RNS
Bluerock Diamonds PLC

BlueRock DiamondsPLC - Half-year Report

RNS Number : 4768A
BlueRock Diamonds PLC
29 September 2020
 

BlueRock Diamonds PLC / AIM: BRD / Sector: Natural Resources

29 September 2020

BlueRock Diamonds Plc ("Bluerock" or the "Company")

Interim Results

                                                                                                                                                                                             

BlueRock Diamonds, the AIM listed diamond mining company, which owns and operates the Kareevlei Diamond Mine ('Kareevlei') in the Kimberley region of South Africa, is pleased to announce its interim results for the six months ended 30 June 2020.

 

Overview

·    Undertook rapid response to Covid-19 pandemic with positive outcomes at Kareevlei

·    Reopened the mine as soon as was permitted in South Africa, after only 50 days of Care and Maintenance measures

·    Continued expansion plans at Kareevlei, combining KV1 and KV2 to mine more efficiently, increased plant size by 20% to handle one million tonnes per annum and advanced work to upgrade the resource

·    Strengthened balance sheet with two over-subscribed placings during and post period end to substantially increase annual production

·    Established relationship with Bonas Group in Antwerp to sell Kareevlei diamonds on a "mine to market basis" at potentially stronger pricing over the long term

·    Formed partnership with Delgatto Diamond Finance LLP to finance sales and increase flexibility on timings of diamond sales

·    Quality of diamonds enables BlueRock to sell into niche markets - sold two parcels of diamonds for USD700,000 and USD1,255,000 during and post period end respectively

·    Anticipate increasing incidence of higher value diamonds - post period end, sold one diamond for USD104,000 and recovered a second estimated at c.USD75,000

 

Chairman's Statement

Notwithstanding the unprecedented circumstances faced by the Company, a lot was achieved in the first half of 2020 and we are now well positioned to expand our operations as planned and to operate profitably again from H2 2020.  When the onset of Covid-19 resulted in the closure of the mine in March 2020, we quickly revised our plans and implemented a 'reset and rebuild' strategy focused on minimising costs and further increasing production from our original expansion plans developed in January 2020.  As part of this, we developed a new sales channel, which should enable us to achieve higher prices per carat, and a bridging financing facility to provide flexibility over the timing of our sales. 

 

Nevertheless, Covid-19 had a material impact on our business in H1 2020, leading to significant cash outflows and losses in the period.  The fundraising in July 2020 has restored our financial position and we are now busy on our enlarged expansion plans and expect to be commissioning the new plant in late 2020 with a build up to operating at a run rate of  one million tonnes per annum.

 

Covid -19 Update

As soon as we were permitted, after six weeks on care and maintenance, the mine was reopened, and our expansion plans resumed.   New processes were put in place to ensure the health and safety of our workforce and the local community.  The mine went through a process of reviewing and implementing policies and procedures in line with the Department of Minerals and Energy ('DMRE') and Department of Health ('DOH') of South Africa to ensure we mitigate the risk of the Covid-19 pandemic and take precautional and preventive measures to protect our workforce.

These measures include screening and testing of all employees, daily shift thermal screening, sanitation measures, appropriate social distancing, compulsory wearing of face masks, training and counselling and the provision of personal protective equipment. To date, seven employees have tested positive for Covid-19 and all have recovered; the Company will continue with the strict measures and controls while the risk from Covid-19 remains.

 

Expansion Plans

By March 2020, we had started preparation for the expansion plans that we announced in February 2020; the second production line was on site and engineering preparation was advancing in order to establish the new line and move the existing line to its new site alongside the second line.  As mentioned, when Covid-19 hit, the plant was put into care and maintenance and our expansion plans were halted due to the resultant uncertainty, particularly in relation to our ability to sell our production as tender houses were unable to function.

 

During this time, management took the opportunity to revisit the Processing Plant Design and agreed that at a limited capital cost the volumes could be increased materially from the planned 750,000 to one million tonnes per annum, and the proposed changes would further de-risk the crushing aspect of the circuit.   

 

A key issue to running at this planned higher tonnage, was to ensure that the mining operations had greater flexibility.  Accordingly, as part of longer term mine planning it was agreed to combine KV1 and KV2 to create the 'KV Main Pit'.  This process continued throughout H1 2020 and has now been largely completed.  We are now able to mine the combined pit much more efficiently from a capacity perspective and grades have returned to expected levels. We estimate that the strip ratio for KV Main Pit will be 1.8/1 down to a depth of 120m.   

 

The cost consequences in H1 2020 of creating KV Main Pit were two-fold.  Firstly, the need to mine and process lower grade and non-pure kimberlite from near surface as part of establishing the longer-term pit design; pleasingly now that we are back processing pure kimberlite from the 30m/40m level, grades have recovered to well above 4 cpht and in August 2020 we achieved an average grade of 5.1 cpht.  Secondly, there was an above life of mine stripping ratio in H1 2020 (2.1/1); whilst these costs were not capitalised, they are an investment in the future of the mine.

 

Another deliverable within Phase 2 of the expansion plan is develop a combined national grid / generator mix of power versus the current 100% expensive generator operation; these changes are expected to be completed in the period to January to April 2021.

 

Resource Upgrade Work

Mining to date has shown that the KV1 footprint is approximately 25% larger than included in the current resource estimate and we now estimate that KV Main Pit has an estimated economic depth of c.120m although the current resource statement is based on 65m KV1 and 100m KV2. 

 

As part of ensuring compliance to the JORC code and requirements by the competent person, a decision was made to perform some limited additional drilling work in KV Main Pit to delineate the down dip and depth extent.   The drilling was delayed due to complications arising from Covid-19 but has now been commissioned and we expect to have an updated resource statement by the end of Q4 2020. In addition, there is a potential increase in the resource in KV3 where currently only 40% of the surface area is in the current resource statement.  We plan to do further work to establish the resource in KV3 during 2021.

 

Sales & Marketing

During the lockdown, we sought to mitigate the various uncertainties created by Covid-19 by establishing a new marketing channel through a partnership with Bonas Group in Antwerp, which is anticipated to provide stronger pricing once specific "Blue Rock tenders" are fully operational .  We also formed a partnership  with Delgatto Diamond Finance LLP to provide the working capital to allow flexibility in deciding when to sell given sales in Antwerp will initially take place only every two or three months in order to sell parcels of 5,000 carats or more.

 

We are still awaiting permission to export, which has been delayed by the impact that Covid-19 has had on the administration of such approvals; we are awaiting the final approval and will commence exports when the time is right.   In the meantime, we have developed a further sales channel in South Africa using one of the local tender houses, which is offering our diamonds as a complete parcel and selling into niche markets.  Through this channel, we have made two sales during and post period end at average prices of USD290 per carat and USD330 per carat respectively.  Whilst these prices, as would be expected, are below those we were achieving last year, they were considered competitive in the prevailing market environment and enabled us to operate on a cash flow positive basis.

 

Production

A summary of production for H1 2020 is shown below:

 

 

H1 2020

H1 2019

Inc/Dec

Tonnes processed (000)

165

120

37%

Grade cpht

3

4.2

-26%

Carats produced

4,981

4,938

1%

 

 

 

 

 

 

 

 

 

 

 

 

Despite being closed for approximately 50 days as a result of Covid-19, production increased by 37% to 165,000 tonnes compared with H1 2019.  In addition, the first quarter was badly affected by the heaviest rains in a decade.  Our management of the plant during the rainy season was a marked improvement over previous years and we expect this to improve further when the plant is moved as the design will handle difficult weather conditions much better.

 

As previously mentioned, now that we have recommenced mining in the lower levels, the grade has improved and has averaged 4.4 cpht since the beginning of July 2020.  Carats produced did not increase over H1 2019 as the increased production was offset by the reduction in grade.

 

Costs

Our two internal measures of costs are per tonne and per carat.  The cost per tonne measure is important as it focuses on production efficiency.  Cost per carat is an indication of how profitable we are but is highly influenced by the grade.  Our published target total South African cost per carat by the end of 2020 is USD220 per carat (excluding intercompany charges).  We are already well on our way to achieving this and expect run rate costs to be lower than this by the end of the year.

 

Financials

In the first half of 2020, the Company made an operating loss of £1,498,000 on turnover of £1,292,000, compared with a loss of £471,000 on turnover of £1,366,000 in the first half of 2019.

 

The increase in operating loss was caused by three main factors: a) the impact of Covid-19 on production and prices; b) the cost of creating KV Main Pit; and c) the impact of the heavy rainfall in the first three months of the year.

 

The impact of Covid-19 was significant as it stopped production for 50 days and has had and continues to have an ongoing impact on prices.  It is difficult to be exact about the financial impact that this has had but we estimate that the revenue impact to date is approximately £700,000 to £800,000.

 

The major cost involved in the development of KV Main Pit has been the lower grade arising from the necessity of mining nearer surface material.  The increased dilution reduced the grade by c.1.2 cpht compared with the average grade for 2019.  Based on the volume that was processed in the first half of 2020 of 165,000 tonnes, this has led to a direct reduction of c.2,000 carats.  This has had a direct impact on revenue and an equal impact on profit of c.£600,000.

 

Cash and near cash on 30 June 2020 was £500,000, excluding restricted cash, and as at the date of this report is £2,100,000.  This includes committed funds of £235,000 due from Teichmann from its subscription in July 2020, and approximately 2,860 carats in stock at an estimated value of $330 per carat.

 

The Group is expected to be operating cashflow positive and profitable in the second half of 2020.

 

Financing

In February 2020, the Company raised £1.9 million before expenses to increase production from an annual run rate of around 400,000 tonnes per annum to c.750,000 tonnes per annum.  The funds were to be used to acquire additional plant and to fund the engineering works required to establish a two-line plant in a new safer location distant from KV Main Pit.

 

In July 2020, the Company raised a further £1.25 million before expenses.  This fundraising was largely required to cover the costs of Covid-19.  In addition, however, the decision had been taken to increase the run-rate to around one million tonnes per annum, an increase of c.250,000 tonnes compared with the original plans developed in January 2020.

 

At the same time as the July 2020 fundraising, the Convertible Loan Note holders granted the Company the option to extend the term of half of the face value of the convertible loan note of £925,000 by one year from its existing maturity date of October 2021.  Following the fundraising in July 2020, the Convertible Loan Note became convertible into 555,721 shares at a price of 166p.

 

Guidance

Our guidance was suspended in March 2020 as a result of Covid-19.  We are reinstating guidance although this is subject to any significant worsening in the Covid-19 environment.  Set out below is a table, with guidance for the second half of the year and for 2021:

 

2020

 

 

6m to June*

6m to Dec

Total

2021

Volume ('000 tonnes)

164

220 to 280

384 to 444

850 to 1,000

Grade (cpht)

3.04

4.00 to 4.60

3.60 to 4.02

4.0 to 4.6

Carats

5,013

8,800 to 12,900

13,800 to 18,000

34,000 to 46,000

Value per carat US$

306

330

300 to 350

330

 

The guidance is based on assumptions that during balance of 2020 and 2021, operations will not be affected by closures outside of what would be deemed normal mining shutdowns. We have given a wide guidance for 2021 as number of variables from commissioning and ramp up of new plant /weather conditions in Q1 and impact of Covid 19 on operations and market. The conservative value per carat at $330 (2019 $420) assumes that the market will remain under pressure through much of 2021, although we would look to achieve higher prices particular in second half of the year.

 

 

Outlook

Our core objective is focused on increasing production in sensible steps to the one million tonnes per annum target while reducing costs through the economies of scale and changes to the power structure.  To this end, having acted quickly at the onset of Covid-19 to implement a robust 'reset and rebuild' strategy, we believe that we are in a much stronger position to navigate the 'New Norm' in our operations and in the  market and build significant value for BlueRock shareholders. 

 

 

Mike Houston

Chairman

 

Market Abuse Regulation (MAR) Disclosure - Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

 

**ENDS**

 

For further information, please visit BRD's website www.bluerockdiamonds.co.uk or contact:

 

BlueRock Diamonds PLC

Mike Houston

David Facey, FD

 

mhouston@bluerockdiamonds.co.uk

dfacey@bluerockdiamonds.co.uk

SP Angel (NOMAD and Broker)

Stuart Gledhill / Caroline Rowe

 

Tel: +44 (0)20 3470 0470

St Brides Partners Ltd (Financial PR)

Isabel de Salis / Cosima Akerman

 

Tel: +44 (0)20 7236 1177

 

Notes to editors:

BlueRock Diamonds is an AIM-listed diamond producer which operates the Kareevlei Diamond Mine near Kimberley in South Africa which produces diamonds of exceptional quality and ranks in the top ten in the world in terms of average value per carat. The Kareevlei licence area covers 3,000 hectares and hosts five known diamondiferous kimberlite pipes. As at November 2018, it was estimated that the remaining Inferred Mineral Resource from the four kimberlite pipes (KV1, KV2, KV3 and KV5) represents a potential inground number of carats of 367,000.

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2020

Consolidated Statement of Financial Position

 

Note

As at

30 June

2020

Unaudited

£

As at

30 June

2019

Unaudited

£

As at

31 December 2019

Audited

£

Assets

 

 

 

 

Non-current assets

 

 

 

 

Property, plant, and equipment

5

1,136,229

516,525

778,920

Right-of-use assets

5

479,522

208,376

455,381

Mining assets

5

391,352

390,096

406,068

Other receivables

7

301,344

215,943

344,442

 

 

2,308,447

1,330,940

1,984,811

Current assets

 

 

 

 

Inventories

6

453,108

340,757

837,347

Trade and other receivables

7

186,031

197,086

56,703

Cash and cash equivalents (including restricted cash)

8

728,909

1,069,796

389,849

 

 

1,368,048

1,607,639

1,283,899

 

 

 

 

 

Total assets

 

3,676,495

2,938,579

3,268,710

Equity and liabilities

 

 

 

 

Equity Attributable to Equity Holders of the Parent

 

 

 

 

Share capital

10

262,900

162,900

162,900

Share premium

10

5,747,980

4,147,980

4,147,980

Retained losses

 

(7,177,235)

(4,838,886)

(5,120,207)

Other reserves

 

3,691,010

2,948,198

3,118,484

 

 

2,524,655

2,420,192

2,309,157

 

 

 

 

 

Non-controlling interest

 

(1,902,883)

(1,791,670)

(1,764,910)

 

 

621,772

628,522

544,247

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

11

634,869

725,098

880,584

Borrowings

12

171,507

51,601

156,698

Lease liabilities

12

7,872

21,502

13,195

 

 

 

 

 

Non-current liabilities

 

 

 

 

Embedded derivative

12

20,085

10,312

10,359

Borrowings

12

1,432,282

1,001,067

906,130

Lease liabilities

12

504,521

193,981

454,508

Provisions

13

283,587

306,496

302,989

Total liabilities

 

3,054,723

2,310,057

2,724,463

 

 

 

 

 

Total equity and liabilities

 

3,676,495

2,938,579

3,268,710

 

 

 

 

 

 

 

 

Consolidated Statement of Comprehensive Income

                                                                                                                                                                                                     

 

 

Note

6 months ended

30 June

2020

Unaudited

£

6 months ended

30 June

2019

Unaudited

£

12 months ended 31 December 2019

Audited

£

 

 

 

 

 

 

 

 

 

 

Revenue

 

1,292,056

1,366,163

4,073,853

Other income

 

641

93

911

Operating expenses

 

(2,790,880)

(1,837,502)

(4,546,931)

 

 

 

 

 

Operating loss

 

(1,498,183)

(471,246)

(472,167)

Finance income

 

13,086

7,201

25,460

Finance charges

 

(135,321)

(93,336)

(192,350)

Change in fair value of financial instruments designated at FVTPL

 

(9,725)

2,151

2,104

Foreign exchange (loss) / gain

3

(1,093,973)

174,203

(47,291)

Loss before taxation

 

(2,724,116)

(381,027)

(684,244)

Taxation

 

-

-

-

Total loss for the period 

 

(2,724,116)

(381,027)

(684,244)

 

 

 

 

 

Total loss for the period, net of tax attributable to:

 

 

 

 

Owners of the parent

 

(2,342,714)

(229,401)

(510,722)

Non-controlling interest

 

(381,402)

(151,626)

(173,522)

 

 

(2,724,116)

(381,027)

(684,244)

 

 

 

 

 

Other Comprehensive Income:

 

 

 

 

Exchange differences on translating foreign operations

 

936,266

(154,840)

32,297

Total comprehensive loss, net of tax

 

(1,787,850)

(535,867)

(651.947)

 

 

 

 

 

Total comprehensive loss, net of tax attributable to:

 

 

 

 

Owners of the parent

 

(1,649,877)

(343,982)

(486,822)

Non-controlling interest

 

(137,973)

(191,885)

(165,125)

 

 

(1,787,850)

(535,867)

(651,947)

 

 

 

 

 

Earnings per share - from continuing activities

 

 

 

 

 Basic and diluted

15

(1.00)

(0.28)

(0.21)

 

 

Consolidated Statement of Changes in Equity  

 

 

Share capital

Share premium

Retained losses

Other reserves

Total attributable to equity holders of the Group

Non-controlling interest

Total equity

 

£

£

£

£

£

£

£

Balance at 1 January 2019:

 

44,352

3,460,309

(4,609,485)

2,330,670

1,225,846

(1,599,785)

(373,939)

Loss for the period

 

-

-

(229,401)

-

(229,401)

(151,626)

(381,027)

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign exchange movements

 

-

-

-

(114,581)

(114,581)

(40,259)

(154,840)

Total comprehensive loss:

 

 -

(229,401)

(114,581)

(343,982) 

(191,885) 

(535,867) 

Transactions with shareholders:

 

 

 

 

 

 

 

 

Issue of share capital

 

118,548

1,450,452

-

-

1,569,000

-

1,569,000

Share issue expenses

 

-

(113,214)

-

-

(113,214)

-

(113,214)

Issue of share options and warrants

 

-

(649,567)

-

732,109

82,542

-

82,542

Total transactions with shareholders:

 

118,548

687,671 

-

732,109

1,538,328

1,538,328

Balance at 30 June 2019 (unaudited):

 

162,900 

4,147,980

(4,838,886) 

2,948,198

2,420,192

(1,791,670) 

628,522

 

 

 

 

 

 

 

 

 

Balance at 1 July 2019:

 

162,900 

4,147,980

(4,838,886) 

2,948,198

2,420,192

(1,791,670) 

628,522

Loss for the period

 

              -  

                -  

(281,321)

            -  

(281,321)

(21,895)

(303,216)

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign exchange movements

 

              -  

                -  

               -  

138,482

138,482

48,655

187,137

Total comprehensive loss:

 

              -  

                -  

(281,321)

138,482

(142,839)

26,760

(116,079)

Transaction with shareholders:

 

 

 

 

 

 

 

 

Issue of share options

 

              -  

-                  

-

31,804

31,804

               -  

31,804

Total transactions with shareholders:

 

-

-

-

31,804

31,804

               -  

31,804

Balance at 31 December 2019

 

162,900

4,147,980

(5,120,207)

3,118,484

2,309,157

(1,764,910)

544,247

 

 

 

 

 

 

 

 

 

Balance at 1 January 2020:

 

162,900

4,147,980

(5,120,207)

3,118,484

2,309,157

(1,764,910)

544,247

Loss for the period

 

-

-

(2,342,714)

            -  

(2,342,714)

(381,402)

(2,724,116)

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign exchange movements

 

-

-

-

692,837

692,837

243,429

936,266

Total comprehensive loss:

 

 -

(2,342,714)

692,837

(1,649,877)

(137,973)

(1,787,850)

Transaction with shareholders:

 

 

 

 

 

 

 

 

Issue of share capital

 

100,000

1,600,000

-

-

1,700,000

-

1,700,000

Issue of share options

 

-

-

-

165,375

165,375

-

165,375

Transfer lapsed share options to retained losses

 

-

-

285,686

(285,686)

-

-

-

Total transactions with shareholders:

 

100,000

1,600,000

285,686

(120,311)

1,865,375

1,865,375

Balance at 30 June 2020 (unaudited)

 

262,900

5,747,980

(7,177,235)

3,691,010

2,524,655

(1,902,883)

621,772

 

 

 

Consolidated Statement of Cash Flows

                                                                                                                                                                                                     

 

 

 

6 months ended

30 June

2020

Unaudited

£

6 months ended

30 June

2019

Unaudited

£

12 months ended          31 December 2019

Audited

£

 

 

 

 

 

Operating activities

 

 

 

 

Cash used in operations

14

(1,104,383)

(359,484)

(362,022)

 

 

 

 

 

Net cash used in operating activities

 

(1,104,383)

(359,484)

(362,022)

 

 

 

 

 

Investing activities

 

 

 

 

Purchase of property, plant and equipment

5

(47,173)

(101,258)

(569,367)

Proceeds on sale of property, plant and equipment

5

10,317

-

-

Movement in rehabilitation guarantee

7

(3,102)

(158,485)

(286,984)

 

 

 

 

 

Net cash used in investing activities

 

(39,958)

(259,743)

(856,351)

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds on share issue

10

1,634,406

1,448,786

1,448,786

Repayments of borrowings

12

(116,088)

(129,142)

(142,262)

Repayments of lease liabilities

12

(31,535)

(24,827)

(63,545)

Movement in restricted cash

8

(5,408)

(6,962)

(13,786)

 

 

 

 

 

Net cash received from financing activities