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BRC in financial meltdown Posted: Wed, 01 Apr 2009 [miningmx.com] -- BRC DiamondCore turned in a dismal set of annual results, reflecting the dire state of the diamond market. It told investors it has lost a court case against its aggrieved former empowerment partner Sefalana, but that it would appeal the decision. BRC’s current liabilities of C$13.9m for the year to end-December 2008 dwarf its current assets of C$882,216, of which the cash component is just shy of C$200,000. Those current liabilities are payable in calendar 2009. Included in the current debt is a C$6.172m loan from a Canadian financial institution guaranteed by BRC’s 14% shareholder Banro, a gold exploration group with assets in the DRC. BRC has breached an agreement with Banro that it repay the loan in July 2008.adverse conditions may cast substantial doubt
BRC said it would repay the loan as soon as possible. The most likely
reason for Banro taking a lenient approach to BRC’s default is that Simon Village, BRC chairman, Arnold Kondrat, a BRC director, are also directors and senior officers of Banro. BRC corporate secretary and director Geoffrey Farr is Banro’s secretary.
BRC posted a net loss of C$103m against a loss a year earlier of C$1.8m. It notched up impairments of mineral properties, primarily those in South Africa, deferred exploration expenditure and capital assets of C$43m. It impaired goodwill by nearly C$55m.
Year-on-year comparisons of the results is skewed by the incorporation of the South African alluvial and kimberlite projects for the first time after the all-share takeover of JSE-listed Diamond Core by Canada’s BRC Diamond Corporation during 2008.
BRC spent C$734,000 of its cash during the year and had a working capital deficit of C$13m.
Unsurprisingly, BRC told investors that it would need to “access debt and equity markets for financing over the
next 12 months.”
Comfortingly, it told shareholders, who have witnessed their stock steadily dwindle to just C$0.07/share from C$6.75 in January 2008, that it will be able to satisfy it current and long-term obligations.
It didn’t make entirely clear how it would do this. It has ceased bulk sampling work at projects in South Africa, which generated revenue, but the precipitous downturn in diamond prices from late last year rendered such work economically unviable.
“While the financial statements have been prepared on the basis of accounting principles applicable to a going concern, adverse conditions may cast substantial doubt upon the validity of this assumption,” it said.
“Management is exploring all available options to secure additional funding, including equity and debt financing, sale of non-core assets and strategic partnerships,” it said. “Given the current economic downturn and outlook, there is no certainty that management will be
successful in securing additional funding.”
MIRANDA A SUITOR?
The one name that has come up as a possible buyer of its South African assets, particularly the alluvial Silverstreams mine, is diversified minerals group Miranda Minerals.
Miranda, a JSE-listed junior that recently started coal production, has clear diamond ambitions and its CEO Ron Nel has told Miningmx the group was looking to build critical mass in its diamond assets, but he would not confirm nor deny any interest in BRC’s South African projects.
BRC has cut its full-time staff to 10 from 224, the bulk of the layoffs being in South Africa.
The issue of its disgruntled empowerment partner Sefalana has reared its head again.
Sefalana was to take up a 50% stake in BRC’s wholly owned subsidiary Samadi, which housed the Silverstreams alluvial project where bulk sampling was conducted, as well as smaller South African prospects.
BRC
said Sefalana did not meet some of the five conditions precedent. It recovered and cancelled the shares issued to Sefalana, replacing that group with another empowerment group called Leswika Resources, which now owns 15% of Samadi.
On 27 March, the Johannesburg High Court turned down a June 2008 application by Samadi that the Sefalana agreement is made void. Samadi intends filing an appeal shortly, BRC said.
Another interesting development is that BRC’s old-order mining right for its Paardeberg East kimberlite project expires at the end of April.
It will need to have concluded an empowerment transaction in relation to the project by the time it submits its application to convert it to a new-order right at the end of this month, as well as include social and labour plans. BRC did not give an indication if it would meet this requirement.
There is a lot of talk in the market that BRC has made an important kimberlite discovery in the Tshikapa
district of the DRC, important enough to warrant overtures to Rio Tinto and Gem Diamonds to assist in exploration work, according the rumour.
“If and when we’ve compiled sufficient geological data we will release it. We are not hiding anything,” said BRC spokesman Martin Jones when asked about the rumour in mid-March.
BRC management said in its annual information form it had not defined a resource so far that warranted a resource and reserve estimate. It needs money to complete a 9-12 month drilling programme over a number of targets.
The rumour is based somewhat on respected geologist and now BRC CEO Mike de Wit’s conviction that the source of the rich alluvial deposits in southwest DRC is a kimberlite in that country and not Angola as many have surmised.
“Since BRC believes, based on robust geological evidence, the primary sources are present in the Tshikapa area, the company’s strategy is to focus on the discovery of kimberlites,” it
said.
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