, ultimately, result in the ore reserves being restated. Where assumptions change the LoM estimates, the associated depreciation rates, residual values, waste stripping and amortisation ratios, lease terms and environmental provisions are reassessed to take into account the revised LoM estimate.

3.1.2 Valuation of embedded derivatives

There is an adjustable conversion feature within the convertible loan agreement with M Poole/T Leslie, which effects the conversion price and the number of new ordinary shares issued. IFRS 9 requires a fair value calculation of the embedded derivative at recognition, as it is not closely related to the host contract, and a revaluation to be performed at each year end. The embedded derivative has been fair valued using the Monte Carlo model which requires critical estimates, in particular the Group's future share price volatility. At the year end the fair value of the embedded derivative was £3,198 (2020: £21,718).

3.1.3 Valuation of "fixed-for-fixed" convertible loan notes

The Group entered into "fixed-for-fixed" convertible loan notes with the Teichmann Group, whereby the number of conversion shares were determined at the issue date. The initial fair value of the liability portion of the bond is determined using a market interest rate for an equivalent non-convertible bond at the issue date, which requires critical estimates, in particular the implicit interest rate. After considering industry and Group specific risk factors, the Group determined 16.5% to be the most appropriate implicit interest rate to value the liability portion. The remainder of the proceeds were allocated to the conversion option and recognised in shareholders' equity (net of income tax) and is not subsequently remeasured.

3.1.4 Rehabilitation provision

Estimates and assumptions are made in determining the amount attributable to the rehabilitation provision. These deal with uncertainties such as legal and regulatory framework, timing and future costs. The carrying value of the rehabilitation provision is disclosed in note 14 of the financial statements. The Board use an expert to determine the existing disturbance level and associated cost of works and estimates of inflation and risk-free discount rates are based on market data.

3.1.4 Impairment of non-current assets

Mining assets and Property, plant and equipment representing the Group's mining assets in South Africa are reviewed for impairment at each reporting date. The impairment test is performed using the approved Life of Mine plan and those future cash flow estimates are discounted using asset specific discount rates and are based on expectations about future operations. The impairment test requires estimates about future production and sales volumes, diamond prices, grades, operating costs and capital expenditures necessary to extract resources in the current medium term mine plan. Production forecasts include further growth from existing production levels, reflecting plant upgrades, steps to improve mining flexibility and investment to open new mining areas. Diamond prices are estimated with reference to recent achieved prices and the Board's assessment of the diamond market outlook.

Changes in such estimates could impact recoverable values of these assets.

The impairment test using the medium-term forecasts indicated significant headroom as at 31 December 2021 and therefore no impairment is considered to be appropriate. However, such headroom is dependent on the upgraded plant running at full capacity. However, the Directors consider the forecasted production levels to be achievable best estimates. The plant is currently nearing full capacity.

The key assumptions used in the recoverable amount calculations, determined on a value-in-use basis, are listed below:

Valuation basis

Discounted present value of future cash flows.

LoM and recoverable value of Diamond Reserves and Resources

Economically recoverable Diamond Reserves and Resources, carats recoverable and grades achievable are based on management's expectations of the availability of Diamond Reserves and Resources at Kareevlei and technical studies undertaken by third-party specialists. Diamond Reserves remaining after the current LoM plan have not been included in determining the value in use of the operations. The forecast LoM of Kareevlei, based on current estimates, is to 2030 (2020: 2030).

Cost and inflation rate

Operating costs are determined based on management's experience and the use of contractors over a period of time whose costs are fairly reasonably determinable. Mining and processing costs have been based on the agreements with the relevant contractors. Management has applied local inflation rates of 5.0% (2020: 5.0%) for operating costs.

Capital costs in the short-term has been based on management's capital programme after which a fixed percentage of revenue have been applied to determine the capital costs necessary to maintain current levels of operations.

Exchange rates

Exchange rates are estimated based on an assessment of current market fundamentals and long-term expectations. The US dollar/South-African Rand (ZAR) exchange rate used, was determined with reference to the average rate for 2021 of ZAR 14.7 (31 December 2020: ZAR 16.5).

Diamond prices

The short-term diamond prices used in the impairment test have been set with reference to recent prices achieved, recent market trends and the Group's short-term forecast. Medium and long-term diamond price escalation reflects the Group's assessment of market supply/demand fundamentals.

Discount rate

A discount rate of 13.8% (2020: 10%) was used. The discount rate was calculated based on a nominal weighted cost of capital including the effect of factors such as market risk and country risk as at the Year end.

3.1.6 Expected credit loss assessment for receivables due from subsidiaries

The Directors make judgements to assess the expected credit loss provision on the loan to the Company's subsidiary. This includes assessment of scenarios and the subsidiary's ability to repay its loan under such scenarios considering risks and uncertainties including diamond prices, future production performance, recoverable diamond reserves, environmental legislation and other factors. No credit loss provision was raised. If the assumed factors vary from actual occurrence, this will impact on the amount at which the loan should be carried on the Company Statement of Financial Position.

3.1.7 Capitalised stripping costs

Waste removal costs (stripping costs) are incurred during the development and production phases at surface mining operations. Furthermore, during the production phase, stripping costs are incurred in the production of inventory as well as in the creation of future benefits by improving access and mining flexibility in respect of the ore to be mined, the latter being referred to as a 'stripping activity asset'. Judgement is required to distinguish between these two activities at Kareevlei. The orebody needs to be identified in its various separately identifiable components. An identifiable component is a specific volume of the orebody that is made more accessible by the stripping activity. Judgement is required to identify and define these components, and also to determine the expected volumes (tonnes) of waste to be stripped and ore to be mined in each of these components. These assessments are based on a combination of information available in the mine plans, specific characteristics of the orebody and the milestones relating to major capital investment decisions. KV1 and KV2, are mined as a combined pit and is therefore judged to be one separable identified component.

Judgement is also required to identify a suitable production measure that can be applied in the calculation and allocation of production stripping costs between inventory and the stripping activity asset. The ratio of expected volume (tonnes) of waste to be stripped for an expected volume (tonnes) of ore to be mined for a specific component of the orebody, compared to the current period ratio of actual volume (tonnes) of waste to the volume (tonnes) of ore is considered to determine the most suitable production measure.

These judgements and estimates are used to calculate and allocate the production stripping costs to inventory and/or the stripping activity asset(s). Furthermore, judgements and estimates are also used to apply the stripping ratio calculation in determining the amortisation of the stripping activity asset.

At the year end the carrying value of the capitalised stripping costs were £844,014 (2020: £nil).

3.1.8 Contingent liabilities

The Group is subject to claims by a former director and companies related to that former director totalling £222,164. Whilst fully disputing the claims, the Group maintains liabilities to the claimants of £170,598. The Group has placed £206,418 (2020: £214,499) in escrow with its attorneys to meet any payments under the claims. The Group has taken legal advice which advises that the claims are without merit and no provision is made for the additional claim amount. This matter has required the Board to exercise judgment in assessing both the extent to which liabilities should be retained and the decision not to provide for the additional claim amount.

3.1.9 Theft

During January 2022, management at the Kareevlei mine identified a theft of concentrate from the new plant. Management have conducted a full investigation and have passed the case onto the South African police force. At the time of the theft the new plant was being commissioned and subsequently more robust physical security controls have been put in place. Management have considered the impact of the theft on the financial statements and considering all information available, do not consider that the theft has had a material impact on the financial statements. 

3.2 Critical judgements in applying the entity's accounting policies

3.2.1 Mining Licence

An application for the renewal of the current Mining Licence has been submitted to the Department of Mineral Resources & Energy in South Africa. As at the date of approval of this report the outcome of this application has not yet been received. In accordance with South African legislation, the Group has the right to continue mining until such time as the application has been processed. The Directors have applied their judgement, and have determined that there is no reason to believe that the approval will not be obtained and have therefore based their assumptions and estimates in the financial statements on the fact that the application will be successful.

3.2.2 Determining the lease term

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise, or not to exercise, an extension option. Extension options are only included in the lease term for instances where the company is reasonably certain that it will extend or will not terminate the lease when the lease expires. For all leases, the most relevant factors include:

·      If there are significant penalties to terminate (or not extend), the group is typically reasonably certain to extend (or not terminate).

·      When the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty, the group is typically certain to terminate.

·      Otherwise, the group considers other factors including historical lease durations, related costs and the possible business disruption as a result of replacement of the leased asset.

The lease term is reassessed on an ongoing basis, especially when the option to extend becomes exercisable or on occurrence of a significant event or a significant change in circumstances which affects this assessment, and that is within the control of the group.

Judgment is needed in determining the lease term of surface lease agreements. The lease term of surface lease agreements are based on the approved Life of Mine (LoM) estimate.

3.2.3 Determining the incremental borrowing rate to measure lease liabilities

Interest rate implicit in leases is not available, therefore, the group uses the relevant incremental borrowing rate (IBR) to measure its lease liabilities. The IBR is estimated to be the interest rate that the group would pay to borrow:

·      over a similar term

·      with similar security

·      the amount necessary to obtain an asset of a similar value to the right of use asset

·      in a similar economic environment

The IBR, therefore, is considered to be the best estimate of the incremental rate and requires management's judgement as there are no observable rates available.

4. Property, plant and equipment

4.1 Balances at year end and movements for the year

4.2 Additional disclosures                                                                                                 

Plant and equipment to the value of £18,339 are under security of the loan agreement with Mark Poole.  The Group cannot pledge these assets as security for other borrowings or sell them to another entity. In the event of default Mark Poole may acquire the equipment of Kareevlei Mining Proprietory Limited for 1.00 South African Rand.

5.  Inventories

Inventories comprise:

Inventory is carried at the lower of cost or net realisable value.  During the year no write-downs to net realisable value were recorded.

6. Trade and other receivables

6.1  Trade and other receivables comprise:

The carrying value of all trade and other receivables including the loan to a group company is considered a reasonable approximation of fair value.

Company:

(i) Non-current other receivables represent management fees receivable from Kareevlei Mining Proprietary Limited.

(ii)  The amounts due by subsidiary is a loan to Kareevlei Mining Proprietary Limited that bears interest at the Nedbank Limited prime variable overdraft rate or unsecured loans to corporate customers.

Group:

(i) Other non-current receivables represent amounts held by financial institutions and the Department of Minerals and Energy as guarantees in respect of environmental rehabilitation obligations in respect of the Group's South African mines.

 6.2 

7.  Cash and cash equivalents (including restricted cash)

7.1  Cash and cash equivalents comprise:

Cash and cash equivalents in the Consolidated Statement of Cash flows excludes restricted cash of £206,418 (2020: £214,499).

7.2  Cash and cash equivalents where availability is restricted

Bank balances to the value of £206,418 (2020: £214,499) are not available for use as it is held in trust with the Group's attorneys.  This account is held as security for the claims submitted by a former director of the Group and may only be utilised against this claim, should it be successful.

8.  Share capital

Share reconciliation

9. Trade and other payables

9.1 Trade and other payables comprise:

An amount of £150,339 (2020: £161,588) is included within trade payables which are subject to amounts claimed as being due to companies related to the former Director of the company. These amounts are historic and disputed in full by the Company based on legal advice received. The account due to a former Director totalling £20,260 (2020: £21,776) relates to amounts claimed but disputed in full by the Company.

10. Borrowings

10.1 Carrying amount of borrowings by category

11. Basic earnings per share