Merlin Diamonds Limited ACN INTERIM FINANCIAL REPORT FOR THE HALF YEAR ENDED 31 DECEMBER 2012

Transcription

1 Merlin Diamonds Limited INTERIM FINANCIAL REPORT FOR THE HALF YEAR ENDED 31 DECEMBER 2012

2 Table of Contents Page Chairman s Report 2 Directors Report 9 Auditor s Independence Declaration 10 Consolidated Statement of profit or loss and other comprehensive income 11 Consolidated Statement of financial position 12 Consolidated Statement of changes in equity 13 Consolidated Statement of cash flows 14 Notes to the Consolidated interim financial statements 15 Directors Declaration 19 Independent Auditor s Review Report 20 1

3 Chairman s Report Dear Shareholder Merlin Mine - Commencing Mining Operations Merlin and Jet Mining have executed an agreement for Jet Mining to commence borehole mining operations at the Merlin diamond mine. The mining is expected to commence in the second quarter 2013 for trial operations aimed at optimising production. Full commercial mining operations will commence in the third quarter The Company has appointed Eric Magee as Operations Manager for the Merlin diamond mine. Work package tenders have been released for outsourcing processing plant operations and camp support services. Merlin Reserves and Resources Ore Classification Material Average Grade Carats (Mt) (ct per tonne) (Mcts) Probable Ore Reserves Indicated & Inferred Mineral Resources TOTAL The above Ore Reserves are additional to the Mineral Resources and are estimated on open pit and underground mining assumptions. A Reserve for alternative mining methods has not yet been estimated. Merlin Diamond Mine Trial Production Jet Mining Pty Ltd, an affiliate of USA based Kinley Exploration, has defined the technical and economic parameters for hydraulic ore cutting at Merlin. When implemented, this technology will enable the direct extraction of ore at Merlin without the need for capital intensive underground development or overburden removal. Jet Mining and Merlin have executed the contract to begin mining operations at the Merlin diamond mine. The Company expects the borehole mining equipment and drilling rig to be commissioned during the second quarter The commissioning phase will be conducted on a single shift basis, mining kimberlite ore from the PalSac pipe. Subsequent to the successful commissioning of the borehole mining rig, double shift operations will commence at the higher grade Ywain kimberlite pipe. During the trial period, factors affecting ore extraction rates will be studied and the engineering processes optimised. Also, integration of mining and ore processing will be undertaken to establish the production levels for the Mine. Once a steady rate of diamond production is achieved, the Company expects mining and processing to continue uninterrupted. At that time, the Company will examine its options for increasing production which may include additional borehole mining rigs and/or plant upgrades. The Company s aim is to be producing at a minimum rate of 250,000 carats per year by the second half of 2014 with anticipated cash costs of less than US150 per carat or less than US60 per tonne of ore mined. The Company will initially outsource the operational and support activities at the Mine. Tenders for mining, haulage, processing and camp management have been released and the Company is evaluating the options. 2

4 This strategy will allow the operation to commence production without the obligations and potential delays involved in Merlin employing and training staff in-house. In the near term, Merlin management will focus on integrating and optimising site operations. Once production processes are in place, and the mine is operating in a steady state, the Company intends to move into a cost effective owner operated business model. Merlin has appointed Eric Magee as Operations Manager for the Merlin diamond mine. Mr Magee is a qualified engineer with post graduate studies in Mining Engineering. He has over 25 years experience in the mining industry in South Africa and Australia. Between 2008 and 2012, he worked for Kimberley Diamond Company, with his final role being General Manager Operations. The Company has prepared tenders for key areas of the mines operation. Site visits by short listed companies have been concluded and the Company is awaiting proposals for two out of the three work packages. Work Package 1: Mining Jet Mining has been awarded the tender for the provision of specialised borehole mining equipment, engineering and project management services to commence kimberlite ore extraction in the second quarter The work package specifies management of in-pit operations and the engagement of a third party drilling contractor. All mining activity and ore haulage will be managed by Jet Mining. Work Package 2: Ore Processing The processing tender calls for suitable engineers to operate, maintain and possibly upgrade the Merlin processing plant. DRA Group has conducted a site visit and are preparing a proposal. DRA Group has an established history with the Merlin diamond mine. DRA designed the Merlin diamond plant for Ashton Mining in the early days of the project. Work Package 3: Camp Facilities The camp facilities tender calls for suitable remote catering suppliers to supply catering and camp management services for the Merlin diamond mine camp. Cater Care Group has conducted a site visit and is preparing a proposal. Cater Care Group are an industrial catering and accommodation company with experience in mining, offshore and remote sites. Merlin Exploration Program Since the early 1990 s a total of 11 kimberlite pipes have been discovered on the Merlin mine lease. The Mine s previous owners conducted extensive geochemical sampling and followed up with a drilling program resulting in the discovery of a lens shaped kimberlite body 100m south of Bedevere. The Company holds a significant historical database and data derived from sampling and drilling programs. The Company believes that the area covered by and near the Merlin Mine Lease has the potential to host undiscovered kimberlites. During 2012, a review of the exploration data has been commissioned and an exploration program designed with the goal of targeting unresolved geophysical, geochemical and structural anomalies. An exploration program drilling 42 targets was conducted at the Merlin diamond mine. The drilling program drilled 128 holes for a total of 3,568 metres. No kimberlites were intersected, however two drillholes intercepted anomalous geology in the sandstone cover. Samples from a fissure and a possible brecciated pipe discovered during the drilling program have been taken for indicator mineral analysis. No geochemical or heavy mineral results will be available until the next quarter. Numerous untested kimberlite targets remain to be drilled within the Merlin mine lease. Borroloola Alluvial Diamond Project An application was lodged in 2004 (Exploration Licence Application 24512) for an area of 289 blocks (approximately 230,000 acres), 10 kilometres south of the township of Borroloola. The Northern Land Council s Full Council ratified the Borroloola traditional owners decision to consent to the grant of the licence. On 29 August 2011, Exploration Licence was granted to the Company for a period of six years. The Borroloola alluvial gravels are exposed at surface in an area covering 5km2. However, the total area which could potentially host alluvial gravel deposits on the Company s tenements is yet to be explored and is in the order of 300km2. This significantly increases the opportunity to identify a large volume, high value alluvial diamond deposit. 3

5 Following the grant of the exploration licence for the Borroloola Alluvial Diamond Project (EL24512) in August 2011, the Company immediately commenced the excavation of 5,000 tonnes of alluvial material from known diamond bearing gravel deposits. The purpose of the tests was to commence the assessment of the economic potential of the gravels by determining diamond quality, quantity and distribution in the alluvial material. The bulk sampling program focused on an area of outcropping gravel. Material from three costeans, 3,000 tonnes in total, has been processed at the Merlin diamond mine, yielding 22 stones with a total weight of 1.09 carats. Thirteen of the recovered diamonds are white in colour including the largest two at 0.19 and 0.25 carats. High water levels in rivers leading to the Merlin diamond mine prevented 2,000 tonnes of gravel from two costeans being transported during the wet season. This material will be processed in due course and further exploration work aimed at understanding the fluvial architecture of the gravels will be planned. The Borroloola Alluvial Diamond Project represents a significant and unique opportunity to explore for a large volume, high value, alluvial diamond deposit. Lancelot Prospect At the Lancelot Prospect (EL25676), in the Merlin Orbit tenements, an analysis of airborne gravity and magnetic data acquired in 2004, in conjunction with geochemical sampling has highlighted overlapping geophysical anomalies in proximity to geochemical anomalies. A Mine Management Plan has been submitted and accepted by the Department of Mines and Energy in the Northern Territory for an exploration costeaning program. The costeaning program was completed in November 2012 and targeted 30 sites. Fifty eight costeans were excavated and 91 samples comprising 20 to 80 kg each were collected for indicator mineral analysis. The results of this analysis are pending. In addition to testing the coincidental geophysical anomalies for the potential to be primary kimberlite, the program was designed to map and sample buried alluvial channels, known as palaeochannels, which may carry kimberlite indicator minerals. These palaeochannels were identified in drilling and costeaning during 2009 and The 2012 sampling will establish the distribution of chromites and micro diamonds in this alluvial material. This information will be used as vectors in future exploration programs to identify locations of primary kimberlite sources. Arnhem Land Exploration In October 2012 the Company collected 47 diamond exploration samples totalling 1,920kg over tenements EL331, EL3337, EL10233 and EL330. To date results from 28 samples have been received from the laboratory. Chromites were recovered in seven samples but are considered to be worn, weathered and of non-kimberlitic origin. A cube shaped microdiamond recovered in one sample is also considered to be of non-kimberlitic origin. Merlin Diamond Mine Project Background The Merlin diamond mine project is located some 100km south of the settlement of Borroloola and comprises 14 kimberlite pipes. Since 1998, 9 of the Merlin pipes have been subject to open-pit mining over a 5 year period. These previous mining operations produced 507,000 carats of diamonds. This included Australia s largest diamond at cts. In 2004, Merlin acquired the project from the Rio Tinto parties. Mining Operations The Company s aim is to commence production in the third quarter of To meet this aim, capital items and personnel are currently being sourced. 4

6 Resource Estimate Mining studies have enabled some of the Indicated Resources to be upgraded to Probable Ore Reserves. This resource estimate makes the Merlin diamond mine project the second largest combined diamond resource and reserve in Australia. The combined Mineral Resource and Ore Reserve for all of the diamond pipes at Merlin is 30.1 million tonnes representing a total contained 7.2 million carats. A Reserve for alternative mining methods has not yet been estimated. Probable Ore Reserve The combined Probable Ore Reserve for all diamond pipes at Merlin is 11.1 million tonnes for an average grade of 26 carats per hundred tonnes ( cpht ) representing a total contained 2.89 million carats. Probable Ore Reserve (Mt) Grade (cpht) Carats (Mcts) Southern Cluster PalSac Sub-Total Central Cluster Gawain Ywain Sub-Total Northern Cluster Kaye Ector Sub-Total TOTAL Resource grade based on previous mining operation recovery using a mm slotted bottom screen and a +0.95mm cut-off. 2 Resource grade based on bulk sample test work using a mm slotted bottom screen and a +1mm cut-off. The above Ore Reserves are additional to the Mineral Resources and are estimated on open pit and underground mining assumptions. A Reserve for alternative mining methods has not yet been estimated. 5

7 Inferred and Indicated Resources The combined Indicated and Inferred Mineral Resource for all diamond pipes at Merlin is million tonnes for an average grade of 24 carats cpht representing a total contained 4.31 million carats. Indicated Mineral Resource (Mt) Inferred Mineral Resource (Mt) Total (Mt) Grade (cpht) Carats (Mcts) Southern Cluster PalSac Launfal Excalibur Tristram Sub-Total Central Cluster Gawain Ywain Sub-Total Northern Cluster Gareth Kaye Ector Bedevere Sub-Total TOTAL Resource grade based on previous mining operation recovery using a mm slotted bottom screen and a +0.95mm cutoff. 2 Resource grade based on bulk sample test work using a mm slotted bottom screen and a +1mm cut-off. The above Mineral Resources are additional to the Ore Reserve and are estimated on open pit and underground mining assumptions. A Reserve for alternative mining methods has not yet been estimated. DIAMOND EXPLORATION OVERVIEW Merlin Orbit Projects, Northern Territory The Merlin Orbit Project comprises an area of some 2,000km 2, and encompasses numerous known unresolved occurrences of indicator minerals and diamonds. Arnhem Land Projects, Northern Territory In 2009, the Company purchased all rights and title to tenements held by De Beers Exploration Australia Limited within Arnhem Land. These tenements are considered to have potential for diamonds and other minerals. The total Arnhem Land project area now encompasses some 20,000km 2. North Australian Diamonds Tenements Swancove and Red River Resources Joint Venture Agreement Merlin Diamonds Earning 80% Merlin Diamonds has a contractual right to obtain an 80% interest in two tenements covering some 2,000km² of land in the prospective western region of Arnhem Land. The Company s right to acquire an 80% interest in the two tenements is conditional on the grant of these tenements which are currently at the application stage. 6

8 KIMBERLEY PROJECTS North Kimberley Within the Company s North Kimberley project area, the Company had previously identified a total inferred resource of 1.57M carats, contained within the Ashmore and Seppelt 1 and 2 pipes. The Company holds these resources under mining leases, as they continue to retain commercial potential. CORPORATE Following shareholder approval on 4 December 2012, the Company changed its name to Merlin Diamonds Limited. On 14 December 2012, the Company announced that it has entered into Application for Shares Agreements with four international investors to place 43 million fully paid ordinary shares at a price of 21 cents each raising 9,030,000. Since that announcement, the Company has issued the 43 million shares (9,030,000). At the same time, the Company announced that that it has entered into an 8 million convertible note agreement with an international investor. The convertible note is for 1 year and bears interest at 6.5%. Interest is payable quarterly. The convertible notes can be converted into fully paid ordinary shares at any time during the 1 year period at a conversion price of 22 cents. The convertible notes are unsecured. The issue of the convertible notes was subject to shareholder approval, which was obtained on 25 January The funds raised by the placements and convertible notes are to provide financing towards the recommencement of mining operations at the Merlin diamond mine in Northern Territory, and for working capital. On 31 January 2013, the Company announced it has reached an agreement with Innopac Holdings Limited (Innopac) under which Innopac agrees to make a scrip-for-scrip off-market takeover to acquire all of the shares in Merlin Diamonds Limited ( Merlin ) (the Transaction). Under the Transaction, Innopac will offer 1.67 Innopac shares for every one Merlin Diamonds share. This equates to 0.28 per Merlin Diamond share (based on S per Innopac share which is the weighted average price for trades of Innopac s shares done on the SGX-ST Mainboard for 7 consecutive trading days prior to and including 30 January 2013, being the day on which the Takeover Bid Implementation Deed was executed, and at an exchange rate of A1.00 to S1.28) and represents a premium of approximately 36.59% over the closing price of on 30 January The Transaction is unanimously recommended by the Directors of Merlin, in the absence of a superior proposal. Subject to compliance with any law and regulatory approvals, Innopac has agreed to use best endeavours to establish a share sale facility for Merlin shareholders who accept the offer but do not wish to hold Innopac shares, up to an agreed cap. Innopac has been listed on the Singapore Stock Exchange mainboard since 1983, and is an investment holding and management company headquartered in Singapore. Its present investments are in telecommunications, investment properties and equities. Innopac is continually looking for new investments that will contribute to and increase its shareholders value. The Offer will be subject to a number of conditions which are contained in attachment 1 (defined terms have the meaning given to them in the Takeover Bid Implementation Deed) of the announcement on the Company s website. The Takeover Bid Implementation Deed also contains: no shop, no talk, notification and matching rights in favour of Innopac; and a break fee payable by each of Innopac and Merlin in certain circumstances. 7

9 Innopac and Merlin expect that the Bidder s Statement and Target s Statement in relation to the Offer will be sent to Merlin Shareholders in March Joseph Gutnick Executive Chairman and Managing Director The information in this report that relates to exploration results is based on information compiled by Dr DS Tyrwhitt who is a Fellow of the Australasian Institute of Mining and Metallurgy. Dr DS Tyrwhitt is a consulting geologist employed by DS Tyrwhitt & Associates Pty Ltd. Dr DS Tyrwhitt has 50 years experience in the industry and has more than 5 years experience which is relevant to the style of mineralisation being reported upon to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code of Reporting of Exploration Results, Mineral Resources and Ore Reserves. Dr Tyrwhitt consents to the inclusion in the report of the matters based on the information in the form and context to which it appears. Attached is a copy of the Company s Mining Exploration Entity Quarterly Report in accordance with Listing Rule

10 Directors Report The Directors present their report on Merlin Diamonds Limited (formerly North Australian Diamonds Limited) (the Company ) for the half year ended 31 December Directors The Directors of the Company at any time during or since the end of the interim period are: J I Gutnick C A Michael H Herzog D S Tyrwhitt Executive Chairman and Managing Director Executive Director Non-Executive Director Non-Executive Director Review and Results of Operations During the six month period ending 31 December 2012, the Company has progressed its operations at the Merlin diamond mine and have executed an agreement for Jet Mining to commence borehole mining operations at the mine site. The mining is expected to commence in the second quarter of 2013 for trial operations aimed at optimising production. Full commercial mining operations will commence in the third quarter of Work package tenders have been released for outsourcing processing plant operations and camp support services. The results of operations for the six months ended 31 December 2012 was a loss of 1,709,736 (2011: 682,832). Employee benefits expense for the half year was 1,157,923 (2011: 831,145) as a result of increased resources for the increase in activity at the Merlin operations. Administration fees of 133,814 (2011: 73,282) are a result of service fees charged by AXIS for the period 1 July 2012 to 31 December Net finance income for the six months ended 31 December 2012 was 75,052 (2011: 93,246) due primarily to a decrease in funds held on deposit. At 31 December 2012, the Company had cash at bank of 1,823,530. Signed in accordance with a resolution of the Directors: JI Gutnick Executive Chairman and Managing Director Dated at Melbourne this 6 th day of March

11 Tel: Fax: Level 14, 140 William St Melbourne VIC GPO Box 5099 Melbourne VIC 3001 Australia DECLARATION OF INDEPENDENCE BY JAMES MOONEY TO THE DIRECTORS OF MERLIN DIAMONDS LIMITED As lead auditor for the review of Merlin Diamonds Limited for the half-year ended 31 December 2012, I declare that to the best of my knowledge and belief, there have h been: no contraventions of the auditor independence requirements off the Corporations Act 2001 in relation to the review; and no contraventions of any applicable code of professional conduct in relationn to the review. This declaration is in respect of Merlin Diamonds Limited and the entities it controlled during the period. James Mooney Partner BDO East Coast Partnership Melbourne, 6 March 2013 BDO East Coast Partnership ABN is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN , an Australian company limited by guarantee. BDO East Coast Partnership and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member m firms. Liabiliity limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial servicess licensees) in each State or Territory other than Tasmania.

12 Consolidated Statement of Profit or Loss and Other Comprehensive Income for the half year ended 31 December 2012 Note 31 December December 2011 Revenue 2-106,047 Other income 3 156, ,284 Employee benefits expense (1,157,923) (831,145) Consultancy fees (26,270) (23,216) Insurance expenses (68,915) (40,036) Lease rental expenses (30,467) (19,841) Tax consultancy (7,425) (11,475) Legal fees (3,390) (1,184) Audit fees (22,050) (16,875) Travel expenses (135,868) (113,067) Depreciation expenses (9,120) (4,060) Exploration impaired 5 (177,512) (291,269) Administration fees (133,814) (73,282) (Impairment)/reversal of prior period impairment of investment in associate 191,724 (12,489) Other expenses (229,763) (98,933) Loss from continuing operations (1,654,678) (725,541) Net finance income 4 75,052 93,246 Share of loss of equity accounted investee (net of income tax) (130,110) (50,537) Loss before income tax (1,709,736) (682,832) Income tax expense - - Loss before for the period (1,709,736) (682,832) Other comprehensive income for the period, net of income tax - - Total comprehensive loss for the period (1,709,736) (682,832) Loss attributable to members of Merlin Diamonds Limited Total comprehensive loss attributable to members of Merlin Diamonds Limited (1,709,736) (682,832) (1,709,736) (682,832) Basic loss per share (cents per share) Diluted loss per share (cents per share) (1.44) (1.44) (0.58) (0.58) The accompanying notes form part of these half year financial statements. 11

13 Consolidated Statement of Financial Position as at 31 December 2012 Assets Current assets Note 31 December 2012 Consolidated 30 June 2012 Cash and cash equivalents 1,823,530 2,924,214 Trade and other receivables 358, ,814 Inventories 62,400 32,693 Total current assets 2,244,277 3,718,721 Non-current assets Other receivables 1,688,242 1,346,503 Plant and equipment 1,659,936 1,981,347 Investment in equity accounted investee 616, ,526 Exploration and evaluation expenditure 5 28,841,172 26,613,078 Total non-current assets 32,805,491 30,495,454 Total assets 35,049,768 34,214,175 Liabilities Current liabilities Finance leases 24,970 60,972 Trade and other payables 928, ,903 Provisions 50,500 40,941 Total current liabilities 1,003, ,816 Non-current liabilities Provisions 1,038, ,500 Deferred tax liability 566, ,648 Total non-current assets 1,605,073 1,450,148 Total liabilities 2,608,969 1,946,964 Net assets 32,440,799 32,267,210 Equity Issued capital 6 113,240, ,357,499 Accumulated losses (80,800,025) (79,090,289) Total equity 32,440,799 32,267,210 The accompanying notes form part of these half year financial statements. 12

14 Consolidated Statement of Changes in Equity for the half year ended 31 December 2012 Consolidated Issued capital Options reserve Accumulated losses Total equity Balance at 1 July ,728, ,815 (76,332,620) 31,744,341 Loss for the period - - (682,832) (682,832) Other comprehensive loss for the period, net of income tax Total comprehensive loss for the year, net of tax - - (682,832) (682,832) Transactions with owners, recorded directly in equity Consolidation of shares, net of transaction costs 82,749 (29,447) - 53,302 Total transactions with owners 82,749 (29,447) - 53,302 Balance at 31 December ,810, ,368 (77,015,452) 31,114,811 Balance at 1 July ,357,499 - (79,090,289) 32,267,210 Loss for the period - - (1,709,736) (1,709,736) Other comprehensive loss for the period, net of income tax Total comprehensive loss for the period, net of tax - - (1,709,736) (1,709,736) Transactions with owners, recorded directly in equity Issue of shares, net of transaction costs 1,883, ,883,325 Total transactions with owners 1,883, ,883,325 Balance at 31 December ,240,824 - (80,800,025) 32,440,799 The accompanying notes form part of these half year financial statements. 13

15 Consolidated Statement of Cash Flows for the half year ended 31 December 2012 Cash flows from operating activities 31 December 2012 Consolidated 31 December 2011 Receipts from laboratory customers (inclusive of GST) - 24,916 Receipt of research and development tax government concession Payments to suppliers and employees (inclusive of GST) - 546,890 (1,215,301) (1,029,360) Interest received 23, ,815 Net cash used in operating activities (1,191,809) (356,739) Cash flows from investing activities Payments for exploration expenditure (1,408,871) (2,589,747) Payments for acquisition of investments - (3,603) Payments for acquisition of plant and equipment (6,329) (55,709) Payments for security deposits (7,502) (11,988) Receipt of security deposits 5,967 - Net cash used in investing activities (1,416,735) (2,661,047) Cash flows from financing activities Payment of finance lease liabilities (36,002) (38,204) Loan advanced to other entity (339,463) (488,712) Proceeds from issue of equity securities 1,890,000 - Proceeds from issue of equity securities, on exercise of options - 55,040 Equity securities issue transaction costs (6,675) (1,738) Net cash provided by (used in) financing activities 1,507,860 (473,614) Net decrease in cash and cash equivalents (1,100,684) (3,491,400) Cash and cash equivalents at 1 July 2,924,214 4,853,789 Cash and cash equivalents at 31 December 1,823,530 1,362,389 The accompanying notes form part of these half year financial statements. 14

16 1. Basis of preparation Merlin Diamonds Limited (the Company ), formerly North Australian Diamonds Limited, is a company domiciled in Australia. The consolidated interim financial statements of the Company as at and for the half year ended 31 December 2012 comprise the Company and its subsidiaries (together referred to as the Group ). These interim financial statements were approved by the directors on 7 March The half year consolidated financial report has been prepared by a for profit entity in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards (AASBs) including AASB 134 Interim Financial Reporting. These interim financial statements have been prepared on the basis of accounting policies and methods of computation consistent with those applied in the 30 June 2012 annual financial statements contained within the Annual Report of the Group. The half year financial report does not include notes of the type normally included in the annual financial report. This half year financial report is to be read in conjunction with the annual report for the year ended 30 June 2012 and any public announcements made during the interim period in accordance with the continuous disclosure requirements of the ASX Listing Rules. Historical cost convention: The half-year financial report is prepared in accordance with historical cost, except for some categories of investments and some financial instruments which are recorded at fair value. Cost is the fair value of the consideration given in exchange for net assets acquired. Critical accounting judgements and key sources of estimation uncertainty: Management is required to make judgements, estimates, and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The Company makes certain estimates and assumptions concerning the future. Estimates and assumptions have been utilised for the impairment testing of exploration assets. Actual results may differ from estimates. By their nature, these estimates incorporate inherent risks as they are based on future events which could have a material impact on the value of assets and liabilities in this financial year. (a) Change in accounting policy There are no new and revised Standards and amendments thereof and Interpretations effective for the current reporting period that are relevant for the Group. 2. Revenue 31 December 2012 Consolidated 31 December 2011 Provision of laboratory services - 106,047 Total revenue - 106,047 15

17 3. Other income 31 December 2012 Consolidated 31 December 2011 Associate management fee 120, ,000 Research and development tax concession - 546,890 Fuel tax credits 35,515 30,998 Asset usage 600 6,190 Other - 1, Net finance income 31 December , ,284 Consolidated 31 December 2011 Interest income 77,775 96,463 Finance income 77,775 96,463 Bank charges (644) (763) Borrowing costs (2,079) (2,454) Total Finance expense (2,723) (3,217) Net Finance income 75,052 93, Exploration and evaluation expenditure 31 December June 2012 Balance at beginning of period 26,613,078 24,464,570 Expenditure incurred during the period 2,405,606 3,021,116 Amount impaired during the period (177,512) (872,608) Carrying amount at end of period 28,841,172 26,613, Contributed equity Balance at beginning of period Exercise of options 22 July 16 cents per share Exercise of options 23 August 16 cents per share 31 December 2012 No. Shares 30 June 2012 No. Shares 31 December June ,783, ,712, ,357, ,728, ,000-31, ,000-24,000 16

18 Exercise of options 25 January 16 cents - 3,326, ,160 per share Exercise of options 7 February 16 cents - 330,000-52,800 per share Share Placement 28 June 22 cents per share - 12,071,221-2,655,669 Share Placement 31 December 21 9,000,000-1,890,000 - cents per share Exercise of broker options ,815 Transaction costs arising on consolidation of shares Transaction costs arising on share issues (15,131) - - (6,675) - Balance at end of period 141,783, ,783, ,240, ,357, Segment reporting Operating segment information is disclosed on the same basis as information used for internal reporting purposes by the board of directors. At regular intervals, the board is provided with management information at a group level for the Group s cash position, the carrying values of exploration permits and a Group cash forecast for the next twelve months of operation. On this basis, no segment information is included in these financial statements. All operating revenue has been derived in Australia. All exploration and evaluation assets are held in Australia 8. Contingent liabilities There is no change to contingent liabilities that the Company has become aware of since 30 June Subsequent events On 14 December 2012, Merlin announced that it had entered into Application for Shares Agreements with four international investors to place 43 million fully paid ordinary shares at a price of 21 cents each raising 9,030,000. The first tranche of 9 million shares settled on 31 December 2012 following receipt of 1,890,000, the second tranche settled on 25 January 2013, following receipt of 1,890,000 from a share placement, and the third tranche settled on 4 March 2013, following receipt of 5,250,000 from the share placement. In addition, on 14 December 2012, Merlin advised that it had entered into an 8 million convertible note agreement with an international investor, to provide further funding towards the recommencement of mining operations at the Merlin diamond mine in Northern Territory. The convertible note is for 1 year and bears interest at 6.5%. Interest is payable quarterly. The convertible notes can be converted into fully paid ordinary shares at any time during the 1 year period at a conversion price of 22 cents. The convertible notes are unsecured. The Agreement was subject to shareholder approval to the issue of the fully paid ordinary shares which would be issued upon conversion of the convertible note and any government approvals necessary for the transaction. Shareholder approval was received on 24 January

19 On 31 January 2013, the Company announced it has reached an agreement with Innopac Holdings Limited (Innopac) under which Innopac agrees to make a scrip-for-scrip off-market takeover to acquire all of the shares in Merlin Diamonds Limited ( Merlin ) (the Transaction). Under the Transaction, Innopac will offer 1.67 Innopac shares for every one Merlin Diamonds share. This equates to 0.28 per Merlin share (based on S per Innopac share which is the weighted average price for trades of Innopac s shares done on the SGX-ST Mainboard for 7 consecutive trading days prior to and including 30 January 2013, being the day on which the Takeover Bid Implementation Deed was executed, and at an exchange rate of A1.00 to S1.28) and represents a premium of approximately 36.59% over the closing price of on 30 January The Transaction is unanimously recommended by the Directors of Merlin, in the absence of a superior proposal. Subject to compliance with any law and regulatory approvals, Innopac has agreed to use best endeavours to establish a share sale facility for Merlin shareholders who accept the offer but do not wish to hold Innopac shares, up to an agreed cap. Innopac has been listed on the Singapore Stock Exchange mainboard since 1983, and is an investment holding and management company headquartered in Singapore. Its present investments are in telecommunications, investment properties and equities. Innopac is continually looking for new investments that will contribute to and increase its shareholders value. The Offer will be subject to a number of conditions which are contained in attachment 1 (defined terms have the meaning given to them in the Takeover Bid Implementation Deed) of the announcement on the Company s website. The Takeover Bid Implementation Deed also contains: o o no shop, no talk, notification and matching rights in favour of Innopac; and a break fee payable by each of Innopac and Merlin in certain circumstances. Innopac and Merlin expect that the Bidder s Statement and Target s Statement in relation to the Offer will be sent to Merlin Shareholders in March

20 Directors Declaration In the opinion of the Directors of Merlin Diamonds Limited (the Company ): 1. the financial statements and notes, set out on pages 11 to 18, are in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity s financial position as at 31 December 2012 and of its performance, for the half year ended on that date; and (b) complying with the Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and 2. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Signed in accordance with a resolution of the Directors. Joseph Gutnick Executive Chairman and Managing Director Dated at Melbourne this 6 th day of March

21 Tel: Fax: Level 14, 140 William St Melbourne VIC 3000 GPO Box 5099 Melbourne VIC 3001 Australia INDEPENDENT AUDITOR S REVIEW REPORT To the members of Merlin Diamonds Limited Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of Merlin Diamonds Limited, which comprises the consolidated statement of financial position as at 31 December 2012, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, notes comprising a statement of significant accounting policies and other explanatory information, and the directors declaration of the consolidated entity comprising Merlin Diamonds Limited and the entities it controlled at the half-year s end or from time to time during the half-year. Directors Responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at 31 December 2012 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As the auditor of Merlin Diamonds Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Merlin Diamonds Limited, would be in the same terms if given to the directors as at the time of this auditor s review report. BDO East Coast Partnership ABN is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN , an Australian company limited by guarantee. BDO East Coast Partnership and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania _1.DOCX

22 Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Merlin Diamonds Limited is not in accordance with the Corporations Act 2001 including: (a) giving a true and fair view of the consolidated entity s financial position as at 31 December 2012 and of its performance for the half-year ended on that date; and (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations BDO East Coast Partnership James Mooney Partner Melbourne, 6 March 2013