EX-99.2 3 v320979_ex99-2.htm EXHIBIT 99.2

  

 

 

Condensed Consolidated Interim Financial Statements

(Expressed in Canadian Dollars)

 

MOUNTAIN PROVINCE
DIAMONDS INC.

Six months ended June 30, 2012

(Unaudited)

 

 
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

 

 

Responsibility for
Condensed Consolidated INTERIM Financial Statements

 

The accompanying unaudited condensed consolidated interim financial statements of Mountain Province Diamonds Inc. (the "Company") are the responsibility of the Board of Directors.

 

The unaudited condensed consolidated interim financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the Company’s audited consolidated financial statements as at December 31, 2011, with any changes described in these unaudited condensed consolidated interim financial statements. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the balance sheet date. In the opinion of management, the condensed consolidated interim financial statements have been prepared within acceptable limits of materiality and are in accordance with International Accounting Standard 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) appropriate in the circumstances.

 

Management has established processes, which are in place to provide sufficient knowledge to support management representations that it has exercised reasonable diligence that the unaudited condensed consolidated interim financial statements fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of the date of and for the periods presented by the unaudited condensed consolidated interim financial statements.

 

The Board of Directors is responsible for reviewing and approving the unaudited condensed consolidated interim financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility.

 

The Audit Committee meets with management to review the financial reporting process and the unaudited condensed consolidated interim financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the unaudited condensed consolidated interim financial statements together with other financial information of the Company for issuance to the shareholders, or, as appropriate under securities law, approves the unaudited condensed consolidated interim financial statements together with other financial information of the Company for issuance to the shareholders on behalf of the Board of Directors.

 

Management recognizes its responsibility for conducting the Company’s affairs in compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.

 

“Patrick C. Evans” “Jennifer Dawson”
Patrick C. Evans Jennifer Dawson
President and Chief Executive Officer Chief Financial Officer

 

Toronto, Canada

August 9, 2012

 

2
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

 

 

Condensed Consolidated Interim Balance Sheets

In Canadian dollars

(Unaudited)

 

   June 30,   December 31, 
   2012   2011 
ASSETS          
Current assets          
Cash and cash equivalents (Note 4)  $2,119,667   $21,546 
Short-term investments (Note 4)   11,126,214    17,819,183 
Marketable securities (Note 4)   15,948    17,678 
Amounts receivable (Note 4)   202,831    350,559 
Advances and prepaid expenses   162,150    101,641 
           
    13,626,810    18,310,607 
           
Property and equipment   84,269    43,225 
Interest in Gahcho Kué Joint Venture (Note 5)   48,831,990    48,202,682 
           
Total assets  $62,543,069   $66,556,514 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities          
Accounts payable and accrued liabilities (Note 4)  $6,601,702   $3,246,132 
           
Decommissioning and restoration liability   6,191,867    6,178,004 
           
Shareholders' equity:          
Share capital (Note 6)   147,829,260    146,911,995 
Share-based payments reserve (Note 6)   1,233,857    1,083,422 
Deficit   (99,324,933)   (90,876,085)
Accumulated other comprehensive income   11,316    13,046 
           
Total shareholders' equity   49,749,500    57,132,378 
           
Total liabilities and shareholders' equity  $62,543,069   $66,556,514 

 

Going concern (Note 1)

Contingencies and commitments (Note 5)

Subsequent event (Note 10)

 

The notes to the condensed consolidated interim financial statements are an integral part of these statements.

 

3
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

 

 

Condensed Consolidated Interim Statements of Comprehensive Loss

In Canadian dollars

(Unaudited)

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011 
Expenses:                    
Consulting fees (Note 7)  $(272,035)  $(502,847)  $(974,535)  $(1,130,719)
Depreciation   (5,476)   (2,880)   (9,958)   (5,085)
Exploration and evaluation expenses   (3,040,359)   (1,591,527)   (6,072,667)   (2,607,997)
Gahcho Kué Project management fee   (83,610)   (47,804)   (171,175)   (70,957)
Office and administration   (70,162)   (55,371)   (146,418)   (341,583)
Professional fees   (289,271)   (104,877)   (607,420)   (203,733)
Promotion and investor relations   (159,730)   (67,412)   (223,710)   (75,746)
Salary and benefits   (16,898)   (5,437)   (85,000)   (50,600)
Transfer agent and regulatory fees   (62,611)   (33,116)   (129,439)   (106,731)
Travel   (78,402)   (35,553)   (110,065)   (35,553)
                     
Net loss for the period from operations  $(4,078,554)  $(2,446,824)  $(8,530,387)  $(4,628,704)
                     
Other expenses:                    
Accretion expense on decommissioning and restoration liability   (6,932)   (15,785)   (13,863)   (31,397)
Other income:                    
Interest income   43,994    76,091    95,402    176,649 
Gain on revaluation of warrants exerciseable in a foreign currency   -    -    -    489,481 
                     
Net loss for the period   (4,041,492)   (2,386,518)   (8,448,848)   (3,993,971)
                     
Other Comprehensive (Loss) Income                    
Change in fair value of available-for-sale marketable securities   (5,043)   (4,361)   (1,730)   6,618 
Comprehensive loss for the period  $(4,046,535)  $(2,390,879)  $(8,450,578)  $(3,987,353)
                     
Basic and diluted loss per share (Note 6)  $(0.05)  $(0.03)  $(0.10)  $(0.05)
                     
Weighted average number of shares outstanding   80,714,020    79,263,191    80,559,459    78,775,141 

 

The notes to the condensed consolidated interim financial statements are an integral part of these statements.

 

4
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

 

 

Condensed Consolidated Interim Statements of Equity

In Canadian dollars

(Unaudited)

 

 

   Number of
shares
   Share Capital   Warrants   Share-based
Payments Reserve
   Retained
Earnings
(Deficit)
   Total
accumulated
other
comprehensive
income (loss)
("AOCI")
   Total 
Balance, December 31, 2010   77,416,057   $133,344,866   $969,942   $1,026,302   $(79,337,150)  $18,430   $56,022,390 
Net loss for the period   -    -    -    -    (3,993,971)   -    (3,993,971)
Issuance of common shares – exercise of options   220,635    602,000    -    -    -    -    602,000 
Issuance of common shares – exercise of warrants   2,658,866    7,242,471    -    -    -    -    7,242,471 
Fair value of options exercised from Share-based Payments Reserve   -    398,066    -    (398,066)   -    -    - 
Fair value of warrants exercised transferred from Warrants   -    969,942    (969,942)   -    -    -    - 
Fair value of warrants (exercised in a foreign currency)   -    4,259,751    -    -    -    -    4,259,751 
Fair value of options grant in period   -    -    -    487,085    -    -    487,085 
Other Comprehensive Income (loss):                                   
Available-for-sale financial assets                                   
- current period gains (losses)   -    -    -    -    -    6,618    6,618 
Balance, June 30, 2011   80,295,558   $146,817,096   $-   $1,115,321   $(83,331,121)  $25,048   $64,626,344 
                                    
Balance, December 31, 2011   80,345,558   $146,911,995   $-   $1,083,422   $(90,876,085)   13,046   $57,132,378 
Net loss for the period   -    -    -    -    (8,448,848)   -    (8,448,848)
Issuance of common shares – exercise of options   370,000    604,200    -    -    -    -    604,200 
Fair value of options exercised from Share-based Payments Reserve   -    313,065    -    (313,065)   -    -    - 
Fair value of options granted in period   -    -    -    463,500    -    -    463,500 
Other Comprehensive Income (loss):                                   
Available-for-sale financial assets                                   
- current period gains (losses)   -    -    -    -    -    (1,730)   (1,730)
Balance, June 30, 2012   80,715,558   $147,829,260   $-   $1,233,857   $(99,324,933)  $11,316   $49,749,500 

 

The notes to the condensed consolidated interim financial statements are an integral part of these statements.

 

5
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

 

 

Condensed Consolidated Interim Statements of Cash Flows

In Canadian dollars

(Unaudited)

 

   Six months ended   Six months ended 
   June 30, 2012   June 30, 2011 
Cash provided by (used in):          
Operating activities:          
Net loss for the period  $(8,448,848)  $(3,993,971)
           
Adjustments:          
Gain on revaluation of warrants exerciseable in a foreign currency   -    (489,481)
Interest expense on decommissioning and restoration liability   13,863    31,397 
Depreciation   9,958    5,085 
Stock-based compensation   463,500    487,085 
Interest income   (95,402)   (176,649)
           
Changes in non-cash operating working capital:          
Amounts receivable   147,728    291,090 
Advances and prepaid expenses   (60,509)   (289,200)
Accounts payable and accrued liabilities   3,355,570    (3,187,098)
    (4,614,140)   (7,321,742)
Investing activities:          
Investment in Gahcho Kué Joint Venture   (629,308)   (9,912,525)
Interest income   95,402    176,649 
Purchase of fixed assets   (51,002)   (15,261)
Investment in short-term investments   6,692,969    (13,829,474)
    6,108,061    (23,580,611)
Financing activities:          
Share issuance, net of cost          
Proceeds from option exercises   604,200    602,000 
Proceeds from warrant exercises   -    7,242,471 
    604,200    7,844,471 
           
Increase (decrease) in cash and cash equivalents   2,098,121    (23,057,882)
Cash and cash equivalents, beginning of period   21,546    23,778,053 
Cash and cash equivalents, end of period  $2,119,667   $720,171 

 

The notes to the condensed consolidated interim financial statements are an integral part of these statements.

 

6
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

In Canadian Dollars

(Unaudited)

 

 

1.Nature of Operations and going concern

Mountain Province Diamonds Inc. (“Mountain Province” or the “Company”) was incorporated on December 2, 1986 under the British Columbia Company Act. The Company amended its articles and continued incorporation under the Ontario Business Corporation Act effective May 8, 2006. The Company is involved in the discovery and development of diamond properties in Canada’s Northwest Territories.

 

The address of the Company’s registered office and its principal place of business is 161 Bay Street, Suite 2315, PO Box 216, Toronto, ON, Canada, M5J 2S1. The Company’s shares are listed on the Toronto Stock Exchange under the symbol ‘MPV’ and on the New York Stock Exchange – Amex under the symbol ‘MDM’.

 

The Company is in the process of developing and permitting its mineral properties primarily in conjunction with De Beers Canada Inc. (“De Beers Canada”) (Note 5). The underlying value and recoverability of the amounts shown as “Interest In Gahcho Kué Joint Venture” are dependent upon the ability of the Company and/or its mineral property partner to develop economically recoverable reserves, to successfully permit and develop projects, and upon future profitable production or proceeds from disposition of the Company’s mineral properties. Failure to develop economically recoverable reserves will require the Company to write off costs capitalized to date.

 

As at June 30, 2012, the Company has not achieved profitable operations and continues to be dependent upon its ability to obtain external financing to meet the Company’s liabilities as they become payable. The Company’s ability to continue operations beyond the next twelve months is dependent on the discovery of economically recoverable mineral reserves, the ability of the Company to obtain necessary financing to fund its operations, and the future production or proceeds from developed properties.

 

The Company’s mineral assets are in the exploration and evaluation stage and, as a result, the Company has no source of revenues. In the six months ended June 30, 2012, the Company incurred losses amounting to $8,448,848 and will be required to obtain additional sources of financing to complete its business plans going into the future. Although the Company had working capital of $7,025,108 at June 30, 2012, including $13,245,881 of cash and short-term investments, the Company has insufficient capital to finance its operations and the Company’s costs of the Gahcho Kué Project (Note 5) over the next 12 months.  The Company is currently investigating various sources of additional liquidity to increase the cash balances required for ongoing operations over the foreseeable future. These additional sources include, but are not limited to, share offerings, private placements, credit facilities, and debt, as well as exercises of outstanding options. However, there is no certainty that the Company will be able to obtain financing from any of those sources.  These conditions indicate the existence of a material uncertainty that results in substantial doubt as to the Company’s ability to continue as a going concern.

 

These condensed consolidated interim financial statements have been prepared on the basis that the Company will continue as a going concern, and do not reflect adjustments to assets and liabilities that would be necessary if the going concern assumption were not appropriate. These adjustments could be material.

 

Authorization of Financial Statements

The unaudited condensed consolidated interim financial statements for the period ended June 30, 2012 were approved by the Audit Committee on behalf of the Board of Directors on August 9, 2012.

 

7
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

In Canadian Dollars

(Unaudited)

 

 

2.BASIS OF PRESENTATION

These unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting.  These interim financial statements follow the same accounting policies and methods of computation as compared with the most recent fiscal financial statements, being for the year ended December 31, 2011, which were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).  Accordingly, these interim financial statements should be read in conjunction with the Company’s most recent fiscal financial statements.  The policies applied in these interim condensed consolidated financial statements are based on IFRS issued and outstanding as at August 9, 2012, the date the financial statements were approved by the Audit Committee on behalf of the Board of Directors.

 

3.Significant accounting policies
(i)Basis of consolidation

The unaudited condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany amounts and transactions have been eliminated on consolidation. The Company’s interest in the Gahcho Kué joint venture has been proportionally consolidated (see Note 5).

 

(ii)Standards, amendments and interpretations to existing standards

At the date of authorization of these financial statements, certain new standards, amendments and interpretations to existing standards as discussed in the Company’s December 31, 2011 audited consolidated financial statements have been published but are not yet effective, and have not been adopted early by the Company.

 

4.Financial instruments

Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement, and the basis for recognition of income and expenses) for each class of financial asset, and financial liability are disclosed in the Company’s December 31, 2011 audited consolidated financial statements.

 

The quoted market value of marketable securities at June 30, 2012 and December 31, 2011 was $15,948 and $17,678 respectively. The original cost of these marketable securities at June 30, 2012 and December 31, 2011 was $4,632 for each period.

 

The short-term investments at June 30, 2012 and December 31, 2011 are cashable guaranteed investment certificates (“GICs”) held with a major Canadian financial institution. The short-term investments at June 30, 2012 were purchased with original maturities in July 2012. Given the GICs’ low risk and the ability to cash them at any time, the fair market value recorded is estimated to be reasonably approximated by the amount of cost plus accrued interest. There is no restriction on the use of the short-term investments.

 

The fair values of the amounts receivable, and accounts payable and accrued liabilities approximate their carrying values due to the relatively short-term maturity of these financial instruments.

 

8
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

In Canadian Dollars

(Unaudited)

 

  

The carrying amounts for each of the categories are:

 

   Balance as at 
   June 30,   December 31, 
   2012   2011 
Financial assets          
           
Fair Value Through Profit or Loss          
Cash and cash equivalents  $2,119,667   $21,546 
Short-term investments   11,126,214    17,819,183 
           
Loans and receivables          
Amounts receivable   202,831    350,559 
           
Available-for-Sale          
Marketable securities   15,948    17,678 
           
Financial liabilities          
Financial liabilities measured at amortized cost          
Accounts payable and accrued liabilities   (6,601,702)   (3,246,132)

 

The Company had no transactions with marketable securities classified as available-for-sale during the periods ended June 30, 2012 or the year ended December 31, 2011.

 

5.INTEREST IN GAHCHO KUE JOINT VENTURE

The Company holds a 49% interest in the Gahcho Kué Joint Venture located in the Northwest Territories, Canada, and De Beers Canada holds the remaining 51% interest. The joint venture between the Company and De Beers Canada is governed by an agreement entered into on July 3, 2009 (the “2009 Agreement”). The Company considers that the Gahcho Kué Joint Venture is a related party under IAS 24 – Related Parties.

 

The 2009 Agreement’s provision for consensus decision-making for material strategic and operating decisions provides the Company with joint control with De Beers Canada for the Gahcho Kué Project (the “Project”), and the Company accounts for the Project as a joint venture in accordance with IAS 31 – Interests in Joint Ventures. Accordingly, the Company has determined its proportionate share (49%) of the assets, liabilities, revenues and expenses of the joint venture, and recorded them in its consolidated financial statements effective July 4, 2009.

 

On July 3, 2009, the Company entered the 2009 Agreement with De Beers Canada (jointly, the “Participants”) under which:

(a)The Participants’ continuing interests in the Gahcho Kué Project will be Mountain Province 49% and De Beers Canada 51%, except for normal dilution provisions which are applicable to both Participants;
(b)Each Participant will market their own proportionate share of diamond production in accordance with their participating interest;
(c)Each Participant will contribute their proportionate share to the future project development costs;
(d)Material strategic and operating decisions will be made by consensus of the Participants as long as each Participant has a participating interest of 40% or more;
(e)The Participants have agreed that the sunk historic costs to the period ending on December 31, 2008 will be reduced and limited to $120 million;
(f)The Company will repay De Beers Canada $59 million (representing 49% of an agreed sum of $120 million) in settlement of the Company’s share of the agreed historic sunk costs on the following schedule:

 

9
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

In Canadian Dollars

(Unaudited)

 

 

  · $200,000 on execution of the 2009 Agreement (the Company’s contribution to the 2009 Joint Venture expenses to date of execution of the 2009 Agreement – paid; expensed and included in the opening deficit at January 1, 2010);
  · Up to $5.1 million in respect of De Beers Canada’s share of the costs of the feasibility study; (paid - $4,417,421 to June 30, 2012, included in “Interest in Gahcho Kué Joint Venture”);
  · $10 million upon the completion of a feasibility study with at least a 15% IRR and approval of the necessary development work for a mine (as defined in the 2009 Agreement) (paid March 15, 2011, included in “Interest in Gahcho Kué Joint Venture”);
  · $10 million following the issuance of the construction and operating permits;
  · $10 million following the commencement of commercial production; and
  · The balance of approximately $24.4 million within 18 months following commencement of commercial production.

  

Mountain Province has agreed that the marketing rights provided to the Company in the 2009 Agreement will be diluted if the Company defaults on certain of the repayments described above.

 

Since these payments are contingent on certain events occurring, and/or work being completed, they will be recorded as the payments become due or are made. As these contingent payments are made, they are being capitalized to Interest in Gahcho Kué Joint Venture as “acquired exploration and evaluation”.


The continuity of the Interest in Gahcho Kué Joint Venture is as follows:

 

Balance, December 31, 2010  $36,981,785 
Change in proportionate share of working capital   572,375 
Change in expected decommissioning and restoration liability   410,593 
Amounts capitalized for sunk cost repayments in the year   10,237,929 
Balance, December 31, 2011  $48,202,682 
Change in proportionate share of working capital   578,250 
Amounts capitalized for sunk cost repayments in the year   51,058 
Balance, June 30, 2012  $48,831,990 

 

Summarized below are the results of operations and cash flows relating to the Company’s proportional interest (49%) in the accounts of the Gahcho Kué joint venture for the six months ended June 30, 2012 and June 30, 2011, and the financial position as at June 30, 2012 and December 31, 2011:

 

   Three  months ended   Three months ended   Six months ended   Six  months ended 
   June 30,   June 30,   June 30,   June 30, 
   2012   2011   2012   2011 
Results of Operations                    
Revenue  $-   $-   $-      
Expenses   (2,925,063)   (1,645,883)   (5,941,783)   (2,686,026)
Proportionate share of net loss  $(2,925,063)  $(1,645,883)  $(5,941,783)  $(2,686,026)

 

10
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

In Canadian Dollars

(Unaudited)

 

  

   Six months ended   Six  months ended 
   June 30,   June 30, 
   2012   2011 
Cash Flows          
Operating activities  $(8,961,340)  $(2,974,523)
Financing activities   8,882,613    2,989,784 
Investing activities   (18,006)   (15,261)
Proportionate share of change in cash and cash equivalents  $(96,733)  $- 

 

   As at   As at 
   June 30, 2012   December 31, 2011 
Financial Position          
Current assets  $3,551,234   $113,533 
Non-current assets   5,969,363    5,958,567 
Current liabilities   (2,250,707)   (1,756,902)
Non-current liabilities   (6,191,867)   (6,178,004)
Proportionate share of net liabilities  $1,078,023   $(1,862,806)

 

6.SHAREHOLDERS’ EQUITY

 

i.Authorized share capital

Unlimited common shares, without par value

 

There is no other class of shares in the Company.

 

ii.Share capital and share-based payments reserve

The number of shares issued and fully paid as at June 30, 2012 is 80,715,558. There are no shares issued but not fully paid.

 

iii.Stock Options

The Company, through its Board of Directors and shareholders, adopted a stock option plan (the “Plan”) which, among other things, allows for the maximum number of shares that may be reserved for issuance under the Plan to be 10% of the Company’s issued and outstanding shares at the time of the grant. The aggregate maximum number of shares pursuant to options granted under the Plan will not exceed 6,309,774 shares, and as at June 30, 2012, there were 5,515,774 shares available to be issued under the Plan.

 

11
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

In Canadian Dollars

(Unaudited)

 

 

The following table summarizes information about the stock options outstanding and exercisable:

 

   June 30, 2012   December 31, 2011 
   Number of options   Weighted average
exercise price
   Number of options   Weighted average
exercise price
 
Balance at beginning of year   964,000   $2.16    1,084,635   $1.69 
Granted during the period   200,000    4.84    150,000    6.13 
Exercised during the period   (370,000)   1.63    (270,635)   2.46 
Balance at end of the period   794,000   $3.08    964,000   $2.16 
Options exercisable at the end of the period   794,000         964,000      

 

The fair value of the 200,000 stock options granted during the period has been estimated on the date of the grant using the Black-Scholes option pricing model. The assumptions are presented below. Expected volatility is calculated by reference to the weekly closing share price for a period that reflects the expected life of the options (three and a half years).

 

   Six months ended   As at 
   June 30,   December 31, 
   2012   2011 
Exercise price  $4.84   $6.13 
Expected volatility   66.29%   60.22%
Expected option life   3.5 years     5 years 
Expected forfeiture    none     none 
Expected dividend yield   0%   0%
Risk-free interest rate   1.50%   2.46%

 

The following table summarizes share options outstanding at the end of periods presented:

 

   June 30, 2012   December 31, 2011 
   Range of
Exercise
prices
   Weighted
Average
Remaining
contractual life
   Range of
Exercise
prices
   Weighted
Average
Remaining
contractual life
 
             
Options outstanding at the end of the period:    $1.26 - $6.13     2.63 years     $1.26 - $6.13     2.47 years 

 

12
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

In Canadian Dollars

(Unaudited)

 

  

The following tables reflect the Black-Scholes values, the number of stock options outstanding, the weighted average of options outstanding, and the exercise price of stock options outstanding at June 30, 2012 and December 31, 2011.

 

At June 30, 2012                
   Black-Scholes   Number of   Weighted Average   Exercise 
Expiry Date  Value   Options   (Years)   Price 
November 23, 2013  $283,272    444,000    0.78 years    1.26 
January 9, 2016   487,085    150,000    0.67 years    6.13 
March 8, 2017   463,500    200,000    1.18 years    4.84 
   $1,233,857    794,000    2.63 years      

 

At December 31, 2011                
   Black-Scholes   Number of   Weighted Average   Exercise 
Expiry Date  Value   Options   (Years)   Price 
November 23, 2013  $327,932    514,000    1.01 years   $1.26 
August 25, 2014   268,405    300,000    0.83 years    1.72 
January 9, 2016   487,085    150,000    0.63 years    6.13 
   $1,083,422    964,000    2.47 years      

 

The share-based payments recognized as an expense for each period are:

 

   Six months ended   Six months ended 
   June 30,   June 30, 
   2012   2011 
Expense recognized in the period for share-based payments  $463,500   $487,085 

 

The share-based payments amount of $463,500 for the six months ended June 30, 2012 is recorded in Consulting fees (June 30, 2011 - $487,085).

 

During the six months ended June 30, 2012, 370,000 stock options were exercised for gross proceeds of $604,200 (June 30, 2011 – 220,635 options were exercised for gross proceeds of $602,000).

 

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

In Canadian Dollars

(Unaudited)

 

 

iv.Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011 
Numerator                    
Net loss for the period  $(4,041,492)  $(2,386,518)  $(8,448,848)  $(3,993,971)
                     
Denominator                    
For basic - weighted average number of shares outstanding   80,714,020    79,263,191    80,559,459    78,775,141 
Effect of dilutive securities   -    -    -    - 
For diluted - adjusted weighted average number of shares outstanding   80,714,020    79,263,191    80,559,459    78,775,141 
                     
Earnings Per Share                    
Basic  $(0.05)  $(0.03)  $(0.10)  $(0.05)
Diluted  $(0.05)  $(0.03)  $(0.10)  $(0.05)

 

Stock options totaling 794,000 at June 30, 2012 (1,014,000 stock options at June 30, 2011) are not included since to include them would be anti-dilutive.

 

7.RELATED PARTIES

The Company’s related parties include its subsidiaries, the Gahcho Kué Joint Venture, key management and their close family members, and the Company’s directors. None of the transactions with related parties incorporate special terms and conditions, and no guarantees were given or received. Outstanding balances are settled in cash.

 

The Company had the following transactions and balances with key management personnel. There were no transactions with the Gahcho Kué Joint Venture.

 

   June 30,   December 31, 
   2012   2011 
The total of the transactions:          
Remuneration  $950,323   $1,450,068 
The amount of outstanding balances:          
Payable   221,731    313,000 

 

The remuneration of directors and other members of key management personnel for the six months ended June 30, 2012 and the year ended December 31, 2011 were as follows:

 

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

In Canadian Dollars

(Unaudited)

 

  

   June 30,   December 31, 
   2012   2011 
         
Salary, bonus and other short-term employee benefits  $486,823   $962,983 
Share-based payments   463,500    487,085 
   $950,323   $1,450,068 

 

In accordance with IAS 24 Related Parties, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company.

 

8.CAPITAL MANAGEMENT

The Company considers its capital structure to consist of share capital, contributed surplus, and options. The Company manages its capital structure and makes adjustments to it, in order to have the funds available to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.

 

The Company’s main property, the Gahcho Kué Project, is in the development and permitting stage, and as such the Company is dependent on external equity financing to fund its activities. In order to carry out the planned management of our properties and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed.

 

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

 

The Company’s capital for the reporting periods is summarized as follows:

 

   June 30,   December 31, 
   2012   2011 
Share capital  $147,829,260   $146,911,995 
Share-based payments reserve   1,233,857    1,083,422 
Deficit   (99,324,933)   (90,876,085)
   $49,738,184   $57,119,332 

 

There were no changes in the Company’s approach to capital management during the period ended June 30, 2012. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements.

 

9.SEGMENTED REPORTING

The Company has determined that it has only one operating segment.

 

10.SUBSEQUENT EVENT

In January 2012, the Company announced that the Board of Directors had approved a proposal to spin-out the Company’s 100%-controlled Kennady North project into a newly incorporated company, Kennady Diamonds Inc. (“Kennady Diamonds”) through a plan of arrangement and subject to regulatory, court and shareholder approvals.

 

15
 

 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

In Canadian Dollars

(Unaudited)

 

  

On March 12, 2012, Kennady Diamonds and Mountain Province entered into an arrangement agreement (the “Arrangement”) pursuant to which Mountain Province would transfer its interest in the Kennady North Project, including permits, mining claims, rights and title, in the Northwest Territories in Canada, and $3,000,000 of cash, to Kennady Diamonds in exchange for one common share of Kennady Diamonds for every five common shares of Mountain Province outstanding. The Arrangement called for the share capital of Mountain Province to be reorganized into a new class of shares which would be distributed, with the Kennady Diamonds common shares, to the existing Mountain Province common shareholders.

 

After completing the Arrangement, Kennady Diamonds will hold Mountain Province’s interest in the Kennady North Project and will be capitalized with $3,000,000 of cash.

 

The Arrangement was approved by the Board of Directors of Mountain Province and was subject to approval by two-thirds of the votes cast by holders of Mountain Province common shares, at a special meeting of Mountain Province shareholders held on April 25, 2012. The Mountain Province shareholders voted 99.57% in favour of the Arrangement. As well, on April 30, 2012, Mountain Province received final court approval for the Arrangement. Regulatory approval was obtained by the Toronto Stock Exchange and the TSX Venture Exchange.

 

The various transactions under the Arrangement were completed on July 6, 2012, the effective date of the Arrangement. The Company transferred the Kennady North property and working capital of $3 million to Kennady Diamonds in exchange for 16,143,111 shares of Kennady Diamonds which in turn were distributed to the Mountain Province shareholders on the basis of one Kennady Diamonds’ share for every five shares of Mountain Province held by the shareholders.

 

16