Half-yearly report
BRAZILIAN DIAMONDS LIMTIED
QUARTERLY REPORT FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2008
During the six months ended 30 June 2008, Brazilian Diamonds Limited
("Brazilian Diamonds" or "the Company") has continued to focus its
exploration activities on exploring kimberlite bodies located on its
properties in Brazil while seeking ways to maximize the value from
its extensive diamondiferous alluvial gravel inventories located on
some of these same properties.
The Company remains encouraged by the publication of the government's
inter-departmental deliberations over the finalization of permanent
boundaries for the Serra da Canastra National Park, which is located
in proximity to the Canastra 1 project, and the progress made with
respect to the passage of this legislation. A draft bill (Projeto de
Lei No. 1448/2007) has been submitted to the Brazilian Congress which
excludes the Company's diamond areas from any new proposed National
Park boundary. The Company understands that the Congress has yet to
complete its review of the legislation, however it remains encouraged
that the bill appears to have support from both the Government and
Opposition parties. Once approved, the Company will be able to
commence trial mining at its Canastra 1 project.
The Company is in continuing discussions with its joint venture
partners regarding plans for the further evaluation of the economic
viability of developing a large scale, dredge based mining operation
on the Santo Ant�nio do Bonito alluvials project. The Company is
also examining the possibility of establishing other forms of large
scale mining operation at this project and decisions on these matters
are expected during 2008.
The Company is evaluating the results of drilling and testing of the
Salvador 1 kimberlite before deciding on what further activity should
be undertaken on this project.
The continuing uncertainties in international capital markets are
having an adverse impact on the ability of junior resource
exploration companies to finance their activities. Consequently, the
Company is assessing opportunities to acquire advanced development or
operating resource projects which might provide support for Brazilian
Diamonds' continuing exploration activities. Given the strong
international demand for certain commodities in the resources sector,
the Company is focusing its assessment of new business opportunities
on the possible acquisition of advanced projects to produce mineral
commodities. Brazilian Diamonds believes such commodities will
continue to be in strong demand and will also provide the opportunity
to diversify the Company's involvement within the resources sector.
For further information contact:
Brazilian Diamonds Limited
Ken Judge, Chairman + 44 7733 001 002
Stephen Fabian, CEO ++ 55 31 8814 5111
Hanson Westhouse Limited (Nomad to the Company) + 44 113 246 2610
Tim Feather/Matthew Johnson
Landsbanki Securities (UK) Limited (Broker to the + 44 207 426 9000
Company)
Tom Hulme
Introduction
The following discussion of performance and financial condition
should be read in conjunction with the interim consolidated financial
statements of the Company for the six months ended June 30, 2008.
The Company's financial statements are prepared in accordance with
Canadian GAAP. The Company's reporting currency is Canadian
dollars. The date of this Management's Discussion and Analysis is
August 13, 2008.
Description of Business
Brazilian Diamonds is a development stage resource company engaged in
the acquisition, exploration and development of kimberlite and
alluvial diamond properties in Brazil. The Company has over 100,000
hectares of alluvial and kimberlite exploration properties in the
Paranaiba and Santo Ant�nio do Bonito River Basins and the Patos de
Minas region as well as over 115,000 hectares of prospective
exploration properties in the Serra da Canastra Kimberlite Province
including the advanced stage diamondiferous Canastra 1 kimberlite
pipe. In addition, the Company has its own diamond laboratory used
in the recovery of kimberlite indicator minerals and in 2006 the
Company received an ISO 17025 rating for the facility.
The Company's head office is located in Belo Horizonte, Brazil and
the corporate office is located in Vancouver British Columbia,
Canada. Exploration headquarters are located in Patos de Minas,
Brazil.
The Company is a reporting issuer in Ontario and British Columbia,
Canada and its common shares trade on the Toronto Stock Exchange and
Alternative Investment Market ("AIM") of the London Stock Exchange
under the symbol BDY.
Discussion of Operations
Current Year Activity
December June
31 Acquisition Deferred Amortization/ 30
2007 (Disposal) Exploration Write Down 2008
Coromandel 9,745 - 153 - 9,898
Patos de
Minas 3,183 - 58 (3,020) 221
Serra da
Canastra 7,462 - 163 - 7,625
Salvador 1 2,078 - 1,266 - 3,344
Data Sets 2,115 - - (134) 1,981
Other
projects 74 - 9 - 83
Total 24,657 - 1,649 (3,154) 23,152
December December
31 Acquisition Deferred Amortization/ 31
2006 (Disposal) Exploration Write Down 2007
Coromandel 8,620 - 1,125 - 9,745
Patos de
Minas 2,737 - 446 - 3,183
Serra da
Canastra 7,121 - 341 - 7,462
Salvador 1 466 - 1,612 - 2,078
Data Sets 2,383 - - (268) 2,115
Other
projects 63 - 11 - 74
Total 21,390 - 3,535 (268) 24,657
During the six months ended June 30, 2008, the Company's diamond
drilling and sampling activities were focused on the Salvador 1 and
Santo Antonio do Bonito projects which are being prioritized for
further evaluation.
Salvador 1 Kimberlite Testing
During the six months ended June 30, 2008, the Company continued with
macro-diamond testing of its wholly owned Salvador 1 kimberlite. The
Company is presently evaluating what further activity should be
undertaken to assess the economic prospects for this project.
The Salvador 1 kimberlite is a six hectare body partly exposed
beneath the sands and gravels of an old alluvial diamond mine in
central Bahia State, Brazil. The testing of the Salvador 1
kimberlite has involved the excavation of a number of pits, with each
pit designed to extract approximately 1,300 tonnes of kimberlite from
different parts of the kimberlite pipe.
Extraction began in the last quarter of 2007 and continued through
the period ended June 30, 2008. The kimberlite is multiphase with as
many as six kimberlite rock types identified in Pit 1, therefore
providing numerous challenges in the evaluation process.
Processing of the kimberlite samples began in December 2007 using a
processing plant consisting of a primary disaggregation rotary pan,
followed by x-ray flowsort and grease table for the recovery of
diamonds. The processing plant has recently been augmented with a
roll crusher to better handle harder kimberlite fragments, however,
throughout the period ended June 30, 2008, sample treatment remained
slower than excavation.
Quality control and quality assurance of this evaluation process is
being undertaken at the Company's certified ISO 17025 indicator
mineral processing laboratory in Patos de Minas, where concentrates
are re-examined for diamonds that may not have been recovered in
processing by the on-site plant.
Salvador 1 Alluvial Sand and Gravel Testing
Concurrent with the kimberlite sampling and processing at Salvador 1,
a separate processing plant was used to recover diamonds from the
sands and gravels overlying the Salvador 1 kimberlite.
Patos de Minas
During the year ended December 31, 2007, the land, building and
assets in Parima were transferred to Samsul for R$285,000. The land
is now registered in Samsul with the Brazilian land registry. For
the six months ended June 30, 2008, deferred expenses of $3,020,000
mostly relating to the Tucano project were written off and all
remaining mineral licenses were transferred from Parima to Samsul for
$nil value.
Historical Information
Following the acquisition of several mineral exploration databases
from De Beers, the Company now has access to the accumulated results
of more than 30 years of exploration activity in the Canastra, Santo
Antonio do Bonito and Patos de Minas regions in Minas Gerais and the
Chapada Diamantina region in Bahia. Included within the Canastra
data set are indicator mineral samples, microprobe chemical analyses,
and 19,000 line kilometres of proprietary airborne geophysics
covering the entire region. De Beers has also provided details about
35 known kimberlite occurrences and the results of ground geophysics
within the Canastra region. The Chapada Diamantina data set,
acquired in September 2006 from De Beers, includes 194,120 line
kilometres of airborne geophysics, indicator mineral samples,
microprobe analysis and mineral licenses covering the Salvador 1
kimberlite body plus five other kimberlites.
This data complements an already significant database the Company
previously acquired as a result of the purchase of De Beers'
Brazilian subsidiary Mineracao do Sul in August 2002. That
acquisition also included 40,000 hectares of mineral claims in the
Canastra area and the Canastra 1 kimberlite for which licenses are
being sought to commence trial mining. The licencing process has
been complicated by the potential expansion of a nearby National
Park. Although there is every indication that a licence will be
granted to mine Canastra 1, it is not possible to accurately estimate
the timetable for such a grant. While the Company continues to work
with various ministries of the Brazilian federal government in an
effort to hasten the process for the license grant, the Company has
been concentrating the majority of its exploration activity and
resources on its other prospective projects outside the Canastra
Region.
During the past three years, the Company has committed significant
resources evaluating kimberlite targets in the Santo Antonio do
Bonito River Basin and Patos de Minas regions.
Salvador 1
In 2007, the Company collected 6 replicate samples totaling 6 tonnes
from the Salvador 1 kimberlite in an attempt to confirm results from
a smaller (580 kg) sample taken in 2006. In total, 111 diamonds were
recovered from these new samples which together with original sample
tallied 120 diamonds. Preparations began in the third quarter of
2007 for the collection of six much larger samples of approximately
650 m3 each from different parts of the Salvador 1 kimberlite in
order to better assess its diamond potential. Excavation of the
first pit was completed in the fourth quarter and excavation of the
second and third pits were started. Results from the first of the
bulk sample pits identified at least six different kimberlitic rock
types or "phases". Each of these phases potentially may carry a
different diamond sample.
Serra da Canastra
The Company is awaiting final approval before commencing the
environmental licensing process for the development of the Canastra 1
kimberlite body for which mine feasibility work has already been
completed and the required Mines Department approvals are already in
place. The Company will bring Canastra 1 into production once the
environmental licensing process is completed.
Coromandel
The Company and its Joint Venture partners continue to assess various
alternatives for the possible development of one or more alluvial
mining operations at the Santo Antonio do Bonito alluvial project.
These options may include large scale dredging operations on the
broader river flat areas along the Santo Antonio do Bonito river as
well as a smaller scale operation on what are considered to be highly
prospective but narrower river terrace areas.
Patos de Minas
During the first quarter of 2007, the Company's administrative
functions in Brazil were consolidated at the Patos de Minas office
and laboratory with the Company continuing to maintain a small
representative corporate office in Belo Horizonte. Through these
measures, the Company has been able to significantly reduce its
Brazilian overhead from the levels existing prior to the
restructuring carried out in the second half of 2006.
Stage II drilling of holes RDH-03, 04, 05 and 06 at the Company's
100% owned Regis kimberlite project was completed in the first
quarter of 2007 and following receipt and evaluation of the final
results of lab testing of drill cores for micro-diamonds, the Company
will be in a position to determine what further activity should be
undertaken on this kimberlite.
Financial Performance
Second Quarter
The loss for the three months ended June 30, 2008 was $200,000 as
compared to a loss of $321,000 for the same period last year before
other income (expenses). The decrease in expenses over the same
period last year is due to a decrease in office costs of $18,000,
investor relations expense of $38,000, legal and audit fees of
$17,000, insurance of $10,000 and travel expenses of $14,000.
Foreign exchange gain increased by $52,000 while interest income
decreased by $20,000.
Cash and cash equivalent balances increased by $338,000 to $1,039,000
at June 30, 2008. The cash spending for mineral properties was
$806,000. The working capital was $1,041,000 (2007 - $1,890,000).
Of the $806,000 deferred exploration costs, $67,000 was spent on
kimberlite exploration in the Santo Ant�nio do Bonito River Basin,
$70,000 was expended on kimberlite projects in the Serra da Canastra
Kimberlite Province, $23,000 was spent on the Patos de Minas project,
$712,000 was spent on Salvador 1, and $1,000 was spent on other
projects. The data sets are amortized over ten years. For the three
months ended June 30, 2008, $67,000 (2007 - $78,000) was amortized
and proportionally allocated to the related mineral properties. The
current period's exploration expenditures were $215,000 more than the
same period last year due to a increase in the drilling undertaken
during the period.
Year-to-date
The loss for the six months ended June 30, 2008 was $490,000 as
compared to a loss of $600,000 for the same period last year before
other income (expenses). The decrease in expenses over the same
period last year is due to a decrease in office costs of $9,000,
investor relations expense of $30,000, legal and audit fees of
$24,000, insurance of $11,000 and travel expenses of $16,000.
Foreign exchange gain increased by $66,000 while interest income
decreased by $53,000.
Cash and cash equivalent balances increased by $583,000 to $1,039,000
at June 30, 2008. The cash spending for mineral properties was
$1,515,000. The working capital was $1,041,000 (2007 - $1,890,000).
Of the $1,515,000 deferred exploration costs, $153,000 was spent on
kimberlite exploration in the Santo Ant�nio do Bonito River Basin,
$163,000 was expended on kimberlite projects in the Serra da Canastra
Kimberlite Province, $58,000 was spent on the Patos de Minas project,
$1,266,000 was spent on Salvador 1, and $9,000 was spent on other
projects. The data sets are amortized over ten years. For the six
months ended June 30, 2008, $134,000 (2007 - $156,000) was amortized
and proportionally allocated to the related mineral properties. The
current period's exploration expenditures were $26,000 more than the
same period last year due to an increase in the drilling undertaken
during the period. Deferred expenses of $3,020,000 (2007 - $nil)
were written off in the six months ended June 30, 2008. All mineral
licenses were transferred from Parima to Samsul for $nil value.
Results of Operations
Summary of Quarterly Results
The table below present's selected financial data for the Company's
eight most recently completed quarters.
June June
($000) 30 Mar.31 Dec.31 Sept.30 30 Mar.31 Dec.31 Sept.30
2008 2008 2007 2007 2007 2007 2006 2006
Financial
results
Net
loss(income) 200 3,193 (265) 426 (278) 279 988 263
for period
Comprehensive 120 367 192 743 67 663 - -
loss**
Basic and
diluted loss 0.00 0.02 0.00 0.00 0.00 0.00 0.01 0.00
(income) per
share
Expenditures
on resource
properties 806 709 1,213 573 591 898 1,009 974
Balance sheet
data
Cash and
short term 1,039 701 456 1,075 2,147 3,037 4,514 1,529
deposits
Resource 23,152 22,346 24,657 23,693 22,865 22,274 21,390 20,451
properties
Total assets 24,965 23,903 26,408 25,689 25,910 26,249 26,762 22,875
Shareholders' 24,572 23,428 25,968 25,069 25,074 24,796 25,075 21,869
equity
Selected Annual Information
The following financial data has been prepared in accordance with
Canadian generally accepted accounting principles in Canadian
currency:
Year ended Year ended Year ended
($000) December 31 December 31 December 31
2007 2006 2005
Financial results
Net loss for period * 162 2,763 790
Other comprehensive
loss** 1,503 - -
Basic and diluted loss
per share 0.00 0.02 0.01
Expenditures on
resource
properties 2,988 3,130 2,472
Balance sheet data
Cash and cash
equivalents 456 4,514 1,082
Mineral properties 24,657 21,390 17,770
Total assets 26,408 26,762 19,889
Shareholders' equity 25,968 25,075 18,600
* Net loss for December 31, 2006 includes $.6M stock-based
compensation (2005 - $Nil) and reorganization costs of $0.25m (2005
$nil)
** The Company has reflected in its financial statements as at and
for the year ended December 31, 2007 the adjustments and disclosures
required by the following CICA Handbook Sections 3855 Financial
Instruments - Recognition and Measurement; Section 3861 Financial
Instruments - Disclosure and Presentation; Section 3865 - Hedges;
Section 1530 Comprehensive Income and Section 3251 Equity. However,
the Company did not accurately record the effect of these new
pronouncements n the 2007 quarterly financial statements. Management
has reflected the appropriate adjustments to comprehensive loss in
the Summary of Quarterly Results above
Liquidity and Capital
The Company does not currently own or have an interest in any
producing mineral properties and does not derive any revenues from
operations. The Company's activities have been funded through equity
financing and the Company expects that it will continue to be able to
utilize this source of financing until it develops cash flow from
operations. There can be no assurance, however, that the Company
will be successful in its efforts. If such funds are not available
or other sources of finance cannot be obtained, then the Company will
curtail its activities to a level for which funding is available or
can be obtained.
Most of the capital equipment for operations at Canastra 1 has
already been acquired and is included as part of resource
properties. The Company has minimal operating lease commitments
(refer to Contractual Commitments).
These financial statements have been prepared using Canadian
generally accepted accounting principles applicable to a going
concern, which contemplates the realization of assets and settlement
of liabilities in the normal course of business as the come due. For
the six months ended June 30, 2008, the Company reported a loss of
$3,393,000 and an accumulated deficit of $74,229,000 at that date. In
addition to its ongoing working capital requirements, the Company
must secure sufficient funding for existing commitments as well as
ongoing mineral property exploration. These circumstances lend
substantial doubt as to the ability of the Company to meet its
obligations as they come due and, accordingly, the appropriateness of
the use of accounting principles applicable to a going concern.
In recognition of these circumstances, the Company has secured
funding in the amount of $2,484,000 net of share issue costs at June
30, 2008. This funding, while substantial, is not sufficient to
enable the Company to fund all aspects of its operations and,
accordingly, management is pursuing other financing alternatives to
fund the Company's operations so it can continue as a going concern.
Management expects that the Company will be able to secure the
necessary financing through a combination of new equity issue or debt
instruments and the entering into joint venture arrangements.
Nevertheless, there is no assurance that these initiatives will be
successful.
The Company's ability to continue as a going concern is dependent
upon its ability to fund its ongoing operating costs and exploration
and development of mineral properties, attain profitable mining
operations, or receive proceeds from the disposition of its mineral
property interests. These financial statements do not reflect the
adjustments to the carrying values of assets and liabilities and the
reported expenses and balance sheet classifications that would be
necessary were the going concern assumption inappropriate, and these
adjustments could be material.
Subsequent Events
i) The Company will not be renewing its office lease when the
lease expires. Office rent is included under the services agreement
with HRG Management Ltd. (note a).
ii) The Company is in the process of transferring its photocopier
leases to HRG Management Ltd. Photocopier services are provided
under the services agreement with HRG Management Ltd. (note
a).
Contractual Commitments
Except as outlined below, the Company has no other contractual
commitments.
2008 2009 2010 2011 Total
Office $ $ - $ - $ - $
leases 51 51
Photocopier 6 12 12 31
leases 1
Services
agreement 110 - - - 110
with HRG
$ $ 12 $ 12 $ 1 $ 192
167
Off Balance Sheet Arrangements
The Company has not entered into any off-balance sheet arrangements
other than those disclosed in Commitments note 10 of the interim
consolidated financial statements.
Transactions with Related Parties
During the three months ended June 30, 2008 and 2007, the Company
entered into the following transactions with related parties:
2008 2007
$ $
HRG Management Ltd. - Kenneth Judge, Stephen L.
Fabian
- Kerry
Beamish (note a)
Paid or accrued contractual service costs (note a) 109,000 105,000
Received or accrued miscellaneous office recoveries - 12,000
(note b)
Deposits made (note c) 81,000 35,000
Hamilton Capital Partners Limited ("HCPL") -
Kenneth Judge
Paid or accrued consulting fees and office rent 87,000 98,000
Sale of Hidefield shares (note d) 185,000 -
Massif Limited - Stephen L. Fabian
Paid or accrued management fees - (note e) 60,000 68,000
Lang Michener - David Cowan
Paid or accrued legal fees - (note f) 11,000 3,000
Hidefield Gold PLC - Kenneth Judge, Francis
Johnstone
Accrued or recovered office and technical costs - 25,000
(note g)
a) Effective February 1, 2006, the Company entered into a
services agreement with HRG Management Ltd. ("HRG") in which the
Company agreed to pay a monthly corporate administration fee of
approximately $18,400 that includes office rent, administration,
accounting, corporate secretarial, chief financial officer, investor
relations and other related services. HRG is a management company
jointly owned by the Company and certain other public companies, all
of which share office space and staff on a cost recovery basis. The
Company share directors and officers in common with HRG. The
agreement expires December 31, 2008 and can be terminated by either
party prior to expiration with 90 days written notice. Kenneth Judge
and Stephen L. Fabian are both directors of HRG. Kerry Beamish is
the CFO of HRG.
b) At June 30, 2008, HRG owed the Company $4,000 (2007 - $Nil)
and have normal trade terms.
c) At June 30, 2008, $81,000 (2007 - $35,000) is included in
accounts receivable, prepaids and deposits to HRG for fixed assets
and services.
d) The Company received proceeds of $185,000 on the sale of 2
million Hidefield Gold plc shares at 4.75 pence from HCPL.
e) The Company paid management fees of $60,000 (2007 - $68,000)
to Massif Limited, a company in which Stephen L. Fabian is
interested.
f) The Company paid or accrued professional fees of $11,000
(2007 - $3,000) to a law firm in which David Cowan, director is a
partner.
g) The Company has capitalized office and technical cost
recoveries of $Nil (2007 - $25,000) from Hidefield Gold PLC ("HIF")
to mineral properties.
Share Capital Information
The table below presents the Company's common share data as of August
13, 2008.
Number of
Exercise Price Expiry date common shares
Common shares, issued
and outstanding 194,370,722
Securities convertible
into common shares -
March 29,
Options $0.65 2009 100,000
October 26,
$0.45 2009 3,075,000
$0.41 April 5, 2011 2,175,000
$0.25 July 12, 2012 2,950,000
October 12,
$0.25 2012 100,000
202,770,722
Critical Accounting Estimates
The preparation of financial statements requires the Company to
select from possible alternative accounting principles, and to make
estimates and assumptions that determine the reported amounts of
assets and liabilities at the balance sheet date and reported costs
and expenditures during the reporting period. Estimates and
assumptions may be revised as new information is obtained, and are
subject to change. The Company's accounting policies and estimates
used in the preparation of the Financial Statements are considered
appropriate in the circumstances, but are subject to judgments and
uncertainties inherent in the financial reporting process.
Stock Based Compensation
In calculating the value of stock options granted, management is
required to make significant estimates in relation to the future
volatility of the Company's share price and the period in which stock
options will be exercised. The selection of the volatility factor and
the estimate of the expected option life will have a significant
impact on costs recognized for stock based compensation. The
estimates concerning volatility are made with reference to historical
volatility, which is not necessarily an accurate indicator of
volatility that will be experienced in the future. Management
assumes that stock options will remain unexercised until immediately
prior to their expiry date, which may not be the case.
Carrying Value of Assets
The Company reviews the carrying value of mineral properties and
deferred exploration costs when there are any events or circumstances
that may indicate impairment. Where estimates of future cash flows
are available, an impairment charge is recorded if the undiscounted
future net cash flows are less than the carrying amount. Reductions
in the carrying value of the properties are recorded to the extent
the net book value of the property exceeds the discounted value of
future cash flows. Where estimates of future cash flows are not
available and where other conditions suggest impairment, management
assess if carrying value can be recovered and provides for impairment
if so indicated. As at June 30, 2008, the Company has written down
$3,020,000 in deferred expenses.
Asset Retirement Obligations
The Company relied on the results of a professional, engineering firm
and used the discount and inflation rate as at December 31, 2007 to
estimate the fair value of its asset retirement obligations.
Changes in Accounting Policies
The Company implemented the following accounting policy changes
during the period.
Effective January 1, 2008, the Company adopted three new accounting
standards issued by the Canadian Institute of Chartered Accountants
("CICA"); Section 1535 - Capital Disclosures, Section 3862 -
Financial Instruments - Disclosure, Section 3863 - Financial
Instruments - Presentation. These standards were adopted on a
prospective basis, and as such prior periods have not been restated.
a) Section 1535, "Capital Disclosures", establishes standards
for disclosing information about an entity's capital and how it is
managed. These standards require an entity to disclose the following:
i. its objectives, policies and
processes for managing capital;
ii. summary quantitative data about
what the Company views as capital;
iii. whether during the period, it
complied with any externally imposed capital requirements to which it
is subject;
iv. when the entity has not complied with
such requirement, the consequences of such non-compliance.
b) Financial Instruments - Disclosure (Section 3862) and
Presentation (Section 3863)
These standards replace CICA 3861, Financial Instruments - Disclosure
and Presentation. The increased disclosures will enable users to
evaluate the significance of financial instruments for an entity's
financial position and performance, including disclosures about fair
value. In addition, disclosure is required of qualitative and
quantitative information about exposure to risks arising from
financial instruments, including specified minimum disclosures about
credit risk, liquidity risk and market risk. The quantitative
disclosures must provide information about the extent to which the
entity is exposed to risk, based on information provided internally
to the entity's key management personnel.
Risk
There are significant risks that might affect further development of
the Company. Although the Company has prospective diamond projects
and has demonstrated that it has the ability to obtain environmental
and trial mining permits, there is a risk that these projects will
not be economically mineable or that the required permits will be
granted in the future. Further, future market prices for diamonds
are not predictable. There is also a risk that should additional
development of the properties be required, financing may not be
obtainable. Repatriation of earnings and capital from Brazil is
subject to compliance with registration requirements. There can be no
assurance that restrictions on repatriation will not be imposed in
the future.
Management's Responsibility for Financial Statements
The information provided in this report, including the financial
statements, is the responsibility of management. In the preparation
of these statements, estimates are sometimes necessary to make a
determination of future values for certain assets or liabilities.
Management believes such estimates have been based on careful
judgments and have been properly reflected in the accompanying
financial statements.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported to
senior management, including the President, Chief Executive Officer
("CEO") and the Chief Financial Officer ("CFO"), on a timely basis so
that appropriate decisions can be made regarding public disclosure.
An evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures was conducted as of June
30, 2008, by and under the supervision of management, including the
CEO and the CFO. Based on this evaluation, the CEO and the CFO have
concluded that the Company's disclosure controls and procedures, as
defined by Multilateral Instrument 52-109, Certification of
Disclosure in Issuers' Annual and Interim Filings, are effective to
ensure that information required to be disclosed in reports filed or
submitted under Canadian securities legislation is recorded,
processed, summarized and reported within the time period specified
in those rules and forms and reported to senior management so that
appropriate decisions can be made regarding public disclosure.
Internal Control Over Financial Reporting
Internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with
Canadian GAAP. Management is responsible for establishing and
maintaining adequate internal control over financial reporting for
the Company.
An evaluation of the design of the Company's internal control over
financial reporting was conducted as of June 30, 2008, by and under
the supervision of management, including the CEO and the CFO. Based
on this evaluation, the CEO and the CFO have concluded that the
Company's design of internal control over financial reporting, as
defined by Multilateral Instrument 52-109, Certification of
Disclosure in Issuers' Annual and Interim Filings, is sufficient to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance
with Canadian GAAP.
There have been no changes in internal control over financial
reporting during the six months ended June 30, 2008 that have
materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
Other information
Additional information is available on the Company's website at
www.braziliandiamonds.com or on SEDAR at www.sedar.com.
Interim Consolidated Balance Sheet
(expressed in thousands of Canadian Dollars) June 30 December 31
(unaudited) 2008 2007
$ $
Assets
Current assets
Cash and cash equivalents 1,039 456
Accounts receivable, prepaids and deposits 306 240
Due from related parties 4 17
1,349 713
Investments 464 1,038
Mineral properties 23,152 24,657
24,965 26,408
Liabilities
Current liabilities
Accounts payable and accrued liabilities 308 336
Hidefield options - 19
Asset retirement obligation 85 85
393 440
Shareholders' Equity
Capital stock 95,332 92,848
Warrants - 519
Contributed surplus 3,336 2,817
Deficit (74,229) (70,836)
Accumulated other comprehensive income 133 620
24,572 25,968
24,965 26,408
Nature of Operations and Going Concern (note
1)
Interim
Consolidated
Statements of Loss
and Deficit
(expressed in
thousands of Three - Three - Six- month Six- month
Canadian dollars, month period month period period period
except per share ended June ended June ended June ended June
amounts) 30, 30, 30, 30,
(unaudited) 2008 2007 2008 2007
$ $ $ $
Expenses
Consultants 55 53 107 109
Corporate 22 17
administrative
services 39 35
Foreign exchange (22) 30
loss (gain) (22) 44
Insurance 10 20 23 34
Interest (3) (23) (4) (57)
Investor relations (2) 36 47 77
Legal and audit 32 49 64 88
Office costs 30 48 80 89
Regulatory 40 36 74 75
Salaries and 30 33
benefits 60 68
Travel 8 22 22 38
(200) (321) (490) (600)
Other income
(expenses)
Unrealized fair - 599
value of Hidefield
options 19 599
Gain on sale of - -
investments 98 -
Write-down of - -
mineral properties (3,020) -
Income (Loss) for (200) 278
the period (3,393) (1)
Deficit - Beginning (74,029) (70,953)
of period (70,836) (70,674)
Deficit - End of
period (74,229) (70,675) (74,229) (70,675)
Earnings (Loss) per
common share
Basic and diluted (0.00) 0.00 (0.02) (0.00)
Weighted average
common shares
outstanding (000's)
Basic and diluted 194,371 168,414 182,248 168,414
Interim Consolidated Three - Three - Six-
Statements of month month Six- month month
Comprehensive Loss period period period period
(expressed in thousands ended June ended June ended June ended
of Canadian dollars) 30, 30, 30, June 30,
(unaudited) 2008 2007 2008 2007
$ $ $ $
Income (Loss) for the (200) 278
period (3,393) (1)
Other comprehensive loss
Unrealized loss on (120) -
available-for-sale
securities (487) -
Comprehensive income
(loss) for the period (320) 278 (3,880) (1)
Interim
Consolidated
Statements
of Cash Three- Three- Six- Six-
Flows month period month period month month
(expressed ended ended period period
in thousands June June ended ended
of Canadian 30, 30, June 30, June 30,
dollars) 2008 2007 2008 2007
(unaudited) $ $ $ $
Cash flows
from
operating
activities
Income (200) 278
(Loss) for
the year (3,393) (1)
Adjustments
for non-cash
changes
Amortization - 3 - 5
Write-down - -
of mineral
properties 3,020 -
Gain on sale - -
of
investments (98) -
Unrealized - (599)
fair value
of Hidefield
options (19) (599)
Changes in
non-cash
working
capital
(Increase) (41) 32 (66) (35)
decrease in
accounts
receivable
and prepaids
Decrease due 3 5
from related
parties 13 4
Decrease in - -
loan
receivable - -
Decrease in (82) (12) (28) (244)
accounts
payable and
accrued
liabilities
(320) (293) (571) (870)
Cash flows
from
financing
activities
Decrease in - (6)
long-term
debt - (8)
Issue of - -
shares for
private
placement 2,596 -
Subscription 1,436 -
receivable - -
Share issue 28 -
costs (112) -
1,464 (6) 2,484 (8)
Cash flows
from
investing
activities
Proceeds - -
from
exercise of
HIF options
and shares 185 -
Deferred (806) (591)
mineral
property
costs (1,515) (1,489)
(806) (591) (1,330) (1,489)
Increase 338 (890) 583 (2,367)
(Decrease)
in cash and
cash
equivalents
Cash and 701 3,037 456 4,514
cash
equivalents
- - Beginning
of period
Cash and 1,039 2,147
cash
equivalents
- - End of
period 1,039 2,147
Notes to Consolidated Financial Statements
1. Nature of Operations and Going Concern
The Company is engaged in the exploration for and development of
mineral resources. The properties of the Company are without a known
body of commercial ore, the exploration programs undertaken and
proposed constitute an exploratory search, and there is no assurance
that the Company will be successful in its search. The Company has
not earned any revenue to date from its current operations and is
therefore considered to be in the development stage. The business of
exploring for minerals and mining involves a high degree of risk, and
few properties that are explored are ultimately developed into
producing mines. Significant expenses may be required to establish
ore reserves, to develop recovery processes, and to construct mining
and processing facilities at a particular site. It is not possible to
ensure that the current exploration programs planned by the Company
will result in a profitable commercial mining operation.
Although the Company has taken steps to verify title to mineral
properties in which it has an interest, in accordance with industry
standards for the current stage of exploration of such properties,
these procedures do not guarantee the Company's title. Property
title may be subject to prior agreements and non-compliance with
regulatory requirements.
The Company is actively exploring and maintaining its current mineral
property portfolio in Brazil. It expects to selectively explore and
develop the portfolio itself, through joint venture or other
arrangements. The scheduling and scale of such future activities
will depend on results and market conditions. Repatriation of
earnings and capital from Brazil is subject to compliance with
registration requirements.
These financial statements have been prepared using Canadian
generally accepted accounting principles applicable to a going
concern, which contemplates the realization of assets and settlement
of liabilities in the normal course of business as the come due. For
the six months ended June 30, 2008, the Company reported a loss of
$3,393,000 and an accumulated deficit of $74,229,000 at that date. In
addition to its ongoing working capital requirements, the Company
must secure sufficient funding for existing commitments as well as
ongoing mineral property exploration. These circumstances lend
substantial doubt as to the ability of the Company to meet its
obligations as they come due and, accordingly, the appropriateness of
the use of accounting principles applicable to a going concern.
In recognition of these circumstances, the Company has secured
funding in the amount of $2,484,000 net of share issue costs at June
30, 2008. This funding, while substantial, is not sufficient to
enable the Company to fund all aspects of its operations and,
accordingly, management is pursuing other financing alternatives to
fund the Company's operations so it can continue as a going concern.
Management expects that the Company will be able to secure the
necessary financing through a combination of new equity issue or debt
instruments and the entering into joint venture arrangements.
Nevertheless, there is no assurance that these initiatives will be
successful.
The Company's ability to continue as a going concern is dependent
upon its ability to fund its ongoing operating costs and exploration
and development of mineral properties, attain profitable mining
operations, or receive proceeds from the disposition of its mineral
property interests. These financial statements do not reflect the
adjustments to the carrying values of assets and liabilities and the
reported expenses and balance sheet classifications that would be
necessary were the going concern assumption inappropriate, and these
adjustments could be material.
2. Significant accounting policies
These interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles,
and they follow the same accounting policies and methods of
application as the most recent annual financial statements.
Consequently, these statements should be read in conjunction with the
audited annual consolidated financial statements for the year ended
December 31, 2007.
3. Investments
June 30, 2008
Number of Shares Amount % Holding
Hidefield Gold plc 7,625,000 $ 464 2.75%
June 30, 2007
Number of Shares Carrying value Fair value % Holding
Hidefield Gold
plc 14,625,000 $ 634 $ 1,766 5.31%
a) During the six month period ended June 30, 2008, the Company
recognized an unrealized loss of $487,000 (2007 - $Nil) on marketable
securities designated as available-for-sale in other comprehensive
income.
b) On February 8, 2008, the Company sold 2,000,000 Hidefield
Gold plc ("Hidefield") shares at a price of 4.75 pence (market value
- - 4.20 pence) per share for a total of $185,000 to Hamilton Capital
Partners Limited (note 9(d)) and recorded a gain of $98,000 on the
sale.
c) On January 25, 2008, the Company's 7,125,000 Hidefield
options expired and the $19,000 unrealized fair value of the
Hidefield options was written down. During the year ended December
31, 2005, the Company sold 12,125,000 Hidefield units to related
parties. Each Hidefield unit was sold for 4.5 pence and was comprised
of one ordinary common share of Hidefield and an option granted to
acquire one additional ordinary share of Hidefield from the Company's
remaining shareholding at 6 pence per share ("the Hidefield
options").
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