Final Results and Annual Report

Dwyka Resources Limited ('Dwyka' or the 'Company') Final Results and Annual Report Dwyka is pleased to announce its final results and the publication of its annual report for the year ended 30 June 2007. The review of operations and results set out below are extracted from the full annual report which is available from the Company's website: www.dwyresources.com. Copies of the annual report are expected to be sent to shareholders in October 2007. Enquiries: In Australia Mike Langoulant Dwyka Resources Limited (+618) 9324 2955 In the United Kingdom Richard Brown/ Richard Greenfield Ambrian Partners Limited +44 (0) 20 7776 6400 Dear Shareholder This financial year has been a period of significant change for your Company. Given the continued strong global market for resources and commodities, your directors announced on 17 January 2007 their intention to pursue a diversified growth strategy with the aim of broadening the Company's focus, establishing a portfolio of assets across a range of metals and minerals sectors and driving shareholder value. A change in the Company's name to Dwyka Resources Limited reflected this diversified growth strategy. In the subsequent months, the implementation of this strategy has seen the company acquire interests in two exciting new projects - the Muremera nickel project, located in Burundi and owned by Dwyka's wholly-owned subsidiary Danyland Limited ("Danyland") was acquired in February 2007 and the Swazigold project, located in Swaziland, in respect of which the Company has a 45% overall interest as a consequence of its 50% shareholding in Swazi Gold Ventures (Pty) Ltd ("SGV"), the holder of a 90% interest in the project vehicle; the acquisition of which was completed in July 2007. The Muremera nickel project is located within 2 kilometres of the Kabanga project, the world's largest undeveloped nickel sulphide deposit. Located just across the border in Tanzania, Kabanga was discovered in 1976 by the United Nations Development Programme ("UNDP"). Further UNDP surveys in 1978 resulted in the discovery of the prospective Muremera deposits on the Burundi side of the border. The anomalies have similar characteristics and further follow-up work by the UNDP confirmed that massive sulphide bodies, with nickel mineralisation, are the source of the anomalies. Extensive geophysics and geochemical surveys have delineated numerous targets and these are in the process of being drilled by BHP Billiton World Exploration, Inc. ("BHPB") pursuant to an Earn-in and Shareholders Agreement that will see the Company free-carried to the resource concept study phase in consideration of the acquisition by BHPB of an interest of up to 50% in Danyland. The Swazigold project is located in the highly prospective Archaean Barberton Greenstone Belt straddling the border between Swaziland and Mpumalanga province in South Africa. The Company has the right to earn up to a 90% interest in the project by virtue of acquiring up to 100% of the shares in SGV through various cash and share-based payments and by funding project expenditure. Historical work on the Swazigold project (carried out predominantly by Rio Tinto and JCI) includes geochemistry, geological mapping and 13,600 metres of drilling. The Company considers that four prospects have "step up and drill potential" and intends to pursue these targets over the coming months. Over the past two years, the Company has established a strong portfolio of producing diamond assets, notably the SMI4 tailings re-treatment project and the Blaauwbosch and Newlands underground kimberlite mines. These are supplemented by a number of prospective exploration projects in Southern Africa, as well as the Kimberley-based bricks and cement businesses. However, the lack of organic growth opportunities and the preponderance of small diamond explorers and producers listed on the AIM exchange (with whom Dwyka has to compete for capital) have caused the Company to re-think, as part of its new corporate strategy, the optimum means of developing and maximising value from those assets. Consistent with this strategy and as announced on 21 August 2007, the Company recently entered into a transaction with AIM-listed KimCor Diamonds Plc ("KimCor"), whereby the diamond and industrial assets of the Company will effectively be merged with those of KimCor, with Dwyka being the major shareholder in the enlarged vehicle. The consolidation of the Company's assets with those of KimCor will create a mid-tier (by volume) diamond producer and is expected to give rise to a number of benefits, including greater access to capital, operational synergies with KimCor's existing South African projects and the formation of a focussed management team to aggressively progress the development of the enlarged entity's assets. Through Dwyka's majority shareholding in KimCor, Dwyka shareholders will retain exposure to the upside from the enlarged suite of assets whilst enabling the Company itself to focus on the development of its new nickel and gold projects. Over the coming 12 months, the Company will continue to implement its new, diversified corporate strategy by aggressively pursuing the already exciting Muremera and Swazigold opportunities and, if appropriate, looking to acquire strategic assets that complement its existing project portfolio. I thank you for your continued support of the Company and look forward to an exciting new chapter in its development. Ed Nealon Chairman 28 September 2007 Operating Results Introduction Dwyka Resources Limited ("Dwyka" or the "Company") (formerly Dwyka Diamonds Limited), changed its name in March 2007, having shifted its focus from diamonds to the diversified minerals sector to achieve maximum value for shareholders during the current resource boom. The Company's strategy is a direct response to the seemingly insatiable world demand for commodities of all types, driven in large part by the urbanisation of China and its expanding consumer classes. To that end, Dwyka has diversified into exploration for nickel and gold, in Burundi and Swaziland respectively. Furthermore, subsequent to year end the company announced that it had signed an agreement with KimCor Diamonds Plc ("KimCor") to consolidate Dwyka's diamond and industrial assets with KimCor's existing diamond assets, creating a more robust, growth orientated entity to allow Dwyka's shareholders to retain exposure to upside from larger suite of diamond assets through Dwyka's controlling shareholding in KimCor. Dwyka has a strong and well-respected senior management team committed to adding value for the Company's shareholders. Dwyka's directors have proven exploration, mining, development and marketing expertise, as well as extensive public company experience. Swazi Gold Project - 50% (earning up to 90%) In March 2007, Dwyka signed a memorandum of understanding ('MoU') with South African-listed Swazi Gold Ventures (Pty) Ltd ('SGV'), thereby securing the rights to a 90% interest in Swaziland Gold (Pty) Ltd ('SwaziGold'), which in turn owns the Swazigold Project in Swaziland, Africa. This MoU was converted into an agreement which was completed in July 2007. The project is a large (435 square kilometre) gold exploration play in the highly prospective Archaean Barberton Greenstone Belt in Swaziland, historically a producer of 11.5 million ounces of gold. Potential Greenstone belts of Archaean age are known to host goldfields in most of the ancient cratonic blocks that form the nucleus of the continents. When the ancient lavas extruded onto the earliest formed continental crust, major gold deposits were formed. This is the case not only in southern Africa but also in Canada and Australia, where the giant Kalgoorlie goldfield is particularly renowned. Such belts are also prospective for nickel. In the Barberton Greenstone Belt, extensive, shallow, historic workings, plus a lack of modern exploration, have presented Dwyka with an ideal opportunity. Previous owners drilled some 13,500 metres of the Project area, providing the Company with a drill database that includes numerous gold intersections. These have allowed Dwyka to establish immediate targets for both infill drilling and the development of extensions to established zones of mineralisation. In this environment, it is believed that Dwyka's gold exploration activities will accelerate. From an initial review of the geology, the Company believes the Project has the potential for proving more than 2 million ounces of high-grade gold mineralisation. Already, numerous targets ranging from advanced drilling projects to promising geochemical anomalies have been identified along a 40-kilometre strike length. Advantages Advantages of the Project include the following. * Substantial geological database already in existence. * Some 13,600 metres of drill data (valued at more than US$2 million) available. * Good field access and local infrastructure. * Local management/geological/technical team already in place. * Located in the Rand Common Monetary Area, just 3 hours' drive from Johannesburg. An agreement based on the MoU was completed in July 2007. At that time Dwyka paid $US200,000 plus shares to the value of $1.5 million to earn an initial 50% interest in the SGV. To earn 70%, the Company must commit $US750,000 to the project by June 2008 and pay a further $US200,000 plus another $US1 million worth of shares. To acquire an 85% or 90% stake, Dwyka needs to commit more funds, issue additional shares and reach bankable feasibility stage. Burundi Nickel Project - 100% (BHP World Exploration Inc earning up to 50%) In January 2007 Dwyka acquired the Muremera nickel project in Burundi, Africa by way of the issue of Dwyka Resources shares. Further share consideration may be payable depending upon future exploration hurdles. The Company controls the Muremera Project through its wholly owned subsidiary, Danyland Limited, which holds the exploration rights for nickel and associated minerals in the project area. Potential Muremera is located within one of the world's principal nickel provinces, only 2 kilometres from, almost adjacent to and in the same geological sequence as, the giant Kabanga deposit in Tanzania. The Kabanga project, which is controlled by Xstrata/Barrick, is thought to be the world's largest undeveloped nickel sulphide deposit. As at December 2006, the Kabanga resource was as follows. Ni Cu Co Au Pt Pd Ag Category Tonnes (%) (%) (%) (g/t) (g/t) (g/t) (g/t) Indicated 9,700,000 2.37 0.32 0.19 0.04 0.07 0.09 1.04 Inferred 36,300,000 2.8 0.4 0.2 0.1 0.3 0.3 1.5 Ni = nickel; Cu = copper; Co = cobalt; Au = gold; Pt = platinum; Pd = palladium; Ag = silver; g/t = grams per tonne Geophysical anomalies at Muremera are similar to those at Kabanga, with sulphides identified within target zones and nickel identified in the sulphide occurrences. Mining permits have been granted and access for exploration activities is good. Partner The project's prospectivity has led to a commitment from BHP World Exploration Inc ('BHP') to spend US$5.2 million (A$6.5 million) on the project, to earn up to a 50% interest in Dwyka subsidiary Danyland. Danyland's agreement with BHP allows Danyland to fast-track its exploration program. Further, the partnership provides Dwyka with access to BHP's technical and other expertise. Under the terms of BHP's agreement with Danyland, BHP's investment at Muremera will occur in three stages. * Stage 1 - the commitment of $US1.2 million to initial exploration to earn 10% equity in Danyland. * Stage 2 - investment of $US2 million on target testing to earn a further 20% equity. * Stage 3 - the investment of a further $US2 million on resource definition and completion of a concept study to take BHP's aggregate interest to 50%. BHP can withdraw from the project during or after the completion of any of the stages with no further commitment. However, in doing so it would retain only the equity earned from completion of the previous stage. Once BHP fully satisfies its earn-in obligations, Danyland and BHP will contribute to further development of Muremera in proportion to their percentage shareholdings in Danyland. South African Diamond and Industrial Operations - 70% (Kolong Investments Limited (BEE partner) 30%) In October 2006 the BEE restructure of Dwyka's South African operations was completed. As a result Dwyka now owns 70% of all the South African operations which are now fully BEE-compliant, with the result that Dwyka: * can proceed to conversion of all "old order" mining rights to "new order" rights as contemplated under applicable South African legislation; * can maximise development of its existing projects and operations; * is now placed in a strong position to secure further opportunities in South Africa; and * will, as regards its Industrial Products division, be viewed as a "preferred" supplier to South African mining companies and in relation to tendering and procurement with government. This re-structure bringing all of Dwyka's South African operations within the BEE compliance provides future certainty for all Dwyka's South African operations and will provide the Board with the confidence to pursue longer term commitment of capital to generate the maximum return from both existing assets and potential acquisitions. De Beers Tailings Re-treatment Project The De Beers tailings re-treatment project was constructed adjacent to tailings dumps located on the eastern outskirts of Kimberley. The plant is a state-of-the-art dense media separation plant capable of exceeding the original design capacity of 50,000 tonnes per month. During this financial year the Company increased its interest in this project from 40% to 70%. The contractual arrangement with De Beers Consolidated Mines Limited ("De Beers"), the owners of the tailings, was initially based on toll treating up to 50,000 tonnes per month. Under the terms of the agreement Superkolong (Pty) Ltd, Dwyka's BEE operating subsidiary, was paid a fee per tonne processed. Superkolong was to also receive a share of diamond revenue based on recovered grade. Commissioning of the plant commenced in April 2006, however it was not until April 2007 that the plant first exceeded design capacity. During that commissioning period, the revenue received from the toll treating was insufficient to cover the cost of commissioning. Subsequent capital modifications were required to achieve nameplate capacity. Feed grades to the plant were lower than anticipated and the operation suffered significant down time due to erratic water supply, and lack of feed on some occasions. However, after 12 months of operation the plant proved its ability to exceed design capacity on a regular basis. During the reporting period the financial performance from this project was significantly affected by the low grade of material being processed. Initial feed grades were erratic with the average grade recovered being significantly lower than the anticipated grade (as supplied by De Beers) upon which project implementation had been based. The best safeguard against low and erratic grade for such an operation is increased throughput, a parameter which was originally contractually restricted and a structural change in the contract with De Beers was required. As an interim measure De Beers provided the opportunity for Superkolong to amend the terms of the toll treating agreement. Revised contractual terms were negotiated which resulted in removing the 50,000 tonne per month processing throughput restriction, and providing Superkolong with 100% of the diamond sales revenue. Contractual changes were affected in May 2007. Also during the period De Beers advised of their intention to sell the dumps and invited Superkolong, together with other parties, to submit a tender to purchase them. Notwithstanding the amended financial arrangements and the removal of processing restrictions, at the current grades the plant requires increased capacity to be financially successful. Under such circumstances and there being some uncertainty as to whether the acquisition of the dumps would be successful, production operations were suspended while plans for a plant upgrade to generate increased throughput were commenced. Since the time at which De Beers gave notice of their intention to sell the dumps, Superkolong have been party to the negotiations to purchase the dumps in conjunction with other operators that also have processing agreements with De Beers. These negotiations are continuing. The operation processed 359,000 tonnes of tailings material for the period, recovering 17,300 carats. All diamonds were sold through De Beers. Nooitgedacht Alluvial Mine The Nooitgedacht mine is located on the farm Nooitgedacht some 15 kilometres north west of Kimberley, South Africa. The farm extends for 6 kilometres along the eastern bank of the Vaal River, covering an area of 4,671 hectares. Between the late 1940s and the 1970s, a small portion of the Nooitgedacht property was mined by diggers under a license arrangement with De Beers Consolidated Mines Limited. During this period, historical records note that some 76,000 carats were recovered in total from the property, with the largest stone being the Venter diamond that weighed 511 carats. This is the largest alluvial diamond recovered in South Africa, and the subsequent diamond rush resulted in the recovery of two diamonds greater than 300 carats. A total of 14 diamonds weighing greater than 100 carats each have been recovered from the Nooitgedacht property, including one recovered by the company. Historically Nooitgedacht has been a low-grade, low-cost producer however the diamonds recovered are of high value. During the period conflicting operational priorities and limited management resources led the Company to place the mining operation on care and maintenance in December 2006. Approximately 70,000 tonnes of gravel was processed for the period, recovering 423 carats of diamonds. Mining operations had resulted in substantial stockpiles of clean alluvial cobbles and boulders which were subsequently tested for use as aggregate in concrete. The tests proved positive and a crushing plant was installed to produce a commercial product from the waste material. This strategy has been successful, and the Nooitgedacht site now supplies a large proportion of the crushed aggregate used by the Company's industrial division, for the manufacture of bricks and concrete. The internal supply of this material has a significant cost benefit to the brick and concrete business. Mining operations are expected to re-commence during the 2007/8 financial year. Blaauwbosch Kimberlite Mine The Blaauwbosch mine is located approximately 90 kilometres east of Kimberley in the well known diamond producing area of Boshoff. The Blaauwbosch pipe (3.71 acres at surface) was mined to a depth of about 110 metres producing an estimated 967,000t of ore, yielding some 338,000 carats at an average grade of 34.95 carats per hundred tonne ("cpht"). Operations were ceased in 1967 due to flooding. The planned capital upgrade program, implemented at the time of acquisition of the mine, continued during the year. This programme included deepening the existing haulage shaft to 225 metres, lateral development of levels from 110 metres to 205 metres and development of a separate ventilation and emergency access shaft. Unfortunately significant delays were incurred as a result of statutory constraints relating to the underground operations below the partially refilled open cut. Additional geotechnical studies were undertaken and safeguards implemented to minimise potential risks associated with developing in this area. Mines department approval was obtained to continue operations resulting in the development of new stoping blocks in the upper levels of the workings, installation of an ore pass system, and development of the main haulage level 205 metres below the shaft collar. With access restored to the upper levels it became apparent that the kimberlite in those areas, having been exposed for several years, was deteriorating rapidly and ground conditions were poor. Substantial temporary ground support was required, and the size of new openings was restricted, slowing the rate of production from these areas. Development at lower levels in the mine has exposed much more competent kimberlite material, and ground stability is not anticipated to present any major difficulties as the mining depth increases. As the additional levels are opened for production, it is anticipated that productivity rates will improve significantly. Retreatment of historic tailings also continued on the site. Total production during the year was as follows: Tonnes Carats Grade Underground 34,805 3,438 9.88 Tailings 34,364 1,409 4.10 Diamonds recovered from development at Blaauwbosch have been of good quality with an average price of approximately US$110 per carat. Newlands Kimberlite Mine The Newlands Mine is located 60 kilometres north-west of Kimberley on the Harts River. The project area contains of five kimberlite blows, which occur on two north-east striking fissures. Most of the production for the year came from Blow 2 on which the Company commenced a development program soon after acquisition. The shaft was deepened and new production levels developed. The small area of the blow constrained production and additional complications were encountered with the location of the existing shaft. Although plans had been made to extend the depth of the shaft, the projected extensions intersected the kimberlite pipe being mined. An internal haulage shaft, offset from the main shaft was commenced to extend the workings to the planned depth. The offset was accessed through a short cross-cut with the configuration requiring the installation of a winder underground and the requirement to double handle ore from lower levels. The material handling complexities restricted the haulage capacity from the deeper levels. The capacity constraints placed on haulage from the lower levels of Blow 2 resulted in the examination and development of Blow 3 to provide an additional haulage shaft and to increase the number of faces available for production. The first production from Blow 3 was forthcoming towards the end of the year and results were encouraging, particularly the shape and quality of stones recovered. With the added capacity of an additional haulage shaft, the ability to achieve production targets will be greatly enhanced. Improvement of ore haulage systems, by the development of scraper gullies to feed ore from working faces to ore passes, is being implemented in the Blow 2 workings, to reduce labour costs, improve safety and increase productivity. Tailing from historic production at both Blow 2 and Blow 3 were processed to maintain plant throughput. Newlands production for the year was as follows: Tonnes Carats Grade Blow 2 underground 40,340 5,039 12.49 Blow 2 tailings 15,918 1,136 7.14 Blow 3 underground 574 74 12.93 Blow 3 tailings 3,109 215 6.90 New Elands Kimberlite Mine The New Elands Mine is situated 90 kilometres northeast of Kimberley in the Boshoff district, Free State Province, South Africa. It is approximately 6 kilometres north-north-east of Blaauwbosch. New Elands historically produced some 1.5 million tonnes from fissures and kimberlite blows, yielding at an estimated grade of 34 cpht. During the year the Company commenced dewatering operations but is yet to gain access to, and is yet to examine the historic workings. A small quantity of tailings was processed during the year, utilising contractors with a royalty being paid to the Company. Bosele Exploration Project The Bosele project consists of a 1,100 hectares prospecting permit immediately south of the Dancarl Mining Lease in the Northern Cape Province in South Africa, 80 kilometres north of Kimberley. Dancarl is a prominent producer of diamonds from fissures and small pipes. The area hosts numerous kimberlitic fissures, some of which are diamondiferous. Since April 2004 exploration has focused on newly discovered crater facies volcano clastic rocks which occur in the southern and central parts of the Bosele. The Company conducted a limited amount of field work during the year, focusing its attention on locating the source of diamonds extracted from bulk samples in the previous year. Industrial Division The Company operates an industrial business, based in Kimberley (South Africa) which supplies building products to the local market. During the year the industrial business produced a cashflow of ZAR 24.5 million. Concrete accounted for a little over half of the revenue with bricks and pavers accounting for the remainder. A major contract was awarded to the Company for supply of concrete during the construction of a new prison near Kimberley. Delivery commenced in February 2007 with anticipated delivery of 2,000 cubic metres per month over a duration of 17 months. In total, over 40,000 cubic metres will be delivered at an average price of about ZAR 600 per cubic metre generating total expected revenues of approximately ZAR 24,000,000. Tanzania Exploration Project - 75-95% (De Beers/Thornton 5-25%) The Company acquired the diamondiferous Mahene and Itanana kimberlite pipes in the Nzega District of Tanzania from De Beers in 2005. Thorntree Minerals Limited is assisting with logistical, managerial and government liaison support within Tanzania. Thorntree Minerals has the right to participate in 20% of the company's equity interest in the projects once the decision to progress to feasibility study is taken. Thorntree will be required to fund their share of costs to maintain their equity position. De Beers has the option to acquire a 51 per cent shareholding in Dwyka Tanzania Limited, the company's subsidiary holding the project, by reimbursing the company three times the costs incurred by the company to evaluate the projects. Alternatively, De Beers may elect to remain as a 5 per cent shareholder in Dwyka Tanzania Limited ("Dwyka Tanzania") or convert its shareholding into a 1.5 per cent gross royalty payable on diamond revenues. As part of the agreement Dwyka Tanzania will sell all diamonds recovered in the licence areas to De Beers. During the year the Company continued to study the optimum method for bulk sampling these areas as well as commencing the preparation of plant and equipment required to undertake a bulk sample of the pipes. Approvals are being sought for the mobilisation of the required plant and equipment to Tanzania. Indian Exploration Project Subsequent to the end of the financial year, the company announced that the diversified minerals developer India Resources Limited (ASX:IRL) had exercised its option to acquire the prospective diamond leases held by Dwyka's subsidiary company, AMIL Mining India Private Limited ("AMIL") and is moving to acquire 100% of AMIL. The AMIL leases were previously controlled by Dwyka under an agreement with BHP Billiton. Dwyka will retain a life of tenement 2.5% production royalty. Operating Results The results for the financial year have been impacted by the directors' decisions during the year to raise an impairment charge against a number of the Group's assets. This resulted in an impairment charge of $10.7 million during the year. FOR THE YEAR ENDED 30 JUNE 2007 Notes Consolidated Parent entity 2007 2006 2007 2006 $000 $000 $000 $000 Revenue 4 8,267 7,402 - - Cost of sales 5 (8,659) (5,093) - - Gross profit/(loss) (392) 2,309 - - Other revenue 4 622 1,068 757 906 Administration 5 (6,865) (4,988) (3,110) (2,825) Impairment of assets 5 (24) (3) - (4,400) Impairment of plant and equipment 5 (3,319) - - - Impairment of exploration, evaluation and mining properties 5 (7,380) (2,130) (248) - Finance costs (623) (38) (185) (7) Net loss before income tax benefit (17,981) (3,782) (2,786) (6,326) Income tax benefit 6 1,621 168 20 28 Net loss after income tax benefit (16,360) (3,614) (2,766) (6,298) Net profit attributable to minority interest - 67 - - Net loss attributable to members of Dwyka Resources Limited (16,360) (3,681) (2,766) (6,298) Cents Cents Basic loss per share 7 (17.41) (4.4) Diluted loss per share 7 (17.41) (4.4) AS AT 30 JUNE 2007 Consolidated Parent entity 2007 2006 2007 2006 $000 $000 $000 $000 ASSETS Current assets Cash and cash equivalents 4,265 6,286 3,828 6,051 Trade and other receivables 815 977 16,896 12,737 Inventories 456 484 - - Total current assets 5,536 7,747 20,724 18,788 Non-current assets Receivables - 4,536 102 - Other financial assets 233 103 4,442 103 Property, plant and equipment 5,928 3,597 98 139 Exploration, evaluation and mining properties 6,579 8,709 - - Other 290 308 - - Total non-current assets 13,030 17,253 4,642 242 Total assets 18,566 25,000 25,366 19,030 LIABILITIES Current liabilities Trade and other payables 4,460 1,649 417 257 Borrowings 2,449 76 2,249 - Provisions 212 249 7 5 Total current liabilities 7,121 1,974 2,673 262 Non-current liabilities Borrowings 4,029 2,611 - 2,183 Provisions 221 305 - - Deferred tax liability - 1,601 - - Total non-current liabilities 4,250 4,517 - 2,183 Total liabilities 11,371 6,491 2,673 2,445 Net assets 7,195 18,509 22,693 16,585 EQUITY Contributed equity 65,580 56,693 65,580 56,693 Reserves (1,356) 2,436 1,742 1,754 Accumulated losses (57,029) (40,669) (44,629) (41,863) Parent entity interest 7,195 18,460 22,693 16,584 Minority interest - 49 - - Total equity 7,195 18,509 22,693 16,584 FOR THE YEAR ENDED 30 JUNE 2007 Consolidated Parent entity 2007 2006 2007 2006 $000 $000 $000 $000 Total equity at the beginning of the financial year 18,509 14,569 16,584 15,598 Adjustment on adoption of AASB 132 and AASB 139, net of tax, to: Retained profits - 82 - 82 Reserves - (82) - (82) Restated total equity at beginning of financial year 18,509 14,569 16,584 15,598 Exchange differences on translation of foreign operations (3,205) 288 - - Changes in fair value of available-for sale financial 103 41 103 41 assets, net of tax Net income recognised directly in (3,102) 329 103 41 equity Loss for the year (16,360) (3,614) (2,766) (6,298) Adjustment for prior year losses recouped on minority interest (49) (18) - - Total recognised income and expense for the year (19,511) (3,303) (2,663) (6,257) Transactions with equity holders in their capacity as equity holders Contributions of equity, net of after tax transaction costs 8,887 5,967 8,887 5,967 Share based compensation 514 428 514 428 Cost of increased equity in (575) - - - subsidiary Value of conversion rights of 8% convertible notes, net of tax - 219 - 219 Deferred share consideration on purchase of business units (629) 629 (629) 629 8,197 7,243 8,772 7,243 Total equity at end of the financial year 7,195 18,509 22,693 16,584 Total recognised income and expense for the year is attributable to: Members of Dwyka Resources Limited (19,511) (3,369) (2,663) (6,274) Minority interest - 49 - - (19,511) (3,320) (2,663) (6,274) FOR THE YEAR ENDED 30 JUNE 2007 Notes Consolidated Parent entity 2007 2006 2007 2006 $000 $000 $000 $000 Cash flow from operating activities Receipts from customers (inclusive of goods and services tax) 8,534 7,253 134 202 Payments to suppliers and employees (inclusive of goods and services tax) (13,535) (8,680) (2,671) (2,562) Interest received 196 373 161 276 Other income received 217 396 - - Finance costs (438) (7) - - Net cash flow used in 8 operating activities (5,026) (665) (2,376) (2,084) Cash flow from investing activities Payments for exploration, evaluation and development of mining properties (760) (3,405) (248) - Payments for purchase of unrelated investments - (375) - (375) Payments for plant and equipment (1,457) (1,471) (2) (41) Proceeds from sale of plant and equipment 59 223 - - Proceeds from sale of controlled entity 188 - 188 - Loans to controlled entities - - (4,469) (5,086) Loans to other parties (614) (3,220) - - Loans to other parties repaid 1 250 1 250 Payment for acquisition of business unit, net of cash acquired - (1,021) - - Business unit acquisition - 123 cash acquired - - - Payment for acquisition of increased subsidiary interest (575) - - - Proceeds from the sale of unrelated investments 17 372 17 372 Rehabilitation security bond - (8) - - Net cash flow used in investing activities (3,018) (8,655) (4,513) (4,880) Cash flow from financing activities Proceeds from issue of shares 5,000 3,204 5,000 3,204 Payments for equity issue costs (300) (107) (300) (107) Proceeds from borrowings 858 2,489 - 2,489 Repayment of borrowings (174) - - - Net cash flow from financing activities 5,384 5,586 4,700 5,586 Net decrease in cash held (2,660) (3,734) (2,189) (1,378) Cash at the beginning of the financial year 6,286 9,582 6,051 7,270 Effects of exchange rate changes on cash and cash equivalents 639 438 (34) 159 Cash and cash equivalents held at the end of the financial year 4,265 6,286 3,828 6,051 Non-cash financing and investing activities 8 1 Summary of significant accounting policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Dwyka Resources Limited as an individual entity and the consolidated entity consisting of Dwyka Resources Limited and its subsidiaries. (a) Basis of preparation of financial report This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. Compliance with IFRSs Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the consolidated financial statements and notes of Dwyka Resources Limited comply with International Financial Reporting Standards (IFRS). The parent entity financial statements and notes also comply with IFRS except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial Instruments: Presentation and Disclosure. Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets. Critical accounting estimates The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 2. (b) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Dwyka Resources Limited (''Company'' or ''parent entity'') as at 30 June 2007 and the results of all subsidiaries for the year then ended. Dwyka Resources Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet respectively. Investments in subsidiaries are accounted for at cost in the individual financial statements of the company. (ii) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the parent entity financial statements using the cost method and in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group's share of its associates' post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity's income statement, while in the consolidated financial statements they reduce the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. (c) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. (d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Australian dollars, which is Dwyka Resources Limited's functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. (iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: * assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; * income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and * all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders' equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the income statement as part of the gain or loss on sale, where applicable. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. (e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, while interest revenue is measured on an effective interest rate basis. Amounts disclosed as revenue are net of returns and trade allowances. Revenue is recognised for the major business activities when the following specific recognition criteria are met: Sales Risks and rewards of the goods have passed to the buyer, which occurs on delivery. Interest income Time proportionate basis using the effective interest rate method. (f) Income tax The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements and to unused tax losses. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. The Australian tax consolidation regime does not apply to the company because there are no Australian incorporated subsidiaries. (g) Business combinations The purchase method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the Group's share of the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparible terms and conditions. (h) Leases Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset's useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. (i) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (j) Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. (k) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment. Trade receivables are due for settlement no more than 30 days from the date of recognition. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. (l) Inventories Inventories, which include rough diamonds, finished goods and raw materials, are stated at the lower of cost and estimated net realisable value. Cost is determined on a first-in, first-out basis and comprises direct materials and direct labour. Net realisable value is the estimated selling price in the ordinary course of business, less the cost of completion and selling expenses. (m) Investments and other financial assets Classification The Group classifies its investments in the following categories: loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. (i) Loans and receivables Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet. (ii) Available-for-sale financial assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Recognition and derecognition Purchases and sales of investments are recognised on trade-date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Unrealised gains and losses arising from changes in the fair value of non monetary securities classified as available-for-sale are recognised in equity in the available-for-sale investments revaluation reserve. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. Fair value The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm's length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer's specific circumstances. Impairment The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss - is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments classified as available-for-sale are not reversed through the income statement. (n) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (o) Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Land is shown at cost and is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: - Buildings 10-20 years - Machinery 5-12 years - Vehicles 3-5 years - Furniture, fittings and equipment 3-8 years - Leased machinery and vehicles 5-12 years The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (note 1(i)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. (p) Exploration and evaluation expenditure Exploration and evaluation costs include expenditure incurred in connection with the exploration for and the evaluation of economically recoverable mineral resources. These costs include costs of acquisition, exploration and appraisal costs and technical overheads directly associated with those projects. The company's policy with respect to exploration and evaluation expenditure is to use the "area of interest" method. Under this method, exploration and evaluation costs are carried forward on the following basis: (i) Each area of interest is considered separately when deciding whether and to what extent to carry forward or write off exploration and evaluation costs; (ii) Exploration and evaluation costs related to an area of interest may be carried forward provided that rights to tenure of the area of interest are current and provided further that one of the following conditions are met: * such costs are expected to be recouped through successful development and exploitation of the area of interest or alternatively, by its sale; or * exploration and/or evaluation activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in relation to the area are continuing. (iii) The carrying values of exploration and evaluation costs are reviewed by directors where results of exploration and/or evaluation of an area of interest are sufficiently advanced to permit a reasonable estimate of the costs expected to be recouped through successful development and exploitation of the area of interest or by its sale. Expenditure in excess of this estimate is written off to the profit and loss account in the year in which the review occurs; (iv) When development of an area of interest is complete and production commences, all exploration, evaluation and development costs carried forward as an asset (including the cost of extractive rights acquired) are transferred to mining properties. Development costs related to an area of interest are carried forward as an asset to the extent that they are expected to be recovered either through sale or successful exploitation; and (v) The carrying values of exploration, evaluation and development expenditure are carried forward and amortised over the expected useful life of each project. (q) Mining properties Mine properties represent the acquisition costs and/or accumulation of exploration, evaluation and development costs in respect of areas of interest in which mining has commenced. When further development expenditure is incurred in respect of a mine property after the commencement of production, such expenditure is carried forward as part of the mine property only when substantial future economic benefits are thereby established, otherwise such expenditure is classified as part of the cost of production. Amortisation is provided on a unit-of-production basis so as to write off the cost in proportion to the depletion of the proved and probable mineral resources. (r) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. (s) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders' equity, net of income tax effects. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. (t) Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. (u) Provisions Provisions are recognised when the consolidated entity has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation. Rehabilitation and restoration costs The consolidated entity has obligations for site restoration related to its mining properties. The consolidated entity establishes restoration provisions for future mine closure costs when a legal or constructive obligation exists based on the present value of the future cash flows required to satisfy the obligations. Provisions expected to be utilised in the coming 12 months on areas with lives of less than one year are accounted for in the income statement of the consolidated entity. Provisions not expected to be utilised in the coming 12 months are added to the capital cost of the related mining assets in mine properties and amortised over the resource life. The provision is accreted to its future value over the resource life through a charge to borrowing costs. Changes in the estimated cost of rehabilitation are applied on a prospective basis with an adjustment to capital cost. (v) Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. (v) Employee benefits (continued) (ii) Share-based payments Share-based compensation benefits are provided to employees via the Dwyka Resources Limited Share and Option Plan. The fair value of shares and options granted under the Dwyka Resources Limited Employee Share and Option Plans is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the shares and/or options. The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the issue/exercise price, the term of the option, the impact of dilution, the non-tradeable nature of the share/option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair value of the shares and/or options granted is adjusted to reflect market vesting conditions, but excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions regarding the employee loan recoverability and about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity. The value of shares issued to employees financed by way of a non recourse loan under the employee share scheme is recognised with a corresponding increase in equity when the company receives funds from either the employees repaying the loan or upon the loan termination. All shares issued under the plan with non recourse loans are considered, for accounting purposes, to be options. (w) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are included in the cost of the acquisition as part of the purchase consideration. (x) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (y) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow. (z) Rounding of amounts The company is of a kind referred to in Class order 98/0100, issued by the Australian Securities and Investments Commission, relating to the ''rounding off'' of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. (aa) New Accounting Standards and Interpretations Certain new accounting standards and interpretations have bee published that are not mandatory for 30 June 2007 reporting periods. The Group's and the parent entity's assessment of the impact of these new standards and interpretations is set out below. (i) AASB 7 Financial Instruments: Disclosures, Revised AASB 101 Presentation of Financial Statements and AASB 2005-10 Amendments to Australia Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023, AASB 1038] AASB 7, AASB 20058-10 and the revised AASB 101 are applicable to annual reporting periods beginning on or after 1 January 2007. The Group has not adopted the standards early. Application of the standards will not effect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Group's and the parent entity's financial instruments. (ii) AASB-I 10 Interim Financial Reporting and Impairment AASB-I 10 is applicable to reporting periods commencing on or after 1 November 2006. The Group has not recognised an impairment loss in relation to goodwill, investments in equity instruments or financial assets carried at cost in an interim reporting period but subsequently reversed the impairment loss in the annual report. Application of the interpretation will therefore have no impact on the Group's on the parent entity's financial statements. (iii) AASB Interpretation 11 Group and Treasury Share Transactions and AASB 2007-1 Amendments to Australian Accounting Standards arising from AASB Interpretation 11 [AASB 2] AASB lnterpretation 11 and AASB 2007-1 are applicable to annual reporting periods beginning on or after 1 March 2007. The Group has not adopted the standards early. AASB Interpretation 11 specifies that a share-based payment transaction in which an entity receives services as consideration for its own equity instruments shall be accounted for as equity-settled. The amending standard is issued as a consequence of AASB Interpretation 11. This is consistent with the Group's existing accounting policies for share-based payments so will have no impact on the Group's or the parent entity's financial statements. (iv) AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards arising from AASB 8 [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134, AASB 136, AASB 1023 & AASB 1038] AASB 8 and AASB 2007-3 are applicable to annual reporting periods beginning on or after 1 January 2009. The Group has not adopted the standards early. The amending standard is issued as a consequence of AASB 8 Operating Segments. AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group's financial statements. However, the new standard is expected to have an impact on the Group's segment disclosures as segment information based on management reports are more detailed than those currently reported under AASB 114. Application of the standards will have no direct impact on the amounts or disclosures included in the parent entity's financial statements. (v) AASB 2007-4 Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments AASB 2007-4 is applicable to annual reporting periods ending on or after 1 July 2007. The Group has not adopted the amendments early. The amendment is issued to delete the Australian specific financial report structure and reinstate the IFRS financial report structure. The amending standard provides accounting policy options, disclosure and presentation requirements which were previously restricted by the Australian Accounting Standards Board. Application of the amendments will have no direct impact on the amounts included in the Group's and the parent entity's financial statements as the Group does not anticipate changing any of its accounting policy choices as a result of the issue of AASB 2007-4. However, the new standard may have an impact on the disclosures included in the Group's and the parent entity's financial statements. (vi) Revised AASB 123 Borrowing Costs and AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123 [AASB 1 , AASB 101, AASB 107, AASB 111, AASB 116 & AASB 138 and Interpretations 1& 12] AASB 123 and AASB 2007-6 are applicable to annual reporting periods beginning on or after 1 January 2009. The Group has not adopted the standards early. AASB 123 previously permitted choices between expensing all borrowing costs and capitalising those that were attributable to the acquisition, construction or production of a qualifying asset. The amendments principally remove references to expensing borrowing costs on qualifying assets, as AASB 123 was revised to require such borrowing costs to be capitalised: This is consistent with the Group's existing accounting policies for borrowing costs on qualifying assets so will have no impact on the Group's or the parent entity's financial statements. 2 Critical accounting estimates and judgements Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. (a) 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 discussed below. (i) Income taxes The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. (ii) Exploration, evaluation and mining properties The Group's main activity is exploration and evaluation for, and mining of minerals. The nature of mining and exploration activities are such that it requires interpretation of complex and difficult geological models in order to make an assessment of the size, shape, depth and quality of resources and their anticipated recoveries. The economic, geological and technical factors used to estimate mining viability may change from period to period. In addition exploration activities by their nature are inherently uncertain. Changes in all these factors can impact exploration and mining asset carrying values, provisions for rehabilitation and the recognition of deferred tax assets. (iii) Rehabilitation obligations The Group estimates the future removal costs of mine operations disturbances at the time of installation of the assets and commencement of operations. In most instances, removal of assets occurs some years into the future. This requires judgmental assumptions regarding removal date, the extent of reclamation activities required, the engineering methodology for estimating cost, future removal technologies in determining the removal cost and asset specific discount rates to determine the present value of these cash flows. (iv) Recoverable amounts of investments and receivables The parent entity has funded its controlled entities operations via the provision of loan funds. The recoverable amount of these loans is subject to the performance of those subsidiaries being able to generate sufficient profits and reserves to repay these advances. 3 Segment information During the year the Group operated primarily in two geographical segments being Africa, where its main operations are mining and production of diamonds and exploration for diamonds and other minerals, and in India, where additional diamond exploration activities have been undertaken. The parent entity is based in Australia which is effectively the corporate office of the Group. Although the consolidated entity operates in different areas of the globe it has the following 2 divisions organised by industry distinction. The mining division incorporates both hard rock and alluvial diamond mining and exploration for mineral resources; while the industrial division incorporates the production and sale of bricks and cement using waste material from mining operations as a source material. Australia Africa India Inter-segment Consolidated eliminations/unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Revenue $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 External - - 8,267 7,402 - - - - 8,267 7,402 sales Total sales - - 8,267 7,402 - - - - 8,267 7,402 revenue Other revenue 87 160 339 535 - - - - 426 695 Inter-segment revenue 483 470 - - - - (483) (470) - - Total segment revenue 570 630 8,606 7,937 - - (483) (470) 8,693 8,097 Unallocated 196 373 revenue 196 373 Total revenue 8,889 8,470 Result Segment (2,513) (6,575) (17,804) (7,816) (330) (2,147) 2,655 12,383 (17,992) (4,155) result Unallocated revenue net of unallocated expenses 11 373 Loss before tax (17,981) (3,782) Income tax 1,621 168 benefit Loss after (16,360) (3,614) tax Assets Segment 25,367 17,562 14,420 19,349 22 96 (21,243) (12,007) 18,566 25,000 assets Unallocated - - assets Total assets 18,566 25,000 3 Segment information (continued) Australia Africa India Inter-segment Consolidated eliminations/unallocated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 Liabilities Segment liabilities 426 262 31,459 22,588 3,184 3,220 (25,945) (21,762) 9,122 4,308 Unallocated 2,249 2,183 liabilities Total liabilities 11,371 6,491 Acquisition of property plant and equipment and other non-current segment assets 2 41 12,198 8,571 - - - - 12,200 8,612 Loan to associate - - - 4,536 - - - - - 4,536 Other - - - - - - 469 428 non-cash expenses 469 428 Depreciation and amortisation expense 43 48 854 439 - - - - 897 487 Impairment of assets - 5,867 - 7,137 - - - (13,004) - - - related - - 3,319 - - - - - 3,319 - party loans - - 24 - - - - - 24 - - plant - - - 3 - - - - - 3 and - - 7,064 - 316 2,130 - - 7,380 2,130 equipment - other investments - Non- current receivables - exploration and evaluation and mining properties Secondary reporting format - Business segments Segment revenues Segment assets Acquisition of from sales to property plant and external customers equipment and other non-current segment assets 2007 2006 2007 2006 2007 2006 $000 $000 $000 $000 $000 $000 Mining 2,706 2,189 12,046 11,894 5,264 10,357 Industrial 5,561 5,213 1,785 1,845 6,933 125 8,267 7,402 13,831 13,739 12,197 10,482 Unallocated 4,735 11,261 assets Total assets 18,566 25,000 4 Revenue Consolidated Parent entity 2007 2006 2007 2006 $000 $000 $000 $000 Revenue Sale of goods 8,267 7,402 - - Other revenue Interest received 196 373 161 276 Foreign exchange gains 87 160 87 160 Management fees - - 483 470 Profit on sale of plant and equipment 57 - - - Other revenue 282 535 26 - 622 1,068 757 906 8,889 8,470 757 906 5 Expenses Loss before income tax expense includes the following specific expenses: Cost of sales includes the following expenses: Depreciation of plant and equipment 627 408 - - Rehabilitation expenses - 130 - - Other charges against assets: Impairment of assets 24 3 - - Impairment of plant and equipment 3,319 - - - Impairment of related company loans - - (82) 4,400 Impairment of exploration expenditure and mineral properties, including write off of current year exploration 7,380 2,130 248 - Administration includes the following: Bad and doubtful debts expense 398 105 - - Consulting expenses 940 982 739 754 Depreciation of buildings, plant and equipment 270 79 43 48 Directors fees 200 195 200 195 Employee benefits expense 1,722 1,931 357 192 Legal fees 272 68 262 35 Loss on sale of plant and equipment - 6 - - Rental expenses related to operating leases 86 113 60 58 Share based compensation 469 428 469 428 6 Income tax Consolidated Parent entity 2007 2006 2007 2006 $000 $000 $000 $000 Income statement Current income tax Current income tax charge - - - - Deferred income tax Increase/(decrease) in deferred tax liability (1,621) (168) (20) (28) Temporary differences and tax losses not recognised - - - - Income tax benefit reported in income statement (1,621) (168) (20) (28) Amounts recognised directly in equity Deferred tax expense Share issue costs (23) (49) (23) (49) Available-for-sale financial assets 43 (17) 43 (17) Convertible note - 94 - 94 Income tax benefit reported in equity 20 28 20 28 Unrecognised deferred tax balances Unrecognised deferred tax assets - Losses 3,404 1,995 695 252 Unrecognised deferred tax assets - Capital Losses 431 431 431 431 Unrecognised deferred tax assets - Temporary differences 1,549 - 4,333 4,945 Net unrecognised deferred tax assets 5,384 2,426 5,459 5,628 6 Income tax (continued) Consolidated Parent entity 2007 2006 2007 2006 $000 $000 $000 $000 Reconciliation to income tax expense on accounting loss Loss from ordinary activities before income tax expense (17,981) (3,782) (2,786) (6,326) Income tax benefit @ 30% (2006: 30%) (5,394) (1,135) (836) (1,898) Difference in overseas tax rates 46 - - - Tax effect on amounts which are not deductible Share-based payments 141 128 141 128 Foreign expenditure 510 483 510 1,046 Non-deductible provisions - - - 754 Impairment of exploration/mine property 282 - - - Sundry items 148 (17) 89 (41) (4,267) (541) (96) (11) Prior year revenue losses recouped not previously recognised - (17) - (17) Benefit of tax losses and temporary differences not brought to account 2,646 390 76 - Income tax benefit (1,621) (168) (20) (28) The Australian tax consolidation regime does not apply for the company. 7 Loss per share The following reflects the operating loss and share data used in the calculations of basic and diluted loss per share: 2007 2006 $000 $000 Net consolidated loss (16,360) (3,614) Adjustments: Less: Net loss attributable to outside equity interest - 67 Loss used in calculating basic and diluted earnings per share (16,360) (3,681) Number Number Weighted average number of ordinary shares used in calculating basic loss per share 93,960,957 83,352,062 Effect of dilutive securities: Employee share plan shares 7,500,001 4,923,380 Adjusted weighted average number of ordinary shares used in calculating diluted loss per share 101,460,958 88,275,442 Information concerning the classification of securities: Options granted are considered to be potential ordinary shares but have not been included in the determination of diluted loss per share as they are not dilutive 8 Reconciliation of loss after income tax to net cash outflow from operating activities Consolidated Parent entity 2007 2006 2007 2006 $000 $000 $000 $000 Loss from ordinary activities after tax (16,360) (3,614) (2,766) (6,298) Depreciation and amortisation 897 488 43 48 Exploration expenditure & mining property generation written off 316 2,130 248 - Doubtful debts 126 107 - - Finance costs - 31 - 7 Foreign exchange (gain)/loss (81) (143) (87) (160) Share based compensation 469 428 469 428 Impairment of assets 10,408 3 - 4,400 (Profit)/loss on sale of non current assets (365) 6 (27) - Reversal of asset impairment - (139) (82) - Management fees charged to controlled entities - - (483) (470) Decrease/(increase) in receivables 162 (224) (22) 14 Decrease/(increase) in inventory 28 58 - - (Increase)/decrease in tax expense (1,621) (168) (20) (28) Increase/(decrease) in payables 1,031 548 349 (27) Increase/(decrease) in current provisions (36) (176) 2 2 Net cash flow used in operating activities (5,026) (665) (2,376) (2,084) 8 Reconciliation of loss after income tax to net cash outflow from operating activities (continued) Non-cash financing activities During the current year the Company issued 9,713,014 ordinary shares at GBP0.35 ($0.84) to acquire 100% of Danyland Limited. During the year ended 30 June 2006 the company issued 2,747,802 ordinary shares at GBP0.35 ($0.84) to acquire 3 underground mines and it issued 749,137 ordinary shares at $0.685 in lieu of services rendered. ---END OF MESSAGE---