16 December 2008 African Diamonds PLC Preliminary Results for Year Ended 30 June 2008
Highlights * Mining Licence obtained for the AK06 diamond discovery in Orapa, Botswana
* Plan calls for construction start-up April 2009 with diamond production early 2011
* Additional exploration ground acquired from De Beers in Botswana and the Democratic Republic of the Congo
John Teeling, Chairman of African Diamonds, commented: "In these tumultuous times, African Diamonds is making significant progress.

We have a Mining Licence to develop one of the very few hard rock high quality diamond discoveries in the world.

The fundamentals for diamonds remain very strong.

The economic storm will pass and we expect to be well positioned to take advantage of the upturn."
Enquiries: African Diamonds
John Teeling, Executive Chairman +353 1 833 2833 James Campbell, Managing Director +27 83 457 3724 RBC Capital Market
Andrew Smith +44 20 7029 7882 Martin Eales +44 20 7029 7881 College Hill
Paddy Blewer +44 207 457 2020 Nick Elwes
African Diamonds PLC - Statement Accompanying the Preliminary Results
Writing a report to shareholders in December 2008 is difficult when the world appears to be sliding into an economic abyss matched only by the collapse of the 1930s.

Fear has replaced greed and wealth has simply evaporated.

The sheer scale of what has happened in financial markets is taking a massive toll on investors and on their approach to the market and to investment.
It is very important to see through the haze and to look at the medium and longer term picture.

It is critical to remember that history has seen numerous economic collapses, yet the world has gone on to thrive and prosper.

This will happen again.

Note the positives; * the BRIC countries will grow to become world leading economies; * the vast majority of people, over 90 per cent in most markets, are working and earning money; * diamonds are forever.

Demand may falter and prices may decline in the short term but the romance surrounding the giving, owning and wearing of a diamond will continue.

There are 650 million Chinese women waking up to the mystique of diamonds; * diamonds are scarce and likely to become more so as mines decline and few, if any, discoveries are made.

Our AK06 diamond discovery is very rare in the world diamond industry.
Business Environment It is impossible not to be affected by current economic events, so I must address them in the context of the development of our AK06 hard rock diamond mine in Botswana.

Almost everything is in place, feasibility study completed, mining licence issued, permits obtained and start-up dates agreed.

Finance is being sourced by our partner De Beers.


In the last quarter of 2008, the diamond industry has almost ground to a halt.

There is virtually no liquidity in the system.

The buyers of rough diamonds cannot get credit.

Diamonds sold at auction have seen prices decline by up to 40 per cent.

Sightholders at the regular Diamond Trading Company (DTC) sales (called "sights") were reputed to have cut purchases by upwards of 60 per cent.


The cause is lack of credit.

It is not particular to the diamond business.

Suppliers will not give open account credit because they fear they will not be paid, the so called "Counterparty Risk", while buyers cannot get Letters of Credit.

The Herculean worldwide efforts being made to restart credit will eventually work but the damage to confidence and to the so called "real economy" is immense.

It is quite possible that interest rates in 2009 will be at historic lows in the Western world, yet lenders may refuse to lend and borrowers may lack the confidence, the security and cash flow to borrow.

So the next year or so will be difficult.
What then? Does anyone believe for one minute that the Chinese and Indians will give up their desire for cars, fridges, vacations and, indeed, diamonds? They may defer purchases for a period but strong growth will restart and will last.

What I cannot predict is when.

Usually the sharper the fall, the quicker the recovery, but this time repairing the damage from the vast asset bubbles caused by cheap available money might take longer to work through.

Economic panics are usually followed by a period of apathy or "quiescence" as a 19th Century Frenchman put it.

It takes time for confidence to recover and for people to have disposable cash.

I stress this because it is here that the diamond business is likely to be impacted.

The current "credit crunch" will pass to be replaced by a scenario where buyers are or feel poorer.
The diamond industry differs from most in that there is a well known supply gap.

This gap led to rapidly rising prices until mid 2008.

If demand slows or even declines, the gap is unlikely to disappear and may grow as mines close.

Prior to the current malaise, it was believed that only twelve hard rock kimberlite mines would be operational in 2012.
The AK06 Diamond Discovery Diamonds are rare.

They are exceedingly difficult to find.

There have been no more than fifty hard rock diamond mines in the world, now there are less than thirty and the number will fall to twelve.
The AK06 discovery, discovered in Botswana, the home of diamonds, is even rarer because it contains very high quality gemstones, is close to infrastructure and has low operations costs.


AK06 is a partnership between African Diamonds (28%), De Beers (71%) and Wati (1%).

De Beers is currently the operator.

We had an excellent working relationship with De Beers until mid-2008 when it unilaterally applied for a delay in developing the mine.

The directors of African Diamonds felt it necessary to take court and other actions against De Beers to protect our shareholders.

With the assistance of the Government of Botswana, a satisfactory solution was found and a Mining Licence issued on 10 October 2008.

The terms of the licence are encouraging, no State equity and regular tax with an upward sliding scale depending on profits.

The diamonds will be sold to the DTC Botswana.

Under the terms of our agreement with De Beers, it is to finance the development of AK06.

It is currently actively pursuing sources.

The total capital expenditure for all phases of the development to 2014, including contingency, is currently expected to be US$329 million but falling rapidly.

Start-up of construction is scheduled for April 2009 with first sales expected in early 2011.

At full production AK06 will produce up to 1 million carats of diamonds annually, worth, at present prices, in excess of US$150 a carat.
Other Botswana Activity We are taking full ownership of Atlas, the exploration venture with De Beers.

It is reducing its exploration activities in Botswana, as well as in other countries.

The full data set on the extensive work undertaken, including over 50km of drilling, is being acquired by African Diamonds.

Four licences in Atlas have a number of identified anomalies which need to be drilled.

In addition, the AK8 and AK9 kimberlite discoveries will now be wholly owned by African Diamonds.

Having completed its analysis of bulk sampling data, De Beers has decided not to proceed.

We will evaluate the existing data on each pipe to see the potential for commercial grades in part of each pipe.

African Diamonds also holds a licence at Mmashoro and five at Kedia.

Work at Mmashoro is identifying new anomalies, while the historical data in the Kedia region is being evaluated. African Diamonds also holds a 25 per cent interest in Wati Ventures, a local Botswana company, which holds a net 1.35 per cent stake in the AK06 discovery as well as a couple of exploration licences.
Non Botswana Activities African Diamonds holds stakes in two very active African focused exploration companies, West African Diamonds (in which AFD currently holds 9%), which is AIM quoted and Bugeco (35.4% AFD), a private Belgian company.
West African Diamonds (WAD) was admitted to trading on AIM in 2007.

The fall in that companys share price is reflected by the write off of �450,000 in AFDs accounts.

There is no impact on cash.
WAD is active in Sierra Leone and Guinea.

WAD is building a 100 tonne per hour alluvial diamond mine in Bomboko, Guinea.

This is expected on stream in Q2 2009.

In Sierra Leone, a diamond/gold mining venture has been placed on care and maintenance while prospects for a small kimberlite pipe (Pipe 3) are being evaluated.


Recent corporate activity has seen African Minerals Limited, an AIM quoted explorer, and Audley Capital, a London private equity house, each take a 14.9% share.
Bugeco has been working a joint venture with De Beers on seven newly discovered kimberlite pipes in Kasai province in the Democratic Republic of the Congo (DRC).

The pipes, which are small, contain diamonds but are not considered to be big enough by De Beers, so it has withdrawn from the joint venture.

This is an opportunity for African Diamonds to either proceed on sole risk or to joint venture the ground.
The Future These are challenging times.

Yet it is in challenging times like this that great progress can be made.

The short to medium term economic outlook is clouded to say the least, but we will not lose sight of the fundamentals, that women like diamonds, diamonds are scarce and hard to find and growth will return.
Economics and politics may change but geology does not.

We have diamonds in the ground and good exploration opportunities in prospective areas.

Your Board is awake to the challenges and the opportunities facing African Diamonds.
John Teeling Chairman
16 December 2008
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2008
2008
2007
�
�
CONTINUING OPERATIONS
REVENUE -
-
Cost of sales -
-
GROSS PROFIT -
-
Administrative expenses (462,191)
(491,562)
OPERATING LOSS (462,191)
(491,562)
Finance costs (1,649)
(2,495)
Finance revenue 124,550
129,732
Other (losses)/gains - write down of investment in WAD (475,000)
200,000
LOSS BEFORE TAXATION (814,290)
(164,325)
Income tax expense -
-
LOSS AFTER TAXATION FOR THE FINANCIAL YEAR (814,290)
(164,325)
Loss per share - basic (1.07p)
(0.22p)
Loss per share - diluted (1.07p)
(0.22p)
CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2008
2008
2007
�
�
ASSETS:
NON CURRENT ASSETS
Intangible assets 2,702,531
1,947,820 Investments in associates 838,131
838,131 Investments 32,410
5 Financial assets 725,000
1,200,000
4,298,072
3,985,956
CURRENT ASSETS
Receivables 73,556
113,941 Cash 2,926,320
3,680,933
2,999,876
3,794,874 TOTAL ASSETS 7,297,948
7,780,830
LIABILITIES:
CURRENT LIABILITIES
Trade and other payables (80,384)
(52,551)
NET ASSETS 7,217,564
7,728,279
EQUITY:
Called-up share capital 762,108
761,558 Share premium 2,164,526
2,132,676 Share based payment reserve 663,475
392,300 Retained earnings 3,627,455
4,441,745
TOTAL EQUITY 7,217,564
7,728,279
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2008
Called-up Share Capital
Share Premium
Share Based Payment Reserve
Retained Earnings/(deficit)
Total
�
�
�
�
�
At 1 July 2006 742,551
7,959,917
-
(1,176,402)
7,526,066
Share based payments -
-
392,300
-
392,300
Shares issued for cash 19,007
2,349,403
-
-
2,368,410
Share issue expenses -
(216,727)
-
-
(216,727)
Repayment of capital re: demerger -
(7,959,917)
-
5,782,472
(2,177,445)
Loss for the year -
-
-
(164,325)
(164,325)
At 30 June 2007 761,558
2,132,676
392,300
4,441,745
7,728,279
Share based payments -
-
271,175
-
271,175
Share issued as consideration 550
31,850
-
-
32,400
Loss for the year -
-
-
(814,290)
(814,290)
At 30 June 2008 762,108
2,164,526
663,475
3,627,455
7,217,564
Share based payment reserve The share based payment reserve arises on the grant of share options to employees and directors under the share option plan.
Retained earnings Retained earnings comprise accumulated profit and losses in the current year and prior years.
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2008
2008
2007
�
�
CASH FLOW FROM OPERATING ACTIVITIES
Loss before tax (814,290)
(164,325) Finance cost 1,649
2,495 Finance revenue (124,550)
(129,732) Other losses/(gains) 475,000
(200,000)
(462,191)
(491,562) MOVEMENTS IN WORKING CAPITAL
Increase/(decrease) in trade and other payables 27,833
(53,230) Decrease/(increase) in receivables 40,385
(72,791) Working capital relating to demerger -
141,260
CASH USED BY OPERATIONS (393,973)
(476,323)
Finance cost (1,649)
(2,495) Finance revenue 124,550
129,732
NET CASH USED IN OPERATING ACTIVITIES (271,072)
(349,086)
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for intangible assets (483,536)
(291,992) Investment in associate -
(838,131) Payment to acquire investment (5)
- Payment to acquire financial assets -
(1,000,000)
NET CASH USED IN INVESTING ACTIVITIES (483,541)
(2,130,123)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of equity shares -
2,368,410 Share issue costs -
(216,727)
NET CASH GENERATED FROM FINANCING ACTIVITIES -
2,151,683
NET DECREASE IN CASH AND CASH EQUIVALENTS (754,613)
(327,526)
Cash and cash equivalents at beginning of the financial year 3,680,933
4,008,459 Cash and cash equivalents at end of the financial year 2,926,320
3,680,933
Notes:
1.

Accounting Policies The Groups transition date to IFRS is 1 July 2006.

The comparative financial information for the year ended 30 June 2007 has been stated on a consistent basis with those accounting policies applied by the Group in preparing their first full financial statements in accordance with IFRS as at 30 June 2008, except where otherwise required or permitted by IFRS 1 "First Time Adoption of International Accounting Standards".
2.

Earnings per Share Basic earnings or loss per share is computed by dividing the loss after taxation for the year available to ordinary shareholders by the weighted average number of ordinary shares in issue and ranking for dividend during the year.

Diluted earnings per share is computed by dividing the profit or loss after taxation for the year by the weighted average number of ordinary shares in issue, adjusted for the effect of all dilutive potential ordinary shares that were outstanding during the year.
The following table sets forth the computation for basic and diluted earnings per share (EPS):
2008
2007
�
�
Numerator
For basic and diluted EPS retained loss (814,290)
(164,325)
Denominator No.
No. For basic and diluted EPS 76,155,766
74,359,898
Basic EPS (1.07p)
(0.22p) Diluted EPS (1.07p)
(0.22p)
3.

Intangible Assets - Group
2008
2007
�
�
Exploration and Evaluation Assets:
Cost:
Opening balance 1,947,820
3,582,233 Additions 754,711
684,292 Disposals -
(2,318,705)
Closing balance 2,702,531
1,947,820
Carrying amount:
Opening balance 1,947,820
3,582,233
Closing balance 2,702,531
1,947,820
Exploration and evaluation assets relates to expenditure incurred in mineral exploration in Botswana.
At the balance sheet date there were no facts or circumstances known to the directors which suggested that the carrying amount exceeds its recoverable amount.

No impairment provision has been made in respect of these intangible assets.
The realisation of this intangible asset is dependent on the discovery and successful development of economic reserves which is affected by those risks outlined below.

Should this prove unsuccessful the value included in the balance sheet would be written off to the income statement.
The directors are aware that, by its nature, there is an inherent uncertainty in exploration and evaluation expenditure as to the recoverable value of the asset.

Having reviewed the exploration and evaluation expenditure at 30 June 2008, the directors are satisfied that the value of the intangible asset is not less than carrying value.


The groups exploration activities are subject to a number of significant and potential risks including:
- Price fluctuations - Uncertainties over development and operational risks - Operational and environmental risks - Political and legal risks, including arrangements and governments for licenses, profit sharing and taxation - Funding developments
Included in the exploration and evaluation assets are amounts of �271,175 (2007: �392,300) relating to equity-settled share based payment transactions during the year.
The disposal in 2007 relates to the demerger of the Groups interest in the shares of Grampian Resources Limited.
On 26 October 2006, the companys interests in the shares of Grampian Resources Limited, a wholly owned subsidiary of African Diamonds plc, and certain intangible assets were transferred to West African Diamonds plc for this demerger to take place.
4.

General Information
The financial information set out above does not constitute the Companys financial statements for the year ended 30 June 2008.

The financial information for 2007 is derived from the financial statements for 2007 which have been delivered to the Registrar of Companies.

The auditors have reported on 2007 statements; their report was unqualified with an emphasis of matter in respect of considering the adequacy of the disclosures made in the financial statements concerning the valuation of intangible assets, and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

The financial statements for 2008 will be delivered to the Registrar of Companies following the Companys Annual General Meeting.


A copy of the Companys Annual Report and Accounts for 2008 will be mailed to all shareholders shortly and will also be available for collection from the Companys registered office, 20-22 Bedford Row, London WC1R 4JS.

The Annual Report and Accounts may also be viewed on African Diamonds plcs website at www.afdiamonds.com.


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