FDI.L Regulatory News (FDI)

31 Mar 2006 07:03

Firestone Diamonds PLC31 March 2006 Firestone Diamonds plc Development of new mining project with De Beers on Buffels River Groen River and Botswana exploration and bulk sampling update Unaudited interim results for the six months to 31 December 2005 LONDON: 31 March 2006 Firestone Diamonds plc, ("Firestone" or "the Company"; AIM: FDI), the AIM-quoteddiamond mining and exploration company, announces that it has signed amemorandum of understanding with De Beers Consolidated Mines to cooperate on thedevelopment of a new mining operation on the Buffels River centered around theBonte Koe Mine. The Company also announces unaudited interim results for thesix months to 31 December 2005, and provides an update on bulk sampling andexploration at its Groen River Valley, Orapa and Mopipi exploration projects. SUMMARY Buffels River project • Memorandum of understanding signed with De Beers • New mining operation planned with Firestone's black-empowerment subsidiary, African Star Minerals Groen River Valley • Bulk sampling under way • Results from HL deposit expected in May Botswana • Bulk sampling results received for AK21, AK22 and AK23 • Further evaluation planned on BK53 • BK18 drilling completed and awaiting test results • De Beers continuing extensive exploration in Orapa, Mopipi and Jwaneng areas • De Beers to use new Zeppelin geophysical system over Firestone ground from Q3 2006 Mining operations • Limited mining operations at Avontuur while preparing for Hondeklip Bay expansion • Resource evaluation programme planned at Hondeklip Bay Corporate • Acquired 6.5% interest in African Diamonds plc in October 2005 • Appointed Tim Wilkes to position of Chief Operating Officer in December 2005 Financial • Turnover for H1 2006 down 30% on prior 6 months due to disruptions at Avontuur; operating loss of £0.4 million • £10 million equity financing completed in November 2005 • Current cash position over £8 million Outlook • Significant new exploration projects being evaluated in Botswana and South Africa • Significant improvement expected in turnover and financial performance in coming year New mining project During the second half of 2005, discussions were held with De Beers in respectof a proposal to use the Bonte Koe Mine, which is owned by the Company's 75%owned black-empowerment joint venture subsidiary, African Star Minerals, toexploit De Beers' nearby Buffels Inland Complex ("BIC") deposits. The BICcomprises two deposits located adjacent to Bonte Koe, and two located furtherdownstream. The key to the new development is the substantial investment thatFirestone has made in plant and infrastructure at Bonte Koe, which includes a150 tonne per hour gravel processing plant, a 16 km power line and a 35 kmprocess water supply pipeline. The Company is pleased to announce that, following the completion of a detailedtechnical due diligence exercise and feasibility study by De Beers in the fourthquarter of 2005, a memorandum of understanding has been signed with De Beers tocooperate in the development of a new mining operation on the Buffels River.The memorandum of understanding is to be superseded by a more detailedagreement, which is at an advanced stage and is expected to be concluded inApril 2006. Details of the terms of the agreement, including the financialarrangements between African Star Minerals and De Beers, will be announced atthat time. Operations highlights The Groen River Valley project is one of Firestone's most promising explorationprojects 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.Following the signing of a joint venture agreement with De Beers in June 2005,substantial exploration work has been carried out on the project. Thirteendeposits have been identified to date with an estimated size of 360 milliontonnes. With regional grades of 2 to 3 carats per hundred tonnes, and amodelled diamond value of $300 to $500 per carat, this indicates a potentialmulti billion dollar gross value for these deposits. Evaluation of the HLdeposit commenced at the end of 2005 and is proceeding well, with bulk samplingscheduled to be completed in May and sample treatment shortly thereafter. A significant amount of work has been carried out on our kimberlite explorationprojects in Botswana since June. We have received results from bulk sampling ofthe AK21, AK22 and AK23 kimberlites in the Orapa area, which were discovered in2005. These results indicate that the kimberlites are unlikely to have economicpotential and no further evaluation work is planned on them. While theseresults are disappointing, it should be noted that only 10% of the 75 knownkimberlites in the Orapa area are economic, and we are still awaiting theresults from De Beers' evaluation of BK53, which was also discovered last year.With De Beers continuing to conduct extensive exploration and evaluation workelsewhere in the Orapa area, we believe that the prospects for new economicdiscoveries in the area are good. The other major development in Botswana during the period was the introductionof De Beers' new Zeppelin Airborne Gravity Gradiometer system, which is the mostadvanced airborne gravity system in the world. The Zeppelin system produces afive to ten-fold improvement in data quality compared to other airborne gravitysystems, and is expected to start conducting surveys over Firestone's Orapa,Mopipi and Jwaneng joint venture projects in the second half of 2006. The Company started exploration on the Daly City project, which is located closeto the Orapa and Letlhakane mines, during the period. Three holes have recentlybeen drilled into kimberlite BK18, which indicate that it is 2.5-3 hectares insize. Samples recovered from drilling have been submitted for microdiamondrecovery and analysis of kimberlite indicator minerals, and results are expectedto be received in the second quarter of 2006. In respect of our mining operations, production at Bonte Koe during the periodincreased 36% compared to the previous six months, while production at Oenastayed at similar levels. Following a strategic review of the Company's miningoperations carried out last year, operations at Avontuur during the period werefocused on preparations to take over the adjoining Hondeklip Bay Mine from TransHex. As a result, production at Avontuur declined 53%, but is expected toincrease back to and above previous levels once operations at the Hondeklip BayMine commence, as planned, in the next quarter. Corporate In October 2005, Firestone expanded its interests in Botswana by issuing £2.8million in new shares to acquire a 6.5% interest in African Diamonds plc.African Diamonds has a joint venture with De Beers over ground which adjoinsFirestone's Orapa and Mopipi projects. African Diamonds' share price hasincreased significantly following positive results from evaluation of the AK6kimberlite, and the value of Firestone's shareholding has increased toapproximately £8.7 million as of today. Tim Wilkes was promoted to the position of Chief Operating Officer during theperiod, with responsibility for managing all operational aspects of thecompany's portfolio of mining and exploration projects Financial Overall production for the period was 30% lower than the previous six months.With increased production at Bonte Koe and no change at Oena, the drop wasprimarily accounted for by the limited mining operations at Avontuur. As aresult, and with increased costs at Bonte Koe as operations were ramping up, theCompany reported a small pre-tax loss for the period of £0.4 million (6 mos to31 Dec 2004: profit £0.2 million). We expect to see a substantial improvementin the Company's production and financial performance in the coming year. The Company completed a £10 million equity placing in November 2005 to finance asignificant expansion of the Company's mining and exploration activities inSouth Africa and Botswana, and currently has cash balances of over £8 million. Outlook In terms of Firestone's current exploration projects, we expect substantialactivity at the Groen River Valley, with exploration drilling and bulk samplingplanned to continue throughout the year. We believe that the project has thepotential to become a major new alluvial diamond mining area, producing highquality diamonds. The results of bulk sampling on the HL deposit are expectedto be announced shortly. In Botswana, where Firestone is the largest holder of diamond exploration rightsaround the Orapa Mine, and the only significant holder of diamond explorationrights, other than De Beers, around the Jwaneng Mine, substantial activity isalso planned, both on the De Beers joint venture project and on the Company'sown projects. We believe that the potential for new economic discoveries inBotswana is very good. In terms of the Company's current mining operations, the proposed development ofthe Buffels River project with De Beers is a major milestone. The project isexpected to provide us with significant revenue and cash flow over its projectedsix-year life and will significantly extend the duration of operations at BonteKoe. With production from the Buffels River project and the Hondeklip Bay Mineboth planned to commence in the second quarter of 2006, we expect overallproduction targets for the current financial year to be met, and to see a verysubstantial increase in production in 2007. Firestone is also pursuing a number of new opportunities. Having demonstratedthat the Company has the capability to design, build and operate efficient, costeffective mining operations to the standard required by De Beers, we hope toexpand the Company's relationship with De Beers and investigate other knownresources in the Namaqualand region that can be jointly exploited. A number ofnew, large scale mining and exploration projects in South Africa and Botswanaare currently being evaluated, and we expect to be able to update shareholdersin this regard in the coming months. Philip Kenny, CEO of Firestone Diamonds, said: "We are very pleased with thesubstantial progress that we have made since last year. With the Company'sstrong financial position, a very experienced management team in place, a highlyprospective project portfolio, and good prospects for the rough diamond market,we are confident that we can achieve the Company's objective of becoming aleading mid-tier diamond mining and exploration company." www.firestonediamonds.com 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 Review of Projects Groen River Valley, South Africa A programme of drilling and bulk sampling commenced during the period to furtherevaluate the area's economic potential. The first phase of this programmeincludes bulk sampling of the most advanced of the 13 deposits identified in theproject area, the HL deposit, which is 7 km long and up to 700 metres wide.Bulk sampling of the HL deposit is being carried out using a 2.5 metre diameterBauer BG36C large diameter auger ("LDA") drill, and results from this work willgive an initial indication of the economic potential of the deposit. A 32 hole LDA drilling programme commenced on the HL deposit at the end of 2005.Although the programme has been delayed by about five weeks as a result ofstrong water being encountered in the deeper parts of the deposit, bulk samplingis now proceeding well. LDA holes drilled to date have recovered basal gravelwith an average thickness of 2.7 metres, under an average overburden depth of 18metres, with one hole intersecting 5 metres of well developed clast-supportedbasal gravel. Gravel samples are bagged, labelled and transported undersecurity escort to the sample treatment facility at De Beers' Koingnaas Mine,approximately 75 km to the north. The samples are currently being stockpiled inKoingnaas, and will be treated in batches to eliminate any contamination fromother material being treated at the facility. LDA drilling is now scheduled to be completed in May, with sample treatment anddiamond recovery to be completed shortly thereafter. Depending on theseresults, a second phase intensive bulk sampling programme will be carried out todetermine the grade and diamond value of the HL deposit to a high level ofconfidence. Provisional planning has already commenced for this next phase ofwork. Two of the other 12 deposits in the area, the KK and KR deposits, havebeen drilled and are ready for bulk sampling. A decision in this regard will bemade once drilling of the HL deposit has been completed. Bonte Koe Mine, South Africa A total of 1,708 carats were recovered from Firestone's mining operations atBonte Koe during the period, an increase of 36% over the previous six months.Diamonds produced were an average size of 0.45 carats per stone, and the averageprice for diamonds sold was $201 per carat. Planning and design work for the new Buffels River project commenced during theperiod, following the completion of De Beers' technical due diligence exerciseand feasibility study. Firestone will be required to make a number ofmodifications to the Bonte Koe plant, including upgrading of the DMS capacityand the crushing circuit. Planning and design work for the modifications hasalready been completed, and site works have recently commenced. Firestone andDe Beers are reviewing plans to commence treatment of BIC gravels immediatelyfollowing finalisation of the formal agreement, while the required modificationsare being implemented. Under the terms of the proposed agreement, De Beers will be responsible foroverburden stripping, gravel mining and the delivery of gravel from the BIC toBonte Koe. Firestone will use the processing plant and infrastructure at BonteKoe Mine to process the gravel and produce a DMS concentrate, and will beresponsible for disposal and rehabilitation of tailings from the operation. TheDMS concentrate will be transported for diamond recovery at De Beers' KleinzeeMine, located at the coast 15 km downstream of Bonte Koe. With the plant at Bonte Koe expected to be dedicated to processing thesignificantly larger BIC gravel resources for the six year life of the project,Firestone plans to continue to exploit its own gravel resources at Bonte Koeafter processing of the BIC gravels has been completed. Orapa and Mopipi, Botswana The Orapa and Mopipi projects cover an area of approximately 4,900 sq. km closeto Debswana's Orapa, Letlhakane and Damtshaa diamond mines, and are beingexplored by De Beers in joint venture with the Company. Four kimberlites werediscovered in the Orapa and Mopipi project areas in 2005 - AK21, AK22, AK23 andBK53. During the period, large diameter drilling ("LDD") was carried out on AK21, AK22and AK23 to recover material for testing for the presence of macrodiamonds.Results have been received from the processing of this material, as follows: Kimberlite LDD holes drilled Kimberlite Macrodiamonds Macrodiamonds sampled recovered recovered (tonnes) (number) (carats)AK21 4 82.4 2 0.285AK22 5 152.7 6 0.390AK23 6 87.3 0 0 As a result of the low macrodiamond recoveries results, no further evaluationwork is planned on these kimberlites, although De Beers continues to conductextensive exploration and evaluation work elsewhere in the Orapa and Mopipiproject areas. Additional evaluation work is being carried out on BK53, which is locatedapproximately 10 km north of the Letlhakane Mine. Probe drilling on BK53encountered kimberlite at a depth of 12 metres, beneath a cover of Kalaharisediments, and remained in kimberlite to a depth of 92 metres, where it enteredKaroo sandstone. Core drilling will now be undertaken on BK53 in the nextquarter to recover material for microdiamond and mineral chemistry analysis andpetrographic studies, in order to allow a preliminary evaluation of the economicpotential of the kimberlite to be made. Exploration is continuing on the targets identified by follow-up ground andairborne geophysical surveys conducted during the second half of 2005, and thenext phase of work will include the drilling of a further eighteen targets. Oneof the high priority target areas for exploration in 2006 is located midwaybetween Orapa and Mopipi, where recent drilling by De Beers has resulted in therecovery of abundant, unabraded kimberlite indicator mineral grains from withinKaroo sediments, over an interval of 36 metres. As the kimberlites in the Orapafield are younger than the Karoo, this may indicate the presence of olderkimberlite sources in the area. Many of the kimberlite indicator mineral grainsrecovered exhibit remnant kelyphitic surfaces, which suggests that they are veryclose to their source. Further drilling is planned in this area to locate thesource of these indicator minerals. De Beers also plans to carry outgeophysical surveys in the Orapa area with its Zeppelin Airborne GravityGradiometer system during 2006. Daly City Ventures, Botswana Firestone entered into an agreement in March 2005 under which it can earn an 81%interest in Daly City Ventures, which holds a prospecting licence in the Oraparegion over an area of approximately 380 sq. km. Exploration on the Daly City project area commenced during the period and hasbeen focused on parts of the prospecting licence located close to the LetlhakaneMine and on kimberlite BK18, which was discovered by De Beers in the early1990's, but relinquished after initial evaluation indicated it was too small tobe of economic interest. Firestone has recently completed high resolutionground magnetic and gravity surveys and probe drilling on BK18, resulting inkimberlite being encountered in three holes, as follows: Hole number Hole depth Kalahari cover Kimberlite intersection (m) (m) (m)BK18-1 100 48 48-87BK18-2 70 48 48-70BK18-3 112 48 48-112 The results of this work confirm that BK18 is bigger than previously thought, atbetween 2.5-3 hectares in size. A 100 kg sample of kimberlite has been sent toKennecott Exploration's laboratory in Canada for microdiamond recovery bycaustic fusion. A 12 kg sample has also been sent to Mineral-Logic in SouthAfrica, for recovery and analysis of kimberlite indicator minerals. Resultsfrom the laboratory work are expected in the second quarter of 2006. A review of past exploration in the Daly City project area has indicated thatsignificant portions of the licence area close to the Letlhakane Mine and otherknown kimberlites have never had detailed aeromagnetic surveys conducted overthem. These areas are likely to contain high interest geophysical targets, andFirestone plans to conduct high resolution aeromagnetic surveys over these areasto identify potential drilling targets. Jwaneng, Botswana The Jwaneng project covers an area of approximately 3,700 sq. km, located closeto the Jwaneng Mine, and is being explored by De Beers in joint venture with theCompany. The Zeppelin system is currently surveying De Beers' prospecting licence areasimmediately surrounding the Jwaneng Mine. Following completion of thesesurveys, it is expected that the Zeppelin system will start work on Firestone'sprospecting licence areas in the Jwaneng area. A probe drilling programme isplanned for the second half of 2006 to test gravity anomalies generated by theZeppelin system. Avontuur Mine, South Africa As previously announced, the Company is in the process of making a significantexpansion to its operations at Avontuur to exploit the substantial resources atthe Hondeklip Bay Mine and Marine Concession 7a. This is expected to result ina significant increase in the Company's diamond resources and production inHondeklip Bay. The Company's activities at the Avontuur Mine during the periodwere primarily focused on preparations for this expansion and the development ofa detailed resource evaluation programme. As a result, production for theperiod was lower than the previous six months, at 805 carats, a reduction of53%. The average price for run of mine production at Avontuur was unchanged atapproximately $120 per carat. Oena Mine, South Africa The Company's efforts at Oena during the period were focused on securing a newmining contractor to take over operations at the mine, with the objective ofsignificantly increasing earthmoving and processing capacity. Negotiations withtwo mining contractors are at an advanced stage, with an appointment expected tobe made shortly. Production at Oena during the period was is line with theprevious six months at 207 carats, with an average size of 1.49 carats perstone. The average price for diamonds sold was 3% lower at $1,161 per carat.A number of high value diamonds were recovered during the period, includingstones of 18.99 and 20.24 carats that were valued at $3,800 and $5,600 percarat, 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.Results from the first phase of sampling carried out by the Company's jointventure partner, American Diamonds, has confirmed the high priority target areasidentified by previous exploration. The next stage for exploration on theproject will be to conduct airborne geophysical surveys over the high priorityareas and select targets for drilling. FIRESTONE DIAMONDS PLC UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS TO 31 DECEMBER 2005 2005 2004 £ £Production 302,359 495,317 Turnover 253,903 506,310Change in stocks of finished goods and in work in progress 48,455 (10,993) Other operating income - -Raw materials and consumables (124,004) (59,800)Staff costs (165,319) (115,709)Depreciation and amortisation (159,553) (62,192)Other operating charges (193,871) (104,417) Operating profit (340,389) 153,199 Interest receivable and similar income 33,436 9,428Interest payable and similar charges (50,724) (126) Profit on ordinary activities before taxation (357,678) 162,501 Deferred tax on profit on ordinary activities - (22,489) Profit on ordinary activities after taxation (357,678) 140,012Minority interests (13,714) (6,423) Retained profit for the period (371,392) 133,588 Earnings per shareBasic profit per share (0.8) 0.3Diluted profit per share (0.8) 0.3 FIRESTONE DIAMONDS PLC UNAUDITED CONSOLIDATED BALANCE SHEET 31 DECEMBER 2005 2005 2004 £ £ £ £Fixed AssetsIntangible assets 6,890,032 5,586,713Tangible assets 12,627,225 10,811,169Investments 3,078,549 660,960 22,595,807 17,058,842 Current AssetsStocks 189,050 109,785Debtors 675,645 312,504Cash at bank and in hand 8,999,951 497,933 9,864,646 920,221 CreditorsAmounts falling due within one year (1,490,161) (797,280) Net Current Assets 8,374,485 122,941 Total Assets less Current Liabilities 30,970,292 17,181,783 CreditorsAmounts falling due after one year (774,842) (1,638,554) Provisions for Liabilities and ChargesOther provisions (1,098,868) (1,061,934)Deferred taxation (474,647) (469,013) (1,573,515) (1,530,947) Net assets 28,621,934 14,012,281 Capital and ReservesCalled up share capital 11,172,975 8,737,372Share premium account 19,145,753 5,320,353Merger reserve (1,076,399) (1,076,399)Profit and loss account (580,180) 1,033,414 Equity Shareholders' Funds 28,662,148 14,014,740Minority equity interests (40,214) (2,459) 28,621,934 14,012,281 FIRESTONE DIAMONDS PLC UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS TO 31 DECEMBER 2005 2005 2004 £ £ £ £ Net cash (outflow)/inflow from operating (978,530) 1,016,879activities Returns on investments and servicing of financeInterest received 33,436 9,428Interest element of finance lease payments (24,565) (126)Interest paid on loans (50,724) - Net cash inflow from returns oninvestments and servicing of finance (41,854) 9,301 Capital expenditure and financial investmentPayments to acquire intangible fixed assets (1,074,727) (1,094,310)Payments to acquire tangible fixed assets (334,945) (1,081,354)Receipts from sales of tangible fixed assets - -Payments to acquire investments (2,848,111) 2,051 Net cash outflow from capital expenditureand financial investment (4,556,361) (2,173,613) Net cash outflow before use ofliquid resources and financing (5,576,745) (1,147,433) FinancingNew long term loans 187,016 -Repayment of long term loans (85,541) -Issue of ordinary share capital 12,417,784 1,384,849Finance lease payments (203,079) (80,806) - 1,384,849 Increase/(decrease) in cash 8,552,911 156,610 Notes: 1. The financial statements have been prepared in accordance withapplicable UK accounting standards and under the historical cost convention.The principal accounting policies of the group are set out in the group's 2005annual report and financial statements. 2. The financial information set out above does not constitute statutoryaccounts as defined in section 240 of the Companies Act 1985. Statutoryaccounts for the twelve months to 30 June 2005, on which the report of theauditors was unqualified and did not contain a statement under section 237 ofthe Companies Act 1985, have been filed with Registrar of Companies. 3. Basic loss per share is based on the weighted average number of sharesin issue for the period of 46,603,164. Diluted loss per share has beencalculated on the same basis as basic loss per share because the effect of thepotential ordinary shares (share options) reduces the net loss per share and istherefore anti-dilutive. 4. The directors are not declaring a dividend for the period. 5. The information in this statement has been reviewed by Mr. Tim Wilkes,BSc, MSAIMM, who is a qualified person for the purposes of the AIM Guidance Notefor Mining, Oil and Gas Companies. Mr. Wilkes is Chief Operating Officer ofFirestone Diamonds plc and has over 24 years experience in diamond mining andexploration. Mr. Wilkes is currently Chairman of the sub-committee fordiamonds of the South African Mineral Resource Committee (SAMREC). 6. Copies of this report are being sent to all shareholders. Additionalcopies will be available to the public from the offices of Bell Lawrie White, 48St Vincent Street, Glasgow, G2 5TS and will be posted on the Company's websiteat www.firestonediamonds.com. This information is provided by RNS The company news service from the London Stock Exchange