FDI.L Regulatory News (FDI)

16 Dec 2005 15:55

Firestone Diamonds PLC16 December 2005 Firestone Diamonds plc Preliminary statement of results for the year ended 30 June, 2005 LONDON: 16 December, 2005 - The Board of Firestone Diamonds plc, ("Firestone" or"the Company"), the AIM-quoted diamond mining and exploration company, announcespreliminary results for the year ended 30 June, 2005. HIGHLIGHTS Groen River Valley • Joint venture signed with De Beers in June 2005 • Potential resource of 9 million carats and gross value of $2.7 to $4.5 billion • Confirms potential as a significant new alluvial diamond producing area • Bulk sampling under way Orapa • Orapa joint venture signed with De Beers in December 2004 • Intensive work programme under way at Orapa and Mopipi • Four new kimberlites discovered; three kimberlites bulk sampled • Joint venture signed with Daly City Ventures in March 2005 New exploration projects • Applications pending for new areas around Orapa and Jwaneng • Applications submitted for substantial new area similar to Groen River Valley • New project identified in Botswana and applications submitted Mining operations • Mining operations to be refocused following strategic review • Negotiations at advanced stage for new project and expansion to Bonte Koe Mine • Oena Mine to transition to mining contractor in Q1 2006 • Resource evaluation programme planned for new Hondeklip Bay projects Corporate • Acquired 7.28% interest in African Diamonds plc in October 2005 • Appointed Tim Wilkes to position of Chief Operating Officer in December 2005 Financial • Turnover for FY 2005 in line with FY 2004; operating loss due to development expenditure at Bonte Koe • £10 million equity financing completed in November 2005 Diamond market • Rough diamond market remains strong; prices increased 20% in 2004 and 6% in 2005 Outlook • New production stage projects identified and being evaluated in South Africa • Significant improvement expected in turnover and financial performance in coming year Dear Shareholder, The past year has seen continued good progress in the growth and development ofFirestone's exploration and mining project portfolio. Exploration Summary One of our key objectives for the year was to increase the scale of theCompany's exploration activities and to work with joint venture partners inorder to allow us to accelerate the development of our exploration projectportfolio. We made significant progress in this regard during the year in bothSouth Africa and Botswana One of the highlights of the year was the substantial progress made at the GroenRiver Valley, which is the Company's most promising exploration project. Duringthe year, the Company increased its license position in the Groen River Valleyby 150%, to over 500 square kilometres, and in June 2005 the Company announcedthat it had entered into a joint venture with De Beers over the project.Substantial exploration work has been carried out since then. In October 2005, the Company announced that 13 alluvial deposits had beenidentified in the area, with a potential resource of approximately nine millioncarats and gross value of $2.7 billion to $4.5 billion. These results confirmthat the Groen River Valley project has the potential to become a major newalluvial diamond mining area, producing high quality diamonds, and support ourview that it is one of the most attractive undeveloped alluvial diamond projectsin the world. An extensive programme of drilling and bulk sampling is being undertaken tofurther evaluate the economic potential of the area. The first phase of thisprogramme includes bulk sampling of the HL, KK and KR deposits, to provide anindication of the diamond content and value of the deposits. The bulk samplingprogramme is now under way, with initial results expected in the first quarterof 2006. Substantial progress was also made in Botswana. During the year, two newkimberlite exploration projects were secured close to the Orapa and JwanengMines, increasing the area held by the Company by 150%, to approximately 9,000square kilometres. Two new joint ventures were signed with De Beers over theseprojects during the year, in addition to the joint venture signed over theMopipi project in 2004. An intensive exploration programme has been carried out in the Orapa and Mopipiareas, resulting in the identification of 180 geophysical targets for furtherfollow up. A total of 51 targets have been drilled to date, resulting in thediscovery of four new kimberlites. Following the recovery of microdiamonds fromthree kimberlites, 100 tonne bulk samples were taken to test for the presence ofmacrodiamonds. Full results and analysis from bulk sampling of all threekimberlites are expected to be available in early 2006. With many targets still to be followed up in the Orapa and Mopipi areas, theCompany considers it likely that more kimberlites will be discovered as drillingcontinues in 2006. Given the fact that more than 10% of the 75 knownkimberlites in the region are economic, we believe that the prospects for neweconomic discoveries in the area are very good. During the year, the Company entered into an agreement to acquire an 81%interest in Daly City Ventures, which controls an area of approximately 380square kilometres in the Orapa region. Exploration work in this area iscurrently under way. Mining Operations Summary Firestone's mining operations play an important role in contributing cash flowto finance the Company's exploration activities. The Bonte Koe Mine on the Buffels River was the primary focus for the Company'smining operations during the year, and mine construction and commissioning werecompleted in the first quarter of 2005. Initial grades from gravel processedwere below the expected average of 10 carats/100 tonnes, but grades have sinceimproved and production is expected to continue to increase in 2006. Activitiesat Avontuur have been focused on preparations to take over the adjacentHondeklip Bay Mine and Marine Concession 7a from Trans Hex, while production waslimited at Oena, as we had not identified a suitable replacement miningcontractor for the mine. We strengthened our management team during the year with the appointment of TimWilkes as Director, Resource Development. Prior to joining Firestone, he wasGeneral Manager - Mineral Resource Management for De Beers and was the CompetentPerson responsible for the management of De Beers' mineral resources worldwide.Mr. Wilkes has led a strategic review of the Company's mining operations and newmining and development project opportunities. As a result of this review, whichhas recently been completed, the Company intends to focus only on projects thathave potential for significant scale, while smaller scale projects will be jointventured or contracted out. A number of decisions have been made in respect ofthe Company's current projects, as follows: Bonte Koe will continue to be the primary focus for the Company's miningoperations. The Company is at an advanced stage in negotiations in respect of asignificant production stage project in the Buffels River area, close to theBonte Koe mine. This project is expected to result in a significant expansionto the scale of operations and production at the mine in the coming year. The Company intends to make a significant expansion to operations at Avontuur toexploit the substantial resources at the Hondeklip Bay Mine and MarineConcession 7a. A detailed resource evaluation programme, comprising geophysics,drilling and bulk sampling, is currently being developed for both projects andis expected to result in a significant increase in the Company's diamondresources and production in Hondeklip Bay. This programme will be the focus ofthe Company's activities in the area in 2006. At Oena, we intend to replace the Company's own mining operations with asignificantly larger scale operation by appointing a mining contractor on arevenue sharing basis. After extensive discussions, a shortlist of two suitablyqualified mining contractors has been selected. Both contractors have indicatedthat they are willing to make a significant capital commitment to operations atOena, which should result in increased turnover at the mine. An appointment isexpected to be made in the first quarter of 2006. Corporate With the growth in the Company's mining and exploration project portfolio overthe past year and the further expansion now being planned, we recently decidedto create the position of Chief Operating Officer, with responsibility formanaging all operational aspects of the company's portfolio of mining andexploration projects. Tim Wilkes has been promoted to this position, and weexpect him to play a central role in helping Firestone to achieve its objectiveof becoming a leading mid-tier diamond mining and exploration company. In October 2005, the Company further expanded its interests in Botswana throughthe acquisition of a 7.28% interest in African Diamonds plc. African Diamondshas a joint venture with De Beers in the Orapa region, over ground which adjoinsFirestone's Orapa and Mopipi projects. Financial Turnover from mining operations was broadly in line with last year, although itshould be noted that Bonte Koe did not make a significant contribution duringthe financial year, as commissioning was only completed at the end of the thirdquarter. Operations showed a small loss, primarily as a result of increased staff costsduring the development and commissioning stage of the Bonte Koe project, whichhave since reduced, and interest payments, which rose significantly during theyear as a result of project financing facilities used by the Company to financepart of the development costs at Bonte Koe. We expect to see a substantial improvement in the Company's turnover andfinancial performance in the coming year, as the planned expansion andrefocusing of the Company's mining operations take place. Since the end of the year, the most significant development has been thecompletion of a £10 million equity financing in November 2005. These funds willbe used to finance the planned expansion of the Company's mining and explorationactivities in South Africa and Botswana. The Diamond Market Prices in the rough diamond market continued to increase, driven by the growingshortage in rough diamond supply across all segments of the market. Roughdiamond prices increased by about 20% in 2004 and this trend continued into2005, with De Beers raising rough diamond prices by 6% during the year. DeBeers' sales for 2005 are expected to reach a record level of $6.4 billion, a12% increase from the previous record set in 2004. With De Beers' stocks now atminimum working levels, and the rough diamond supply deficit expected tocontinue for the next three to five years, the outlook for diamond pricescontinues to be very positive. Outlook We expect to see continued development of our exploration and mining projectportfolio in the coming year. In South Africa, there will be substantial activity at the Groen River Valley,with exploration drilling and bulk sampling expected to continue throughout theyear. On the basis of positive results from the Groen River Valley, the Company hasdecided to pursue new exploration projects further inland on the Groen RiverValley palaeo river systems. A significant amount of work has been carried outand a number of prospective areas have been identified which the Companybelieves have the potential to host significant resources of large, high qualitydiamonds. We are pleased to announce that, based on this work, the Company hasrecently applied for three new prospecting permits covering approximately 1,500square kilometres. We consider Botswana to be one of the best countries in the world to explore forkimberlite. Firestone is already the largest holder of diamond explorationrights around the Orapa Mine, and is the only significant holder of diamondexploration rights, other than De Beers, around the Jwaneng Mine. The Companyhas submitted prospecting licence applications for a total area of 15,000 squarekilometres in the Orapa and Jwaneng regions, which, if granted, would increasethe area held by 170%, to 24,000 square kilometres, giving the Company a verysignificant, strategic land position. Firestone also intends to undertake exploration in a new region in Botswanawhich is considered to be prospective for the discovery of diamondiferouskimberlites, and has recently submitted new prospecting licence applicationscovering a substantial area in that region. We expect to be able to announcedevelopments in this regard in 2006. In terms of mining operations, the Company is in the process of evaluating anumber of significant new production stage and cash-flow generating projects,and expects to be able to update shareholders in this regard in the comingmonths. With substantial funding now in place, the many opportunities that are availableto Firestone, and the strength of the rough diamond market expected to continuein the medium term, we remain confident about the Company's long term prospects. Finally, I would like to record the Board's appreciation of the continueddedication and commitment of our senior management and staff, who havecontributed to the Company's continued growth and development over the pastyear. James F. KennyChairman 16 December 2005 Review of Operations Groen River Valley, South Africa The Groen River Valley project is the Company's most promising explorationproject in South Africa due to the high quality and large size of diamonds thathave been mined in the area, and the large area controlled by the Company.During the year a prospecting permit was granted for a substantial area,increasing Firestone's land position by 150%, to over 500 square kilometres.This gives the Company control of all of the prospective ground in the lowerreaches of the Groen River. The most significant development during the year was the signing of a jointventure agreement with De Beers. Under the terms of the joint ventureagreement, De Beers can earn a 61% interest in the project by financing andcarrying out all exploration and evaluation work up to completion of bankablefeasibility studies on any deposits identified by exploration in the projectarea. Since June, modeling carried out on data from exploration carried out by DeBeers and Firestone has estimated the size of the 13 deposits identified to datein the project area at 360 million tonnes. Using grade estimates of between twoand three cpht, this indicates a potential resource of approximately ninemillion carats. The average value of diamonds in the area varies from $500 to$1,000 per carat, but applying a conservative diamond value range of $300 to$500 per carat results in a potential gross value of $2.7 billion to $4.5billion. These results confirm that the GRV project has the potential to becomea major, new high quality diamond producing region. A systematic multi-phase programme of drilling and bulk sampling is now beingundertaken to further evaluate the area's economic potential. The first phaseof this programme includes bulk sampling of the HL deposit. Since the end ofthe year, approximately 2,000 metres of probe drilling has been carried out onthe deposit in preparation for bulk sampling using a large diameter bucket auger("LDA") drill. The objective of the first phase of LDA drilling, which willcomprise approximately 20 holes, is to provide an initial indication of thegrade of the deposit. During the year, approximately 8,400 metres of probe drilling was carried outover 234 holes on two new targets, known as the KK and KR targets, and confirmedthe presence of alluvial gravels. It is also planned to drill a number of LDAholes on the KK and KR deposits in order to provide an initial indication ofdiamond content. Based on the results of this work, a decision will be madewhether to proceed to bulk sampling. Mopipi and Orapa, Botswana The Mopipi project covers an area of approximately 3,600 square kilometers andis located in the Orapa area, which hosts the Orapa, Letlhakane and Damtshaadiamond mines. In 2004, the Company entered into a joint venture with De Beersover the Mopipi project, under which De Beers can earn a 61% interest in theproject by taking it to completion of bankable feasibility. During the year, the Company was granted prospecting licences for a new areacovering approximately 1,300 square kilometers, known as the Orapa project. InDecember 2004, the Company entered into a new joint venture with De Beers overthe Orapa project, on similar commercial terms to the Mopipi joint venture. An intensive exploration programme was carried out in the Orapa and Mopipiproject areas during the year. More than 51,000 line kilometres ofhigh-resolution geophysical surveys, including airborne magnetics, groundgravity and ground magnetics, were conducted. Interpretation of the data fromthese surveys has identified 180 potential kimberlite drilling targets forfurther investigation. To date, a total of 51 geophysical targets have beendrilled in the Orapa and Mopipi project areas, resulting in the discovery offour new kimberlites - AK21, AK22 and AK23, which are located approximately 15kilometres south of the Orapa Mine, and BK53, which is located approximately 10kilometres north of the Letlhakane Mine. As there are still a significantnumber of targets to be investigated in the Orapa and Mopipi project areas,exploration drilling will continue in 2006. Detailed high-resolution ground geophysical surveys and drilling were carriedout on AK21, AK22 and AK23, on the basis of which their sizes are estimated at3, 3 and 3.5 hectares, respectively. AK22 and AK23 coalesce, giving a muchlarger area of kimberlite close to surface, of approximately nine hectares.Following the recovery of microdiamonds from all three kimberlites, 100 tonnebulk samples were taken from each kimberlite to test for the presence ofmacrodiamonds. Full results and analysis from bulk sampling of all threekimberlites are expected to be available in early 2006. In March 2005, the Company announced that it had entered into an agreement toearn an 81% interest in Daly City Ventures, which holds a prospecting licence inthe Orapa region over an area of approximately 380 square kilometres. A reviewof data from previous exploration in the area has been completed, and fieldexploration activities are expected to commence in early 2006. Jwaneng, Botswana During the year, the Company was granted new prospecting licences for an area ofapproximately 3,700 square kilometers, located close to the Jwaneng diamondmine. In December 2004, we announced that the Company had entered into a jointventure agreement with De Beers over the Jwaneng project, on similar commercialterms to the Mopipi and Orapa joint ventures. During the year, data from exploration recently carried out by De Beers has beenintegrated with data from kimberlite indicator mineral sampling in order toidentify target areas for follow-up work on the ground. High-resolution gravityand magnetic surveys will be conducted on selected target areas in the firsthalf of 2006 to identify potential kimberlite drilling targets. Bonte Koe Mine, South Africa During the year, the Company's black empowerment joint venture company, AfricanStar Minerals, completed the development of new mining operations at the BonteKoe Mine. This included construction of a new 150 tonne per hour graveltreatment plant, a 10 km power line and a 35km water pipeline. Commissioning ofthe gravel treatment plant was completed in the first quarter of 2005. Mining operations at Bonte Koe since then have been focused on processingmaterial from a number of locations on the property with the objective ofimproving the geological interpretation of the deposits on the mine and allowingmaterial from a number of areas to be blended. Grades from gravel processed todate range from one to nine carats/100 tonnes. This is below the expectedaverage grade of 10 carats/100 tonnes for the mine, but grades have improved asnew mining areas have been opened up. Production at Bonte Koe is expected toincrease significantly in 2006. A total of 1,461 carats was recovered during the year, at an average size of 0.5carats per stone. The average price for diamonds sold increased from $205 percarat to $223 per carat by the end of the year, compared to the $200 per caratthat was originally expected. A total of 2,792 metres of drilling over 461holes was carried out on selected exploration targets on the mine. Avontuur Mine, South Africa The Company's recent activities at the Avontuur Mine have been primarily focusedon preparations for an expansion of operations to exploit the Hondeklip Bay Mineand Marine Concession 7a projects, which were announced earlier this year. The Hondeklip Bay Mine, which adjoins Firestone's Avontuur Mine, hosts marineterraces and palaeo-channels related to those mined by De Beers both to thenorth and to the south of the mine. Firestone intends to exploit thesubstantial gravel resources remaining at the Hondeklip Bay mine by using theCompany's plant and equipment at the Avontuur Mine. Substantial work hasalready been carried out on the evaluation of these resources. Concession 7a covers a one kilometre wide strip in the sea, adjacent to andparallel to the coast, and extends approximately 33 kilometres along the coast.Under the terms of the joint venture agreement with the concession holder, TransHex. Firestone will be responsible for securing, supporting and managingcontractors for Concession 7a, with revenue from mining operations to be sharedbetween Firestone and Trans Hex. Production for the year was lower at 4,375 carats due to the deployment of somemining equipment to Bonte Koe and to work done in preparation for taking overthe Hondeklip Bay Mine and Concession 7a. Diamonds produced continued to beapproximately 85% gem quality, with an average size of 0.22 carats per stone.The average price for diamonds sold during the period decreased from $125 to$118 per carat. A total of 1,487 metres of drilling was carried out over 124holes on selected exploration targets on the mine. Oena Mine, South Africa Production at Oena was limited during the year. The Company's efforts werefocused on securing a new mining contractor, with the objective of significantlyincreasing earthmoving and processing capacity at the mine. A shortlist of twosuitably qualified mining contractors has been drawn up, and an appointment isexpected to be made in the first quarter of 2006. Production at Oena during the year was 677 carats. The average grade frommining areas was in line with last year, at 0.5 carats/100 tonnes, with diamondsproduced averaging 1.36 carats per stone. The average price for diamonds soldincreased 3% to $1,198 per carat, primarily due to the sale of a number oflarge, high value stones. A number of special diamonds were recovered duringthe year, including stones of 62.24 and 32.57 carats that sold for approximately$3,277 and $3,684 per carat, respectively. US Exploration Project Exploration at the Company's kimberlite exploration project in the United Statesindicates that at least one previously unknown kimberlite field is located inthe project area, and that some of these kimberlites may be diamondiferous. TheCompany's joint venture partner, American Diamonds, has completed the firstphase of follow-up sampling in the high priority target areas identified byprevious exploration. Sampling results are currently being compiled and areexpected to be announced in early 2006. For further information: Philip Kenny, Firestone Diamonds +44 20 8834 1028 / +44 7831 324 645 Leesa Peters, Conduit PR +44 20 7429 6600 / +44 7812 159 885 Jamie Cumming, Bell Lawrie +44 141 314 8103 / +44 7768 044 620 Website: www.firestonediamonds.com FIRESTONE DIAMONDS PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 2005 2005 2004 £ £ Production 928,978 961,435 Turnover 940,706 978,298 Change in stocks of finished goods and in work in progress (11,728) (16,863) Raw materials and consumables (148,795) (142,634)Staff costs (388,975) (158,871)Depreciation and amortisation (236,359) (124,925)Other operating charges (371,186) (428,256) Operating (loss)/profit (216,337) 106,749 Profit on disposal of fixed assets - 43,857 (Loss)/profit on ordinary activities before interest and taxation (216,337) 150,606 Interest receivable and similar income 43,177 28,311Interest payable and similar charges (149,409) (4,958) (Loss)/profit on ordinary activities before taxation (322,569) 173,959 Deferred tax on loss/profit on ordinary activities 96,899 (17,480) (Loss)/profit on ordinary activities after taxation (225,670) 156,479 Minority interests 21,349 5,019 Retained (loss)/profit for the year (204,321) 161,498 (Loss)/earnings per shareBasic (loss)/earnings per share (0.5)p 0.4pDiluted (loss)/earnings per share (0.5)p 0.4p Turnover is wholly derived from continuing activities. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 30 JUNE 2005 £ £ (Loss)/profit for the financial year (204,321) 161,498Currency translation differences (824,826) 113,782Deferred tax on exchange differences 125,705 - Total recognised gains and losses for the year (903,442) 275,280 FIRESTONE DIAMONDS PLC CONSOLIDATED BALANCE SHEET 30 JUNE 2005 2005 2004 £ £ £ £ FIXED ASSETSIntangible assets 5,950,744 10,746,075Tangible assets 11,625,753 3,307,431Investments 230,439 609,351 17,806,936 14,662,857 CURRENT ASSETSStocks 105,793 121,063Debtors 598,898 478,649Cash at bank and in hand 2,112,261 293,934 2,816,952 893,646 CREDITORSAmounts falling due within (1,940,437) (684,894)one year NET CURRENT ASSETS 876,515 208,752 TOTAL ASSETS LESS CURRENT LIABILITIES 18,683,451 14,871,609 CREDITORSAmounts falling due after one year (718,815) (1,010,976) PROVISIONS FOR LIABILITIESAND CHARGESOther provisions (1,056,289) (877,110)Deferred tax (375,309) (469,013) (1,431,598) (1,346,123) NET ASSETS 16,533,038 12,514,510 CAPITAL AND RESERVESCalled up share capital 9,167,594 8,193,094Share premium account 8,383,823 4,415,004Merger reserve (1,076,399) (1,076,399)Profit and loss account 80,723 984,165 EQUITY SHAREHOLDERS' FUNDS 16,555,741 12,515,864Minority equity interests (22,703) (1,354) 16,533,038 12,514,510 FIRESTONE DIAMONDS PLC CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2005 2005 2004 £ £ £ £ Net cash inflow/(outflow) from operating activities 1,382,286 (149,154) Returns on investments andservicing of financeInterest received 43,177 28,311Interest element of finance lease payments (46,790) (4,958)Interest paid on loans (87,378) - Net cash (outflow)/inflow from returns on (90,991) 23,353investments and servicing of finance Capital expenditure and financial investmentPayments to acquire intangible fixed assets (2,411,052) (1,501,683)Payments to acquire tangible fixed assets (1,804,860) (1,019,076)Receipts from sales of tangible fixed assets - 110,885Payments to acquire investments - (231,076) Net cash outflow from capital expenditure and (4,215,912) (2,640,950)financial investment Net cash outflow before use of (2,924,617) (2,766,751)liquid resources and financing FinancingLong term loans - 877,948Repayment of long term loans (121,008) -Issue of ordinary share capital 4,943,319 2,119,881Finance lease payments (52,483) (228,716) 4,769,828 2,769,113 Increase in cash 1,845,211 2,362 Notes to the preliminary statement of results for the year ended 30 June 2005 1. Basis of preparation The financial statements have been prepared in accordance with applicable UKaccounting standards and under the historical cost convention. 2. Loss per share Basic loss per share is based on a loss of £204,321 (2004: profit of £161,498)and a weighted average number of shares in issue of 43,837,579 (2004:39,853,921). In 2005 the diluted loss per share has been calculated on the same basis asbasic loss per share because the effect of the potential ordinary shares (shareoptions) reduces the net loss per share and is therefore anti-dilutive. In 2004diluted earnings per share was based on a profit of £161,498). The weightedaverage number of shares used to calculate diluted earnings per shareincorporated the weighted average number of shares in issue of 39,853,921 plusdilutive potential ordinary shares arising from share options of 2,375,709totalling 42,229,630. 3. Publication of non-statutory accounts The financial information set out above does not constitute statutory accountsas defined in section 240 of the Companies Act 1985. The consolidated profit and loss account, balance sheet and cash flow statementand associated notes have been extracted from the Company's 2005 statutoryfinancial statements, which were approved by the Board on 16 December 2005. Theauditors have reported on these accounts; their report is unqualified and doesnot contain statements under section 237(2) or (3) of the Companies Act 1985.The financial statements will be filed with the Registrar of Companies in duecourse. The report and accounts will be posted to shareholders in the nearfuture. 4. Annual General Meeting The company's Annual General Meeting will be held at MWB Business Exchange, 78Cannon Street, Fourth Floor, London EC4N 6NQ on 27 January, 2006 at 12.00 p.m. 5. Dividends The directors do not recommend the payment of a dividend for the period. 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