Kopane Annual Report 2009 FINAL lines:Layout 1 · 2019-10-24 · 13.32 carat vivid yellow which was recovered from K5. This stone sold in July 2008 for $466,679 equivalent to $35,136

ANNUAL REPORT & ACCOUNTS

2009

Kopane is a diamond producer, developer and explorer with

core projects at Liqhobong in Lesotho, Southern Africa.

Over 350,000 carats of diamonds have been produced and

recovered. An independently produced new resource

statement was announced in September 2009 which showed

90 million tonnes of kimberlite with an in-situ value of $2.6

billion, excluding the impact of large and bonanza stones.

This is a much larger resource than previously shown and

will support production of over 1 million carats per annum.

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2009H I G H L I G H T S

Kopane Diamond Developments PLC Annual Report and Accounts 2009

Improvement in grade confidence, based on141% increase in indicated resource to 38.6million tonnes, potentially increases thedepth of a future open pit to 180 metres.

Main Pipe total resource of 90.03 milliontonnes, an increase of 19.1% over the interimresource statement issued in November 2008.

Gross diamond resource of 29.7 million carats(Kopane attributable 22.3 million) containedin the Main Pipe to an average depth of 510metres, with an estimated in situ value of$2.6 billion based on September 2008 bulksample diamond values.

Large diameter reverse circulation drillingresults support an average grade of 33 cphtto at least 510 metres average depth.

Memorandum of Understanding signed forfunding power line to Liqhobong.

Sales of 85,108 carats valued at $3.4 million.

Funding arranged in calendar 2009 of £5.65 million.

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www.kopanediamonds.com

CONTENTS//

Operational Review

Independent Auditors’ Report

Statement of Directors’ Responsibilities

Directors’ Report

Consolidated Balance Sheet

Consolidated Income Statement

Chairman’s Letter to Shareholders

Company Information3

Consolidated Statement of Cash Flows30

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12

21

25

26

28

29

Notice of Meeting

Notes to the Consolidated Financial Statements

Consolidated Statement of Changes in Shareholders’ Equity

Appendix to the notice of meeting

Glossary of terms

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32

64

67

71

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DIRECTORSFrancesco Scolaro (Chairman) James Seymour Cable (Finance Director)Andrew Campbell Birnie (Technical Director)Timothy Philip Read (Non-executive)Michael John Carter Wittet (Non-executive)Buddy James Doyle (Non-executive)Edward Hammond Rivers Marlow (Non-executive)

COMPANY SECRETARYJames Seymour Cable

HEAD OFFICE AND REGISTERED OFFICECarlyle House235-237 Vauxhall Bridge RoadLondon SW1V 1EJTel: +44 (0) 20 7963 9590Fax: +44 (0) 20 7233 5446E-mail: [email protected]: www.kopanediamonds.com

REGISTERED NUMBER4108629

NOMINATED ADVISER AND BROKER FinnCap4 Coleman StreetLondon EC2R 5TA

SOLICITORSAshurst LLPBroadwalk House5 Appold StreetLondon EC2A 2HA

Asianajotoimisto Jukka Kallio Oy Attorneys at LawEteläranta 12FI-00130 Helsinki, Finland

AUDITORSPKF (UK) LLPFarringdon Place20 Farringdon RoadLondon EC1M 3AP

REGISTRARComputershare Investor Services PLCPO Box 82The PavilionsBridgwater RoadBristol BS99 7NHWebsite: www-uk.computershare.com

COMPANY INFORMATION//


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The following is a summary ofthe Company’s principaloperational and financialhighlights of the past year:-

\\The total Main Pipe indicativevalue is $2.6 billion, with a totalresource tonnage of 90.03 million tonnes.

\\Final resource statementpublished on 10 September 2009,prepared by ACA HoweInternational Limited (“Howe”)places 38.6 million tonnes (43%)of the resource in the “indicated”category.

\\The above final resourcestatement followed publication ofan interim resource statement on17 November 2008 by Howeunder strict QA/QC protocols to aDFS standard, which gave a totalresource tonnage of 76 milliontonnes, up 79 % on the Pre-Feasibility Study (“PFS” )statement published in 2007 of 42 million tonnes.

\\The gross diamond resource of29.7 million carats provides anindicative overall Main Pipe valueof $2.6 billion when applying thevalue generated by the bulksample extracted in July andAugust 2008, of $86 per carat.This valuation was obtained inSeptember 2008 shortly after thecommencement of a decline inrough diamond prices.

CHAIRMAN’S LETTERTO SHAREHOLDERS///

Dear Shareholders

The year to 30 June 2009 has proved to be an eventful one for Kopane as well as the diamond mining industry.The gloomy economic outlook persisting at the time of the Chairman’s letter to you last year resulted in asevere fall in prices available for rough diamonds from the third quarter of calendar 2008 and this continuedinto the first quarter of 2009, although since then prices have improved, according to market indications bysome 30% to 40%. No diamond producer has been immune from these macro-economic impacts and Kopane,like many other producers, elected to suspend production. Our Liqhobong mine was placed on a care andmaintenance basis in early December 2008 to preserve cash resources.

Nevertheless, I am pleased to say that Kopane has had a very successful year in progressing its development of the Liqhobong project including release of a final resource statement in respect of the Main Pipe atLiqhobong on 10 September 2009. This has added substantial value to its diamond resource by considerablyenhancing the mining potential of the Pipe to 180 metres below surface and classifying a significant tonnage inthe indicated category. This followed publication in November 2008 of an Interim Resource which substantiallyincreased the indicative value of the Main Pipe over the 2007 pre-feasibility study estimate.

A total of £5.65 million funding was arranged in calendar 2009 to date through share placements and exercisesof warrants and share options, which has put the Company on a strong footing to enable it to undertake itswork programme in the coming year. Of this amount, £3.15 million was raised through an Equity SwapAgreement so that the Company will retain much of the economic interest in the shares issued whereby funds arereceived monthly over 24 months dependant on the Company’s share price compared to a benchmark price of18.67p per share. The Equity Swap Agreement will allow the Company to secure much of the potential upsidearising from near term news flows.

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\\In August 2009, aMemorandum of Understandingwas agreed with respect tofunding a power line to connectthe Liqhobong mine to gridelectricity. This represents asignificant step forward in con-structing a 132 KVA power line tothe mine, a critical component ofthe Main Pipe project.

\\Total Liqhobong diamondproduction, which includedproduction from the Satellite Pipeas well as production and bulksampling from the Main Pipe, inthe year to June 2009, totalled56,500 carats, compared with152,013 carats in the previousyear. This fall in production is dueto the current year representingonly 5 months of production untilsuspension of production in earlyDecember 2008 and theprocessing of the DefinitiveFeasibility Study bulk samples. Inaddition we saw an improvementin monthly production due to asubstantial improvement in theoperational efficiencies albeit at alower grade as a greaterproportion of ore was sourcedfrom the lower grade Main Pipe.

\\Diamond sales for 5 monthsuntil suspension of production inearly December 2008 of 85,108carats realised $3.4 million, whichincluded the sale of 3 premiumyellow diamonds including a13.32 carat vivid yellow whichwas recovered from K5. Thisstone sold in July 2008 for$466,679 equivalent to $35,136per carat, which is the highestprice per carat achieved so far.This compares to total sales inthe previous financial year of148,824 carats with grossproceeds of $6.9 million.

\\150,600 dry tonnes of kimberlitewere mined and processed in the5 months to early December 2009,compared to 309,480 tonnes in theprevious year, representing anincrease in the average monthlyproduction rate of 15% over theprevious year. The average costper tonne mined and processed,in Sterling terms, at £11.8 pertonne was similar to £11.1 pertonne incurred in the previous year.

\\50 million new ordinary shareswere placed with ObtalaResources Plc in March 2009which raised £1.75 million and afurther 27.9 million new ordinaryshares were placed in November2009 with institutional andprivate investors at 14p per sharewhich raised a further £3.9million before expenses. Of thisamount, £3.15 million is payableover 24 months dependant onthe Company’s share pricecompared to a benchmark priceof 18.67p per share.


Francesco ScolaroChairman

James CableFinance Director

Andrew BirnieTechnical Director

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The Company’s assets in Lesothoare owned and managed by itsoperating subsidiary LiqhobongMining Development Company(“LMDC”). KDD owns 75% of LMDCwith the balance of ownershipheld by the Government ofLesotho (“GoL”).

Once again, I would like to thankthe Ministry of Natural Resourcesfor the considerable support andcooperation we have received,particularly in these difficultmarket conditions. Our partnerwas fully supportive of thedecision to suspend production inearly December 2008 due tofalling diamond prices. In return,LMDC endeavours to operate theLiqhobong assets with thehighest level of responsibility dueto all its stakeholders.The Company recovered a total of33,921 tonnes of bulk samples

from each of the four facies ofthe Main Pipe in July and August2008, which had been treated bythe Satellite Plant. These bulksamples yielded 12,514 carats ofrough diamonds, valuedindependently by diamantiers at$86/ct in September 2008,equivalent to a total sales valueof some $1 million and are held in the Company’s inventory. The Company believes that it is inits best interests to retain thesediamonds in its inventory for theforeseeable future, at least untildiamond prices recover. The diamonds were recoveredunder strict QA/QC conditionsand help demonstrate the in-situvalue of the Main Pipe kimberlite.The retention of these diamonds,to allow re-assessment tosupport the eventual funding ofthe Main Pipe Project, will bereviewed as appropriate.

Work on the DFS in respect of theprocessing of some 1,800 tonnesof mini bulk samples, obtainedfrom the Large Diameter Drilling(“LDD”) programme, through theCompany’s onsite custom built 5tonnes per hour Dense MediaSeparation plant was completed.

Subsequent analysis of thediamond recovery results fromthese LDD samples allowed theCompany to demonstrate gradedata at depth for each of the fourfacies and enabled more of theresource to be classified into thehigher definition indicatedcategory. The final resourcestatement was announced on 10 September 2009. Otherwise,the remaining DFS activitiesinvolve primarily completion ofplant and tailings disposal design,infrastructure requirements andcompletion of ESIA work.


View from Liqhobong camp to Satellite Plant and Main pipe

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Other significant DFS workcompleted in the year underreview has been:

\\A programme of narrow(HQ/NQ) diameter core drilling,comprising 4 holes with a totaldepth of 1,705 metres plus afurther 5 geotechnical holes witha total depth of 1,247 metres.This programme permitted arecalculation of the dimensionsof the Main Pipe, resulting in amuch larger resource tonnage of75.6 million tonnes, a 79%increase on the 42 million tonnesresource identified in the PFS, asdisclosed to shareholders on 17 November 2008.

\\A LDD programme utilising aPrakla RB-40 RC drill rig,comprising a 25 hole programmetotalling 4,415 metres of drillingand recovering some 1,800tonnes of mini bulk samples. Thisprovided depth continuity dataon grade for each of the facies,enabling us to report asubstantial increase in theindicated category of theresource in the Final ResourceStatement issued on 10 September 2009. Incomparison to the previouslyreleased Interim ResourceStatement, we now find we havea 19.1% larger resource, with agrade of 33 cpht.

The Company announced on 17November 2008 a substantiallyincreased interim resourcestatement for the Main Pipewhich, on the modelled diamondvaluation, showed an indicativevalue of the in-situ diamondresource of $2.54 billion, consistingof 76 million tonnes of kimberliteat an average grade of 39.1carats per hundred tonnes at arun of mine value of $86 per carat.This is a 213 per cent. increase inthe value of the resource againstthat published in the Company'sPre-Feasibility Study in July 2007.

The Company believes that thereis significant upside potential inthe resource value from theimpact of the value of large gemand bonanza stones.

The DFS was scheduled to becompleted in mid 2009 but therehave been delays in itscompletion, not least as a resultof the substantial increase in theresource which necessitated arethink of the project’s physicaland commercial parameters.

A primary driving force incompleting the DFS, which isestimated to cost a further £1.2million, has been to providesufficient information to enablethe Company to access debtfunding for a substantial part ofthe capital cost of constructingnew Main Pipe Plant. However,the availability of debt funding infinancial markets at present andfor the near term is likely to be

severely restricted. Whilst theCompany has had somepreliminary discussions withlenders and will pursue thisavenue, I believe we should becautious about relying on projectdebt finance under presenteconomic circumstances.

The Company has deferredincurring expenditure on certainelements of the DFS in favour ofproposing to incur expenditure onother items which will have amore immediate revenuegeneration potential. Theseinclude reviewing the re-commencement of diamondproduction at the Satellite Plantat Liqhobong alongside investingin a significant expansion of theexisting Satellite Plant, whichcurrently has a capacity ofapproximately 450,000 tonnesper annum, in order to takeadvantage of a sustainedincrease in diamond prices.


Bauer Prakla RB-40 drill rig drilling LDD hole on the Main Pipe

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This review will assess thefeasibility of operating theSatellite Plant with dieselgenerated power ahead ofconnection to the grid electricitysupply planned in the first half of2011. The Company will alsoreview the most economicalways of expanding production topotentially 1.4 million carats perannum with the aim of limitingShareholders’ equity dilution asmuch as possible. This review willencompass trade off studies toassess the timing and impact offurther expansion of the SatellitePlant as well as the possiblegradual construction of the newMain Pipe plant and fundingoptions for the Main Pipe Project.

The Company announced on 5October 2009 that, followingdiscussions regarding potentialinvestment in the Main PipeProject, an exclusivity agreement,valid for a period of 60 days, hadbeen signed with an establishedmining company to allow it toreview the project in more detail.

The mining company is able tooffer the technical, operationaland financial capability to takethe Liqhobong Main Pipe to fullscale production. The Directorsbelieve that investment by amining company with thesecapabilities could provide anexpeditious route to realising fullvalue for the Company withoutincurring significant shareholderdilution. Shareholders shouldnote that these discussions mayor may not lead to an agreement.

The Company’s funds provide itwith flexibility to invest in thefacilities at Liqhobong as well asto progress certain key parts ofthe DFS, which it believes to be inthe shareholders’ best interests.

The successful development ofthe Liqhobong Main Pipe will betotally dependent upon theprovision of grid electrical powerfrom the Lesotho electricity grid.I am pleased to report that aMemorandum of Understandingbetween the Company’s

subsidiary, Liqhobong MiningDevelopment Company, LesothoElectricity Company, theGovernment of the Kingdom ofLesotho and Standard LesothoBank, in respect of funding of the construction of an electricalpower line to the Company’smine at Liqhobong, was signedand announced on 17 August2009. The MOU contemplatesthat funds will be lent by thebank to the LEC to fund theconstruction of the power linefrom the LEC’s sub-station at HaLejone, which is approximately 30 kilometres from Liqhobong. In addition, the LEC and theGovernment of the Kingdom ofLesotho will contribute fundstowards the cost of the projectand the Government of theKingdom of Lesotho has agreedto provide a sovereign guaranteeto the bank in respect of the loanfunding. LMDC will finance theservicing of the loan and itsrepayment on terms which haveyet to be agreed.

The cost of the powerline projecthas been estimated by externalconsulting engineers at R131million and Kopane’s share isexpected to amount to R90million, although this cost isbeing re-assessed in the light ofthe current environment. Theplan is that construction willcommence in early 2010, whichshould allow grid electricity to beconnected to the mine site in the first half of 2011.

The cost of grid electricityrepresents a substantial savingover diesel generated power. It is estimated that, based onproduction levels beforesuspension of production, dieselfuel was costing approximately$6 per tonne, compared to a likelygrid electricity tariff cost of lessthan $1 per tonne. Annual cashoutgoings to LMDC of paying forgrid power plus the estimated


Bauer support crew ready to add another drill rod

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cost of repaying capital andinterest on the loans (to benegotiated) will be less thanpaying the alternative cost ofdiesel fuel.

The engineering specifications ofthe power line, together withenvironmental impactassessment studies, have beencompleted in readiness for animmediate start to theconstruction once funding is inplace. It is planned that the loandocumentation will be finalisedbetween the parties to allowconstruction to commence earlyin 2010, which as noted aboveshould allow grid electricity to beconnected to the mine site in thefirst half of 2011.

As noted above, the Company isnot currently producing roughdiamonds, having suspendedproduction from its SatellitePlant operations at the beginningof December 2008 due to thesharp fall in prices available forrough diamonds as a result of theworld economic situation. Pricesfell by some 30-50% from October2008 until the first quarter ofcalendar 2009; since then marketindications are that prices haveimproved somewhat but not, asyet, to previously prevailinglevels. However, the Companyremains confident that themedium and long term outlook

for rough diamond prices is likelyto be robust in the face ofprojected supply shortages.

In addition to placing theoperation at Liqhobong on to acare and maintenance footing,the Company has taken othermeasures to conserve cash,including a reduction in corporate overheads.

Production at Liqhobong in the 5months of the financial year priorto suspension of production hadbeen at an improved rate overthe first part of calendar 2008.Following the completion of thebulk sampling programme inAugust 2008, production attainedrecord levels. In the period fromSeptember 2008 until 1 December 2008 the plant, onaverage, attained its targetcapacity of 30,120 tonnes permonth, producing 56,500 caratsfrom predominantly Main Pipematerial. In the 5 month period150,600 dry tonnes of kimberlitewere processed, compared to309,480 dry tonnes for theprevious financial year, anincrease in the monthlyproduction rate of over 15%.

Since production commenced inthe second half of 2005 untilearly December 2008, theCompany exported 352,088 caratsof rough diamonds, of which

339,367 carats have been sold for$17 million at an average price of$50.07 per carat. The Company isretaining in inventory 12,514 caratsof rough diamonds, including boart,which were recovered in July andAugust 2008 from the bulksample programme. These bulksample stones were valued at$86 per carat in September 2008.

In the financial year to 30 June2009, production and sales werein respect of a 5 month periodonly and therefore weresubstantially less than theprevious year, 43% in terms ofcarats sold (85,108 versus148,824) and 51% in terms ofrevenue (US$3.4 million versusUS$6.9 million). Although averagesales prices are similar incomparing the two periods, this isthe result of a number ofcompensating factors. A greaternumber of boart stones weresold in the 5 month period thanthe previous 12 month periodand the substantially highersales revenues achieved in thefirst 2 sales in the 5 month period(due to the inclusion of three highvalue premium yellow stones,one of which, a 13.32 carat vividyellow, sold for $35,136 per caratin July 2008), were offset by theimpact of substantially lowerprices achieved for the remaining3 sales held between October2008 and January 2009.


Drilling blast holes for DFS K6 bulk sample

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The average price per caratachieved depends additionally onthe production blend ofkimberlite from the higher gradebut lower value Satellite Pipe andthe lower grade but higher valueMain Pipe and in the 5 monthperiod there was a significantlygreater proportion of Main Pipestones sold.

Sales were conducted undersealed tender in Antwerp onLMDC’s behalf by BHP Billitonunder an agreement which hassince terminated. Although LMDCis not presently marketingdiamonds due to the suspensionof production, it is well advancedin selecting a new sales agentand arrangements will be put inplace in advance of resumption insales. It is intended that newmarketing arrangements willenable LMDC to participate in thedown-stream value added byretaining some level of ownership

of its premium stones throughcutting, polishing and jewellerymanufacture.

The market for rough diamondshas been in turmoil over the last12 months and as shareholderswill know, producers have reactedquickly to this and there has beena reduction in the supply ofdiamonds offered for sale. Manyof our buyers are Indian cuttersand polishers and the restrictedcredit available in the financialmarkets to them and others hashad a material effect on demand.There is evidence of pricerecovery in the current calendaryear after the dramatic falls inthe last part of 2008 but it isimpossible to gauge how longmarket weakness will persist. Weare nevertheless optimistic thatprices will recover due to industryfundamentals in the medium andlong term which show a materialsupply shortage.

Your board is monitoring thissituation very closely to determinethe best time to resumeproduction at Liqhobong. As Imentioned earlier, we are alsoreviewing the feasibility ofinvesting in a major expansion ofthe existing Satellite Plant. This isbeing considered in the light ofthe planned availability of gridelectrical power at the mine in2011, which is not onlyconsiderably cheaper than dieselgenerated power but isoperationally more practicable.

Another major factor in a decisionto resume production is of coursethe cost of operating the mine, themajority of costs being incurredin South African Rand/LesothoMaloti, compared to US Dollarsales revenue. The Rand hasfluctuated considerably over thelast two years, with the currentrate of approximately R7.7:$,some 13% stronger than theaverage rate for the financial yearof R8.9:$, which was 22% weakerthan the rate of R7.3:$ prevailingin the year before that. The recentstrengthening of the Rand againstthe Dollar has increased the costof production as well as the costof completing the DFS. On theother hand, project costs of some$100 million estimated in the PFSin 2007 for construction of newMain Pipe plant, a substantialpart of which will be incurred inRand, were made at an assumedRand rate of R7.1;$, so significantdollar equivalent cost reductions are indicated.

The Company was pleased towelcome Obtala Resources Plc asa significant new shareholder,when they subscribed for 50million new ordinary shares inMarch 2009, for £1.75 million. The proceeds of this placementhave been applied to progressing the DFS as well as to general working capitalrequirements.


Diamond valuer assessing parcel prior to export

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The Company is also pleased withthe overwhelming support shownby shareholders when theygranted the Board, at a GM heldon 16 November 2009, authorityto place up to 29.4 million newordinary shares. Since that date,on 17 November 2009 a further27.9 million shares were placedwith institutional and othershareholders to raise £3.9 millionbefore expenses, subject to theEquity Swap arrangementsdiscussed above. The Company istherefore funded in order to carryout its plans over the next year.

Since the last annual report,there have been changes to themanagement of the Companyand the composition of the Boardof Directors. In April 2009 TonyWilliams resigned as a non-executive director to pursue otherinterests and, on your behalf, I would like to thank him for hiscontribution to the progress ofthe Company over many years.Tony was a founder director atthe Company’s inception in 2000and was a former Chairman andcontinues to support theCompany as a significantshareholder.

Tim Read served as ExecutiveChairman from July 2007 until Ijoined the Board at the end ofMarch 2009 and I would like tothank him on your behalf for hisexcellent work in development ofthe assets at Liqhobong and insteering the Company throughturbulent times in both thediamond industry and financial

markets. Tim continues to serveon the Board as a non-executivedirector until the AGM inDecember 2009 when he will stepdown due to other commitments.As a result of the suspension ofproduction in late 2008, MikeWittet, who had been appointedas Chief Executive Officer inNovember 2008, agreed toresume his previous role as anon-executive director and provideconsulting services as required.

In July 2009, FinnCap wereappointed as the Company’sNOMAD and broker in place ofCanaccord Adams Limited, whichhad served in this capacity sinceJanuary 2006. We would like tothank Canaccord Adams Limitedfor their services and advice to Kopane.

The Company’s Finnish Assetsare being operated, financed anddeveloped under a Joint VentureAgreement with MantleDiamonds Limited (”JVA”). Underthis JVA, Mantle can earn up to a70% interest in the Finnish assetsby expending US$5 million,including producing a definitivefeasibility study on the Lahtojokiproperty and issuing Kopane with10 million shares in Mantle, with apre-IPO value of £2 million. To date,Mantle has spent over £700,000in respect of the definitivefeasibility study at Lahtojoki.

As last year, the main challengefacing your company’s executivemanagement and its board ofdirectors in the current year is to

align shareholder value, throughthe market value of the shareprice, with the substantialunderlying value of Kopane’sassets. As mentioned in thisletter, your Company believes itto be in shareholders’ bestinterests to consider variousfunding and developmentalalternatives which will minimisedilution of share price.

I joined your Company asChairman in March 2009 at thetime of the investment of ObtalaResources Plc, on which I alsoserve as Chairman, because I sawin Kopane a Company withexcellent assets and tremendouspotential for growth inshareholder value. The ResourceStatement announced on 10September 2009 is furtherconfirmation of the 30 millioncarats of underlying assets.Despite difficult marketcircumstances, I believe theCompany has a great future as asignificant diamond producer.

I would like to pay tribute to thecontribution made by theCompany’s board of directors,staff, consultants and advisors ina challenging year. As always,thanks is due to our shareholdersfor their ongoing support as weendeavour to progress theCompany and maximise value.

Frank ScolaroChairman


Overview of Main Pipe showing Bauer rig (at left) and core rig (lower right)

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LESOTHOThe Company’s diamondoperations are located at thehead of the Liqhobong Valley,high in the Maluti Mountains ofnorthern Lesotho, on a mininglease covering 390 hectares. Thislicence contains five kimberlitesof which three have yet to beextensively explored. Currentoperations comprise the SatellitePipe, with a surface area of 0.9hectare, the much larger MainPipe, with a surface area of over8.5 hectares, and the SatellitePlant (the “Plant”). The Liqhobongoperating company, LMDC,owned 75% by Kopane and 25% bythe GoL, received the originalproduction licence for theSatellite Pipe from the GoL in2001 and in February 2007 wassuccessful in reaching agreementwith the GoL for an extension tothis mining licence to enable it tomine from the Main and SatellitePipes for up to 20 years.

Kopane’s primary asset is theMain Pipe at Liqhobong which itplans to bring to full value.

THE DEFINITIVE FEASIBILITY STUDYThe DFS has been underwaysince late 2007 and commencedas a result of the successful PFSwhich recommended proceedingto a DFS to determine the fullpotential of the Main Pipe. TheCompany has entered intoagreements with industryrecognised contractors to delivera high quality study, with

supervision of the geologicalcomponents by Howe to ensurethat the work is conducted underhigh QA/QC standards to producea robust geological resource.

The PFS report included apreliminary resource statementin mid 2007. In the last AnnualReport the Company had justannounced an interim resourcestatement on 17 November 2008which updated the PFS resourcestatement and followed bulksampling and core drilling work.This resulted in a re-interpretation of the geologicalmodel of the Main Pipe, to asignificantly greater resource of75.6 million tonnes, 79% greaterthan previously estimated in thePFS statement. The bulksampling programme consistedof a series of samples extractedand processed to test the gradeof the four identified facies,namely the K2, K4, K5 and K6,totalling 33,921 tonnes, toprovide grade, stone sizedistribution and stone value datain each case. A total of 12,514carats were produced from thebulk samples, at a bottom cut-offof 1 millimetre. These caratswere valued by diamantiers at$86/ct. in September 2008 and,applying this value, the indicativevalue of the Main Pipe wascalculated at $2.6 billion (29.6million carats at $86 per carat).

Since then the LDD work hasbeen completed; this involved a25 hole programme totalling

4,415 metres of drillingundertaken by BauerTechnologies South Africa (Pty)Limited using a Prakla RB-40 RCdrill rig. The subsequentprocessing of 1,800 tonnes of therecovered drilling samplesthrough the Company's onsitecustom built 5 tonnes per hourDense Media Separation plantwas also completed undersupervision under strict QA/QCconditions by Howe.

Following from this work,detailed diamond and statisticalanalysis of the results of thesamples was undertaken andthis has provided the Companywith depth continuity data on thediamond grade for each of thefacies to 180 metres fromsurface, enabling 43% of thekimberlite to be classified in theindicated category and less in thelower inferred category. In thediamond industry, the indicatedresource category is generallyaccepted as the highest resourceclassification obtainable due tothe nature of diamond deposits.

OPERATIONAL REVIEW//

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These results mean that theCompany is able to demonstratesignificantly higher confidence inthe recoverable resource,because the indicated kimberlitecategory of 38.6 million tonnesalone represent over 10 years ofproduction at over one millioncarats per annum (based on aprocessing rate of 3.5 milliontonnes per annum noted in thePre-Feasibility Study in 2007),which also better supportsproject financing alternatives forconstruction of a new processing plant.

In addition, there is a furtherinferred resource of 51.47 milliontonnes of kimberlite down to the2,040 metre depth level only,which is an average depth of 510 metres below surface. Themineralisation is open at depth,with one earlier diamond drillhole remaining in kimberlite tothe end of the hole at a depth of650 metres below surface. Theresource categorization andlimits are based on the sameparameters used for the 2007PFS interim resource estimate,also independently verified by Howe.

As a result of the above work, afinal resource statement waspublished on 10 September 2009which shows:-

The Company believes that therevised overall grade estimate of33 cpht is the lowest estimate ina range of grade results ultimatelypossible in the Main Pipe due toanomalies arising from thediamond recovery analysis of theLDD samples. The analysis ofthese samples shows virtually norecovery of boart stones andreduced recovery of low quality(near gem) diamonds, whichclearly reflects diamond lossesincurred in the reverse circulationLDD drilling process. In order forthe grade and containeddiamonds to properly account forthe loss of the boart and lowquality diamonds, further workwill be undertaken to account forthese differences and assess theimpact on the diamond grade foreach of the kimberlite facies andon the overall diamond grade ofthe Main Pipe kimberlite.

The new resource statementupdates the interim statementpublished in November 2008.The $86 per carat run of minevaluation does not include thepositive impact of large andbonanza stones, which couldprovide material economicenhancement to the projectvalue. This is illustrated by thesale, at the end of 2006, of fourstones, believed to be fragmentsfrom a 100+ carat stone, which

totalled approximately 78 caratsand had a total value of $1.43million and by the sale in July 2008of three premium stones, totallingapproximately 27 carats, for $0.63million. All of these premiumstones were sourced from the K5facies. In addition, in 2008 Kopanehas seen the occurrence in theMain Pipe of several large piecesof polycrystalline boart of over100 carats each, including one of263 carats. This is consistent withthe report of Howe in respect ofthe PFS, in mid 2007, whichidentified stone value, along withore grade, as one of the potentialareas of upside for the economicsof the Main Pipe project.

The Company is thereforeconfident that the Main Pipe willyield further large stones,although the proportion of whichwill be of gem quality is unclear.The Company is reviewing thefeasibility of a further significantbulk sample from the areas ofthe Main Pipe which have alreadyproduced large stones.

Category Attributable to LMDC (100%) Net Attributable to Kopane (75%)

Notes: 1. Bottom cut off screen size of 1.0mm2. Results based on the 3D spatial estimate utilising diamond data collected from 26 LDD holes

Source: ACA Howe International Limited


MAIN PIPEMineralresources

Tonnes(millions)

Grade(cpht)

ContainedDiamonds

(millioncarats)

Tonnes(millions)

Grade(cpht)

ContainedDiamonds

(millioncarats)

Indicated 38.56 31 12.04 28.92 31 9.03

Inferred 51.47 34 17.66 38.60 34 13.24

Total 90.03 33 29.70 67.52 33 22.27

14

Other progress in the DFSincludes collection of ore dressingstudy samples to assist in theplant design, completion of anairborne laser topographic surveyin connection with identifyinginfrastructure requirements,including grid power, road accessand the installation ofenvironmental monitoringequipment.

The DFS was scheduled to becompleted in mid 2009 but therewere delays, in completing theLDD and processing the 1,800tonnes of samples, whichresulted in the resourcestatement being finalised threemonths later than anticipated,with the subsequent knock-oneffect on other work, such asplant and tailings design. The significantly larger resource than originallyestimated is also a factor in thework programme. In themeantime, the Rand hasstrengthened against both theUS$ and Sterling and this hasexacerbated further costsrequired to complete the study.Certain key work on the DFS iscontinuing, such as work inconnection with the environmentand social impact of the projectbut, as discussed in theChairman’s letter toshareholders, the Company is re-evaluating with its advisorsthe benefit of spending

shareholders’ funds to completeall aspects of the DFS ahead ofother more immediate revenuegenerating alternatives.

The size of the Main Pipekimberlite of 90 million tonnes issubstantially more than the PFSresource statement.Consequently, a material factorunder review is the size of theultimate processing plantrequired to enable the Companyto recover the full potential ofrough diamonds in the mosteconomic way. The PFS modelledresource indicated a mine life ofapproximately 16 years at aproduction rate of 3.5 milliontonnes per annum. However, thelarger kimberlite means that thecompany must assess theoptimum combination of a longermine life and a higher processingrate, subject to finalisation ofplant and tailings design.

The Company’s internal financialmodels show a robust netpresent value of the project;clearly the Company willendeavour to develop the mine toprovide the greatest shareholdervalue, taking into account thetiming and availability of fundsneeded to construct plant with asignificantly higher processingcapability. These considerationsencompass expanding theexisting Satellite Plant in theshort term.

Capacity, Production and SalesThe Satellite Plant, which has aname-plate capacity of 60 tonnesper hour (“tph”), commencedproduction in late 2005.Commercial Production, asdefined under the LicenceAgreement with the GoL as a rateof 40 tph, was reached in July2006 and LMDC was awarded anextension of its mining licence inJanuary 2007 to encompassmining from the Main Pipe, for aperiod of 10 years with a further10 years at LMDC’s option.

In 2007/8, a total of 150,600 drytonnes were treated in the Plantproducing 56,500 carats, coveringa 5 month period only. Thiscompares with equivalent figuresof 309,480 dry tonnes and152,013 carats in the previousyear. Production in both periodshas been affected by the plannedinterruptions to production dueto preparation for and conduct ofthe programme of bulk samplingof the individual facies, as requiredfor the DFS. The grade of the feeddeclined to 37.5 cpht from 49.1cpht in the previous year, as agreater proportion of the feed wassourced from the lower grade, buthigher diamond value, Main Pipeand was further distorted by bulksampling. Following completion ofthe bulk sampling programme inAugust 2008, the Plant was oper-ating at greater efficiency, runningmainly Main Pipe kimberlite, with a


Cat ADT-25 haul truck on way to Main Pipe

15

blend of harder Satellite Pipe feedto optimise recoveries and product-ion increased to reach nameplatecapacity by October 2008.

However, the Plant’s relativelysmall capacity of approximately450,000 tonnes per annum didnot provide any significant scopefor achieving economies of scaleto enable there to be sufficientcost reductions to offset thesubstantial fall in rough diamondprices. The rough diamondmarket fell very sharply in late2008 and the Company reactedvery quickly, reaching the harddecision, in spite of operationshaving been running well in theprevious months, to suspendproduction at 1 December 2008.

Overall since commencement ofproduction in the second half of2005 until early December 2008,the Company has recoveredsome 352,000 carats of roughdiamonds, of which 339,000 havebeen sold, including low gradeindustrial or boart stones, at anaverage price of $50 per carat.Sales revenues are affectedsubstantially be the incidence ofpremium stones which have amarked impact on prices achieved.

Sales in the financial year were as follows:

In the financial year to 30 June2009, although overall sales fellbecause of the reduced 5 monthperiod of production, there wasan increase in sales over theapproximate comparative H1period in 2007/8 ofapproximately 10% in terms ofrevenue and 47% in terms ofcarats (although this is distortedby a sale of boart stones inDecember 2008 of 16,749 carats).The above table shows thedramatic impact of the fall inprices in sales from October 2008,which offset the strong pricesachieved in the two sales prior tothat, including the excellent salein July 2008 at $99.35/ct whichincluded three premium yellowstones, one of which, a13.32 caratvivid yellow, sold for $35,136 percarat, our highest price per caratachieved so far.

In addition to the above sales inthe year, 12,514 carats of stoneswere recovered in July andAugust 2008 under the DFS bulksample programme and areretained in inventory. As notedelsewhere, a valuation of $86 percarat was received byindependent diamantiers inSeptember 2008.


Date Carats Sold Revenue $ $/ct

18/07/2008 17,020.44 1,690,931 99.35

22/08/2008 14,489.71 783,426 54.07

31/10/2008 8,993.92 261,539 29.08

05/12/2008 15,478.49 334,664 21.62

05/12/2008 (Boart) 16,748.61 6,197 0.37

12/01/2009 12,377.06 326,199 26.36

Total incl. Boart 85,108.23 3,402,956 39.98

Total excl. Boart 68,359.62 3,396,759 49.69

Tertiary re-crush conveyorin Satellite Plant

16

The above table shows themodelled number of stones of 1 carat and above.

From the above table, theCompany’s internal model (notindependently verified) indicatesthat there are likely to beapproximately 2.2 million stonesof 1 carat or higher(approximately 8 million carats).The valuation of bonanza stonesis difficult to predict. Kopaneestimates the weighted averagevalue of diamonds of one caratand above will be in the range of$300 - 400 per carat for run ofmine production (including boartstones). A major factor indetermining value is theproportion of boart stones and itis estimated that this will varyfrom approximately 10% for runof mine, which accords withproduction to date, to 95% boartfor stones of over 10 carats.

Apart from one small sale ofrough diamonds in Johannesburgin 2005, all sales of Liqhobongdiamonds, over 23 tenders, weremade in Antwerp by BHP Billiton.The sales agreement terminatedupon completion of the final salein January 2009 and, as noted in

the Chairman’s letter toshareholders, LMDC is welladvanced in the selection of anew agent and arrangements willbe put in place in advance of asales resumption. The Companyis reviewing the best way tomaximise its revenues takinginto account the significantimpact of premium stones as aproportion of sales revenues andis considering the best way tobenefit from retaining an interestin the eventual sale of these high

value cut and polished diamonds. Sales of Liqhobong stones in thefinancial year once againattracted interest from regularbuyers, despite difficult marketconditions from the forth quarterof calendar 2008.

The table opposite summarises sales made sincecommencement of production.

This table shows the growth incarats sold and sales revenuesachieved since 2005. Salesrevenues have been in line withgeneral market conditions forrough diamonds which increasedsteadily until the third quarter ofcalendar 2008. The numbersshown opposite are somewhatdistorted by the sale of specialpremium diamonds sold fromtime to time and boart stoneswhich are accumulated forseveral months before sale.

Before placement of the mineonto a care and maintenancebasis, the Liqhobong projectemployed 113 workers, includingsub contractors, most of whomare Lesotho nationals and ofthese a significant number aresourced from local communities.


Overview of Liqhobong site with Main Pipe in lower left and Satellite Pipe centre right

Tonnes

Size

33.401

K2Facies

6.398

K4Facies

29.776

K5Facies

20.451

K6Facies

90.026

TOTAL

> 200 cts 34 3 69 19 125

100 - 200 cts 75 8 170 50 303

50 - 100 cts 278 33 587 186 1,084

20 - 50 cts 1,673 239 3,422 1,178 6,512

10 - 20 cts 4,273 705 8,533 3,144 16,655

5 - 10 cts 21,426 4,117 41,685 16,527 83,755

1- 5 cts 558,603 146,245 961,064 473,995 2,139,907

Total stones 586,362 151,350 1,015,530 495,099 2,248,341

Expected Number of Stones Recovered from Resource Estimate Tonnage

17

In addition, 25 other workershave been temporarily employedduring the conduct of the DFS.Currently, a small number ofmaintenance, security andsupport staff are employed. The Company remains in closecontact with former personnelwho have operating experience at the mine and anticipates thatit will be able to react quickly to a resumption in production. Thelevel of operator experience andtraining will place the company ina very strong position when theplanned much larger Main Pipeplant is constructed andcommissioned over the next few years.

POWERPower for the Satellite Plantmining operations is currentlyprovided by diesel generators but the spiraling cost of dieseland the much greater powerrequirements of the Main Pipenecessitates that Liqhobong willhave to access grid power.Accordingly, the Company hascompleted engineering andenvironmental studies withindependent contractors, inliaison with the LesothoElectricity Company, with the aimof providing grid power toLiqhobong.

A Memorandum ofUnderstanding was signed on 17 August 2009 between theCompany's subsidiary, LiqhobongMining Development Company,Lesotho Electricity Company, theGovernment of the Kingdom ofLesotho and Standard LesothoBank, in respect of funding of theconstruction of an electricalpower line to the Company'smine at Liqhobong. The MOUcontemplates that funds will belent by the bank to the LEC tofund the construction of thepower line from LEC's sub-station at Ha Lejone, which isapproximately 30 kilometresfrom Liqhobong.

In addition, the LEC and the GOLwill contribute funds towards thecost of the project and the GOLhas agreed to provide a sovereignguarantee to the bank in respectof the loan funding. LMDC willfinance the servicing of the loanand its repayment on termswhich have yet to be agreed. The cost of the project has beenestimated at R131 million andKopane’s share is expected toamount to R90 million. The planis that construction willcommence in early 2010, whichshould allow grid electricity to beconnected to the mine site in the

first half of 2011. The cost of gridelectricity represents a substantialsaving over diesel generatedpower. It is estimated that, basedon Liqhobong’s current operationalcapacity, diesel fuel costsapproximately $6 per tonne,compared to a tariff cost of under$1 per tonne. Annual cashoutgoings to LMDC of paying forgrid power plus the cost ofrepaying capital and interest onthe loans (to be negotiated) willbe less than paying thealternative cost of diesel fuel.

LMDC’s Satellite Pipe Plant atLiqhobong has a capacity of450,000 tpa, powered by dieselfuel which is trucked to site. The supply of grid electricity toprovide power to run the process plant and relatedinfrastructure is estimated torequire approximately 1.7 mva.LMDC is evaluating increasingthe size of the existing plant toapproximately 750,000 tpa as an interim measure before theconstruction and operation of amuch larger plant to processkimberlite from the Main Pipe.This new Main Pipe plant may be phased in on a modular basisto have an eventual capacity of 3.5 million tonnes per annum or higher.


Auditing of -3mm x-ray concentrate

Total Sales (inc boart) No of sales Carats $ $/ct

2008/9 To Jan. 2009 5 85,108 3,402,955 39.98

2007/8 H2 5 90,896 3,829,431 42.13

H1 5 57,928 3,103,010 53.57

2006/7 H2 2 30,025 3,157,226 105.15

H1 4 47,287 2,282,157 48.26

2005/6 H2 2 25,387 1,126,250 44.36

H1 1 2,736 89,414 32.68

Total 24 339,367 16,990,443 50.07

18

FINLANDThe Company's Finnish Assetsare being operated, financed anddeveloped under a Joint VentureAgreement (“JVA”) with MantleDiamonds Limited. Mantle is aprivately-owned UK companywith diamond explorationinterests in Canada, the DRC,Lesotho as well as Finland.

Under this JVA, Mantle can earnup to a 70% interest in theFinnish assets by expendingUS$5 million, including producinga definitive feasibility study onthe Lahtojoki property andissuing Kopane with 10 millionshares in Mantle, with a pre-IPOvalue of £2 million. To date,Mantle has spent over £700,000in respect of the definitivefeasibility study at Lahtojoki andwork in the period included the following:

\\Positive internal scoping studycompleted

\\Drill indicated grade of35ct/100t confirmed byindependent study

\\Perimeter ‘definition’ drillingcompleted comprising 11 shallowangled holes totalling 495maround the pipe to provide abetter outline of the kimberlitebeneath the till cover

\\Detailed pit design generatedfollowing geotechnical and pitmining consultancy studies byGolder Associates and AMCConsultants

\\Environmental approvalreceived to commenceearthmoving operations whichwill expose the eastern limb ofthe pipe for large diameterdrilling (LDD)

\\Agreement subsequentlysigned with Hartikainen Oy and60,000 m3 of overburden till hasbeen stripped

\\Mantle plans to collectapproximately 6,000 tonnes ofrepresentative kimberlite samplefrom surface trenching and alarge diameter Kelly Bar Bauerdrill rig at some stage in thefuture.

The Company owns 3.4 millionshares in Mantle, which have anattributed value of £334,000.Under the terms of the JVA, theCompany was, subject to certainconditions, due a cash paymentby Mantle of £667,000 inAugust 2009; Mantle hasrequested deferment or other settlement of thisobligation, which is underdiscussion with them.


Stripping of overburden at Lahtojoki

19

DIAMOND DEMAND AND PRICESRough diamond prices in the yearunder review experiencedconsiderable turmoil. Havingdoubled from 2002 untilSeptember 2008, the marketsuffered a severe correction dueto the world economic situationand falls of approximately 50%were suffered in late 2008 toearly 2009.

Several producers, includingKopane, lowered or suspendedproduction which has reducedsupply to the market. Thefollowing chart illustrates thereduction in market supply ofrough diamonds in late 2008 and2009 so far:

In calendar 2009 to date priceshave picked up from the bottomby some 30-40% but at the timeof writing the sustainability ofthis recovery and the timing offurther increases are subject tomarket debate.

The summer period is generallyquiet in the diamond trade and in2009 slow global demand hasseen less cutting and polishingactivity in mid year. The third orfourth quarters of calendar 2009 will be critical and demandconditions will show whether the rise in rough diamond

prices since the first quarter have been justified.

There has been a significantreduction in retail diamondinventories in the first half of2009, although on the supply sideRussian producer Alrosa returnedto the market in July 2009. Thevalue of rough diamond sightsheld by market leader De Beersfor the whole of 2009 could behalf of the previous year. Forseasonal reasons, rough diamonddemand is greater in the first halfof a year.

According to market analysts, thekey to a sustained recovery inrough diamond sales is a return

of confidence in the majorjewellery diamond buyingeconomies, in particular the USwhere over 40% of all diamondjewellery sales take place. WhileChina and the Gulf states are stillreporting good diamond jewelleryoff-take, they are not yet largeenough to offset the soft USmarket. China and the Gulf eachaccount for approximately 8% ofglobal diamond demand atpresent, and India 7%. It willprobably be another three to fiveyears before they match the USin terms of size. Until then, theUS will be the single mostimportant component of salesand until economic growth andemployment recover strongly,jewellery sales growth will likelyremain under some pressure.Hence there is caution on asustained pick-up in roughdiamond prices until into 2010.However, there is a medium andlong term supply shortage asshown in the below graph

Similar to our view last year,Kopane believes in the longerterm that supply shortages will create a bullish roughdiamond market.


Global Production (MM ct)

0

20

40

60

80

100

120

140

160

180

200

1940A 1965A 1978A 1983A 1988A 1993A 1998A 2003A 2008A

MM

ct

Supply & Demand

0

5 0 0 0

1 0 0 0 0

1 5 0 0 0

2 0 0 0 0

2 5 0 0 0

3 0 0 0 0

3 5 0 0 0

4 0 0 0 0

4 5 0 0 0

2008E 2010E 2012E 2014E 2016E 2018E 2020E 2022E 2024E

$MM

Supply D emandSour c e: All figur e s RBC

Capita l Marke ts est imates

20

FINANCIALThe consolidated net loss aftertaxation in respect of the yearended 30 June 2009 amounted to£4.5 million (loss per share 2.5p)compared to the consolidated netloss after taxation for 2008 of£4.7 million (loss per share 4.1p).Production was suspended inDecember 2008 as a result offalling rough diamond prices andas a result, sales of diamondswere lower with a correspondingreduction in mining, processingand employee costs. Otherexpenses were reducedsignificantly in the year from£1.8m to £1.3m and depreciationwas lower by £0.5 millioncompared to the previous yearresulting from writing off themining assets over a longerperiod. An impairment loss of£0.4m was recognised throughthe income statement oninvestments held by the Group(2008: nil).

There were 5 diamond sales inthe year to 30 June 2009 totalling85,108 carats generating revenueof £1.9 million (2008: £3.4 million).The Group’s only other income inthe year arose from bank depositinterest which amounted to£42,000 (2008: £93,000), thedecrease being due to lowerinterest rates during the year.

The net assets of the Groupamounted to approximately£14.2 million at the year end(2008: £15.0 million) whichincluded fixed assets of £3.3million (2008: £3.2 million).

Intangible assets relate toaccumulated deferred explorationand evaluation costs and goodwillin respect of the Group’s diamondinterests in the Main Pipe inLesotho. The Group’s accountingpolicy is to capitalise explorationand development costs pendingdetermination of the feasibility ofthe project to which they relate.

These intangible assets at 30June 2009 were approximately£6.2 million (2008: £2.7 million),the increase being due to expen-diture in Lesotho of £3.0 millionand a gain on exchange of £0.4million. Inventories of £0.5 million(2008: £0.7 million) representrough diamonds recovered duringthe feasibility study. Cash at 30June 2009 amounted to £0.9million (2008: £4.7 million).

CORPORATE AND SOCIALRESPONSIBILITYKopane is committed to adhereto high standards of Corporateand Social Responsibility. TheDFS for the Liqhobong Main Pipeproject incorporates anEnvironmental and Social ImpactAssessment produced incompliance with the EquatorPrinciples. The development ofthis project will be structured toensure the maximum possiblepositive social impact on theLiqhobong Valley and theKingdom of Lesotho as a whole.

PRINCIPAL RISKS ANDUNCERTAINTIESThe Group’s diamond sales arebased on the number and qualityof rough diamonds recoveredfrom production at its mine inLesotho and transported tomarket. The Group’s diamondsales are made in Antwerp,Belgium to invited customerswho submit sealed bids.

The Group is therefore dependenton its mine production, recoveryof diamonds and marketconditions which prevail at thetime of the sales.

The exploration activities of theGroup are speculative due to thehigh-risk nature of this part of itsbusiness. There can be noassurance that the Group will beable to find or economicallyrecover diamonds from itsprojects or that it will be able tocomplete planned development.

The Group’s diamond sales aremade in Belgium in US dollarswhich are converted into LesothoMaloti. The Group also makesexpenditure in Lesotho Maloti,South African Rand and Euros.

The Group is therefore exposed tothe movement in exchange ratesfor the US dollar, Lesotho Maloti,South African Rand and Euros toSterling. The Group does nothedge foreign exchange riskalthough monitors this situationand seeks to minimise cash heldin foreign currencies.

The Group’s projects requirefunding in order to realise theirpotential. The availability offunding cannot be guaranteed.The Group is exposed to theimpact of changes toenvironmental legislation on its operations.


View from Liqhobong camp to Satellite Plant and Main pipe

21

DIRECTORS’ REPORT//FOR THE YEAR ENDED 30 JUNE 2009

The Directors present their report with theconsolidated financial statements of the Companyfor the year ended 30 June 2009.

At an Extraordinary General Meeting held on 18 June,2008, shareholders approved to increase theauthorised share capital of the Company.

PRINCIPAL ACTIVITYThe principal activity of the Group is diamondexploration and production in the Kingdom ofLesotho and diamond exploration and developmentin Finland. The principal activity of the Company isthat of a holding company.

The review of the Group’s business and prospects isset out in the Letter to Shareholders and Operational Review.

RESULTS AND DIVIDENDSThe Group loss after taxation for the year was £4.5million after expensing the fair value of share optionsgranted of £0.3 million (2008: loss of £4.7 million).The Directors do not recommend the payment of adividend for the year (2008: nil).

DIRECTORSDuring the year under review, the following Directorsheld office:

F Scolaro (appointed 30 March 2009)J S CableA C Birnie A J Williams (resigned 22 April 2009)T R Read B J Doyle S Lay (resigned 3 October 2008)E MarlowM Wittet (appointed 19 August 2008)

All Directors’ service contracts are determinable onnot more than 12 months’ notice.

The Directors who held office at the end of thefinancial year had the following interests in theordinary shares of the Company:


22


Shares heldat 30 June

2009


2008 or dateappointed

Shareoptions held

at 30 June2009

Share optionsheld at 30 June


Option exerciseprice per share

Option exercise period

J S Cable - - - 150,000 36p 19 May 2006 to18 May 2015

- 450,000 27p 27 January 2007 to26 January 2016

- 250,000 11.7p 22 November 2007 to21 November 2016

- 150,000 24.25 20 July 2007 to19 July 2017

1,400,000 - 10p 29 August 2008 to29 August 2018

B J Doyle - - - 100,000 43.5p 21 September 2005 to20 September 2014

- 175,000 27p 27 January 2007 to20 September 2016


- 50,000 24.25p 20 July 2007 to19 July 2017

750,000 - 10p 29 August 2008 to29 August 2018

A C Birnie - - - 10,000 187p 13 December 2002 to12 December 2011

- 30,000 101p 16 December 2003 to15 December 2012

- 50,000 75p 6 May 2004 to5 May 2013

- 300,000 43.5p 21 September 2005 to20 September 2014



- 150,000 24.25p 20 July 2007 to19 July 2017


T P Read 1,250,000 750,000 - 1,000,000 24.25 20 July 2007 to19 July 2017


M Wittet - - 500,000 - 10p 29 August 2008 to29 August 2018

E Marlow - - 500,000 - 10p 29 August 2008 to29 August 2018

23

Mr. Scolaro is a director of Obtala Resources Plcwhich at the date of this report is interested in anaggregate of 56,535,000 ordinary shares. He holds noshare options or receives other remuneration.

Mr. Marlow is currently Managing Director, EmergingMarkets Africa in HSBC Principal Investments. At thedate of this document, HSBC Holdings plc, through itssubsidiary companies, holds 26,876,260 ordinary shares.

On 5 December 2008 Mr. Read acquired 500,000ordinary shares.

Changes in the Directors’ interests between 1 July2009 and the date of this report are as follows:

On 18 September 2009 Mr. Read exercised 1,100,000share options at an exercise price of 10p per shareand sold 500,000 ordinary shares.

On 21 September 2009 Mr. Wittet was grantedoptions as noted below:

SUBSTANTIAL SHARE INTERESTSAs at 18 November, 2008 the Company was awareof the following substantial share interests:

SHARE CAPITALIn December 2008, each ordinary share of 5p eachwas sub divided into one ordinary share of 1p eachand one deferred share of 4p each.

In March 2009 the Company completed a privateplacement with Obtala Resources Plc raising £1.75m,before expenses, through an issue of 50,000,000ordinary shares at 3.5p per share.

POST BALANCE SHEET EVENTSIn July 2009 the Company issued 500,000 ordinaryshares to a company in the Dragon Group insettlement of amounts due of £52,000.

In August 2009 the Company signed a Memorandumof Understanding with Lesotho Electricity Company,Standard Lesotho Bank Limited and the Governmentof the Kingdom of Lesotho in respect of funding ofthe construction of an electrical power line to theCompany's mine at Liqhobong in Lesotho.

In September 2009 the Company announced anupdate to its Summary of Reserves and Resources inrespect of the Main Pipe, details of which are coveredin the operational review.

In September and October 2009, 1,871,582 new ordin-ary shares were issued as a result of exercises of shareoptions at 10p per share and 1,333,989 new ord-inaryshares from an exercise of warrants at 10p per share.

On 16 November 2009, at a General Meeting,shareholders approved proposed share placementsof up to 29.4 million new ordinary shares, of which27.9 million have been placed at 14p per share toraise £3.9 million before expenses; of this amount,£3.15 million is payable over 24 months dependenton the Company’s share price compared to abenchmark price of 18.67p per share. In addition, 1.5million warrants with an exercise price of 25p pershare were issued.

DIRECTORS’ REPORT// CONTINUED


Share OptionsGranted on 21

September2009

Optionexcersiseprice per

share

Optionexcersise

period

M Wittet 750,000 14.25p

21September2010 to 20September

2019

Ordinary shares %

Obtala Resources Plc 24,335,000 9.69%

Spreadex Limited* 32,200,000 12,82%

HSBC Holdings Plc, through it’s subsidary companies 26,876,260 10.70%

Lanstead Partners Limited 24,750,000 9.85%

J P Morgan Asset Management (UK) Limited 15,847,167 6.31%

Generali Ambition 14,260,000 5.68%

* Obtala Resources Plc holds 32,200,000 indirectly through a financial instrument held by Spreadex Limited and is therefore interested in an aggregate of 56,535,000 shares representing 22.5 per cent. of the issued share capital.

24

CREDITOR PAYMENT TERMSIt is the Group’s policy to settle all amounts due tocreditors in accordance with agreed terms of supplyand market practice in the relevant country.

The Company’s average creditor payment period at30 June 2009 was 42 days (2008: 32 days).

CORPORATE GOVERNANCECorporate governance is conducted in accordancewith the guidelines for smaller companies, publishedby the Quoted Companies Alliance. The Board hasappointed an Audit Committee, whose primary role isto review the accounts of the Group, and aRemuneration Committee, which reviews executiveremuneration. Members of these Committeescomprise the non-executive directors which duringthe year have been Mr Doyle, Chairman, Mr Williams(until his resignation), Mr Read (following hisresignation as Executive Chairman in April 2009) andMr Marlow. All Committee members have extensiveknowledge and experience of mining companiesrelevant to the Company’s operations. Meetings ofthe Board and of these Committees are held asdeemed necessary. The Company has complied withthe guidelines in issue during the year to the extentthe Directors consider appropriate, having regard tothe size of the Company and its current stage ofdevelopment.

The Company maintains Directors' and Officers'Liability Insurance in respect of legal action thatmight be brought against its Directors.

The Companies (Audit, Investigations andCommunity Enterprise) Act came into force on 6 April2005. This Act extends the indemnities that acompany can provide to its directors. The Companyhas subsequently indemnified each of its directorsand certain of the Groups' other officers against certain liabilities.

RELATED PARTY TRANSACTIONSRelated party transactions are disclosed in Note 25of the Financial Statements.

STATEMENT ON INFORMATION GIVEN TO AUDITORSEach director at the time of approval of this reportconfirms so far as the director is aware, there is norelevant audit information of which the auditors areunaware, and he has taken all steps that he ought tohave taken as director in order to make himselfaware of any relevant audit information and toestablish that the company’s auditors are aware ofthat information.

AUDITORSThe audit report has been signed in the name of PKF(UK) LLP and a resolution for the reappointment ofPKF (UK) LLP will be proposed at the forthcomingannual general meeting.

BY ORDER OF THE BOARD

J S CableSecretary

18 November 2009

DIRECTORS’ REPORT//CONTINUED


25

The directors are responsible for preparing thedirectors' report and the financial statements inaccordance with applicable law and regulations.

Company law requires the directors to preparefinancial statements for each financial year. Underthat law the directors have, as required by the AIMRules of the London Stock Exchange, elected toprepare the group financial statements inaccordance with International Financial ReportingStandards as adopted by the European Union andhave also elected to prepare the parent companyfinancial statements in accordance with thosestandards. Under company law the directors mustnot approve the financial statements unless they aresatisfied that they give a true and fair view of thestate of affairs of the company and the group and ofthe profit or loss of the group for that period. Inpreparing these financial statements the directorsare required to:

\\select suitable accounting policies and then applythem consistently;

\\make judgments and estimates that arereasonable and prudent;

\\state whether the financial statements have beenprepared in accordance with IFRSs as adopted by theEuropean Union

\\prepare the financial statements on the goingconcern basis unless it is inappropriate to presumethat the company and the group will continue inbusiness.

The directors are responsible for keeping adequateaccounting records that are sufficient to show andexplain the company's transactions and disclose withreasonable accuracy at any time the financialposition of the company and the group and enablethem to ensure that the financial statements complywith the Companies Act 2006. They are alsoresponsible for safeguarding the assets of thecompany and the group and hence for takingreasonable steps for the prevention and detection offraud and other irregularities.

The directors are responsible for the maintenanceand integrity of the corporate and financialinformation included on the company's website.Legislation in the United Kingdom governing thepreparation and dissemination of the financialstatements and other information included in annualreports may differ from legislation in otherjurisdictions.

STATEMENT OFDIRECTORS’ RESPONSIBILITIES//


26

INDEPENDENT AUDITORS’ REPORT//TO THE MEMBERS OF KOPANE DIAMOND DEVELOPMENTS PLC


We have audited the financial statements of KopaneDiamond Developments PLC for the year ended 30June 2009 which comprise the consolidated andcompany balance sheets, the consolidated incomestatement, the consolidated and companystatements of cash flows, the consolidated andcompany statements of changes in shareholders’equity and the related notes. The financial reportingframework that has been applied in their preparationis applicable law and International FinancialReporting Standards (IFRSs) as adopted by theEuropean Union and, as regards the parent companyfinancial statements, as applied in accordance withthe provisions of the Companies Act 2006.

This report is made solely to the company'smembers, as a body, in accordance with sections 495and 496 of the Companies Act 2006. Our audit workhas been undertaken so that we might state to thecompany's members those matters we are requiredto state to them in an auditors' report and for noother purpose. To the fullest extent permitted by law,we do not accept or assume responsibility to anyoneother than the company and the company'smembers as a body, for our audit work, for thisreport, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS ANDAUDITORSAs explained more fully in the directors’responsibilities statement, the directors areresponsible for the preparation of the financialstatements and for being satisfied that they give atrue and fair view. Our responsibility is to audit thefinancial statements in accordance with applicablelaw and International Standards on Auditing (UK andIreland). Those standards require us to comply withthe Auditing Practices Board’s Ethical Standards forAuditors.

SCOPE OF THE AUDITAn audit involves obtaining evidence about theamounts and disclosures in the financial statementssufficient to give reasonable assurance that thefinancial statements are free from materialmisstatement, whether caused by fraud or error. Thisincludes an assessment of: whether the accountingpolicies are appropriate to the group’s and the parentcompany’s circumstances and have beenconsistently applied and adequately disclosed; thereasonableness of significant accounting estimatesmade by the directors; and the overall presentationof the financial statements.

OPINION ON FINANCIAL STATEMENTSIn our opinion;\\the financial statements give a true and fair viewof the state of the group’s and the parent company’saffairs as at 30 June 2009 and of the group’s loss forthe year then ended;

\\the group financial statements have been properlyprepared in accordance with IFRSs as adopted by theEuropean Union;

\\the parent company financial statements havebeen properly prepared in accordance with IFRSs asadopted by the European Union as applied inaccordance with the provisions of the Companies Act2006; and

\\the financial statements have been prepared inaccordance with the requirements of the CompaniesAct 2006.

27

EMPHASIS OF MATTER – GOING CONCERN ANDADEQUACY OF PROJECT FINANCE

In forming our opinion on the financial statements,which is not qualified, we have considered theadequacy of the disclosure made in note 2(a) to thefinancial statements concerning the group and thecompany’s ability to continue as a going concern andadequacy of project finance. The group hascontinued to make losses in the year and hasentered into an arrangement to raise further fundingover the next 24 months the exact amount of whichis dependent on the Company’s share pricecompared to a benchmark price. On the basis thatthe benchmark price is achieved the directors believethat the company and the group will have sufficientfunds to meet working capital requirements for atleast the next 12 months but will need to raiseadditional funds to develop the major assets further.This along with other matters explained in note 2(a)to the financial statements, indicate the existence ofa material uncertainty which may cast significantdoubt about the group’s and the company’s ability tocontinue as a going concern. The financialstatements do not include the adjustments thatwould result if the group and the company wereunable to continue as a going concern.

OPINION ON OTHER MATTERS PRESCRIBED BY THECOMPANIES ACT 2006In our opinion the information given in the directors’report for the financial year for which the financialstatements are prepared is consistent with thefinancial statements.

MATTERS ON WHICH WE ARE REQUIRED TO REPORTBY EXCEPTIONWe have nothing to report in respect of the followingmatters where the Companies Act 2006 requires usto report to you if, in our opinion:

\\adequate accounting records have not been keptby the parent company, or returns adequate for ouraudit have not been received from branches notvisited by us; or

\\the parent company financial statements are notin agreement with the accounting records andreturns; or

\\certain disclosures of directors’ remunerationspecified by law are not made; or

\\we have not received all the information andexplanations we require for our audit.

N KissunSenior statutory auditorfor and on behalf of PKF (UK) LLP, Statutory auditors

London Office19 November 2009


28


F Scolaro J S CableChairman Finance Director

The financial statements were approved and authorised for issue by the Board and were signed on its behalf on 18 November 2009.

CONSOLIDATED BALANCE SHEET// COMPANY NO. 4108629

NotesYear Ended

30 June 2009£’000

Year Ended30 June 2008

£’000

Assets

Property, plant and equipment 9 3,321 3,179

Intangible assets 10 6.173 2,728

Investments in joint venture entity 11,13 1,669 1,171

Available for sale investments 11,13 333 667

Trade and other receivables due after more than one year 15 2,584 2,583

Total non-current assets 14,080 10,328

Inventories 14 474 727

Trade and other receivables - due within one year 15 61 217

Cash & cash equvalents 16,23 869 4,729

Total current assets 1,404 5,673

Total assets 15,484 16,001

Equity

Issued share capital 17.18 8,981 8,481

Share premium 17,18 26,111 24,933

Merger reserve 18 3,242 3,242

Share-based payment reserve 20 1,301 987

Foreign exchange translation reserve 18 868 (879)

Accumulated loss 18 (26,271) (21,754)

Total equity 14,232 15,010

Trade and other payables 21 1,196 953

Total current liabilities 1,196 953

Non current provisions 22 56 38

Total liabilities 1,252 991

Total equity and liabilities 15,484 16,001

29


NotesYear Ended

30 June 2009£’000


£’000

Revenue 1,925 3,422

Changes in inventories (253) 134

Mining and processing costs (2,367) (3,432)

Employee benefit expense 6 (1,711) (2,398)

Depreciation expense 5 (582) (1,073)

Impairment of investments and deferred income 5 (359) -

Gain on disposal of interest in subsidiary undertaking 12 - 325

Gain on exchange 5 140 114

Other expenses (1,334) (1,815)

Operating loss 5 (4,541) (4,723)

Investment income 7 42 93

Share of loss in joint venture 13 (18) (29)

Loss for the period (4,517) (4,659)

Basic and diluted loss per share (Pence) 19 2.5p 4.1p

CONSOLIDATED INCOME STATEMENT//

30


NotesYear Ended

30 June 2009£’000


£’000

Cash flows from operating activities

Operating loss for the period (4,541) (4,723)

Adjustments for:

Depreciation 5 582 1,073

Exchange difference 388 (272)

Equity-settled share-based payment transactions 5,20 314 398

Impairment of investments and deferred income 359 -

Profit on disposal of interest in subsidiary - (325)

(2,898) (3,849)

Decrease/(increase) in trade and other receivables 145 (128)

Decrease/(increase) in inventories 289 (189)

Increase in provisions for liabilities and charges 22 18 13

Increase in trade and other payables 104 199

Net cash used in operating activities (2,342) (3,954)


Interest received 42 93

Acquisition of intangibles (3,039) (1,242)

Acquisition of property, plant and equipment (199) (252)

Net cash used in investing activities (3,196) (1,401)

Cash flows from financing activities

Proceeds from issue of share capital 17,18 1,750 6,030

Payment of transaction costs 17,18 (72) (370)

Net cash from financing activities 1,678 5,660

Net (decrease)/increase in cash and cash equivalents 16 (3,860) 305

Cash and cash equivalents at 1 July 2008 16 4,729 4,424

Cash and cash equivalents at 30 June 2009 16 869 4,729

CONSOLIDATED STATEMENT OF CASH FLOWS//

The notes on pages 32 to 63 form part of the annual financial statements

31


CONSOLIDATED STATEMENT OFCHANGES IN SHAREHOLDERS’ EQUITY//

Sharecapital£’000

Sharepremium

£’000

Mergerreserve£’000

Sharebased

paymentreserve£’000

Foreignexchange

translationreserve£’000]

Accumulatedearnings £’000

Total£’000

Opening balance 1 July 2007 5,468 22,286 3,271 589 (416) (17,095) 14,103

Loss for the period - - - - - (4,659) (4,659)

Foreign exchange loss - - - - (463) - (463)

Total recognised loss for the year - - - - (463) (4,659) (5,122)

Shares issued for cash 3,013 3,017 - - - - 6,030

Share issue cost - (370) - - - - (370)

Share based payments - - - 398 - - 398

Disposal of share in joint venture - - (29) - - - (29)

30 June 2008 8,481 24,933 3,242 987 (879) (21,754) 15,010

Loss for the period - - - - - (4,517) (4,517)

Foreign exchange gain - - - - 1,747 - 1,747

Total recognised loss for the year - - - - 1,747 (4,517) (2,770)

Shares issued for cash 500 1,250 - - - - 1,750

Share issue costs - (72) - - - - (72)

Share based payments - - - 314 - - 314

Balance end of year 30 June 2009 8,981 26,111 3,242 1,301 868 (26,271) 14,232

32

1. REPORTING ENTITYKopane Diamond Developments PLC (the “Company”)is a company domiciled in the United Kingdom and islisted on the AIM market of the London StockExchange. The consolidated financial statements ofthe Company for the year ended 30 June 2009comprise the Company and its subsidiaries (togetherreferred to as the “Group”). The Group is primarilyinvolved in diamond exploration and production inthe Kingdom of Lesotho.

The Company was previously named EuropeanDiamonds PLC until its change of name to KopaneDiamond Developments PLC (“Kopane”) on 6November, 2007 after approval from theshareholders at an Extraordinary General Meetingheld on this day.

2. BASIS OF PREPARATION(a) Going concern and adequacy of project financeThe Group owns diamond interests in Lesotho andFinland. In Lesotho, kimberlite continued to berecovered from the Satellite and Main Pipes andprocessed through the Company’s Satellite Plant,until December 2008 when it was suspended as theresult of falls in the market price of rough diamonds.

The Company’s Finnish diamond interests areoperated and financed under a Joint VentureAgreement (“JVA”) by Mantle Diamonds Limited.Under the JVA, Mantle is able to earn up to 70%interest in the assets by spending US$5million onexploration and evaluation of the properties,including a bankable feasibility study in respect ofthe Company’s Lahtojoki property, and by paying theCompany 10 million Mantle shares over three years.At 30 June 2009, Mantle had complied with itsexpenditure requirements under the JVA although ithas requested deferral of future expenditure andother obligations, which are under discussion withthem. If agreement is not reached regarding suchdeferrals, the Company may at its option elect to

have the assets returned, in which event theCompany would seek other means of financing theevaluation of the properties. Consequently, theCompany has not impaired the carrying value of itsinterest in the Finnish assets and this will bereviewed following agreement with Mantle, or,otherwise, clarification of financing.

In March 2009 the Group raised £1.75 million in cashby the issuing of 50 million ordinary shares, toprovide funds for progression of the DFS and forgeneral working capital resources. At 17 November2009 the company raised a further £3.9 millionbefore expenses by the issue of 27.9 million newordinary shares. Of this amount, £3.15 million ispayable over 24 months dependent on theCompany’s share price compared to a benchmarkprice of 18.67p per share. On the basis that thebenchmark price is achieved, the Group will havesufficient funds to meet its planned expenditure,although further funds will be required to re-startproduction and invest in a significant expansion ofproduction. Given the stage of development of theMain Pipe project and the positive resourceinformation announced, the directors believe thatthe Company will have the ability to accessadditional funds to meet further expenditurerequired to develop its assets and therefore thefinancial statements have been prepared on thegoing concern basis.

(b) Statement of complianceThe financial statements have been prepared on thebasis of the recognition and measurementrequirements of IFRSs as adopted by the EuropeanUnion (“EU”) and implemented in the UK and theirinterpretations adopted by the InternationalAccounting Standards Board (“IASB”). They havealso been prepared in accordance with those parts ofthe Companies Act 2006 applicable to thosecompanies reporting under IFRS.

NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS//


33


2. BASIS OF PREPARATION (CONTINUED)(c) Use of estimates and judgementThe preparation of financial statements inconformity with International Financial ReportingStandards (“IFRSs”) requires management to makejudgements, estimates and assumptions that affectthe application of accounting policies and thereported amounts of assets, liabilities, income andexpenses. The estimates and associatedassumptions are based on historical experience andvarious other factors that are believed to bereasonable under the circumstances, the results ofwhich form the basis of making the judgementsabout carrying values of assets and liabilities thatare not readily apparent from other sources. Actualresults may differ from these estimates.

The estimates and underlying assumptions arereviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period inwhich the estimate is revised if the revision affectsonly that period, or in the period of the revision andfuture periods if the revision affects both current andfuture periods.

(d) Functional and presentation currencyThese consolidated financial statements arepresented in United Kingdom pounds Sterling as theCompany believes it to be the most meaningfulcurrency given the nature of its operations. Thefunctional currency of the Company is Sterling andthe functional currency of its main operatingsubsidiary, LMDC, which is funded by the Company, isMaloti. All financial information presented in UnitedKingdom pounds Sterling has been rounded to thenearest thousand.

3. SIGNIFICANT ACCOUNTING POLICIESThe accounting policies set out below have beenapplied consistently to all periods presented in theseconsolidated financial statements and have beenapplied consistently by Group entities.

(a) Basis of consolidation(i) SubsidiariesSubsidiaries are entities controlled by the Company.Control exists when the Company has the power,directly or indirectly, to govern the financial andoperating policies of an entity so as to obtainbenefits from its activities. In assessing control,potential voting rights that presently are exercisableor convertible are taken into account. The financialstatements of subsidiaries are included in theconsolidated financial statements from the date thatcontrol commences until the date that control ceases.

(ii) Joint venturesA joint venture is an undertaking over which theGroup is in a position to exercise joint control. Theresults, assets and liabilities of joint ventures areincorporated in these financial statements using theequity method. Under the equity method ofaccounting, the Group’s share of the net assets andthe profit or loss for the period are recognised in thebalance sheet and income statement respectively.

(iii) Transactions eliminated on consolidationIntra-group balances and any unrealised gains,losses, income or expenses arising from intra-grouptransactions are eliminated in preparing theconsolidated financial statements.

34

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(b) Foreign currency(i) Foreign currency transactionsTransactions in foreign currencies are translated atthe foreign exchange rate ruling at the date of thetransaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balancesheet date are translated to pounds Sterling at theforeign exchange rate ruling at that date. Foreignexchange differences arising on translation arerecognised in the income statement. Non-monetaryassets and liabilities that are measured in terms ofhistorical cost in a foreign currency are translatedusing the exchange rate at the date of the transaction.Non-monetary assets and liabilities denominated inforeign currencies that are stated at fair value aretranslated to pounds Sterling at foreign exchangerates ruling at the dates the fair value was determined.

(ii) Financial statements of foreign operationsThe assets and liabilities of foreign operations,including goodwill and fair value adjustments arisingon consolidation, are translated to pounds Sterling atforeign exchange rates ruling at the balance sheetdate. The revenues and expenses of foreignoperations are translated to pounds Sterling at ratesapproximating to the foreign exchange rates ruling atthe dates of the transactions. Foreign exchangedifferences arising on retranslation are recogniseddirectly as a separate component of equity. They arereleased into the income statement upon disposal.

Loans to certain subsidiary companies areconsidered to be repayable in the foreseeable futureand as such are not considered to be part of thegroup’s net investment in those subsidiaries.Accordingly, translation differences in respect of suchloans are recognised in the income statement

(c) Financial instruments(i) Non-derivative financial instrumentsNon-derivative financial instruments comprise trade andother receivables, cash and cash equivalents and tradeand other payables and available for sale investments.

Non-derivative financial instruments are recognisedinitially at fair value plus any directly attributabletransaction costs. Subsequent to initial recognition,non-derivative financial instruments are measuredas described below. At 30 June 2009 the fair valueequated to the historical cost for all non-derivativeinstruments.

A financial instrument is recognised if the Groupbecomes a party to the contractual provisions of theinstrument. Financial assets are derecognised if theGroup’s contractual rights to the cash flows from thefinancial assets expire or if the Group transfers thefinancial asset to another party without retainingcontrol or substantially all risks and rewards of theasset. Regular purchases and sales of financialassets are accounted for at trade date, i.e. the datethat the Group commits itself to purchase or sell theasset. Financial liabilities are derecognised if theGroup’s obligations specified in the contract expire orare discharged or cancelled.

Cash and cash equivalents comprise cash balancesand call deposits. Bank overdrafts that are repayableon demand are included as a component of cashflows from financing activities, for the purposes ofthe statement of cash flows.

Available-For-Sale Financial AssetsAvailable-for-sale financial assets, comprising ofequity securities, are non-derivatives and areincluded in non-current assets unless managementintends to dispose of the investment within 12months of the balance sheet date. Changes in thefair value of monetary and non-monetary securitiesclassified as available-for-sale (other thanimpairment losses and foreign exchange gains andlosses which are recognised in the incomestatement) are recognised in equity. Upon sale of asecurity classified as available-for-sale, thecumulative gain or loss previously recognised inequity is recognised in the income statement.

NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS//CONTINUED


35


3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(c) Financial instruments (Continued)(ii) Share capitalOrdinary sharesIncremental costs directly attributable to issue ofcommon shares and share options are recognised asa deduction from equity.

(d) Property, plant and equipment(i) Recognition and measurementItems of property, plant and equipment aremeasured at cost less accumulated depreciation andimpairment losses.

Cost includes expenditures that are directlyattributable to the acquisition of the asset. The costof self-constructed assets includes the cost ofmaterials and direct labour, any other costs directlyattributable to bringing the asset to a workingcondition for its intended use, and the estimatedcosts of dismantling and removing the items andrestoring the site on which they are located.Purchased software that is integral to thefunctionality of the related equipment is capitalisedas part of that equipment.

When parts of an item of property, plant andequipment have different useful lives, they areaccounted for as separate items (major components)of property, plant and equipment.

(ii) Subsequent costsThe Group recognises in the carrying amount of anitem of property, plant and equipment the cost ofreplacing part of such an item when that cost isincurred if it is probable that the future economicbenefits embodied with the item will flow to theGroup and the cost of the item can be measuredreliably. The costs of the day-to-day servicing ofproperty, plant and equipment are recognised inprofit or loss as incurred.

(iii) DepreciationDepreciation is charged to the income statement atthe following rates in order to write off each assetover its estimated useful life.

Mining assets 20% on straight line basisuntil 30 June 2014

Fixtures and fittings 25% on reducing balance Computer equipment 25% on reducing balance

The residual value, if not insignificant, is reassessedannually. The company has reviewed the remaininguseful life of the Mining assets and considers itappropriate to extend the period until 30 June 2014.

(e) Intangible assets(i) GoodwillAll business combinations are accounted for byapplying the purchase method. Goodwill arises onthe acquisition of subsidiaries, associates and jointventures. Goodwill represents the differencebetween the cost of the acquisition and the fair valueof the net identifiable assets acquired.

Goodwill is stated at cost less any accumulatedimpairment losses. Goodwill is allocated to cash-generating units and is tested annually forimpairment. Goodwill arising on acquisition iscapitalised and shown within fixed assets. Theexcess of net assets over consideration paid on anacquisition is recognised directly in profit or loss.

(ii) Deferred Exploration and Evaluation CostsThese comprise costs directly incurred in explorationand evaluation as well as the cost of mineral licences.They are capitalised as intangible assets pending thedetermination of the feasibility of the project. Whenthe existence of economically recoverable reserves isestablished the related intangible assets aretransferred to property, plant and equipment and theexploration and evaluation costs are amortised overthe estimated life of the project. Where a project isabandoned or is determined not economically viable,the related costs are written off.

36

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)The recoverability of deferred exploration andevaluation costs is dependent upon a number offactors common to the natural resource sector.These include the extent to which a Company canestablish economically recoverable reserves on itsproperties, the ability of the Company to obtainnecessary financing to complete the development ofsuch reserves and future profitable production orproceeds from the disposition thereof.

(f) InvestmentsHeld to maturity investments are initially measuredat fair value. Fair value is measured with reference toquoted prices where available. Where no activemarket exists for the investment, fair value isestablished using an appropriate valuationtechnique.

Held to maturity investments are reviewed annuallyat the balance sheet date to establish whether anyevidence exists as to the possible impairment of theinvestment.

(g) Leased assetsLeases in terms of which the Group assumessubstantially all the risks and rewards of ownershipare classified as finance leases. Upon initialrecognition the leased asset is measured at anamount equal to the lower of its fair value and thepresent value of the minimum lease payments.Subsequent to initial recognition, the asset isaccounted for in accordance with the accountingpolicy applicable to that asset.

Other leases are operating leases and the leasedassets are not recognised on the Group’s balancesheet. Payments made under an operating lease arerecognized on a straight line basis over the lease term.

(h) ImpairmentThe carrying amounts of the Group’s assets arereviewed at each balance sheet date to determine

whether there is any indication of impairment. If any such indication exists, the asset’s recoverableamount is estimated.

(i) Employee benefitsShare-based payment transactionsThe share option programme allows Groupemployees to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a correspondingincrease in equity. The fair value is measured at grant date and spread over the period until theoptions vest unconditionally to the employee. The fair value of the options granted is measuredusing the Black-Scholes model, taking into accountthe terms and conditions upon which the optionswere granted. The amount recognised as an expenseis adjusted to reflect the actual number of shareoptions that vest, except if the change is due tomarket based conditions not being satisfied.

(j) ProvisionsA provision is recognised in the balance sheet whenthe Group has a present legal or constructiveobligation as a result of a past event and it isprobable that an outflow of economic benefits will berequired to settle the obligation. If the effect ismaterial, provisions are determined by discountingthe expected future cash flows at a pre-tax rate thatreflects current market assessments of the timevalue of money and, where appropriate, the risksspecific to the liability.

(k) Finance income and expensesFinance income comprises interest income on fundsinvested and foreign currency gains. Interest incomeis recognised as it accrues, using the effectiveinterest method.

Finance expenses comprise interest expense onborrowings and foreign currency losses. Allborrowing costs are recognised in profit or loss usingthe effective interest method.



37


3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(l) Income tax expenseIncome tax expense comprises current and deferred tax.

Income tax expense is recognised in profit or lossexcept to the extent that it relates to itemsrecognised directly in equity, in which case it isrecognised in equity.

Current tax is the expected tax payable on thetaxable income for the year, using tax rates enacted or substantively enacted at the reportingdate, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheetmethod, providing for temporary differencesbetween the carrying amounts of assets andliabilities for financial reporting purposes and theamount used for taxation purposes. Deferred tax isnot recognised for the initial recognition of goodwill,the initial recognition of assets or liabilities in atransaction that is not a business combination andthat affects neither accounting nor taxable profit,and differences relating to investments insubsidiaries that will not reverse in the foreseeablefuture. Deferred tax is measured at the tax rates thatare expected to be applied to the temporarydifferences when they reverse, based on the lawsthat have been enacted or substantively enacted bythe reporting date.

A deferred tax asset is recognised to the extent that itis probable that future taxable profits will be availableagainst which the temporary difference can be utilised.Deferred tax assets are reviewed at each reportingdate and are reduced to the extent that it is no longerprobable that the related tax benefit will be realised.

(m) Segment reportingA segment is a distinguishable component of theGroup that is engaged either in providing relatedproducts or services (business segment), or inproviding products or services within a particulareconomic environment (geographical segment),which is subject to risks and rewards that aredifferent from those of other segments.

(n) InventoriesInventories, which include rough diamonds arestated at the lower of cost-of-production orestimated net realisable value. Cost price includesdirect labour, other direct costs and relatedproduction overheads. Net realisable value is theestimated selling price in the ordinary course ofbusiness, less marketing costs.

(o) Merger reserveIn the Company's Balance Sheet, the investment inEuropean Diamonds Limited and MineGem Inc.includes the nominal value of the shares issued asconsideration for the acquisition of each company.As permitted by sections 131 and 133 of theCompanies Act 1985, no premium was recorded onthe issue of such shares. On consolidation, thedifference between the nominal value of the sharesissued and their fair value was credited directly tothe merger reserve.

(p) Trade and other receivablesTrade and other receivables are stated at cost.

(q) Trade and other payablesTrade and other payables are stated at cost.

(r) Cash and cash equivalentsCash and cash equivalents include cash in hand,deposits held at call with banks and other short-term investments.

38

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(s) Revenue recognitionRevenue represents gross revenue from the sale ofrough diamonds before selling costs. Revenue isrecognised at the point of acceptance of customers’bids for the rough diamonds. Sales of roughdiamonds recovered from the Main Pipe are includedin revenue rather than treated as a deduction fromMain Pipe exploration costs.

(t) Adoption of International Financial ReportingStandardsThe financial statements are prepared in accordancewith International Financial Reporting Standards andinterpretations in force at the reporting date.The Group has not adopted any standards orinterpretations in advance of the requiredimplementation dates. It is not expected thatadoption of standards or interpretations which havebeen issued by the International AccountingStandards Board, but have not been adopted willhave a material impact on the financial statements,other than in relation to IAS 1 (Presentation offinancial statements) and IFRS 8 (OperatingSegments) which will lead to presentation anddisclosure amendments.

4. SEGMENT REPORTING(i) Business segmentsThe Group’s only business segment is the explorationfor and development of diamond deposits. This isconsidered to be the Group’s primary reportingsegment.

(ii) Geographical segmentsThe Group also reports by geographical segment.The Group is managed in one principal geographicalarea, Lesotho, with support provided from the UK.During the previous year the Finnish assets weretransferred to a joint venture and are no longerincluded in total assets shown below at the year end.

Segment capital expenditure is the total costincurred during the period to acquire segment assetsthat are expected to be used for more than one period.

All revenues receivable are from the Lesothogeographical segement.



2009£’000

2008£’000

2009£’000

2008£’000

2009£’000

2008£’000

UK 5,218 9,127 32 2 - -

Lesotho 10,266 6,874 167 250 3,039 1,129

Finland - - - - - 113

15,484 16,001 199 252 3,039 1,242

GEOGRAPHICAL SEGMENTS Total assets Capital expenditure on intangibles

Capital expenditure on plant, property and equipment

39


2009£’000

2008£’000

The operating loss is stated after charging:

Auditors’ remuneration

Audit of the company 35 39

Taxation 5 12

Other - 19


Share based payments 314 398

(Profit) on disposal of interest in subsidiary - (325)

Depreciation 582 1,073

Exchange (gain) (140) (114)

5. OPERATING LOSS

Number ofEmployees

Number ofEmployees

2009 2008

Finance and administration 11 10

Technical 37 58

48 68

The aggregate payroll costs of these persons were as follows:

2009£’000

2008£’000

Wages and salaries 1,342 1,924

Social security costs 55 76

Share based payments 314 398

1,711 2,398

6. STAFF NUMBERS AND COSTSThe average number of persons employed by the Group (including Directors) during the year, analysed bycategory, was as follows:

40

At 30 June 2009 the Group had tax losses to carry forward of £30,303,000 (2008: £21,629,000). No deferred taxasset has been recognised in respect of these losses due to the uncertainty to the extent and timing of thereversal of this asset.


REMUNERATION OF KEY MANAGEMENT PERSONNELKey management personnel remuneration is detailed below:

Directors (includes remuneration prior to appointment) Salary£’000

Fees£’000

2009 Total£’000

2008 Total£’000

T P Read 190 - 190 112

A C Bernie 120 - 120 114

J S Cable 126 - 126 102

G M Beaton - - - 15

S Lay 72 - 72 108

A J Williams - 8 8 60

R G S Spencer - - - 149

B Doyle - 19 19 33

E Marlow - 14 14 2

M Wittet - 5 5 -

Total 508 46 554 695

The above amounts include £135,000 (2008-nil) for compensation for termination of contracts of Directors. An amount of £313,000 has been charged to employee benefit costs in the income statement for the year (2008: £398,000) in respect of share-based payments to key management personnel.

2009£’000

2008£’000

Interest income 42 93

Net financing income 42 93

7. FINANCE INCOME AND EXPENSE

Factors affecting the tax charge of the current period 2009£’000

2008£’000

Loss before tax (4,517) (4,659)

Income tax using the domestic corporation tax rate of 28% (2008:29.5%) (1,264) (1,398)

Non-deductible expenses 364 124

Depreciation in excess of capital allowances (6) -

Unrelieved tax loses in the period 906 1,274

Total taxation - -

8. INCOME TAX EXPENSENo liability to UK corporation tax or foreign tax arises in the year ended 30 June 2009 (2008:nil)

41



MiningAssets£’000

Computer & OfficeEquipment

£’000

Total £’000

Cost

Balance at 1 July 2007 8,257 42 8,299

Additions 248 4 252

Exchange movement (779) (5) (784)

Balance at 30 June 2008 7,726 41 7,767

Additions 145 54 199

Exchange movement 1,755 11 1,766

Balance at 30 June 2009 9,626 106 9,732

Depreciation and impairment losses

Balance at 1 July 2007 (3,979) (22) (4,001)

Depreciation charge for the year (1,068) (5) (1,073)

Exchange movement 486 - 486

Balance at 30 June 2008 (4,561) (27) (4,588)

Depreciation charge for the year (552) (30) (582)

Exchange movement (1,240) (1) (1,241)

Balance at 30 June 2009 (6,353) (58) (6,411)

Carrying amounts

At 30 June 2009 3,273 48 3,321

At 30 June 2008 3,165 14 3,179

9. PROPERTY, PLANT AND EQUIPMENT

The directors do not consider that any impairment provision is necessary in relation to the Satellite plant at theyear end despite the fact that production ceased in December 2008. The directors consider the Satellite plant tobe an integral part in bringing the Main Pipe into full production and cannot be considered a separate cashgenerating unit for the purposes of an impairment review as envisaged by IAS 36. Consistent with thisassessment the directors have re-evaluated the anticipated useful life of the Satellite plant assets andextended the estimated useful economic life of the relevant assets to June 2014, as detailed in the accounting policies.

42


Goodwill£’000

Exploration andevaluation costs

£’000

Total £’000

Cost

Balance at 1 July 2007 1,037 7,255 8,292

Additions - 1,242 1,242

Disposals (112) (7,217) (7,329)

Exchange movement - 523 523

Balance at 30 June 2008 925 1,803 2,728

Additions - 3,039 3,039

Exchange movement - 406 406

Balance at 30 June 2009 925 5,248 6,173

Impairment losses and amortisation

Balance at 1 July 2007 (112) (2,588) (2,700)

Disposals 112 2,588 2,700

Balance at 30 June 2008 and 30 June 2009 - - -

Carrying amounts

At 30 June 2009 925 5,248 6,173

At 30 June 2008 925 1,803 2,728

10. INTANGIBLE ASSETS

The disposals in the previous year relate to the assets transferred to the Joint Venture, which are now no longerconsolidated within the Group financial statements.

Impairment lossDuring the year the Group has not considered it necessary to make a provision for impairment against any of itsexploration assets (2008: Nil). A detailed assessment of the deferred exploration assets is provided in theOperational review.

GoodwillGoodwill is considered for impairment on an annual basis. The carrying value of goodwill is dependent on theongoing activities of LMDC. The Directors do not consider there is any impairment to the carrying value ofgoodwill at this time.

11. GROUP ENTITIES AND INVESTMENTS

Significant SubsidiariesCountry of incorporation

and operationPrincipal activity

2009 2008

MineGem Inc Canada Investment 100% 100%

Liqhobong Mining DevelopmentCo.(Proprietary) Limited

Lesotho Exploration 75% 75%

Maluti Diamonds (Proprietary) Limited


Kopane DiamondDevelopments PLCeffective interest

43


On 11 January 2008 Kopane Diamonds Plc entered into a joint venture agreement with Mantle DiamondsLimited whereby European Diamonds Limited, and its 100% subsidiaries Ilmari Exploration Oy and Karhu MiningCompany Oy, became a joint venture entity. The group reported a profit in the previous year of £325,000 on thisdisposal. For details of the transaction refer to note 12. The other Investments relate to the shares acquired inMantle Diamonds Limited as part of the joint venture agreement relating to the Finnish assets of the company.For details relate to note 12.


12. DISPOSAL OF INTEREST IN SUBSIDIARYIn January 2008 the Company entered into a Joint Venture Agreement (“JVA”) with Mantle Diamonds Limited(“Mantle”) to operate, finance and develop the company’s Finnish assets. Under the JVA, Mantle subscribed for3,779,188 shares representing 17% of the issued share capital of European Diamonds Limited (“EDL”). In return,Mantle issued the Company with 3,333,333 of its ordinary shares. At the balance sheet date the Company held87% of the share capital of EDL, the joint venture entity. At the balance sheet date the Company values itsholding in Mantle at 10p per share (2008: 20p per share) and has impaired the investment value accordingly.

In accordance with IAS 31 ‘Interests in Joint Ventures’, EDL is considered to be a Joint Venture entity from thedate of the agreement and as such is no longer treated as a subsidiary of the company. Although the Companyhas retained a majority interest in EDL at the balance sheet date, under the JVA the day to day management ofEDL is under the control of Mantle, and Mantle are responsible for all the ongoing costs related to EDL. Basedon these JVA terms EDL the company considers EDL to be a joint venture entity.

InvestmentsJoint venture

entities£’000

Otherinvestements

£’000

Total £’000

Cost

Balance at 1 July 2007 - - -

Additions 1,171 667 1,838

Balance at 30 June 2008 1,171 667 1,838

Exchange movement 516 - 516

Share of net loss in joint venture (18) - (18)

Impairment - (334) (334)

Carrying amounts

At 30 June 2009 1,669 333 2,002

At 30 June 2008 1,171 667 1,838

11. GROUP ENTITIES AND INVESTMENTS (CONTINUED)

44

12. DISPOSAL OF INTEREST IN SUBSIDIARY (CONTINUED)Under the JVA Mantle can earn up to 70% of the shares of EDL by fulfilling the following conditions: a. by spending US$5 million on exploration and evaluation on the Properties. As part of this sum, Mantle has

specifically agreed to commission, fully fund and complete a bankable feasibility study in respect of theCompany's Lahtojoki property; and

b. by paying the company 10 million Mantle shares, with an attributed value of 20 pence per share, as follows:

\\One-sixth on completion of the JVA;

\\One-sixth on satisfaction of certain conditions precedent;

\\One-third within 24 months of completion of the JVA or on publication of a bankable feasibility study in respect of the Company's Lahtojoki property, whichever is earlier; and

\\One-third 12 months thereafter.

At the balance sheet date the Company holds an interest of 3,333,333 Mantle shares included within OtherInvestments in note 11.

In the event that Mantle did not achieve an IPO within 18 months of the date of the JVA (i.e. by July 2009) theCompany had the right to terminate the JVA in which case all shares in EDL would revert back to the Company unlessMantle pays the Company £666,667 in cash and agrees to pay the remaining £1,333,333 in either cash or shares.

Mantle has requested deferral of certain obligations under the JVA relating to the above payment and furtherexpenditure in respect of their exploration and evaluation of the properties. At the date of this report theCompany is in discussions with Mantle in respect of their deferral requests.

Profit on deemed part disposal of interest in European Diamonds LimitedThe Group recognised a profit of £325,000 in the previous year on the disposal of the 17% share in the NetAssets of EDL.

13. JOINT VENTURE ENTITIESThe Group has the following interests in Joint Venture entities


Country of incorporation and operation

Principal activity

2009 2008

European Diamonds Limited British Virgin Islands Investment 87%* 87%*

IImari Exploration Oy Finland Exploration 87% 87%

Karhu Mining Company Oy Finland Exploration 87% 87%

* Investment held directly by the group

European Diamonds Limited was a 100% owned subsidiary of the Company prior to the JVA with Mantle.European Diamonds Limited owns 100% of the issued share capital of Ilmari Exploration Oy and Karhu MiningCompany Oy. For details of the joint venture agreement see note 12.

The Group accounts for interests in joint ventures using the equity method, whereby the Group recognises itsshare of Joint Venture net assets in its balance sheet and its share of profit or loss in its income statement. Atthe balance sheet date the Group’s share of the net assets of the joint venture entity amounted to £1,669,000(2008: £1,171,000) and its share of losses in the year amounted to £18,000 (2008: £29,000). The Group’s share ofthese net assets does not reflect expenditure under the JVA amounting to approximately £700,000 made byMantle in the year. The increase in the Group’s share of net assets of the JV entity in the year are mainly fromthe effect of the translation of the underlying assets of the Finnish subsidiaries, which are denominated inEuros, due to the strengthening of the Euro in the year.


45



13. JOINT VENTURE ENTITIES (CONTINUED)The assets and liabilities of the joint venture entity at the balance sheet date are as follows:

2009£’000

2008£’000

Assets

Property, plant and equipment 1 1

Intangible assets 4,603 3,991


Trade and other receivables 77 73

Cash and cash equivalents 5 18

Total current assets 82 91

Total assets 4,686 4,083

Equity

Issued share capital 1,818 1,818

Share premium 3,436 3,436

Accumulated loss (3,244) (3,844)

Total equity 2010 1,410

Trade and other payables 27 24

Total current liabilities 27 24

Trade and other payables due in more than 1 year 2,649 2,649

Total liabilities 2,676 2,673


2009£’000

2008£’000

Income - -

Expenditure (22) (35)

(Loss) for the period (22) (35)

The joint venture had income and expenses for the period as follows:

46

14. INVENTORIES



2009£’000

2008£’000

Diamonds recovered, but not yet sold 399 624

Consumables 75 103

474 727

The amounts due from the Joint Venture entity relate to loans made to EDL and its subsidiaries by the Companyprior to the JVA. Under the equity method of accounting for joint ventures the Group includes such loans in itsbalance sheet.

15. TRADE AND OTHER RECEIVABLES

Amounts falling due within one year 2009£’000

2008£’000

Other receivables 27 190

Prepayments 34 27

61 217

Amounts falling due after than one year 2009£’000

2008£’000

Amounts due from Joint Venture entity 2,584 2,583

Total trade and other receivables 2,645 2,800

16. CASH AND CASH EQUIVALENTS

2009£’000

2008£’000

Bank balances 869 429

Call deposits - 4,300

Cash and cash equivalents 869 4,729

47


Number ofShares

Amount£’000’s

Number ofShares

Amount£’000’s

Authorised

Authorised ordinary shares of 5p each at 1 July

400,000,000 20,000 200,000,000 10,000

Increase - - 200,000,000 10,000

Ordinary shares of 5p each at 30 June

- - 400,000,000 20,000

Ordinary shares of 1p each at 30 June 400,000,000 4,000 - -

Deferred shares of 4p each at 30 June 400,000,000 16,000 - -

Allotted, called up and fully paid

On issue at 1 July 169,611,283 8,481 109,361,283 5,468

Ordinary 1p shares issued for cash 50,000,000 500 60,000,000 3,000

Exercise of share options - - 250,000 13

Closing balance

Ordinary shares of 5p each - - 169,611,283 8,481

Ordinary shares of 1p each 219,611,283 2,196 - -

Ordinary shares of 4p each 169,611,283 6,785 - -

2009In March 2009 the Company completed a private placement with Obtala Resources Plc raising £1.75 million,before expenses, through an issue of 50,000,000 ordinary 1p shares at 3.5p per share.

2008In November 2007, 250,000 ordinary shares were issued on exercise of an option at 11.75p per share.

In May and June 2008 the Company completed private placements with institutional and private investorsraising £6 million, before expenses, through an issue of 60,000,000 ordinary shares at 10p per share. Inconnection with this placing the Company issued warrants to subscribe for 1,333,989 ordinary shares at 10p pershare exercisable up to 17 December 2009.

17. SHARE CAPITAL20082009

In December 2008 each ordinary share of 5p in the company was replaced with one ordinary share of 1p andone deferred share of 4p in a share capital restructuring. The deferred shares of 4p are deemed to have no value.

During the years ended June 2009 and 2008, the Company made the following share and warrant issues:

SHARES IN ISSUE 2009£’000

2008£’000

On issue at 1 July 169,611 109,361

Issued for cash 50,000 60,250

On issue at 30 June - fully paid 219,611 169,611

18. CAPITAL AND RESERVES

At 30 June 2009, the authorised share capital comprised of 400,000,000 ordinary shares of 1p each and400,000,000 deferred shares of 4p each (2008: 400,000,000 ordinary shares of 5p each).

48

Translation reserveThe translation reservecomprises all foreign exchangedifferences arising from thetranslation of the financialstatements of foreign operationsthat do not have a Sterlingfunctional currency. Exchangedifferences arising are classifiedas equity and transferred to theGroup’s translation reserve.

Merger reserveThe merger reserve relates to theacquisition of Minegem Inc. in2003. As permitted by sections131 and 133 of the CompaniesAct 1985, no premium wasrecorded on the shares issued asconsideration for the acquisition ofMinegem Inc. On consolidation,the difference between thenominal value of the shares issuedand their fair value was crediteddirectly to the merger reserve.

Share based payment reserveThe share based paymentreserve includes an expensebased on the fair value of shareoptions issued.

WarrantsA summary of the changes in theCompany’s share purchasewarrants for the years ended 30June 2009 and 2008 is set outbelow:


At 30 June 2009 the warrants in issue are analysed below:

Warrantsoutstanding

Weightedaverage exercise

price (£)

Warrantsoutstanding

Weightedaverage exrcise

price (£)

Opening balance 48,158,989 £0.27 56,286,500 £0.28

Lapsed - - (9,461,500) £0.28

Issued - - 1,333,989 £0.10

Closing balance 48,158,989 £0.27 48,158,989 £0.27

20082009

Shares Exercise price Expiry

21,000,000 £0.25 17/07/2009

1,333,989 £0.10 17/12/2009

25,825,000 £0.30 17/07/2009

19. LOSS PER SHAREBasic loss per shareThe calculation of basic loss per share at 30 June 2009 was based on the loss attributable to commonshareholders of £4,517,000 (2008: £4,659,000) and a weighted average number of common shares outstandingduring the year ended 30 June 2009 of 182,111,283 (2008: 113,385,589).

Diluted Loss per shareThe potential increase in ordinary shares from the exercise of any of the warrants or share options would beanti-dilutive as the Company has a net loss. These potential ordinary shares are therefore excluded from thecalculation and the diluted loss per share figure reported is the same as the basic earnings per share.

In September 2009 1,333,989 warrants of 10p per share were exercised raising £133,399.

In November 2009 1,500,000 brokers warrants at 25p per share were issued in connection with a shareplacement. These warrants remain outstanding at the date of this report.

18. CAPITAL AND RESERVES (CONTINUED)

49


20. EMPLOYEE BENEFITSShare-based paymentsDuring the year the Company had in place a shareoption plan (the “Plan”) covering Directors, officers,employees and consultants of the Company and itssubsidiary companies. The exercise price of a futureoption grant is determined by the Board of Directorson the basis of the closing middle market price of theCompany’s shares on the trading day prior to thedate of issue of the option, or the average middlemarket closing price of the preceding three days ifhigher. Options may be granted for a period of up toten years and the Board of Directors determines thevesting provisions of each option granted, which mayvary. The aggregate number of shares which may beissued and sold under the Plans may not exceed 10%of issued share capital. As at 30 June 2009 a total of10,896,223 options remained available for grantunder the Plan.

In September 2008 the existing share option schemewas restructured allowing the surrender of allexisting share options to be replaced by anequivalent number of new share options, the value ofwhich was calculated in accordance with the Black-Scholes model with an exercise price of 10p and a lifeof 10 years. The number of new options granted toreplace the existing options was based on theexpected value of the existing options and newoptions at the date of exchange, so as to result in azero cost to the company.

The number and weighted average exercise prices ofshare options are as follows:


The value of services received in return for share options granted is measured by reference to the fair value ofshare options granted, measured based on the Black-Scholes model. The Black-Scholes model takes intoaccount the contractual lives and expectations of early exercise of the options granted.

OutstandingWeighted

average exerciseprice (£)

outstandingWeighted

average exrciseprice (£)

Opening balance 10,305,000 £.031 8,135,000 £0.33

Converted to 10p options (see above) 5,324,349 £.010

Expired - - (930,000) £0.25

Issued 5,740,556 £.010 3,350,000 £0.23

Exercised - - (250,000) £0.12

Outstanding Balance 11,064,905 £.010 10,305,000 £0.31

Exercisable at the end of the period 5,324,349 £.010 7,250,000 £0.34

20082009

50

Employee expenses


Fair value of share options and assumptions 2009 2008

Fair value at measurement date £314,000 £398,000

Weighted average share price at date of issue £0.0713 £0.2143

Weighted average exercise price £0.10 £0.2322

Expected volatility (expressed as weighted average volatility used in the modelling under Black-Scholes model)

61% 58%

Option life (expressed as weighted average life used in the modelling under Black-Scholes model)

10 years 5 years

Expected dividends Nil Nil

Risk-free interest rate (based on national government bonds) 4.42% 4.07%

20. EMPLOYEE BENEFITS (CONTINUED)

The expected volatility is based on the historical volatility of the Company’s daily closing share price over aperiod of 5 years to the date of the grant. There are no market conditions associated with the share optiongrants. The fair value of stock options granted for the year ended 30 June 2009 was £314,000 (2008: £398,000)which was expensed in the income statement.

2009£’000

2008£’000

Share options granted in 2007 or before - 92

Share options granted in 2008 79 306

Share options granted in 2009 235 -

Total expense recognised as employee costs 314 398


51

Share optionsShare options held by directors are disclosed in the directors’ report. The total number of options held at theyear end are as follows:

Share options held at 30 June 2009

Share options held at 30 June 2008

Option exercise price per share

- 560,000 6 December 2001 to 5 December 2010



- 425,000 6 May 2004 to 5 May 2013

- 1,800,000 21 September 2005 to 20 September 2014

- 150,000 19 May 2006 to 18 May 2015

- 1,700,000 27 January 2007 to 26 January 2016- 2,490,000 22 November 2007 to 21 November 2016

- 2,450,000 20 July 2008 to 19 July 2017

- 650,000 1 April 2009 to 31 March 2018

5,324,349 - 29 August 2008 to 28 August 2018

5,740,556 - 29 August 2009 to 28 August 2018

11,064,905 10,305,000


21. TRADE AND OTHER PAYABLES

2009£’000

2008£’000

Trade payables 258 257

Other payables 938 696

1,196 953

The environmental rectification provision is expected to be used at the end of the mine life.

22. NON-CURRENT PROVISIONS

Environmental rectification provision 2009£’000

2008£’000

At 1 July 2008 38 25

Charge for year 18 13

At 30 June 2009 56 38

52



23. FINANCIAL INSTRUMENTSThe classes of financial instruments are the same asthe line items included on the face of the balancesheet and have been analysed in more detail in thenotes to the financial statements.

All the Group’s financial assets are categorised asloans and receivables or available for sale assets andall financial liabilities are measured at amortised cost.

The board of directors determines, as required, thedegree to which it is appropriate to use financialinstruments and other hedging contracts ortechniques to mitigate risks. The main risks forwhich such instruments may be appropriate areinterest rate risk, foreign currency risk, liquidity riskand market price risk, each of which is discussedbelow. There is minimal credit risk as the Groupreceives payment for its sales prior to release ofproducts to its customers and any investments aremade in liquid securities with counterparties thathave a sound credit rating.

Exposure to interest rate and currency risks arises inthe normal course of the Group’s business.Derivative financial instruments are not used tohedge exposure to fluctuations in foreign exchangerates and interest rates.The Group’s policy is to retain its surplus funds onshort term deposits, usually between one week andfour weeks duration, at prevailing market rates.

Foreign currency riskThe Group’s diamond sales are made in Belgium inUS dollars which are converted into Lesotho Maloti.The Group also makes expenditure in Lesotho Maloti,South African Rand and Euros. The Group istherefore exposed to the movement in exchangerates for the US Dollar, Lesotho Maloti, South AfricanRand and Euros and to Sterling. The Group does notcurrently hedge foreign exchange risk but seeks tominimise cash held in foreign currencies. Thissituation is be monitored.

As the majority of the Group’s cash resources areheld in Sterling, the Group has a downside exposureto any strengthening of the Euro, Maloti or Randagainst Sterling as this would increase expenses inSterling terms and accelerate the depletion of theGroup’s cash resources. As the entire Group’s salesare made in US dollars, the Group has a downsideexposure to any weakening of the US Dollar againstSterling as this would decrease revenue in Sterlingterms and accelerate the depletion of the Group’scash resources. Any weakening of the Euro, Maloti orRand against Sterling would, however, result in areduction in expenses in Sterling terms and preservethe Group’s cash resources. Any strengthening of theUS Dollar against Sterling would, however, result inan increase in revenue in Sterling terms and preservethe Group’s cash resources. In addition, any suchmovements in Euros and Maloti would affect theConsolidated Balance Sheet when the net assets ofthe Finnish Joint Venture and Lesotho subsidiary aretranslated from their functional currencies intoSterling.

The following table summarises the approximateeffect on equity, adjusted through the translationreserve, based on selected % increases in exchangerates used when consolidating the foreign entitieswithin the financial statements:

53

Increase/(decrease) in equity £’000

Rand/Sterling rate

-increase of 10%-increase of 20%-decrease of 10%-decrease of 20%

1,8204,080

(1,480)(2,720)

US Dollar/Sterling rate

-increase of 5%-increase of 10%-decrease of 5%

-decrease of 10%

4090

(40)(70)

Euro/Sterling rate

-increase of 5%-increase of 10%-decrease of 5%

-decrease of 10%

(330)(630)365770

The % changes in exchange rates shown in the above table varies between currencies according to market rates.


The Policy in relation to the translation of foreigncurrency assets and liabilities is set out in note 3“Accounting Policies – Foreign currencies” to theconsolidated financial statements.

In view of the potential significance of anystrengthening of the Euro and Maloti againstSterling, the policy of holding the majority of theGroup’s cash resources in Sterling is kept underreview.

There is not considered to be any material exposurein respect of liabilities incurred by the Group as theseare of a short-term nature. The table below showsan analysis of cash and cash equivalentsdenominated by currency:

Interest rate riskThe Group had no corporate borrowings during theyear and as such there was no interest rate risk inrelation to borrowings. The Group retains surpluscash balances on short term deposits with ratesfixed over those terms (between 1 week and 1month). An increase or decrease in interest rates of1% over the year would not have had a significanteffect on the profits or equity of the Group.

Liquidity riskThe Group receives cash from the sales of roughdiamonds, funding from shareholders and short termsources of finance as required to finance itsoperations. The Group monitors these budgets on acontinual basis to ensure that all current and futureliabilities can be met. The Group uses short termdeposits to ensure that funds are available asrequired and that interest at market rates isreceived.

23. FINANCIAL INSTRUMENTS (CONTINUED)

Cash held 30June 2009

£’000

Cash held 30June 2008

£’000

Pounds Sterling 836 4,439

Euros - 10

Maloti 33 280

869 4,729

54

23. FINANCIAL INSTRUMENTS (CONTINUED)Credit riskThe Group’s credit risk in relation to its sales isminimal as payment is received prior to productsbeing released to its customers. Credit risk in relationto amounts due from the joint venture entitydepends on the joint venture’s ability to mine,recover and sell diamonds, or otherwise to dispose ofits assets.

The Company’s credit risk in relation to amounts duefrom subsidiary and joint venture entities dependson their ability to mine, recover and sell diamonds, orotherwise to dispose of their assets.

Market riskThe Group has not been producing or selling roughdiamonds since January 2009. As such there is nospecific market risk at the date of this report.However, there is a longer term market riskassociated with the project as a whole whereby adrop in diamond prices below expected levels mayhave an effect on the viability of the project.

Capital managementThe Group’s objective when managing capital is tosafeguard the entity’s ability to continue as a goingconcern, and develop its mining activities to providereturns for shareholders and benefits for otherstakeholders.

The Group’s capital structure comprises allcomponents of equity (i.e. ordinary share capital,share premium, accumulated earnings and otherreserves.) At 30 June 2009 the Group has no debt.When considering the future capital requirements ofthe Group and the potential to fund specific projectdevelopment via debt the Directors consider the riskcharacteristics of all of the underlying assetsassessing the optimal capital structure.

Fair valuesThe fair values of the Groups financial instrumentsreflect the carrying amounts shown in the balance sheet

24. FUTURE PROJECT EXPENDITUREThe Group does not have any capital commitmentsat 30 June 2009 (2008: nil).

25. RELATED PARTIESControl of the GroupIn the opinion of the Directors, there is no ultimatecontrolling entity of the Group.

Identity of related partiesThe Group has a related party relationship with itssubsidiaries and with its Directors and executiveofficers.

Transactions with key management personnel At 30 June 2009 the Directors of the Company andtheir immediate relatives controlled 0.57% per cent ofthe voting shares of the Company. During the yearended 30 June 2009 the Company entered into thefollowing transactions involving related parties:

During the year the Dragon Group, a group controlledby A J Williams, provided fully serviced office space,staff services and reimbursed expenses to theGroup. A total of £128,000 (2008: £289,000) wascharged to the Group. On 20 July 2009 the companyissued 500,000 ordinary shares to a company in theDragon Group in settlement of amounts due.

During the year Layco Limited, a company controlledby Stephen Lay, charged the Group £7,000 (2008:£28,000) for office space and related services.

Also during the year Obtala Resources Plc, aCompany in which Mr Scolaro is a director andshareholder, charged the Company £1,800 (2008: nil)for management services.

These transactions, occurring in the normal course ofoperations, are measured at the exchange amount,which is the amount of consideration establishedand agreed to by the related parties.

Executive officers also participate in the Group’sshare option programme (see note 20).The key management personnel compensations areshown in Personnel expense (see note 6).



55


Details of the shareholdings of the directors’ who held office at the end of the year are as follows:


2009



Shareoptions held

at 30 June2009

Share optionsheld at 30 June


Option exerciseprice per share

Option exercise period

J S Cable - - - 150,000 36p 19 May 2006 to18 May 2015



- 150,000 24.25 20 July 2007 to19 July 2017


B J Doyle - - - 100,000 43.5p 21 September 2005 to20 September 2014

- 175,000 27p 27 January 2007 to20 September 2016


- 50,000 24.25p 20 July 2007 to19 July 2017

750,000 - 10p 29 August 2008 to29 August 2018

A C Birnie - - - 10,000 187p 13 December 2002 to12 December 2011

- 30,000 101p 16 December 2003 to15 December 2012

- 50,000 75p 6 May 2004 to5 May 2013

- 300,000 43.5p 21 September 2005 to20 September 2014



- 150,000 24.25p 20 July 2007 to19 July 2017


T P Read 1,250,000 750,000 - 1,000,000 24.25 20 July 2007 to19 July 2017


M Wittet - - 500,000 - 10p 29 August 2008 to29 August 2018

E Marlow - - 500,000 - 10p 29 August 2008 to29 August 2018

F Scolaro is a director of Obtala Resources Plc which at the date of this report is interested in an aggregate of56,535,000 ordinary shares.

E Marlow is currently Managing Director, Emerging Markets Africa in HSBC Principal Investments. At the date ofthis report, HSBC Holdings Plc, through its subsidiary companies, holds 26,876,260 ordinary shares.

56



26. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSThe Audit Committee reviews with management thedevelopment, selection and disclosure of the Group’scritical accounting policies and estimates and theapplication of these policies and estimates. At thebalance sheet date the Audit Committee has carriedout an assessment of deferred exploration costs,investments and any required impairment.

Estimates and judgements are continually evaluatedand are based on historical experience and otherfactors, including expectations of future events thatare believed to be reasonable under thecircumstances. Many of the amounts included in thefinancial statements involve the use of judgementand/or estimation. These judgements and estimatesare based on managements’ best knowledge of therelevant facts and circumstances, having regard toprior experience, but actual results may differ fromthe amounts included in the financial statements.

Information about such judgements and estimationis contained in the accounting policies and/or theNotes to the financial statements, and the key areasare summarised below. Areas of judgement thathave the most significant effect on the amountsrecognised in the financial statements:

Capitalisation and impairment of exploration andevaluation costs – Note 3e, 3h, 11

Capitalisation, depreciation and impairment ofproperty, plant and equipment – Note 3d, 3h, 9

Estimation of share based compensation amounts –Note 3i, 20

Investments – Note 11

The investment in Mantle Diamonds Limited is basedon a share price of 10p per ordinary share. As sharesin Mantle Diamonds Limited are not publicly tradedthere is no market price on which to base a valuation.

The directors have considered all relevantinformation available in determining the estimatedvalue of the shares including representations fromthe management of Mantle Diamonds Limited andconsider the valuation to be reasonable.

27. SUBSEQUENT EVENTSIn July 2009 the company issued 500,000 ordinaryshares to a company in the Dragon Group insettlement of amounts due of £52,000.

In August 2009 the Company signed a Memorandumof Understanding with Lesotho Electricity Company,Standard Lesotho Bank Limited and the Governmentof the Kingdom of Lesotho in respect of funding ofthe construction of an electrical power line to theCompany's mine at Liqhobong in Lesotho.

In September 2009 the Company announced anupdate to its Summary of Reserves and Resources inrespect of the Main Pipe, details of which are coveredin the operational review.

In September and October 2009, 1,871,582 newordinary shares were issued as a result of exercisesof share options at 10p per share and 1,333,989 newordinary shares were issued from an exercise ofwarrants at 10p per share.

On 16 November 2009, at a General Meeting,shareholders approved the proposed shareplacements of up to 29.4 million new ordinaryshares, of which 27.9 million have been placed at 14pper share to raise £3.9 million before expenses. Ofthis amount, £3.15 million is payable over 24 monthsdependent on the Company’s share price comparedto a benchmark price of 18.67p per share. In addition,1.5 million warrants at 25p per share were issued.

57


COMPANY BALANCE SHEET//COMPANY NO. 4108629

NotesAs at 30 June

2009£’000

As at 30 June2008£’000

Assets

Property, plant and equipment C 35 15

Investments - subsidiaries- joint ventures- available for sale

BBB

3741,195333

3741,195667

Trade and other receivables - due after more than one year D 9,032 8,191


Trade and other receivables - due within one year D 19,332 14,009

Cash and cash equivalents E 836 4,449

Total current assets 20,168 18,458

Total assets 31,137 28.900

EquityIssued share capital 17,18 8,981 8,481

Share premium 26,111 24,933)

Share-based payment reserve 20 1,301 987Accumulated loss (5,734) (5,867)

Total equity 30,659 28,534

Trade and other payables F 478 366

Total current liabilities 478 366

Total liabilities 478 366


F Scolaro J S CableNon-executive Chairman Finance Director

The financial statements were approved and authorised for issue by the Board and were signed on its behalf on 18 November 2009.

58

COMPANY STATEMENT OF CASH FLOWS//


NotesYear Ended 30

June 2009 £’000

Year Ended 30June 2008

£’000


Operating loss for the period (1,121) (1,692)

Adjustments for:

Depreciation C 12 5

Exchange difference (902) (109)

Equity-settled share-based payment transactions 314 398


Profit on disposal of interest in subsidiary - (422)

Management charges (182) (182)

(1,521) (2,002)

(Increase)/decrease in trade and other receivables D 69 (63)

Increase in trade and other payables F 113 132

Net cash used in operating activities (1,339) (1,933)

Cash flows from investing activities

Interest received 39 91Acquisition of property, plant and equipment C (32) (2)

Cash advances and loans made to related parties (3,959) (3,473)

Net cash used in investing activities (3,952) (3,384)

Cash flows from financing activities

Proceeds from issue of share capital 17,18 1,750 6,030

Payment of transaction cost 17,18 (72) (370)

Net cash from financing activities 1,678 5,660

Net (decrease)/increase in cash and cash equivalents E (3,613) 343

Cash and cash equivalents as at 1 July 2008 E 4,449 4,106

Cash and cash equivalents as at 30 June 2009 E 836 4,449

59


COMPANY STATEMENT OF CHANGESIN SHAREHOLDERS’ EQUITY//

For the year ended 30 June 2009



Share-basedPaymentreserve£’000

Accumulatedlosses£’000

Total equity£’000

As at 1 July 2007 5,468 22,286 589 (6,377) 21,966

Profit for the period - - - 510 510

Total recognised income and expense - - - 510 510

Issue of share capital 3,013 2,647 - - 5,660

Share option costs recognised in reserves - - 398 - 398

As at 30 June 2008 8,481 24,933 987 (5,867) 28,534

Profit for the period - - - 133 133

Total recognised income and expense - - - 133 133

Issue of share capital 500 1,250 - - 1,750

Share issue costs - (72) - - (72)

Share options costs recognised in reserves - - 314 - 314

As at 30 June 2009 8,981 26,111 1,301 (5,734) 30,659

60


NOTES TO THE COMPANYFINANCIAL STATEMENTS//

A. ACCOUNTING POLICIES FOR THE COMPANYThe financial statements have been prepared in accordance with IFRSs, as adopted by the EU and with thoseparts of the Companies Act 2006 applicable to companies reporting under IFRS, and this and other accountingpolicies for the Company are consistent with those of the Group with the exception of the following: a) Company income statementAs permitted by section 408 of the Companies Act 2006, the income statement of the company has not beenseparately presented in these financial statements.

b) Subsidiary investmentsInvestments in subsidiary and joint venture undertakings are stated at cost less impairment losses. Availablefor sale investments are stated at fair value.

On 11 January 2008 the company entered into a Joint Venture Agreement with Mantle Diamonds Limitedwhereby Mantle acquired a 17% shareholding in European Diamonds Limited (the Joint Venture entity).Details of the transaction are detailed in note 12 to the Group financial statements.

B. INVESTMENTS

Subsidiaryundertakings

£’000

Joint ventureentities£’000

Otherinvestments

£’000

Total £’000

Cost

Balance at 1 July 2007 5,600 - - 5,600

Additions - 1,195 667 1,862

Disposals (5,226) - - (5,226)

Balance at 30 June 2008 374 1,195 667 2,236

Additions - - - -

Disposals - - - -

Balance at 30 June 2009 374 1,195 667 2,236

Impairment losses and amortisation

Balance at 1 July 2007 3,786 - - 3,786

Disposals (3,768) - - (3,768)

Balance at 30 June 2008 - - - -

Impairment - - 334 334

Balance at 30 June 2009 - - 334 334

Carrying amounts

At June 30, 2009 374 1,195 333 1,902

At June 30, 2008 374 1,195 667 2,236

61


B. INVESTMENTS (CONTINUED)The company has a controlling interest in the following subsidiary undertakings:

C. TANGIBLE FIXED ASSETS

Significant SubsidiariesCountry of incorporation

and operationPrincipal activity

2009 2008

MineGem Inc Canada Investment 100%* 100%*

Liqhobong Mining DevelopmentCo.(Proprietary) Limited


Maluti Diamonds (Proprietary) Limited


*investment held directly by the company

Computer & OfficeEquipment

£’000

Cost

Balance at 1 July 2007 33

Additions 2

Balance at 30 June 2008 35

Additions 32

Balance at 30 June 2009 67

Depreciation and impaired losses

Balance at 1 July 2007 (15)

Depreciation charge for the year (5)

Balance at 30 June 2008 (20)

Depreciation charge for the year (12)

Balance at 30 June 2009 (32)

Carrying amounts

At 30 June 2009 35

At 30 June 2008 15


62


NOTES TO THE COMPANYFINANCIAL STATEMENTS//CONTINUED

D. TRADE AND OTHER RECEIVABLES

E. CASH AND CASH EQUIVALENTS

F. TRADE AND OTHER PAYABLES

Amounts falling due within one year 2009£’000

2008£’000

Current receivables due from related parties 19,248 13,861

Other receivables 50 121

Prepayments 34 27

19,332 14,009

2009£’000

2008£’000

Bank balances 836 149

Call deposits - 4,300

Cash and cash equivalents in the statement of cash flows 836 4,449

2009£’000

2008£’000

Trade payables 258 257

Other payables 220 109

478 366

Amounts falling due in more than one year 2009£’000

2008£’000

Amounts due from related parties 9,032 8,191

63


G. RELATED PARTY TRANSACTIONSCompany related party transactions are the same as those disclosed in note 25 of the Group financialstatements, with the addition of transactions with its subsidiaries as follows:

Transactions with LMDCDuring the year the Company made cash advances and reimbursed expenses to LMDC amounting to £3,959,000(2008: £3,164,000). The company also charged LMDC a management charge of £182,000 (2008: £182,000) andinterest on inter-company loans of £1,214,000 (2008: £2,112,000).

Other balances with subsidiariesAt the balance sheet date the company was owed the following amounts by its subsidiary and joint venture entities:

H. FINANCIAL INSTRUMENTSThe financial instrument disclosures for the Company are covered in note 23 to the Group financial statements.

2009£’000

2008£’000

LMDC 25,581 19,353

Minegem Inc. 36 36

Becksham Corp. 11 11

Becksham Limited 3 3

EDL Group of companies 2,649 2,649

28,280 22,052

64

Notice is hereby given that the Annual GeneralMeeting of the Company will be held at the offices ofFinnCap at 4 Coleman Street, London EC2R 5TA on 14December 2009 at 11 am for the following purposes.Resolutions 10 and 11 will be proposed as specialresolutions. All other resolutions will be proposed asordinary resolutions.

1. To receive and adopt the Reports of the Directorsand Auditors and the Financial Statements for theyear ended 30 June 2009.

2. To re-appoint PKF (UK) LLP as Auditors of theCompany to hold office until the conclusion of thenext general meeting at which accounts are laidbefore the Company and to authorise the directors tofix their remuneration.

3. To re-elect Francesco Scolaro as a director.

4. To re-elect James Cable as a director.

5. To re-elect Andrew Birnie as a director.

6. To re-elect Michael Wittet as a director.

7. To re-elect Buddy Doyle as a director.

8. To re-elect Edward Marlow as a director.

9. THAT in substitution of all previous authorities tothe extent unused, the directors be and are herebygenerally and unconditionally authorised for thepurposes of section 551 of the Companies Act 2006,to exercise all the powers of the Company to allotshares in the Company and grant rights to subscribefor or to convert any securities into shares in theCompany up to an aggregate nominal amount(within the meaning of sections 551(3) and (6) of theAct) of £829,157.05, this authority to expire at theearlier to occur of 31 December 2010 and theconclusion of the Annual General Meeting to be heldin 2010 unless previously renewed, varied or revokedby the Company in general meeting, save that theCompany may before such expiry make an offer oragreement which would or might require shares inthe Company to be allotted or rights to subscribe foror to convert any securities into shares in the

Company to be granted after such expiry and thedirectors may allot shares in the Company or grantrights to subscribe for or to convert any securitiesinto shares in the Company in pursuance of any suchoffer or agreement as if the authority conferredhereby had not expired.

10. THAT subject to the passing of Resolution 9above, the directors be and are hereby generally andunconditionally empowered pursuant to sections 570and 573 of the Companies Act 2006 to allot equitysecurities (within the meaning of section 560 of theCompanies Act 2006) wholly for cash pursuant to theauthority conferred by Resolution 9 above as ifsection 561 of the said Act did not apply to any suchallotment, provided that this power shall be limitedto the allotment of equity securities:

(a) in connection with a rights issue, open offer orany other pre-emptive offer in favour of ordinaryshareholders (excluding any shareholder holdingshares as treasury shares) but subject to suchexclusions or other arrangements as thedirectors may deem necessary or expedient todeal with fractional entitlements, record dates,legal or practical problems arising in, or pursuantto, the laws of any overseas territory, therequirements of any regulatory body or stockexchange or any other matter whatsoever; and

(b) otherwise than pursuant to paragraph 10(a)above, up to an aggregate nominal amount of£502,519.40, provided that this power shallexpire at the earlier to occur of 31 December2010 and the conclusion of the Annual GeneralMeeting of the Company to be held in 2010,unless previously renewed, varied or revoked bythe Company in general meeting, save that theCompany may before such expiry make any offeror agreement which would or might requireequity securities to be allotted after such expiryand notwithstanding such expiry and thedirectors may allot equity securities, inpursuance of such offer or agreement as if thispower had not expired.


NOTICE OF MEETING//KOPANE DIAMOND DEVELOPMENTS PLC

65


11. THAT:

(a) the Articles of Association of the Company beamended by deleting all the provisions of theCompany's Memorandum of Association which,by virtue of section 28 of the Companies Act2006, are to be treated as provisions of theCompany's Articles of Association; and

(b) the Articles of Association in the form of the draftproduced at the meeting marked X and initialledby the Chairman of the Meeting for the purposeof identification be adopted as the Company'sArticles of Association in substitution for, and tothe exclusion of, the existing Articles ofAssociation.

By Order of the BoardJS CableSecretary18 November 2009Registered OfficeCarlyle House235-237 Vauxhall Bridge RoadLondon SW1V 1EJ

NOTES:1. A Shareholder is entitled to appoint anotherperson as his proxy to exercise all of his rights toattend and to speak and to vote at the GeneralMeeting. A Shareholder may appoint more than oneproxy in relation to the Annual General Meetingprovided that each proxy is appointed to exercise therights attached to a different share or shares held bythat Shareholder. Any corporation which is a Membercan appoint one or more corporate representativeswho may exercise on its behalf all of its powers as aMember provided that they do not to do so inrelation to the same shares.

2. A form of proxy is enclosed. Completion of a formof proxy, or other instrument appointing a proxy orany CREST Proxy Instruction will not preclude aShareholder from subsequently attending and votingat the meeting in person.

3. To be effective, the instrument appointing a proxy,and any power of attorney or other authority underwhich it is executed (or a duly certified copy of anysuch power or authority), must either be sent (a) tothe Company's Registrars, Computershare InvestorServices PLC, PO Box 1075, The Pavilions, BridgwaterRoad, Bristol, BS99 6ZY, so as to arrive no later than48 hours before the time for holding the meeting orany adjournment of if or (in the case of a poll takenotherwise than at or on the same day as the meetingor adjourned meeting) for the taking of the poll atwhich it is to be used, or (b) lodged using the CRESTProxy Voting Service – see Note 8 below, or (c) byregistering the appointment of a proxy for themeeting electronically by logging on towww.eproxyappointment.com and following theonline instructions.

4. A Shareholder may register the appointment of aproxy or voting instructions for the meetingelectronically. To do this, a Shareholder should visitwww.eproxyappointment.com, where full details ofthe procedure are provided. A Shareholder will needthe Control Number, the Shareholder ReferenceNumber (SRN) and PIN which are printed on theirform of proxy. The proxy appointment and/or votinginstructions must be received by ComputershareInvestor Services PLC no later than 11.am on 12December 2009. This website can only be used forthe purpose stated above, not for sending any otherdocument or information.

5. Holders of Ordinary Shares are entitled to attendand vote at general meetings of the Company. Thetotal number of issued Ordinary Shares in theCompany on 18 November 2009, which is the latestpracticable date before the publication of thisdocument, was 251,259,711. On a vote by show ofhands every Shareholder who is present has onevote and every proxy present who has been dulyappointed by a Shareholder entitled to vote has onevote. On a poll vote every Shareholder who is presentin person or by proxy has one vote for every OrdinaryShare of which he is the holder.

66


NOTICE OF MEETING//CONTINUED

6. Pursuant to regulation 41 of the UncertificatedSecurities Regulations 2001, the Company specifiesthat entitlement to attend and vote at the AnnualGeneral Meeting, and the number of votes whichmay be cast at the meeting, will be determined byreference to the Company's register of members atthe close of business on 12 December 2009 or, if themeeting is adjourned, 48 hours before the time fixedfor the adjourned meeting (as the case may be). Ineach case, changes to the register of members aftersuch time will be disregarded.

7. Shareholders should note that the doors to theAnnual General Meeting will be open at 10.30 am.

8. CREST members who wish to appoint a proxy orproxies through the CREST electronic proxyappointment service may do so for the meeting (andany adjournment of the meeting) by following theprocedures described in the CREST Manual subject tothe provisions of the Company's articles ofassociation. CREST Personal Members or otherCREST sponsored members (and those CRESTmembers who have appointed a voting serviceprovider(s)) should refer to their CREST sponsor orvoting service provider(s), who will be able to take theappropriate action on their behalf.

9. In order for a proxy appointment or instructionmade by means of CREST to be valid, the appropriateCREST message (a "CREST Proxy Instruction") mustbe properly authenticated in accordance withEuroclear UK & Ireland Limited's specifications andmust contain the information required for suchinstructions, as described in the CREST Manual. Themessage (regardless of whether it constitutes theappointment of a proxy, the revocation of a proxyappointment or an amendment to the instructiongiven to a previously appointed proxy) must, in orderto be valid, be transmitted so as to be received byComputershare Investor Services (ID CREST 3RA50)by the latest time(s) for receipt of proxyappointments specified in Note 3 above. For thispurpose, the time of receipt will be taken to be thetime (as determined by timestamp applied to the

message by the CREST Applications Host) fromwhich Computershare Investor Services is able toretrieve the message by enquiry to CREST in themanner prescribed by CREST. After this time anychange of instructions to a proxy appointed throughCREST should be communicated to him by other means.

10. CREST members (and, where applicable, theirCREST sponsors or voting service providers) shouldnote that Euroclear UK & Ireland Limited does notmake available special procedures in CREST for anyparticular messages. Normal system timings andlimitations will therefore apply in relation to the inputof CREST Proxy Instructions. It is the responsibility ofthe CREST member concerned to take (or, if theCREST member is a CREST personal member orsponsored member or has appointed a voting serviceprovider, to procure that his CREST sponsor or votingservice provider(s) take(s)) such action as shall benecessary to ensure that a message is transmittedby means of the CREST system by any particulartime. In this connection, CREST members (and, whereapplicable, their CREST sponsors or voting serviceproviders) are referred, in particular, to thosesections of the CREST Manual concerning practicallimitations of the CREST system and timings.

11. The Company may treat as invalid a CREST ProxyInstruction in the circumstances set out in Regulation35(5)(a) of the Uncertificated Securities Regulations 2001.

12. The Register of Directors' interests in the sharecapital and debentures of the Company, togetherwith copies of service agreements under which theDirectors of the Company are employed, are availablefor inspection at the Company's registered officeduring normal business hours from the date of thisnotice until the date of the Annual General Meetingand will also be available for inspection at the placeof the Annual General Meeting at least 15 minutesprior to and during the meeting.

13. An explanation of the business to be proposed atthe meeting is set out in the Appendix to the Noticeof Meeting.

67


APPENDIX TO THE NOTICE OF MEETING//

1. RESOLUTIONS 1 TO 8Resolutions 1 to 8 deal with the receipt and adoptionof the report of the Directors and the FinancialStatements for the year ended 30 June 2009,together with the Auditors' Report, the appointmentof PKF (UK) LLP as auditors of the Company, theauthorisation of the Directors to set the Auditors'remuneration and the re-election of Directors.

2. RESOLUTION 9Your directors may only allot shares or grant rightsto subscribe for, or convert any security into, sharesif authorised to do so by shareholders. The authoritygranted at the General Meeting held on 16 November2009 is due to expire at this year's Annual GeneralMeeting. Accordingly, Resolution No. 9 will beproposed as an ordinary resolution to grant a newauthority to allot shares and grant rights tosubscribe for, or convert any security into, shares upto an aggregate nominal amount of £829,157.05representing approximately 33 per cent. of the totalissued ordinary share capital of the Company as at18 November 2009. If given, this authority will expireat the Annual General Meeting in 2010 or on 31December 2010, whichever is the earlier. Other thanin respect of shares issued pursuant to the warrantsissued by the Company and the Company'sobligations under its employee share schemes, thedirectors have no present intention of issuing any ofthe authorised but unissued share capital of theCompany.

3. RESOLUTION 10Your directors also require a power fromshareholders to allot equity securities where theypropose to do so for cash and otherwise than toexisting shareholders pro rata to their holdings. Thepower granted at the General Meeting held on 16November 2009 is due to expire at this year's AnnualGeneral Meeting. Accordingly, Resolution No. 10 willbe proposed as a special resolution to grant suchpower. Apart from rights issues, open offers orinvitations or any other pre-emptive offer, the powerwill be limited to the allotment of equity securitiesfor cash up to an aggregate nominal value of£502,519.40 (being twenty per cent. of theCompany's issued ordinary share capital at 18November 2009). If given, this authority will expire on31 December 2010 or at the conclusion of the AnnualGeneral Meeting in 2010, whichever is the earlier.

4. RESOLUTION 11This resolution will make amendments to theArticles of Association. The principal amendmentsarise as a result of the changes to company law inEngland and Wales and practice since our currentarticles were last updated and the implementationon 1 October 2009 of the last parts of the CompaniesAct 2006. An explanation of the key changes is setout below.

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(a) The Company's objectsThe provisions regulating the operations of theCompany are currently set out in the Company'sMemorandum and Articles of Association. TheCompany's Memorandum contains, among otherthings, the objects clause which sets out the scope ofthe activities the Company is authorised toundertake. This is drafted to give a wide scope.

The Companies Act 2006 significantly reduces theconstitutional significance of a company'smemorandum. The Companies Act 2006 providesthat, with effect from 1 October 2009, amemorandum will record only the names ofsubscribers and the number of shares eachsubscriber has agreed to take in a company. Underthe Companies Act 2006, the objects clause and allother provisions which are contained in a company'smemorandum, for existing companies at 1 October2009, are deemed to be contained in a company'sarticles of association but the company can removethese provisions by special resolution.

Further the Companies Act 2006 states that, unlessa company's articles provide otherwise, a company’sobjects are unrestricted. This abolishes the need forcompanies to have objects clauses. For this reasonthe Company is proposing to remove its objectsclause together with all other provisions of itsMemorandum which, by virtue of the Companies Act2006, are treated as forming part of the Company'sArticles of Association as of 1 October 2009.Resolution 11 confirms the removal of theseprovisions for the Company. As the effect of thisresolution will be to remove the statement currentlyin the Company's Memorandum of Associationregarding limited liability, the new Articles alsocontain an express statement regarding the limitedliability of shareholders.

(b) Articles which duplicate statutory provisionsProvisions in the new Articles which replicateprovisions contained in the Companies Act 2006 arein the main amended to bring them into line with theCompanies Act 2006.

(c) Redeemable sharesUnder the Companies Act 1985, if a company wishedto issue redeemable shares, it had to include in itsarticles the terms and manner of redemption. The2006 Act enables directors to determine suchmatters instead, provided they are so authorised bythe articles. The new Articles contain such anauthorisation. The Company has no plans to issueredeemable shares but if it did so the directors wouldneed shareholders' authority to issue new shares inthe usual way.

(d) Authorised share capital and unissued sharesThe Companies Act 2006 abolishes the requirementfor a company to have an authorised share capitaland the new Articles reflect this. Directors will still belimited as to the number of shares they can at anytime allot because allotment authority continues tobe required under the Companies Act 2006, save inrespect of employee share schemes.

(e) Voting by proxies on a show of handsThe Companies (Shareholders’ Rights) Regulations2009 have amended the Companies Act 2006 so thatit now provides that each proxy appointed by amember has one vote on a show of hands unless theproxy is appointed by more than one member inwhich case the proxy has one vote for and one voteagainst if the proxy has been instructed by one ormore members to vote for the resolution and by oneor more members to vote against the resolution. TheNew Articles reflect these changes and clarify howthe provisions of the Companies Act 2006 giving aproxy a second vote on a show of hands would applyto discretionary instructions.

(f) Voting by corporate representativesThe Companies (Shareholders’ Rights) Regulations2009 have amended the Companies Act 2006 in orderto enable multiple representatives appointed by thesame corporate member to vote in different ways ona show of hands and a poll. The New Articles containprovisions which reflect these amendments.

APPENDIX TO THE NOTICE OF MEETING//

69


NOTES//

70


NOTES//

71


GLOSSARY OF TERMS//

AnomalyAny departure from the norm which mayindicate the presence of mineralisation inthe underlying bedrock. Bulk sampleA large sample of mineralised rock,frequently hundreds of tonnes, selectedin such a manner as to be representativeof the potential ore body being sampled.Used to determine metallurgicalcharacteristics.

CaratUnit of measurement for gemstones,equal to 200 milligrams or 0.2 grams. Forsmaller gems, 100 points is equal to onecarat.

ConcentrateA fine, powdery product of the millingprocess containing a high percentage ofvaluable metal.

CoreThe long cylindrical piece of rock, about aninch in diameter, brought to surface bydiamond drilling.

DiamondThe hardest known mineral, composed ofpure carbon; low-quality diamonds areused to make bits for diamond drilling inrock.

Diamond drillA rotary type of rock drill that cuts a coreof rock that is recovered in long cylindricalsections, 2 cm or more in diameter.

Diamond ValueThe estimated average value of the roughdiamonds in the deposit expressed interms of US$ or US$/carat at a statedbottom screen cut-off size.

DiamondiferousContaining diamonds.

DilutionImpact on mined grade through thecontamination of non-ore speciesentering the extracted rock.

ExplorationProspecting, sampling, mapping, diamonddrilling and other work involved insearching for ore.

Exploration drillingDrilling done in search of new mineraldeposits, on extensions of known oredeposits, or at the location of a discoveryup to the time when the Company decidesthat sufficient ore reserves are present tojustify commercial exploitation.Assessment drilling is reported asexploration drilling.

FaciesTerm used to distinguish part of parts ofa single geological entity.

Feasibility StudyAn economic study assessing whether amineral deposit can be mined profitably,by estimating the capital and operatingcosts of a mine and the potentialrevenues from production.

GeologyThe science concerned with the study ofthe rocks which compose the earth.

GradeNumber of units of mineral weight withina physical unit of ore, usually expressed inunits per tonne or a percentage.

Indicated ResourceA resource whose size and grade havebeen estimated from sampling at placesspaced closely enough that its continuitycan be reasonable assumed.

Inferred ResourceA resource whose size and grade havebeen estimated mainly or wholly fromlimited sampling data, assuming that themineralized body is continuous based ongeological evidence.

JORC (Joint Ore Reserves Committee)Australasian Code for Reporting ofIdentified Resources and Ore Reserves.

KimberliteUneven-grain, ultramafic rock in whichthe visible minerals may include olivine,phlogopite, pyrope garnet, picro-ilmeniteand chrome/diopside, which arecemented by a groundmass that mayinclude serpentine, calcite, and chromite.Kimberlite and olivine lamproite (a similartype of rock) are the only known types ofintrusive rock (primary source rocks) thatmay carry diamonds from the depths ofthe earth to the surface and may formprimary diamond deposits.

LoggingThe process of recording geologicalobservations of drill core either on paperor on computer disk.

Macro-diamondsDiamonds that cannot pass through 0.5 mm square mesh.

Measured ResourceA resource whose size and grade havebeen estimated from sampling at placesspaced closely enough that its continuityis essentially confirmed.

Micro-diamondRecovered diamonds less than 0.5 mm.

MineralA naturally occurring homogeneoussubstance having definite physicalproperties and chemical composition and,if formed under favourable conditions, adefinite crystal form.

Mineral resourceA concentration or occurrence of natural,solid, inorganic or fossilized organicmaterial in or on the earth’s crust in suchform and quantity and of such a grade orquality that it has reasonable prospectsfor economic extraction. The location,quantity, grade, geological characteristicsand continuity of a mineral resource areknown, estimated or interpreted fromgeological evidence and knowledge.

72

www.kopanediamonds.co.uk

GLOSSARY OF TERMS//CONTINUED

MineralisationMineral or ore-bearing rock.

PipeA common term for a vertical cylindricalor column like mass of rock that cooledand solidified in the neck of a volcano.

QualityThe degree of excellence of a diamond,measured by its weight, colour, purity orclarity and its perfection of proportionsand finish.

RCReverse Circulation (as relating todrilling), a drilling technique in whichthe cuttings are recovered through thedrill rods thus minimising samplelosses and contamination.

RecoveryFinal separation process of diamondsfrom non-diamonds in the concentrate.

ReserveThat part of a mineral resource that canbe mined profitably.

ResourceThe calculated amount of material in amineral deposit, classified as measured,indicated, or inferred, based on thedensity of information used.

RockAny natural combination of minerals;part of the earth’s crust.

Rough diamondsUntreated stones in run-of-mine form,which have been boiled and cleaned.

Sample A small portion of rock or a mineraldeposit taken so that the metal can bedetermined by assaying.

SamplingSelecting a fractional butrepresentative part of a mineral depositfor analysis.

SawableA rough diamond, usually anoctahedron or irregular stone, whoseshape dictates that the stone shouldmost efficiently be sawn into twopieces before polishing.

Stone SizeSize of a stone measured ascarats/stone.

StrippingMechanical removal of overburden.

TailingsThat portion of the ground ore fromwhich valuable minerals have beenextracted and is rejected or floatedduring concentration, changes intechnology or economic circumstancescan sometimes make the tailingseconomic to reprocess at a later date.

TrenchA long, narrow excavation dug throughoverburden, or blasted out of rock, toexpose a vein or ore structure.

WeatheringA process of chemical change to rocksbrought about by their exposure tooxygen and water.

ZoneAn area of distinct mineralisation.

Liqhobong Mine

Registered OfficeKopane Diamond Developments PLC

Carlyle House235 - 237 Vauxhall Bridge Road

London SW1V 1EJ

Tel: +44 (0)20 7963 9590Fax: +44 (0)20 7233 5446


Documents

Kopane Annual Report 2009 FINAL lines:Layout 1 · 2019-10-24 · 13.32 carat vivid yellow which was recovered from K5. This stone sold in July 2008 for $466,679 equivalent to $35,136