FDI.L Regulatory News (FDI)

8 Jul 2009 10:36



THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, JAPAN, CANADA ORAUSTRALIA OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A BREACH OF THE RELEVANT SECURITIES LAWS OF SUCH JURISDICTION. 

FIRESTONE DIAMONDS plc 

Update on Botswana operations and placing

LONDON: 8 July, 2009

Firestone Diamonds plc ("Firestone" or "the Company"), the AIM-quoted diamond mining and exploration company (ticker: AIM:FDI), today announces that it has conditionally placed 35,873,480 new ordinary shares ("Ordinary Shares") of 20 pence each (the "Placing Shares") at 20 pence per share (the "Placing Price") to raise gross proceeds of approximately £7.2 million (the "Placing"). In addition, the Company announces an update on its BK11 and Jwaneng Tailings projects in Botswana.

Placing Summary

Operational Highlights

BK11

Jwaneng Tailings Project

Philip Kenny, CEO of Firestone Diamonds, commented: "The Company has made significant progress on BK11 since March and we continue to be encouraged by the results of our work. We believe that we will be able to make a decision to develop a new mining operation on BK11 following completion of the final phase of evaluation work, with production commencing in mid 2010. We have also made good progress with the Jwaneng Tailings Project, which provides an excellent opportunity for the Company to further expand its operations in Botswana. We are very pleased to have had such a positive response to our fundraising from both existing and new investors. With the Company now fully financed to develop and commission a mine at BK11, and with prices in the rough diamond market continuing to recover from their lows in Q1 2009, we remain confident about Firestone's prospects."

A circular containing a notice of General Meeting is expected to be posted to Shareholders today. The General Meeting will be held at 11.00 a.m. on 24 July 2009 at the offices of Lawrence Graham LLP, 4 More London Riverside, London SE1 2AU. 

Your attention is drawn to the end of this announcement, which sets out further information in relation to the projects and the placing and the definitions contained therein.

For further information, visit the Company's web site at www.firestonediamonds.com, or contact:

Background information on Firestone Diamonds:

Firestone Diamonds plc ("FDI.L") is an international diamond mining and exploration company with operations in Botswana and South Africa. Botswana is the world's largest and lowest cost producer of diamonds, with annual production worth over $2.5 billion, and is considered to be one of the most prospective countries in the world to explore for diamonds.

Firestone is the largest holder of mineral rights in Botswana's diamondiferous kimberlite fields, controlling over 29,000 square kilometres around the major Orapa and Jwaneng mines and the entire Tsabong kimberlite field. Firestone has 95 kimberlites in its portfolio, of which 24 have been proven to be diamondiferous. Sixteen of Firestone's kimberlites are at the bulk sampling stage, of which BK11 is the most advanced. 

Notes:

1. The information in this statement has been reviewed by Mr. Tim Wilkes, BSc, Pr Sci Nat, who is a qualified person for the purposes of the AIM Guidance Note for Mining, Oil and Gas Companies. Mr. Wilkes is Chief Operating Officer of Firestone Diamonds plc and has over 27 years' experience in diamond exploration, mineral resource management and mining. Mr. Wilkes is a member of the sub-committee for diamonds of the South African Mineral Resource Committee (SAMREC). 

2. All grades and diamond values are based on a bottom cut off of 1mm.

3. The resource estimates in this statement have been compiled in accordance with the SAMREC code.

This summary should be read in conjunction with, and is subject to, the full text of the attached announcement.

DISCLAIMER

Brewin Dolphin Limited ("Brewin Dolphin") is acting as nominated adviser to the Company for the purpose of the AIM Rules. Evolution Securities Limited and Mirabaud Securities LLP, which are both authorised and regulated in the United Kingdom by the Financial Services Authority, are acting exclusively for the Company in relation to the Placing. Neither Evolution nor Mirabaud are acting for any other person in connection with the matters referred to in this announcement and they will not be responsible to anyone other than the Company for providing the protections afforded to clients of Evolution and Mirabaud or for giving advice in relation to the matters referred to in this announcement.

This announcement has been issued by the Company and is the sole responsibility of the Company.

This announcement does not constitute a prospectus relating to the Company and has not been approved by the UK Listing Authority, nor does it constitute or form any part of any offer or invitation to purchase, sell or subscribe for, or any solicitation of any such offer to purchase, sell or subscribe for, any securities in the Company under any circumstances, and in any jurisdiction, in which such offer or solicitation is unlawful. Accordingly, copies of this announcement, including the appendix, are not being and must not be mailed or otherwise distributed or sent in or into or from the United States, Canada, Australia or Japan or any other jurisdiction if to do so would constitute a violation of the relevant laws of, or require registration thereof in, such jurisdiction or to, or for the account or benefit of, any United States, Canadian, Australian or Japanese person and any person receiving this announcement, (including, without limitation, custodians, nominees and trustees) must not distribute or send it, in whole or in part, in or into or from the United States, Canada, Australia or Japan.

BK11 Update

On 30 March 2009 the Company announced an Inferred Resource at BK11 of 12 million tonnes containing approximately 830,000 carats with an overall modelled value of $123/carat. Evaluation and development work on BK11 has been accelerated since then and considerable progress has been made. 

Diamond valuation increased

Diamonds recovered from sampling on BK11 were valued in March 2009 by Johan Erikson, an independent diamond valuator with 28 years' experience in diamond valuation. With overall rough diamond prices having increased by about 15% since then, the Company has undertaken an updated valuation of BK11 diamonds. The same parcel of diamonds was revalued in June 2009 by Johan Erikson, resulting in the raw value increasing 15% to $106 per carat.

The Company's diamond mineral resource consultants, Zstar Mineral Resource Consultants ("Zstar"), have updated their modelling of the BK11 diamond population grade and value of diamonds based on the June 2009 valuation. Overall modelled diamond values have increased 11% to $135, with 90% upper and lower confidence limits of US$236 and US$48 per carat, respectively. Diamond values in the KW area, which is the area currently being targeted for development, increased 10% to $144 per carat.

The updated Zstar modelling provides the following results:

Based on the estimated operating costs at BK11 of $6.50/t, these results increase the Company's confidence that BK11 will support a commercial mining operation following the completion of the final phase of evaluation.

Final phase of evaluation under way

Significant progress has been made on the planned 20,000 tonne bulk sample trench. Earth moving vehicles were transported from South Africa in early May and are currently stripping overburden, following which mining of the kimberlite sample will take place. 

The 25 tonne per hour pilot production plant that will process the bulk sample has been transported from South Africa and is currently being erected on site. Processing of the sample is expected to commence in July 2009 and be completed in H2 2009, following which independent valuation of the diamonds recovered and modelling of grades and diamond values will be carried out. The Company expects to be in a position to make a decision to commence mine development based on the results of this work.

Mine development planning continuing

The Company is continuing with its plans to relocate the production plant and infrastructure from the Company's Bonte Koe Mine in South Africa to BK11, subject to results from trench sampling. Development costs are estimated to be approximately £4.6 million and production could commence in mid 2010 with an initial capacity of approximately 1.5 million tonnes per annum. An Environmental Impact Statement has been completed and submitted to the Botswana Department of Environmental Affairs and is expected to be approved shortly. Negotiations are also under way with the Botswana Power Corporation for the construction of a 14 km long power line from Orapa to BK11.

Jwaneng Tailings Project Update

In February 2009, Firestone announced that it had been selected by Debswana Diamond Company ("Debswana") as the preferred bidder to supply, construct and operate a modular tailings treatment plant at the Jwaneng Mine in Botswana on a toll treatment basis. Debswana is a joint venture between the Government of the Republic of Botswana and De Beers and is the world's leading diamond producer by value. Jwaneng is the largest diamond mine in the world by value and in 2008 produced approximately 13 million carats with an estimated value of $1.8 billion.

The Jwaneng plant is intended to serve as a pilot facility to demonstrate the economics and capability of the modular plant concept on the Jwaneng tailings resource, which is estimated to be in excess of 30 million tonnes.  The plant is being designed by ADP Projects, with whom Firestone has a strategic alliance to jointly design, build and operate modular diamond tailings processing plants. Detailed design work commenced in April 2009 and is currently on schedule.

Based on contract rates from the Company's previous toll treatment operations in South Africa, the Directors anticipate that this project has the potential to contribute approximately $150 million in toll treatment revenue for the Company.  The successful implementation of this project could potentially lead to the deployment by Firestone of similar plants to exploit additional tailings resources at Debswana's other mines at Orapa and Letlhakane. With the total tailings resources at Debswana's mines estimated to be approximately 300 million tonnes, the Directors estimate that they represent a very significant potential toll treatment revenue opportunity for the Company.

Since February, Firestone and Debswana have established a joint steering committee for the project to negotiate and agree detailed technical and commercial provisions for the project. This work is proceeding towards the agreed target of finalising and signing contracts in H2 2009.

Firestone intends to finance the project through a special purpose vehicle which will arrange debt finance for the whole of the project against the contract with Debswana. The estimated capital cost for the project is $40 million. Discussions are progressing well with a number of interested lenders and investors, and the Company expects to be in position to finalise these arrangements shortly after the Debswana contract is signed.

BK16 Update

In June 2008, the Company entered into an agreement under which it can earn an 87.5% interest in the BK16 kimberlite, which is located 20 kilometres from BK11. The Company believes that BK16 has similar economic potential to BK11. BK16 was discovered by De Beers in the 1970's and a grade of 15 cpht was reported from bulk sampling. Diamonds recovered by the limited historical sampling carried out were predominantly high quality, white gemstones, which indicates that they are likely to have a high average value, possibly similar to BK11. Based on a review of drilling and geophysical surveys undertaken on BK16, Company estimates indicate that it contains approximately 17 million tonnes of kimberlite to a depth of 200 metres. The Company intends to carry out an initial phase of evaluation and resource development work on BK16. This work will comprise large diameter drill bulk sampling in order to provide an estimate of grade and diamond value.

South Africa Update

With the Company's operations now focused exclusively on Botswana, the Company is reviewing the prospects for its South African assets. These assets are considered by the Company to be non-core and were placed on care and maintenance in December 2007 (as announced at that time). The Company has since then been seeking to either sell or joint venture the assets. As a result of the ongoing review of the carrying value of these assets, it is possible that the Company will be required to make further impairment charges over and above the total charges made to date of approximately £4.8 million.

Placing of New Ordinary Shares

The Company today announces that it has raised approximately £7.2 million (gross) by way of a placing of 35,873,480 New Ordinary Shares at a price of 20 pence per share. The net proceeds of the Placing will be used to develop and commission a mine at BK11, subject to the results of the final phase of evaluation on BK11, which is currently under way, to undertake evaluation and resource development work at BK16, and to provide general working capital for the Company. The Placing, which has been arranged by Evolution and Mirabaud, is conditional upon, inter alia, Shareholder approval and Admission.

The funds raised (net of expenses) of approximately £6.8 million are planned to be used for the following purposes:

BK11 - £5.0 million

Since the Company announced an Inferred Resource of 12 million tonnes at BK11 on 30 March 2009, work has been accelerated in order to complete the final phase of evaluation on the project. A 20,000 tonne bulk sample is currently being excavated and will be processed using a pilot plant that has been transported from the Company's Avontuur Mine in South Africa. A mine development decision is expected to be made during H2 2009 subject to the results of this work. The Company plans to use the production plant from its Bonte Koe Mine in South Africa at BK11 and estimates that it will cost £5 million to modify and erect this plant, establish power, water and other required site infrastructure and complete commissioning. This work is expected to take approximately nine months from the date of the development decision.

BK16 - £0.5 million

The Company intends to carry out an initial phase of evaluation and resource development work on BK16. This work will comprise large diameter drill bulk sampling in order to provide an estimate of grade and diamond value, at an estimated cost of £0.5 million.

General Working Capital and other purposes - £1.3 million

The balance of funds raised, net of expenses, being £1.3 million, will be used for general working capital and other purposes.

Details of the placing

The Placing Agreement

Pursuant to the terms of the Placing Agreement, Evolution and Mirabaud have conditionally agreed to use their reasonable endeavours, as agents for the Company, to place the Placing Shares at the Placing Price with certain institutional and other investors. The Placing Agreement is conditional upon, inter alia, Shareholder approval and Admission becoming effective on or before 8.00 a.m. on 27 July 2009 (or such later time and/or date as the Company, Evolution and Mirabaud may agree, but in any event by no later than 8.00 a.m. on 31 August 2009).

The Placing Agreement contains warranties from the Company in favour of Evolution and Mirabaud in relation to, inter alia, the accuracy of the information contained in the announcement and certain other matters relating to the Group and its business. In addition, the Company has agreed to indemnify Evolution and Mirabaud in relation to certain liabilities it may incur in respect of the Placing. Evolution and Mirabaud have the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, for force majeure or in the event of a material breach of the warranties set out in the Placing Agreement.

Admission and dealings

Application has been made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that such Admission will become effective and that dealings will commence on 27 July 2009.

The Placing Shares will, when issued, rank pari passu in all respects with the existing Ordinary Shares, including the right to receive dividends and other distributions declared following Admission. It is expected that CREST accounts will be credited on the day of Admission and that share certificates (where applicable) will be dispatched by first class post by or on 30 July 2009.

General Meeting

A General Meeting is to be held on 24 July 2009 at the offices of Lawrence Graham LLP at 4 More London Riverside, London SE1 2AU, at 11.00 a.m., at which the following Resolutions will be proposed for the purposes of implementing the Proposed Placing:

Specific authorities 

Following the passing of resolutions 5 and 6 at the Company's annual general meeting held on 29 January 2009 (the "AGM") the Directors were empowered to disapply pre-emption rights in relation to 30,000,000 Ordinary Shares. However, this authority alone is insufficient to issue the Placing Shares. Accordingly, the Directors are seeking additional authority pursuant to Resolution 1 in the Notice of General Meeting to disapply pre-emption rights in respect of a further 5,873,480 Ordinary Shares so as to complete the Placing. 

In the opinion of the Directors and assuming the completion of the Placing, the working capital available to the Company is sufficient for the Company's present requirements, that is for at least 12 months following Admission. However, in the event that Shareholders do not approve Resolution 1, the Placing will not proceed and the Board will need to consider alternative sources of funding, which may or may not be forthcoming.

General Share Issuance Authorities

Following the issue of the Placing Shares the Directors will have exhausted nearly all of their authority granted at the AGM to allot Ordinary Shares and will not have any general authority to disapply pre-emption rights. Accordingly, the Directors are also seeking renewal of, and an increase in, their general authorities to issue Ordinary Shares and/or other securities and disapply pre-emption rights.

Resolutions 2 and 3 contained in the Notice of General Meeting are in similar form to the resolutions passed by Shareholders at the AGM, but the value of the nominal amounts of Ordinary Shares to be available for issue has been increased to take account of the increase in the total issued share capital of the Company following the Placing.

Resolution 2 will be proposed as an ordinary resolution to authorise the Directors pursuant to section 80 of the Act to allot relevant securities generally up to an aggregate nominal value of £6,507,045 which represents approximately one third of the number of Ordinary Shares in issue following the Placing. This authority will expire at the next annual general meeting to be held in 2010 or 15 months after the passing of the resolution, whichever is the earlier.

Resolution 3 will be proposed as a special resolution to empower the Directors pursuant to section 95 of the Act to allot equity securities for cash otherwise than on a pro rata basis: (i) where a pro rata offer has effectively been made, but subject to exclusions or arrangements to avoid logistical, regulatory or legal issues; and (ii) generally up to an aggregate nominal value of £1,952,114 which represents approximately 10 per cent. of the number of Ordinary Shares in issue immediately following the Placing. This authority will expire on the earlier of 15 months after the passing of the resolution or on the conclusion of the Annual General Meeting of the Company to be held in 2010.

PLACING STATISTICS

EXPECTED TIMETABLE OF PRINCIPAL EVENTS 

DEFINITIONS

The following definitions apply throughout this announcement, unless the context requires otherwise.