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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Brazilian | LSE:BDY | London | Ordinary Share | CA1058741010 | COM SHS NPV |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.45 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
TIDMBDY BRAZILIAN DIAMONDS LIMTIED FINAL RESULTS FOR THE YEAR PERIOD ENDED 31 DECEMBER 2008 As with most other junior resource exploration companies, Brazilian Diamonds Limited ("Brazilian Diamonds" or the "Company") has been affected by the continuing uncertainties in international capital markets which have negatively impacted the ability of junior resource exploration companies to finance their activities. As a consequence, as at December 31, 2008, the Company had a net working capital deficiency of $329,000. To manage its liquidity requirements, the Company has been reviewing its strategic plans for the future activities of the business. Following this review, the Directors are pleased to announce that they have entered into preliminary agreements for the sale of the Company's laboratory and facilities at Patos de Minas to third parties for a total consideration of approximately Can$466,000. In addition, the Company has also signed a preliminary agreement to sell all its interests in Cobre Sul Mineracao Ltda. to third parties. Cobre Sul Mineracao Ltda owns assets associated with the Company's Santo Antonio de Bonita diamondiferous alluvial gravels project. The consideration includes a cash payment of Can$452,000 and Can$516,000 in polished diamonds which are to be independently valued in New York, USA and then delivered to the Company within 90 days of signing of the sale agreement. The gross proceeds of the transactions will be used to repay debt and to enable the Company to advance the Canastra 1 project towards development. The transactions both remain subject to the negotiation of formal sale contracts with the purchasers and full details will be announced on signing of the contracts. The Company remains encouraged by the recent publication of the government's inter-departmental deliberations over the finalization of permanent boundaries for the Serra da Canastra National Park which is located in proximity to the Canastra 1 project and the progress made with respect to the passage of this legislation. A draft bill (Projeto de Lei # 1448/2007) was submitted in June 2007 to the Brazilian Congress to formally exclude the Company's projects in the Serra da Canastra region from any new proposed Canastra National Park boundary. The draft bill was approved by the Camara dos Deputados (Lower House) on October 29, 2008 and has moved to the Senado (Upper House) for final approval which is expected during 2009. The Company has renewed the Canastra mineral licenses that it holds and is maintaining them in good standing while waiting for trial mining permits to be issued which is expected to follow final approval of this legislation. The Company hopes to commence trial mining at its Canastra 1 project once the bill has received final approval but in the meantime the Company's projects in the Serra da Canastra region will remain on care and maintenance.. The Company has kept its mineral licenses in the Santo Antonio do Bonito River region in good standing and the Company hopes to continue work on the project in the future but for the moment, the Santo Antonio do Bonito River kimberlite exploration project remains on care and maintenance. Licensing for the Regis and Tucano projects in the Patos de Minas region has also been renewed and they are being maintained in good standing while these projects will remain on care and maintenance. For further information contact: Brazilian Diamonds Limited Ken Judge, Chairman + 44 7733 001 002 Stephen Fabian, CEO + 55 31 9186 4660 Hanson Westhouse Limited (Nomad and Broker to the + 44 113 246 2610 Company) Tim Feather/Matthew Johnson Introduction The following discussion of performance and financial condition should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2008. The Company's financial statements are prepared in accordance with Canadian GAAP. The accounting policies followed by the Company are set out in note 3 to the audited consolidated financial statements. The Company's reporting currency is Canadian dollars. The date of this Management's Discussion and Analysis is March 25, 2009. Description of Business Brazilian Diamonds Limited (the "Company") is a development stage resource company currently engaged in the acquisition, exploration and development of kimberlite and alluvial diamond properties in Brazil. The Company holds 23,107 hectares of alluvial and kimberlite exploration properties in the Paranaiba and Santo Antonio do Bonito River Basins and the Patos de Minas region as well as over 51,328 hectares of prospective exploration properties in the Serra da Canastra Kimberlite Province including the advanced stage diamondiferous Canastra 1 kimberlite pipe. In addition, the Company has its own diamond laboratory used in the recovery of kimberlite indicator minerals and in 2006 the Company received an ISO 17025 rating for the facility. Subsequent to year end this laboratory has been sold. The Company's head office is located in Belo Horizonte, Brazil and the corporate office is located in Vancouver British Columbia, Canada. Exploration headquarters are located in Patos de Minas, Brazil. The Company is a reporting issuer in Ontario and British Columbia, Canada and its common shares trade on the Toronto Stock Exchange and Alternative Investment Market ("AIM") of the London Stock Exchange under the symbol BDY. Corporate Developments As at March 25, 2009, the Company owes $115,000 (December 31, 2008 - $107,000) to SAFM Mineracao Inc., a company associated with Stephen Fabian (director), with accrued interest based on the monthly interest of the standard Brazilian CDB bank rate for Banco Itau payable on demand. As at March 25, 2009, the Company owes $84,000 (December 31, 2008 - $32,000) to Itapiruba Internacional Ltda., a subsidiary company of Hamilton Capital Partners Limited and Kenneth Judge (director), with accrued interest based on the monthly interest of the standard Brazilian CDB bank rate for Banco Itau payable on demand. In February 2009, the Company was notified by the Toronto Stock Exchange ("TSX") that it was reviewing the eligibility for continued listing of the Company's shares on the TSX. The review is being conducted under the TSX's Remedial Review Process pursuant to which the Company has been given until June 26, 2009 to satisfy the TSX that it meets all TSX requirements for continued listing, failing which the Company's shares will be delisted as of July 26, 2009. The Company is therefore considering its options in this regard, which include applying for a transfer of its listing to the TSX Venture Exchange or having its listing on the AIM market of the London Stock Exchange continue as the Company's sole market for its shares. The Company anticipates a definitive decision on the Company's course of action being made well in advance of the TSX deadline. In March 2008, the Company completed a private placement for gross proceeds of $2,596,000. The Company issued 25,957,000 common shares at a price of $0.10 per share. Discussion of Operations Current Year Activity Amounts have been restated to conform to a change in accounting policy and also a restatement due to the retroactive treatment of future income taxes within other comprehensive income as set out in EIC 172. See "Changes in Accounting Policies" or note 2 of the audited consolidated financial statements for the year ended December 31, 2008. Change in accounting policy and restatement regarding exploration costs: (Restated-note 2) December 31 December 31, 2007 Write-down 2008 Coromandel 1,585 (793) 792 Patos de Minas 312 (312) - Serra da Canastra 1,400 (700) 700 Salvador 1 466 (466) - Total 3,763 (2,271) 1,492 December 31 2006 As (Restated-note2) (Restated-note2) previously December 31, December 31, reported Adjustments 2006 2007 Coromandel 8,620 (7,035) 1,585 1,585 Patos de Minas 2,737 (2,425) 312 312 Serra da Canastra 7,121 (5,721) 1,400 1,400 Salvador 1 466 - 466 466 Data Sets 2,383 (2,383) - - Other projects 63 (63) - - Total 21,390 (17,627) 3,763 3,763 During the year ended December 31, 2008, the Company focused the first part of the year on exploration activities on its diamond properties within Minas Gerais and Bahia States, Brazil and the last quarter of the year the Company focused on reorganizing activities, termination of some of the claims and on care and maintenance of its properties. Salvador 1 Salvador 1 Kimberlite Testing The Salvador 1 kimberlite is a six hectare body partly exposed beneath the sands and gravels of an old alluvial diamond mine in central Bahia State, Brazil. The testing of the Salvador 1 kimberlite has involved the excavation of a number of pits, with each pit designed to extract approximately 1,300 tonnes of kimberlite from different parts of the kimberlite pipe. Extraction began in the last quarter of 2007 and continued through to September 2008. The kimberlite is multiphase with as many as six kimberlite rock types identified in Pit 1, therefore providing numerous challenges in evaluation process. Processing of the kimberlite samples began in December 2007 using a processing plant consisting of a primary disaggregation rotary pan, followed by x-ray flowsort and grease table for the recovery of diamonds. The processing plant has recently been augmented with a roll crusher to better handle harder kimberlite fragments, however, sample treatment remained slower than excavation. Quality control and quality assurance of this evaluation process was undertaken at the Company's certified ISO 17025 indicator mineral processing laboratory on Patos de Minas, where concentrates were re-examined for diamonds that may not have been recovered in processing by the on-site plant. By September 2008, the Company completed field operations at its pit sample evaluation of the Salvador 1 kimberlite pipe. The Company excavated three pits from 8 to 11m deep and processed the extracted kimberlite in a plant built on-site. In addition, the Company completed drill holes and conducted microdiamond tests to identify potentially higher grade zone. Kimberlite weighing 603.5 tonnes from Pit 1 yielded 12.44 carats of diamonds, demonstrating that the pipe is diamondiferous although with a low abundance in the portion tested. Preliminary results from 402 tonnes of kimberlite extracted from Pit 3 yielded 10.44 carats of diamonds. Additional kimberlite, mostly from the second and third pits has been shipped to the Company's mineral processing laboratory in Patos de Minas, Brazil for final diamond processing and quality control tests following initial processing steps on-site. All field equipment was moved to the Santo Antonio do Bonito project site in Minas Gerais State where the Company was investigating the possibility of re-starting operations. Salvador 1 Alluvial Sand and Gravel Testing Concurrent with the kimberlite sampling and processing at Salvador 1, a separate processing plant was used to recover diamonds from the sands and gravels overlying the Salvador 1 kimberlite. Approximately 2,300 tonnes of sands and gravels were processed through the jig plant, yielding 78.93 carats. The two largest recovered diamonds weighed 3.15 and 2.65 carats respectively. The shallow overlying alluvial sands and gravels are enriched in diamond content compared to the kimberlite, although the volumes are smaller. The confirmation of a diamondiferous kimberlite feeding the alluvial deposits of central Bahia has positive implications for further exploration within the Company's extensive land position and database for the region. At December 31, 2008, the Company has assessed the recoverability of its Salvador 1 project and has recorded an asset impairment of $466,000. The Company has closed down its testing programs and it is unlikely that the relevant mineral licenses will be renewed. To conserve cash reserves, the Salvador 1 project has been placed on care and maintenance. Coromandel Region Santo Antonio do Bonito River In 2008, all field equipment was consolidated at the Santo Antonio do Bonito project site in Minas Gerais State, where the Company was investigating the possibility of re-starting operations. As at December 31, 2008, the Company has assessed the recoverability of its Santo Antonio do Bonito River project and determined that no impairment was required as the projects were written down to $nil. The Company has kept its mineral licenses in good standing and hopes to continue work on the project in the future. To conserve cash reserves, the Santo Antonio do Bonito River project has been placed on care and maintenance. Santo Antonio do Bonito Alluvial Diamond Mining Joint Venture In 2008, the Company's joint venture partners made a decision to defer the next phase of studies with regards to developing a large scale, dredge based mining operation on the Santo Antonio do Bonito alluvial project. As at December 31, 2008, the Company has assessed the recoverability of its Santo Antonio do Bonito alluvial mining project and has recorded an impairment of $793,000. The fair value of the mineral properties of Cobre Sul Mineracao Ltda. were written down to reflect the sale proceeds subsequent to year end. Patos de Minas As at December 31, 2008, the Company has assessed the recoverability of its project in Parima and has recorded an impairment of $312,000. Only the Regis and Tucano mineral licenses in the Patos de Minas region have been renewed and maintained in good standing. To conserve cash reserves, the Patos de Minas projects have been placed on care and maintenance. Serra da Canastra The issue of permits to commence trial mining of the Canastra 1 pipe has been delayed until a dispute surrounding a possible extension of the nearby Serra da Canastra National Park boundary is resolved. New legislation was submitted to the Brazilian Camara of Deputies (Lower House) in June 28, 2007 which proposed the creation of a new park boundary but excluded the Canastra 1 and nearby Canastra 1 trend. This new legislation was approved on October 29, 2008 and the bill will now proceed to the Senate (Upper House) for final approval which is expected during 2009. The Company has assessed the recoverability of its project in the Serra da Canastra region and has recorded an asset impairment of $700,000. All Canastra mineral licenses have been renewed and maintained in good standing while the Company is waiting for the trial mining permits. The Company hopes to commence trial mining at its Canastra 1 project once approved. To conserve cash reserves, the Serra da Canastra region projects have been placed on care and maintenance. Historical Information Following the acquisition of several mineral exploration databases from De Beers, the Company has access to the accumulated results of more than 30 years of exploration activity in the Canastra, Santo Antonio do Bonito and Patos de Minas regions in Minas Gerais and the Chapada Diamantina region in Bahia. Included within the Canastra data set are indicator mineral samples, microprobe chemical analyses, and 19,000 line kilometres of proprietary airborne geophysics covering the entire region. De Beers has also provided details about 35 known kimberlite occurrences and the results of ground geophysics within the Canastra region. The Chapada Diamantina data set, acquired in September 2006 from De Beers, includes 194,120 line kilometres of airborne geophysics, indicator mineral samples, microprobe analysis and mineral licenses covering the Salvador 1 kimberlite body plus five other kimberlites. This data complements an already significant database the Company previously acquired as a result of the purchase of De Beers' Brazilian subsidiary Mineracao do Sul in August 2002. That acquisition also included 40,000 hectares of mineral claims in the Canastra area and the Canastra 1 kimberlite for which licenses are being sought to commence trial mining. The licencing process has been complicated by the potential expansion of a nearby National Park. Although there is every indication that a licence will be granted to mine Canastra 1, it is not possible to accurately estimate the timetable for such a grant. While the Company continues to work with various ministries of the Brazilian federal government in an effort to hasten the process for the license grant, the Company has been concentrating the majority of its exploration activity and resources on its other prospective projects outside the Canastra Region. The Company has assessed the recoverability of its data sets and has recorded an asset impairment of $1,583,000. The Canastra data set has value as long as the project continues. All Canastra mineral licenses have been renewed and maintained in good standing while the Company is waiting for trial mining permits. During the past four years, the Company has committed significant resources evaluating kimberlite targets in the Santo Antonio do Bonito River Basin and Patos de Minas regions and subject to the availability of financing, this is set to remain a part of the Company's activities. Salvador 1, Bahia In 2007, the Company collected 6 replicate samples totaling 6 tonnes from the Salvador 1 kimberlite in an attempt to confirm results from a smaller (580 kg) sample taken in 2006. In total, 111 diamonds were recovered from these new samples which together with original sample tallied 120 diamonds. Preparations began in the third quarter of 2007 for the collection of six much larger samples of approximately 650 m3 each from different parts of the Salvador 1 kimberlite in order to better assess its diamond potential. Excavation of the first pit was completed in the fourth quarter and excavation of the second and third pits were started. Results from the first of the bulk sample pits identified at least six different kimberlitic rock types or "phases". At December 31, 2008, the Company has assessed the recoverability of its Salvador 1 project and has recorded an asset impairment of $466,000. The Company has closed down its testing programs and the mineral licenses will not be renewed. To conserve cash reserves, the Salvador 1 project has been placed on care and maintenance. Serra da Canastra, Minas Gerais The Company is awaiting final approval before commencing the environmental licensing process for the development of the Canastra 1 kimberlite body for which mine feasibility work has already been completed and the required Mines Department approvals are already in place. The Company hopes to bring Canastra 1 into production once the environmental licensing process is completed. The Company has assessed the recoverability of its project in the Serra da Canastra region and has recorded an asset impairment of $700,000. All Canastra mineral licenses have been renewed and maintained in good standing while the Company is waiting for the trial mining permits. The Company expects to commence trial mining at its Canastra 1 project once approved. To conserve cash reserves, the Serra da Canastra region projects has been placed on care and maintenance. Coromandel - San Antonio do Bonito River As at December 31, 2008, the Company has assessed the recoverability of its Santo Antonio do Bonito River project and determined that no impairment was required as the amounts were insignificant. The Company has kept its mineral licenses in good standing and expect to continue work on the project in the future. Coromandel, Minas Gerais - San Antonio do Bonito Alluvial Diamond Mining Joint Venture The Company with its Joint Venture partners assessed various alternatives for the possible development of one or more alluvial mining operations at the Santo Antonio do Bonito alluvial project. These options included large scale dredging operations on the broader river flat areas along the Santo Antonio do Bonito river as well as a smaller scale operation on what are considered to be highly prospective but narrower river terrace areas. As at September 30, 2008, the Joint Venture partners have made a decision to defer the next phase of studies. The Company sold the mineral properties in the Santo Antonio do Bonito which were contained alluvial resources and its assets to a third party subsequent to the December 31, 2008 year end. Patos de Minas, Minas Gerais As at December 31, 2008, the Company has assessed the recoverability of its project in Parima and has recorded an impairment of $312,000. Only the Regis and Tucano mineral licenses in the Patos de Minas region have been renewed and maintained in good standing. To conserve cash reserves, the Patos de Minas projects have been placed on care and maintenance. Financial Performance Current Quarter The loss for the three months ended December 31, 2008 was $4,845,000 as compared to a loss of $1,100,000 (restated) for the same period last year. The increase in losses over the same period last year is due mainly to the write-down of intangible assets of $1,583,000, mineral properties of $2,271,000 and property, plant and equipment of $308,000. Exploration costs decreased $728,000 and foreign exchange loss increased $104,000 over the same period last year. Cash and cash equivalent balances decreased by $143,000 to $83,000 at December 31, 2008. At December 31, 2008, the Company had a working capital deficiency $329,000 (2007 - net working capital of $377,000). Year-to-date The loss for the year ended December 31, 2008 was $7,965,000 as compared to a loss of $4,349,000 (restated) for the same period last year. The increase in losses over the same period last year is due mainly to the write-down of intangible assets of $1,583,000, mineral properties of $2,271,000 and property, plant and equipment of $308,000. The expenses decreased over the same period last year due mainly to a decrease in exploration costs of $576,000 and stock-based compensation of $435,000, foreign exchange loss of $79,000, investor relations of $53,000, travel expenses of $44,000 and legal and audit of $39,000. Cash and cash equivalent balances decreased by $373,000 to $83,000 at December 31, 2008. Exploration costs for the year ended December 31, 2008 was $2,453,000 (2007 - $3,029,000 restated)). At December 31, 2008, the Company had a working capital deficiency $329,000 (2007 - net working capital of $377,000). As at December 31, 2008, the Company has assessed the recoverability of its Santo Antonio do Bonito River project and determined that no impairment was required as the amounts were insignificant. The Company has kept its mineral licenses in good standing and hopes to continue work on the project in the future. To conserve cash reserves, the Santo Antonio do Bonito River project has been placed on care and maintenance. As at December 31, 2008, the Company has assessed the recoverability of its Santo Antonio do Bonito alluvial mining project and has recorded an impairment of $793,000. The fair value of the mineral properties of Cobre Sul Mineracao Ltda. were written down to reflect the sale proceeds subsequent to year end. As at December 31, 2008, the Company has assessed the recoverability of its project in Parima (Patos de Minas) and has recorded an impairment of $312,000. Only the Regis and Tucano mineral licenses in the Patos de Minas region have been renewed and maintained in good standing. To conserve cash reserves, the Patos de Minas projects have been placed on care and maintenance. The Company has assessed the recoverability of its project in the Serra da Canastra region and has recorded an asset impairment of $700,000. All Canastra mineral licenses have been renewed and maintained in good standing while the Company is waiting for the trial mining permits. The Company expects to commence trial mining at its Canastra 1 project once approved. To conserve cash reserves, the Serra da Canastra region projects has been placed on care and maintenance. At December 31, 2008, the Company has assessed the recoverability of its Salvador 1 project and has recorded an asset impairment of $466,000. The Company has closed down its testing programs and the mineral licenses will not be renewed. To conserve cash reserves, the Salvador 1 project has been placed on care and maintenance. Results of Operations Summary of Quarterly Results The table below present's selected financial data for the Company's eight most recently completed quarters. Amounts have been restated to conform to a change in accounting policy. See "Changes in Accounting Policies" or note 2 of the audited consolidated financial statements for the year ended December 31, 2008. Restated Restated Restated Restated Restated Restated Restated ($000) Dec.31, Sept.30, June 30, Mar.31, Dec.31, Sept.30, June 30, Mar. 31, 2008 2008 2008 2008 2007 2007 2007 2007 Financial results Net loss(income) for period 4,845 1,065 1,071 984 1,100 1,533 489 1,227 Comprehensive loss (28) 231 120 367 (9) 317 345 384 Basic and diluted loss (income) per share 0.02 0.01 0.00 0.01 0.01 0.01 0.00 0.01 Exploration costs 272 666 806 709 1,000 554 669 806 Balance sheet data Cash and short term deposits 83 226 1,039 701 456 1,075 2,147 3,037 Resource properties 1,492 3,763 3,763 3,763 3,763 3,763 3,763 3,763 Total assets 2,945 7,505 8,730 8,539 8,835 9,015 10,343 11,449 Shareholders' equity 2,218 7,035 8,337 8,064 8,395 8,395 9,508 9,997 Selected Annual Information The following financial data has been prepared in accordance with Canadian generally accepted accounting principles in Canadian currency: Amounts have been restated to conform to a change in accounting policy. See "Changes in Accounting Policies" or note 2 of the audited consolidated financial statements for the year ended December 31, 2008. Restated Restated ($000) Year ended Year ended Year ended December 31, December 31, December 31, 2008 2007 2006 Financial results Net loss for period 7,773 3,883 15,957 Other comprehensive loss 690 1,037 - Basic and diluted loss per share 0.04 0.03 0.11 Exploration costs 2,453 3,029 3,606 Balance sheet data Cash and cash equivalents 83 456 4,514 Mineral properties 1,492 3,763 3,763 Total assets 2,945 8,835 13,568 Shareholders' equity 2,218 8,395 11,881 Liquidity and Capital The Company does not currently own or have an interest in any producing mineral properties and does not derive any revenues from operations. The Company's activities have been funded through equity financing and loans from companies associated with two of the Directors of the Company. While the Company remains optimistic that it will continue to be able to utilize these sources of financing until it develops cash flow from operations, there can be no assurance, however, that the Company will be successful in its efforts. If such funds are not available or other sources of finance cannot be obtained, then the Company will attempt to curtail its activities to a level for which funding is available or can be obtained. Most of the capital equipment for operations at Canastra 1 has already been acquired and is included as part of resource properties. The Company has minimal operating lease commitments (refer to Contractual Commitments). During the year ended December 31, 2008, the Company incurred a net loss of $7,965,000 (December 31, 2007 - $4,349,000 (restated)) and at December 31, 2008 has a net working capital deficiency of $329,000 (December 31, 2007 - net working capital of $377,000). These liquidity issues were partly alleviated subsequent to the year end with the sale of some mineral properties and the laboratory and facilities at Patos de Minas for gross proceeds of approximately $1.4 million). The Company's ability to continue as a going concern is dependent upon its ability to fund its ongoing operating costs and exploration and development of mineral properties. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary were the going concern assumption inappropriate, and these adjustments could be material. Subsequent Events a) Starting February 1, 2009, the Company will pay a monthly corporate administration fee of $13,400 which includes office rent, administration, accounting, corporate secretarial, chief financial officer, investor relations and other related services to HRG Management Ltd. HRG is a management company that provides shared office space and staff to certain other public companies on a cost recovery basis. The Company shares directors and officers in common with HRG. The agreement can be terminated with sixty days written notice. b) On March 12, 2009, the Company signed a preliminary agreement to sell the laboratory and facilities at Patos de Minas to third parties. A deposit of $14,000 was received March 24, 2009 and $452,000 is due thirty days from signing. c) On March 12, 2009, the Company signed a preliminary agreement to sell all the assets of Cobre Sul Mineracao Ltda. to third parties. A cash payment of $452,000 is due within sixty days of signing and $516,000 in polished diamonds is to be independently valued in New York, USA and then delivered to the Company within ninety days of signing of the sales agreement. Contractual Commitments Except as outlined below, the Company has no other contractual commitments. 2009 2010 2011 Total Photocopier $ $ $ $ leases 9 9 1 19 Off Balance Sheet Arrangements The Company has not entered into any off-balance sheet arrangements. Transactions with Related Parties During the year ended September 30, 2008 and 2007, the Company entered into the following transactions with related parties: 2008 2007 $ $ HRG Management Ltd. - Kenneth Judge (director), Stephen L. Fabian (director), Kerry Beamish (CFO) (note a) Paid or accrued contractual service costs (note a) 245,000 231,000 Miscellaneous office recoveries (note b) - 28,000 Deposits made (note c) 62,000 82,000 Hamilton Capital Partners Limited ("HCPL") - Kenneth Judge (director) Paid or accrued consulting fees and office rent 170,000 190,000 Sale of Hidefield shares (note d) 185,000 607,000 Massif Limited - Stephen L. Fabian Paid or accrued management fees - (note e) 126,000 129,000 Lang Michener - David Cowan (partner) Paid or accrued legal fees - (note f) 15,000 5,000 Hidefield Gold PLC - Kenneth Judge (director), Francis Johnstone (director) Office and technical cost recoveries (note g) - 25,000 SAFM Mineracao Inc. - Stephen L. Fabian (director) Related party demand loan and interest payable 107,000 - (note (i)) Itapiruba Internacional Ltda. - subsidiary of HCPL Related party demand loan and interest payable 32,000 - (note (j)) a) During the year ended December 31, 2008, the Company paid a monthly corporate administration fee of approximately $18,400 (2007 - $17,000) that includes office rent, administration, accounting, corporate secretarial, chief financial officer, investor relations and other related services to HRG Management Ltd. ("HRG") (note 17(a)). HRG is a management company that provides shared office space and staff to certain other public companies on a cost recovery basis. The Company shares directors and officers in common with HRG. The agreement can be terminated by either party with ninety days written notice. Kenneth Judge and Stephen L. Fabian are both directors of HRG. Kerry Beamish is the CFO of HRG. b) At December 31, 2008, HRG owed the Company $1,000 (2007 - $17,000) and Kenneth Judge owed the Company $10,000 (2007 - $Nil) with normal trade terms. c) At December 31, 2008, $62,000 (2007 - $80,000) is included in accounts receivable, prepaids and deposits to HRG for fixed assets and services. d) The Company received proceeds of $185,000 on the sale of 2 million Hidefield Gold plc shares at 4.75 pence from HCPL. e) The Company paid or accrued management fees of $126,000 (2007 - $129,000) to Massif Limited, a company in which Stephen L. Fabian is interested. f) The Company paid or accrued professional fees of $15,000 (2007 - $5,000) to a law firm in which David Cowan, director is a partner. g) The Company has $Nil office and technical cost recoveries (2007 - $25,000 restated-note 2) from Hidefield Gold PLC ("HIF"). h) The Company owed $22,000 (2007 - $Nil) to directors of the Company, $56,000 to Massif (2007 - $Nil), $98,000 to HCPL and $3,000 (2007 - $Nil) to HRG with normal trade terms. i) The Company owed $107,000 (2007 - $Nil) to SAFM Mineracao Inc., a company associated with Stephen Fabian, with accrued interest based on the monthly interest rate of the standard Brazilian CDB bank rate for Banco Itau payable on demand. j) The Company owed $32,000 (2007 - $Nil) to Itapiruba International Ltda., a company associated with Kenneth Judge, with accrued interest based on the monthly interest rate of the standard Brazilian CDB bank rate for Bancu Itau payable on demand. Share Capital Information The table below presents the Company's common share data as of March 25, 2009. Exercise Number of Price Expiry date common shares Common shares, issued and outstanding 194,370,722 Securities convertible into common shares - Options $0.65 March 29, 2009 50,000 October 26, $0.45 2009 2,875,000 $0.41 April 5, 2011 2,175,000 $0.25 July 12, 2012 1,750,000 October 12, $0.25 2012 100,000 201,320,722 Critical Accounting Estimates Critical accounting estimates upon which the Company's financial status depends are those requiring estimates of the recoverability of its capitalized mineral property expenditures and intangible assets, impairment of long-lived assets and the amount of future reclamation obligations. Mineral Properties and Development Costs During the year ended December 31, 2008, the Company changed its accounting policy relating to mineral property exploration expenditures and it now expenses exploration expenditures when incurred. See "Changes in accounting policies" or note 2 of the consolidated financial statements for the year ended December 31, 2008 for a description and the effects of the change. When it has been established that a mineral deposit is commercially mineable and an economic analysis has been completed, the costs subsequently incurred to develop a mine on the property prior to the start of mining operations are capitalized and will be amortized against production following commencement of commercial production, or written off if the property is sold, allowed to lapse or abandoned. Although the Company has taken steps to verify title to mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company's title. Property title may be subject to prior agreements and non-compliance with regulatory requirements. Impairment of Long-lived Assets The Company assesses the possibility of impairment in the net carrying value of its long-lived assets when events or circumstances indicate that the carrying amounts of the net asset may not be recoverable. As outlined before, as of December 31, 2008 the Company has recorded the amount of $4,097,000 related to impairment for its mineral properties and property, plant and equipment in the extension that it is necessary to reflect the recoverable amount. Intangible assets Intangible assets which consist of data sets related to the Company's Brazilian exploration activities, are recorded at cost and are expensed to operations. Management assess the recoverability of intangible assets annually and at such times as events or circumstances indicate that the carrying amounts may not be recoverable. In the event that an impairment is identified, the carrying value of the intangible asset is written down to its estimated fair value. The Company has assessed the recoverability of its intangible assets and has recorded an asset impairment of $1,583,000. The Canastra data set is considered to have significant value as long as the Company's projects continue. Asset Retirement Obligations The Company relied on the results of a professional, engineering firm and used the discount and inflation rate as at December 31, 2008 to estimate the fair value of its asset retirement obligations. Changes in Accounting Policies Goodwill and Intangible Assets The Company adopted the new Handbook Section 3064, "Goodwill and Intangible Assets", which replaced Section 3062, "Goodwill and Intangible Assets". The new standard establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. Exploration Expenditures During the year ended December 31, 2008, the Company retrospectively changed its accounting policy for exploration expenditures to more appropriately align itself with policies applied by other comparable companies at a similar stage in the mining industry. Prior to the year ended December 31, 2008, the Company capitalized all such costs to mineral properties on the basis of specific claim blocks or areas of geological interest until the properties to which they relate are placed into production, sold or management has determined there to be impairment in value. Exploration expenditures are now charged to operations as they are incurred until the mineral property reaches the development stage. Significant costs related to property acquisitions, including allocations for undeveloped mineral interests, are capitalized until the viability of the mineral interest is determined. When it has been established that a mineral deposit is commercially mineable and an economic analysis has been completed, the costs subsequently incurred to develop a mine on the property prior to the start of mining operations are capitalized. The impact of this change on the previously reported December 31, 2007 consolidated financial statements is as follows: December 31, 2007 As previously December 31, 2007 reported Restatement As restated $ $ $ Intangible assets - 2.115 2.115 Mineral properties 24.657 (20.894) 3.763 Property, plant and equipment - 1.206 1.206 Amortization - 429 429 Exploration costs - 3.029 3.029 Stock-based compensation 161 274 435 Gain on sale of assets - (11) (11) - Loss for the year (162) (3.721) (3.883) Loss per share 0,00 (0,03) (0,03) Deficit at December 31, 2007 (70.836) (17.573) (88.409) Deficit at December 31, 2006 (70.674) (13.852) (84.526) * The numbers restated in this table do NOT include the adjustments of EIC 172 following mentioned. Capital Disclosures Effective August 1, 2008, the Company adopted CICA Handbook Section 1535 - Capital Disclosures. Section 1535 establishes standards for disclosing information about an entity's capital and how it is managed. Under this standard the Company will be required to disclose the following based on the information provided by the entity's key management personnel: 1) qualitative information about its objectives, policies and processes for managing capital; 2) summary quantitative data about what it manages as capital; 3) whether during the period it complied with such externally imposed capital requirements to which it is subject; and 4) when the Company has not complied with such externally imposed capital requirements, the consequences of such non-compliance. The Company has included the disclosures recommended by the new Handbook section in Note 4 to the audited consolidated financial statements. Financial Instruments - Disclosures and Presentation Effective August 1, 2008, the Company adopted CICA Handbook Sections 3862 (Disclosures) and Section 3863 (Presentation). These standards replace CICA 3861, Financial Instruments - Disclosure and Presentation. The increase disclosures will enable users to evaluate the significance of financial instruments for an entity's financial position and performance, including disclosures about fair value. In addition, disclosure is required of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. The quantitative disclosures must provide information about the extent to which the entity is exposed to risk, based on information provided by the entity's key management personnel. The Company has included the disclosures recommended by the new Handbook section in Note 5 of the consolidated financial statements. General Standards on Financial Statement Presentation CICA Handbook Section 1400, "General Standards on Financial Statement Presentation" ("CICA 1400"), has been amended to include requirements to assess and disclose an entity's ability to continue as a going concern. During the year ended December 31, 2008, the Company has adopted the disclosure requirements of CICA 1400. The standard requires that management make an assessment of a company's ability to continue as a going concern and to use the going concern basis in the preparation of the financial statements unless management either intends to liquidate the company or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon a company's ability to continue as a going concern, those uncertainties should be disclosed. Income Statement Presentation of a Tax Loss Carryforward Recognized Following an Unrealized Gain in Other Comprehensive Income Effective September 30, 2008, the Company adopted EIC-172, "Income Statement Presentation of a Tax Loss Carryforward Recognized Following an Unrealized Gain in Other Comprehensive Income" ("EIC-172"). This abstract provides guidance on whether the tax benefit from the recognition of previously unrecognized tax loss carryforwards consequent to the recording of unrealized gains in other comprehensive income, such as unrealized gains on available-for-sale assets, should be recognized in net income or in other comprehensive income. Upon adoption, EIC 172 was applied retrospectively with restatement of prior periods resulting in a reduction of $658,000 in "opening balance adjustment - transition adjustment" in accumulated other comprehensive income in order to record the future income tax liability against deficit. Future income tax recovery in the same amount was recorded against deficit. As of December 31, 2007, the amount of $466,000, due to the unrealized gain reversal, was booked against accumulated other comprehensive income. Future income tax expense in the same amount was recorded against operations accordingly. New Accounting Pronouncements In 2006, the Canadian Accounting Standards Board ("AcSB") published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five-year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly listed companies to use IFRS, replacing Canadian GAAP. The effective date is for the Company's interim and annual financial statements for the year beginning January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the year ended December 31, 2010. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time. Risk There are significant risks that might affect further development of the Company. Although the Company has prospective diamond projects and has demonstrated that it has the ability to obtain environmental and trial mining permits, there is a risk that these projects will not be economically mineable or that the required permits will be granted in the future. Further, future market prices for diamonds are not predictable. There is also a risk that should additional development of the properties be required, financing may not be obtainable. Repatriation of earnings and capital from Brazil is subject to compliance with registration requirements. There can be no assurance that restrictions on repatriation will not be imposed in the future. Management's Responsibility for Financial Statements The information provided in this report, including the financial statements, is the responsibility of management. In the preparation of these statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected in the accompanying financial statements. Disclosure Controls and Procedures Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the President, Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), on a timely basis so that appropriate decisions can be made regarding public disclosure. An evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was conducted as of December 31, 2008, by and under the supervision of management, including the CEO and the CFO. Based on this evaluation, the CEO and the CFO have concluded that the Company's disclosure controls and procedures, as defined by Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings, are effective to ensure that information required to be disclosed in reports filed or submitted under Canadian securities legislation is recorded, processed, summarized and reported within the time period specified in those rules and forms and reported to senior management so that appropriate decisions can be made regarding public disclosure. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. An evaluation of the design of the Company's internal control over financial reporting was conducted as of December 31, 2008, by and under the supervision of management, including the CEO and the CFO. Based on this evaluation, the CEO and the CFO have concluded that the Company's design of internal control over financial reporting, as defined by Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings, is sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP. There have been no changes in internal control over financial reporting during the year ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Other information Additional information is available on the Company's website at www.braziliandiamonds.com or on SEDAR at www.sedar.com. Caution Regarding Forward Looking Statements Except for historical information contained in this discussion and analysis, disclosure statements contained herein are forward-looking. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those in such forward-looking statements. Forward-looking statements are made based on management's beliefs, estimates and opinions on the date the statements are made and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Investors are cautioned against attributing undue certainty to forward-looking statements. Consolidated Balance Sheet (expressed in thousands of Canadian (Restated-note2) Dollars) December 31 December 31 (unaudited) 2008 2007 $ $ Assets Current assets Cash and cash equivalents 83 456 Accounts receivable, prepaids and deposits 204 240 Due from related parties 11 17 298 713 Investments 68 1,038 Intangible assets 264 2,115 Property, plant and equipment 823 1,206 Mineral properties 1,492 3,763 2,945 8,835 Liabilities Current liabilities Accounts payable and accrued liabilities 309 336 Due to related parties 318 - 627 336 Hidefield options - 19 Asset retirement obligation 100 85 727 440 Shareholders' Equity Capital stock 95,326 92,848 Warrants - 519 Contributed surplus 3,336 2,817 Deficit (96,182) (88,217) Accumulated other comprehensive income (loss) (262) 428 2,218 8,395 2,945 8,835 Nature of Operations and Going Concern (note 1) Consolidated Statements of Loss and (Restated- Deficit note 2) (expressed in thousands of Canadian Year ended Year ended dollars) December 31, December 31, 2007 2007 $ $ Expenses Amortization 398 429 Corporate administrative services 80 70 Consultants 211 217 Exploration costs 2,453 3,029 Foreign exchange loss 21 100 Insurance 45 64 Interest income (5) (73) Investor relations 122 175 Legal and audit 125 164 Office costs 139 145 Regulatory 120 143 Salaries and management fees 126 131 Stock-based compensation - 435 Travel 29 73 (3,864) (5,102) Other income (expenses) Unrealized gain on Hidefield options 19 473 Realized gain on Hidefield options - 345 Gain on sale of investments 98 390 Gain on sale of assets 71 11 Write-down of intangible assets (1,583) - Write-down of mineral properties (2,271) - Write-down of property, plant and equipment (243) - Loss for the year before income taxes (7,773) (3,883) Future income taxes expense (192) (466) Loss for the year (7,965) (4,349) Deficit - Beginning of year (88,217) (83,868) Deficit - End of year (96,182) (88,217) Loss per common share - basic and 0.04 0.03 diluted Weighted average common shares outstanding (000's) 188,342 168,414 Consolidated Statements of (Restated- Comprehensive Loss note 2) (figures in tables expressed in Year ended thousands of Canadian dollars) Year ended December December 31, 31, 2008 2007 $ $ Loss for the year (7,965) (4,349) Other comprehensive loss Portion associated with shares (77) sold during the period - Unrealized loss on (613) available-for-sale securities (1,037) Comprehensive loss for the year (8,655) (5,386) Consolidated Statements of Cash Flows (Restated- (figures in tables expressed in note 2) thousands of Canadian dollars) Year ended Year ended December 31, December 31, 2008 2007 $ $ Cash flows from operating activities Loss for the year (7,965) (4,349) Add (deduct) items not affecting cash Amortization 398 429 Accretion 15 6 Future income tax expense 192 466 Gain on sale of investments (98) (390) Gain on sale of assets (71) (11) Stock-based compensation - 435 Write-down of intangible assets 1,583 - Write-down of mineral properties 2,271 - Write-down of property, plant and 243 - equipment Unrealized gain on Hidefield options (19) (473) Realized gain on Hidefield - (345) options Changes in non-cash working capital related to operations Accounts receivable, prepaid and 36 (20) deposits Related parties receivable 6 (13) Accounts payable and accrued (27) (435) liabilities Related parties payable 318 - (3,118) (4,700) Cash flows from financing activities Issue of shares for private placement 2,596 - Share issue costs (118) - 2,478 - Cash flows from investing activities Proceeds from disposal of property, 82 35 plant and equipment Proceeds from exercise of Hidefield 185 607 options and shares 267 642 Decrease in cash and cash equivalents (373) (4,058) Cash and cash equivalents - Beginning 456 4,514 of year Cash and cash equivalents - End of year 83 456 Notes to Consolidated Financial Statements 1. Nature of Operations and Going Concern The Company is engaged in the exploration for and development of mineral resources. The properties of the Company are without a known body of commercial ore, the exploration programs undertaken and proposed constitute an exploratory search, and there is no assurance that the Company will be successful in its search. The Company has not earned any revenue to date from its current operations and is therefore considered to be in the development stage. The business of exploring for minerals and mining involves a high degree of risk, and few properties that are explored are ultimately developed into producing mines. Significant expenses may be required to establish ore reserves, to develop recovery processes, and to construct mining and processing facilities at a particular site. It is not possible to ensure that the current exploration programs planned by the Company will result in a profitable commercial mining operation. These financial statements have been prepared using Canadian generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they become due. The Company has adopted the disclosure requirements of The Canadian Institute of Chartered Accountants ("CICA") Section 1400 - General Standards of Financial Statement Presentation. This standard requires that management make an assessment of a company's ability to continue as a going concern and to use the going concern basis in the preparation of the financial statements unless management either intends to liquidate the company or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon a company's ability to continue as a going concern, such as those set out below, those uncertainties should be disclosed. During the year ended December 31, 2008, the Company incurred a net loss of $7,965,000 (December 31, 2007 - $4,349,000 (restated)) and at December 31, 2008 has a net working capital deficiency of $329,000 (December 31, 2007 - net working capital of $377,000). These liquidity issues were alleviated subsequent to the year end with the sale of some mineral properties and the laboratory and facilities at Patos de Minas for gross proceeds of approximately $1.4 million. The Company's ability to continue as a going concern is dependent upon its ability to fund its ongoing operating costs and exploration and development of mineral properties. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary were the going concern assumption inappropriate, and these adjustments could be material. 2. Change in Accounting Policy and Adoption of Recent Accounting Pronouncements Goodwill and Intangible Assets The Company adopted the new Handbook Section 3064, "Goodwill and Intangible Assets", which replaced Section 3062, "Goodwill and Intangible Assets". The new standard establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. Exploration Expenditures During the year ended December 31, 2008, the Company retrospectively changed its accounting policy for exploration expenditures to more appropriately align itself with policies applied by other comparable companies at a similar stage in the mining industry. Prior to the year ended December 31, 2008, the Company capitalized all such costs to mineral properties on the basis of specific claim blocks or areas of geological interest until the properties to which they relate are placed into production, sold or management has determined there to be impairment in value. Exploration expenditures are now charged to operations as they are incurred until the mineral property reaches the development stage. Significant costs related to property acquisitions, including allocations for undeveloped mineral interests, are capitalized until the viability of the mineral interest is determined. When it has been established that a mineral deposit is commercially mineable and an economic analysis has been completed, the costs subsequently incurred to develop a mine on the property prior to the start of mining operations are capitalized. The impact of this change on the previously reported December 31, 2007 consolidated financial statements is as follows: December 31, 2007 December 31, As previously 2007 reported Restatement As restated $ $ $ Intangible assets - 2.115 2.115 Mineral properties 24.657 (20.894) 3.763 Property, plant and equipment - 1.206 1.206 Amortization - 429 429 Exploration costs - 3.029 3.029 Stock-based compensation 161 274 435 Gain on sale of assets - (11) (11) - Loss for the year (162) (3.721) (3.883) Loss per share 0,00 (0,03) (0,03) Deficit at December 31, 2007 (70.836) (17.573) (88.409) Deficit at December 31, 2006 (70.674) (13.852) (84.526) * The numbers restated in this table do NOT include the adjustments of EIC 172 following mentioned. Capital Disclosures Effective August 1, 2008, the Company adopted CICA Handbook Section 1535 - Capital Disclosures. Section 1535 establishes standards for disclosing information about an entity's capital and how it is managed. Under this standard the Company will be required to disclose the following based on the information provided by the entity's key management personnel: 1) qualitative information about its objectives, policies and processes for managing capital; 2) summary quantitative data about what it manages as capital; 3) whether during the period it complied with such externally imposed capital requirements to which it is subject; and 4) when the Company has not complied with such externally imposed capital requirements, the consequences of such non-compliance. The Company has included the disclosures recommended by the new Handbook section in Note 4 to these audited consolidated financial statements. Financial Instruments - Disclosures and Presentation Effective August 1, 2008, the Company adopted CICA Handbook Sections 3862 (Disclosures) and Section 3863 (Presentation). These standards replace CICA 3861, Financial Instruments - Disclosure and Presentation. The increase disclosures will enable users to evaluate the significance of financial instruments for an entity's financial position and performance, including disclosures about fair value. In addition, disclosure is required of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. The quantitative disclosures must provide information about the extent to which the entity is exposed to risk, based on information provided by the entity's key management personnel. The Company has included the disclosures recommended by the new Handbook section in Note 5 of these consolidated financial statements. General Standards on Financial Statement Presentation CICA Handbook Section 1400, "General Standards on Financial Statement Presentation" ("CICA 1400"), has been amended to include requirements to assess and disclose an entity's ability to continue as a going concern. During the year ended December 31, 2008, the Company has adopted the disclosure requirements of CICA 1400. The standard requires that management make an assessment of a company's ability to continue as a going concern and to use the going concern basis in the preparation of the financial statements unless management either intends to liquidate the company or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon a company's ability to continue as a going concern, those uncertainties should be disclosed. Income Statement Presentation of a Tax Loss Carryforward Recognized Following an Unrealized Gain in Other Comprehensive Income Effective September 30, 2008, the Company adopted EIC-172, "Income Statement Presentation of a Tax Loss Carryforward Recognized Following an Unrealized Gain in Other Comprehensive Income" ("EIC-172"). This abstract provides guidance on whether the tax benefit from the recognition of previously unrecognized tax loss carryforwards consequent to the recording of unrealized gains in other comprehensive income, such as unrealized gains on available-for-sale assets, should be recognized in net income or in other comprehensive income. Upon adoption, EIC 172 was applied retrospectively with restatement of prior periods resulting in a reduction of $658,000 in "opening balance adjustment - transition adjustment" in accumulated other comprehensive income in order to record the future income tax liability against deficit. Future income tax recovery in the same amount was recorded against deficit. As of December 31, 2007, the amount of $466,000, due to the unrealized gain reversal, was booked against accumulated other comprehensive income. Future income tax expense in the same amount was recorded against operations accordingly. 3. Significant Accounting Policies Basis of consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: BSG Investments Inc. ("BSGII") and its subsidiaries, Canastra Investments Holdings Inc. ("Canastra"), Mineracao do Sul Ltda. ("Mineracao"), and Parima Mineracao Ltda. ("Parima"); Game Creek Company Ltd. ("Game Creek")and its subsidiaries, principally Samsul Mineracao Ltda. ("Samsul") and Cobre Sul Mineracao Ltda. ("Cobre Sul") Inter-company balances and transactions are eliminated on consolidation. The Company's corporate office is located in Vancouver, British Columbia, Canada. Canastra, Mineracao, Parima and Samsul are located in Brazil. BSGII and Game Creek are British Virgin Island incorporated companies. Use of estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Significant estimates include assessment of potential impairments of the carrying value of mineral properties, the determination of asset retirement obligations and the determination of stock-based compensation. Actual results could differ from those reported. Cash and cash equivalents Cash and cash equivalents comprise cash and short term investments with maturities of three months or less from date of acquisition. Cash and cash equivalents include cash balances held with major Canadian and Brazilian banks and short-term deposits with these banks. All cash equivalents are highly liquid, with low credit risk. Investments The Company's investments in equity instruments are designated as available-for-sale measured at fair value pursuant to Section 3855 of the CICA Handbook. Prior to January 1, 2007, investments were carried at cost less provisions, where applicable, for impairments in value that were other than temporary. Mineral properties During the year ended December 31, 2008, the Company changed its accounting policy relating to mineral property exploration expenditures and it now expenses exploration expenditures when incurred (note 2). When it has been established that a mineral deposit is commercially mineable and an economic analysis has been completed, the costs subsequently incurred to develop a mine on the property prior to the start of mining operations are capitalized and will be amortized against production following commencement of commercial production, or written off if the property is sold, allowed to lapse or abandoned. Although the Company has taken steps to verify title to mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company's title. Property title may be subject to prior agreements and non-compliance with regulatory requirements. Property, plant and equipment Property, plant and equipment are carried at cost less amounts written off. Amortization is provided for over the estimated lives of the related assets based on annual rates as follows: Heavy equipment 20% Vehicles 20 - 40% Buildings 4% Plant 20% Furniture and fixtures 10% Machine and equipment 10 - 20% Computers 20% Computer software 20% straight-line over the term of the Leasehold improvements lease Intangible assets Intangible assets which consist of data sets related to the Company's Brazilian exploration activities, are recorded at cost and are expensed to operations. Management assess the recoverability of intangible assets annually and at such times as events or circumstances indicate that the carrying amounts may not be recoverable. In the event that an impairment is identified, the carrying value of the intangible asset is written down to its estimated fair value. Asset retirement obligations The fair value of a liability for an asset retirement obligation, such as site closure and reclamation costs, is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The Company is required to record the estimated present value of future cash flows associated with site closure and reclamation as a liability and increase the carrying value of the related assets for that amount. Subsequently, these asset retirement costs are expensed to operations. At the end of each period, the liability is revised to reflect the passage of time and changes in the estimated future cash flows underlying any initial fair value measurements. Financial instruments Section 3861, "Financial Instruments - Disclosure and Presentation", has been replaced by Section 3862, "Financial Instruments - Disclosure", and Section 3863 - "Financial Instruments - Presentation". These new standards require entities to disclose quantitative and qualitative information that enables users to evaluate the significance of financial instruments for the Company's financial performance, and the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the balance sheet date. In addition, the Company is required to disclose management's objectives, policies and procedures for managing these risks. Fair Value The Company classifies its financial assets as either held for trading, available-for-sale, or loans and receivables. Financial liabilities are classified as either held for trading, or loans and payables. Held for trading financial assets and liabilities are recorded at fair values as determined by active market prices and valuation models, as appropriate. Valuation models require the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates. In determining these assumptions, the Company uses readily observable market inputs where available or, where not available, inputs generated by the Company. Changes in fair value of held for trading financial instruments are recorded in operations. Available-for-sale financial assets are recorded at fair value as determined by active market prices. Unrealized gains and losses on available-for-sale investments are recognized in other comprehensive income (loss). If a decline in fair value is deemed to be other than temporary, the unrealized loss is recognized in operations. Loans and receivables are recorded initially at fair value, net of transaction costs incurred, and subsequently at amortized cost using the effective interest rate method. The fair values of the Company's held for trading financial liabilities, such as accounts payable and accrued liabilities and assets retirement obligations were likely below carrying values due to the liquidity issues of the Company, as indicated by the $329,000 working capital deficiency at December 31, 2008. However, the subsequent sale of the laboratory and facilities at Patos de Minas and the asset sale of Cobre Sul Mineracao Ltda. alleviated the liquidity issues and the fair values of the trading financial assets and liabilities, subsequently approximate their carrying values. The fair values of the Company's held for trading financial assets, such as GST and other receivables, approximate their carrying values at December 31, 2008. The Company's available-for-sale investments are measured at fair values with gains and losses of a temporary nature recorded in other comprehensive income (loss). Stock-based compensation The Company uses the fair value method of accounting for all stock-based compensation, including options granted under the Company's incentive stock option plan. Compensation expense for options granted is determined based on the estimated fair values of the stock options at the time of grant, the cost of which is recognized over the vesting periods of the respective options. Stock-based compensation expense is recorded as a charge to operations with a corresponding credit to contributed surplus. Consideration paid for shares on the exercise of options is credited to share capital. Loss per share Loss per share is calculated based on the weighted average number of shares issued and outstanding during the year. Basic and diluted loss per share are the same for the periods reported, as the effect of potential issuances of shares under warrant or share option agreements would be anti-dilutive. Future Income taxes Future income taxes are recorded using the asset and liability method whereby future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment or enactment occurs. To the extent that the Company does not consider it to be more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess. Foreign Currency Translation The Company's subsidiaries are integrated foreign operations and are translated into Canadian dollars using the temporal method. Monetary items are translated at the exchange rate in effect at the balance sheet date; non-monetary items are translated at historical exchange rates. Income and expense items are translated at the average exchange rate for the period. Exchange gains and losses arising on currency translation are credited or charged to earnings. 4. Capital management The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to pursue the development of its mineral properties and to maintain a flexible capital structure for its projects for the benefit of its stakeholders. As the Company is in the exploration stage, its principal source of funds is from the issuance of common shares. In the management of capital, the Company includes the components of shareholders' equity as well as cash and cash equivalents, receivables and investment balances. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, enter into joint venture property arrangements, acquire or dispose of assets or adjust the amount of cash and cash equivalents and investments. In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Board of Directors. The Company's investment policy is to invest its cash in highly liquid short-term interest-bearing investments with maturities three months or less from the original date of acquisition, selected with regards to the expected timing of expenditures from continuing operations. The Company is uncertain as to whether its current capital resources will be sufficient to carry its exploration and development plans and operations through its current operating period and, accordingly, management is reviewing the timing and scope of current exploration and development plans and is also pursuing other financing alternatives to fund the Company's operations. 5. MANAGEMENT OF FINANCIAL RISK The Company's financial instruments are exposed to certain financial risks. The risk exposures and the impact on the Company's financial instruments are summarized below. Foreign Currency Risk The Company's functional currency is the Canadian dollar. The Company's operations, however, are located in Brazil where many exploration and administrative expenses are incurred in the local currency, the Brazilian Real. The Company's ability to advance funds to Brazil (for capital investment or operations) is subject to changes in the valuation of the Real as well as rules and regulations of the Brazilian government. Fluctuations in the value of the Real may have an adverse affect on the operations and operating costs of the Company. Interest Rate and Credit Risk The Company has neither significant cash balances nor credit risk arising from operations. Accounts and other receivable consist of goods and services tax due from the Federal Government of Canada, amounts due from related parties with normal trade terms, and funds advanced for exploration. Management believes that the credit risk concentration with respect to receivables is remote. Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has an insignificant cash balance and significant interest-bearing debt to related parties. At December 31, 2008, the Company has a net working capital deficiency of $329,000 (December 31, 2007 - net working capital of $377,000 (restated)). These liquidity issues were alleviated subsequent to the year end with the sale of the laboratory and facilities at Patos de Minas and the asset sale of Cobre Sul Mineracao Ltda. for gross proceeds of approximately $1.4 million. Commodity Price Risk The Company's ability to raise capital to fund exploration or development activities is subject to risks associated with fluctuations in the market prices of diamonds. The Company closely monitors commodity prices to determine the appropriate course of action to be taken by the Company. Sensitivity Analysis The Company has designated its investments as available-for-sale, which are measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities are classified as loans and payables, which are measured at amortized cost. As of December 31, 2008, the carrying amount of accounts receivable and payable approximates fair market value. The movements below may impact the Company's operation as follows: a) Cash and cash equivalents include deposits which are at variable interest rates. Sensitivity to a plus or minus 1% change in rates would affect net loss by $1,000. b) The Company holds balances in foreign currencies which may give rise to exposure to foreign exchange risk. Sensitivity to a plus or minus 1% change in rates would affect net loss by $500. c) Price risk is remote since the Company is currently not a producing entity. 6. INVESTMENTS December 31, 2008 Number of Carrying Shares Value Fair Value % Holding Hidefield Gold plc 7,625,000 $ 331 $ 68 2.74% December 31, 2007 Number of Carrying Shares Value Fair Value % Holding Hidefield Gold plc 9,625,000 $ 418 $ 1,038 3.5% a) During the year ended December 31, 2008, the Company recognized an unrealized loss, net of future income tax of $613,000 (2007 - $1,037,000) on marketable securities designated as available-for-sale in other comprehensive loss. b) On February 8, 2008, the Company sold 2,000,000 Hidefield Gold plc ("Hidefield") shares at a price of 4.75 pence per share for a total of $185,000 to Hamilton Capital Partners Limited and recorded a gain of $98,000. c) On January 25, 2008, the Company's 7,125,000 Hidefield options expired and the $19,000 unrealized fair value of the Hidefield options was written off. =--END OF MESSAGE--- This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
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