24 Nov 2010 07:00
Firestone Diamonds plc
Preliminary announcement of results for the year ended 30 June, 2010
LONDON: 24 November, 2010
The Board of Firestone Diamonds plc, ("Firestone" or "the Company"), the AIM-quoted diamond mining and exploration company (ticker: AIM:FDI), announces preliminary audited results for the year ended 30 June, 2010.
HIGHLIGHTS
BK11 Mine, Botswana
• | Mine development | |
- | Development decision made in December 2009 | |
- | 11.5 Mt of kimberlite to be mined at an average grade of 8.5 cpht | |
- | Mining licence granted and production commenced in July 2010 | |
• | Earthmoving | |
- | 840,000 tonnes of overburden and low grade kimberlite stripped to end October | |
- | Pre-stripping to be completed by end November | |
• | Production plant | |
- | Phase 1 fully operational | |
- | Phase 2 on schedule to reach full capacity by end 2010 | |
• | Diamond recoveries and sales | |
- | Diamond recoveries continue to be of good quality; high quality 13.74 carat diamond recovered | |
- | Construction and commissioning of diamond sorting facility completed | |
- | First diamond sale to commence end November by open tender in Botswana | |
Liqhobong Mine, Lesotho
• | Acquisition of Kopane Diamond Developments plc | |
- | Acquisition completed at the end of September 2010 | |
- | 91 Mt resource identified at an average grade of 34 cpht; contains 31 million carats with a gross value of $2.7 billion | |
• | Initial mine planning studies completed | |
- | 60 Mt mineable by open pit to depth of 390 metres | |
- | No waste stripping for first 9 Mt | |
• | Mine development plan completed | |
- | Mining operations to recommence in 2011 | |
- | Capacity of Plant 1 to be tripled to 1.3 Mtpa, with target annual production of $36m | |
- | Plant 2 development plan completed, with target capacity of 4.2 Mtpa and annual production of $116m | |
• | Diamond sales | |
- | Stockpiled Liqhobong production to be sold at upcoming tender in Botswana | |
Financial & Board
• | Financings | |
- | £7.2 million raised in July 2009 and £9.45 million in April 2010 from share placements | |
- | Terms agreed for a $6 million credit facility in respect of the BK11 Mine | |
• | Secondary listing on Botswana Stock Exchange | |
- | Application delayed pending completion of Kopane acquisition | |
- | Listing expected to take place by end 2010 | |
• | Board changes | |
- | T Wilkes to join the board; new Finance Director candidates identified | |
- | J F Kenny and H Jenner-Clarke to step down as directors | |
- | New non-executive directors to be appointed | |
Outlook
• | Production from BK11 and Liqhobong in 2011 |
• | Continued strength in the rough diamond market |
• | Target production level of 1 million carats per annum by 2014 |
Philip Kenny, CEO of Firestone Diamonds, commented: "The past year has been a transformational one for Firestone. With the commencement of production at BK11 in Botswana in July 2010, Firestone became one of only three junior listed kimberlite producers worldwide. The acquisition of Liqhobong in Lesotho in September 2010 gave Firestone control of one of the most attractive undeveloped kimberlites in the world. Together with our extensive portfolio of kimberlites in the Orapa and Tsabong kimberlite fields in Botswana and the significant shortfall in rough diamond supply projected in the coming years, Firestone is now very well positioned to become a significant diamond producer. "
Analyst conference call, Wednesday 24 November 2010 - 11:00am (BST)
Firestone Diamonds plc will be hosting a conference call today at 11:00am (BST) for interested parties.
To access the conference call, please dial: +44 (0) 20 3140 0668 and enter the PIN number: 469719#.
To access the live webcast presentation, go to: https://www.anywhereconference.com/; Webcast login: 113375257; PIN code: 469719
A webcast of the presentation will be available on the Company's website from 4pm today.
For further information, visit the Company's web site or contact:
Philip Kenny, Firestone Diamonds
| +44 20 8834 1028/+44 7831 324 645 |
Simon Edwards / Tim Redfern, Evolution Securities (Joint Broker)
| +44 20 7071 4330 / 4312 |
Rory Scott, Mirabaud Securities (Joint Broker)
| +44 20 7878 3360 |
Alexander Dewar / Neil McDonald, Brewin Dolphin Corporate Advisory & Broking (Nominated Adviser)
| +44 131 529 0276 |
Jos Simson, Conduit PR
| +44 20 7429 6603/+44 7899 870 450 |
Dear Shareholder,
The past year has been a transformational one for Firestone and probably the most significant in the Company's history. The commencement of mining operations at the BK11 Mine in Botswana, which resulted in Firestone becoming one of only three junior listed kimberlite producers worldwide, was the first significant milestone. The second milestone was the acquisition of Kopane Diamond Developments plc ("Kopane"), as a result of which Firestone gained control of the Liqhobong Mine in Lesotho, which we consider to be a world class asset and one of the most attractive undeveloped kimberlites in the world.
BK11 Mine
In July 2009 the Company commenced work on the final phase of evaluation on BK11. Following completion of this work in December 2009, the Company announced that it intended to proceed to mine development.
Mine Development
Under the BK11 mine plan approximately 11.5 million tonnes of kimberlite is expected to be mined at an average grade of 8.5 carats per hundred tonnes ("cpht"), giving total production of approximately 1 million carats over a 10 year mine life at an average price of $155/carat. In the KW area, where the current mining pit is located, approximately 5.4 million tonnes of kimberlite is expected to be mined at an average grade of 12.6 cpht, with an average diamond value of $175/carat.
Development work commenced at BK11 at the beginning of 2010 and Phase 1 of the production plant, which has a capacity of approximately 650,000 tonnes per annum, was completed on schedule in Q2 2010. A mining licence application was submitted in Q1 2010 and in July 2010 the Company announced that a mining licence had been granted and that commercial production had commenced.
Earthmoving
Pre-stripping of overburden and near-surface low grade kimberlite commenced following granting of the mining licence and by the end of October over 840,000 tonnes of material had been removed. Completion of the pre-stripping work is currently four weeks behind schedule due to more difficult mining conditions being encountered in the calcretised overburden and a revised stripping plan that will allow an increased mining rate to be sustained in 2011 and 2012. It is expected that pre-stripping will be completed and the first kimberlite targeted for mining will be available for treatment at the end of November.
Production Plant
Commissioning of Phase 1 of the production plant was completed at the end of July. Material processed through the production plant to date has been sourced from low grade kimberlite stockpiles from the 2009 bulk sampling programme and from the current pre-stripping activities. Plant performance to date has been good, although plant availability was impacted by generator problems caused by the supply of poor quality diesel. These problems have now been resolved.
Diamonds recovered from the production plant have continued to be of high quality, similar to those recovered from bulk sampling operations, and include a high quality 13.74 carat diamond.
Phase 2 of the production plant is expected to reach full production capacity on schedule by the end of 2010. Based on plant performance to date, the Company expects that the target production level of 1.5 million tonnes per annum will be comfortably exceeded in 2011.
Diamond Sales
The Company has recently completed the commissioning of its diamond sorting facility at the Diamond Technology Park ("DTP") in Gaborone. The facility has been designed to accommodate diamond tenders. The first tender of approximately 3,000 carats from BK11 is scheduled to commence at the end of November 2010 and to be concluded in early December.
Liqhobong Mine
During the year, Firestone entered into negotiations that resulted in agreement being reached on the terms of a recommended all share offer by the Company for Kopane. Kopane's principal asset is a 75% interest in the Liqhobong Mine in Lesotho, where a resource of 91 million tonnes at an average grade of 34 cpht containing 31 million carats has been identified at the Main Pipe. With an average estimated diamond value of $86/carat and a contained value of approximately $2.7 billion, Liqhobong is considered by the Company to be one of the most attractive undeveloped kimberlites in the world. The Kopane acquisition was completed at the end of September 2010, and significant progress has been made since then.
Mine Development Plan
Initial mine planning and pit optimisation studies have been completed. The results of these studies indicate that open pit mining operations can be undertaken to a depth of 390 metres and would result in the mining of approximately 60 million tonnes of kimberlite and 19 million carats over a period of approximately 17 years. No waste stripping will be required for the first 9 million tonnes. It is expected that the depth to which open pit mining operations can be extended will be increased as further studies are undertaken.
Firestone's technical personnel have undertaken a detailed review of the current plant (Plant 1) and of the work carried out on the Definitive Feasibility Study ("DFS") for the construction of new, larger plant (Plant 2), with the objective of preparing a plan for the recommencement and expansion of production at Liqhobong in 2011. The most significant conclusion of the review is that the capacity of Plant 1 can be tripled relatively quickly and at low cost, which will allow significant revenues to be generated well in advance of Plant 2 being put into operation. Highlights of the mine development plan, which has now been completed, are as follows:
Plant 1 Expansion
Capacity (mtpa) | Development time (Months) | Capex estimate ($m) | Annual revenue ($m) |
0.4 | 1 | 1 | 11 |
0.65 | 3 | 3 | 18 |
1.3 | 9 | 5 | 36 |
Firestone intends to recommence production and undertake the expansion programme at Plant 1 in 2011 using cash flow from mining operations at BK11. Further details of these plans are being finalised and will be announced in due course.
Plant 2 Development
While some additional work is still required to complete the DFS, preliminary plans have been prepared for the development of Plant 2, as outlined below. It is expected that the decision to commence construction of Phase 1 will be made in 2012, which would result in Plant 2 commencing production in 2013.
Capacity (mtpa) | Development time (Months) | Capex estimate ($m) | Annual revenue ($m) |
2.5 (Phase 1) | 18 | 45 | 71 |
4.2 (Phase 2) | 12 | 25 | 116 |
Resources and Reserves
An independent review has been undertaken by MPH Consulting Limited of the Liqhobong resource and of the proposed mine development plan. This review has resulted in the declaration of a SAMREC-compliant probable reserve of 37 million tonnes at an average grade of 31 cpht containing 12 million carats. The MPH review has also identified the potential for a significant upgrade to the resource grade, which was based on the results from 1,700 tonnes of kimberlite sampled by 28 17" diameter drill holes. These samples are relatively small and the grade estimates on which they are based are likely to be conservative. This is borne out by the fact that subsequent surface bulk sampling of 34,000 tonnes produced an average grade of 38 cpht. Firestone intends to remodel the resource grades using the surface bulk sampling results, and expects the resource grade to increase as a result. This work will be undertaken in H1 2011.
Diamond Sale
Subject to the receipt of necessary approvals from the Lesotho regulatory authorities, Firestone intends to offer for sale a parcel of over 10,000 carats recovered from previous operations at Liqhobong at the Company's upcoming tender in Botswana.
Other Botswana Projects
In addition to BK11, Firestone controls 21 other kimberlites in the Orapa kimberlite field, of which 13 have been proven to be diamondiferous, and 86 kimberlites in the Tsabong kimberlite field, of which 16 have been proven to be diamondiferous. The Company believes that the likelihood of further economic discoveries being made in these kimberlites is very good. While Liqhobong and BK11 will be the Company's primary focus in 2011, Firestone intends to use cash flow from its mining operations to evaluate these kimberlites with the objective of identifying additional resources that can be developed and brought into production. The Company also intends to continue to pursue toll treatment opportunities such as the Jwaneng tailings projects with Debswana, although implementation of this project was delayed by Debswana in September 2010.
Financial
No revenue was generated during the year, as the Company's activities were exclusively focused on development work at BK11 and on the Kopane acquisition. The Company raised £7.2 million in July 2009 and £9.45 million in April 2010 from share placements to finance the development of BK11 and the Company's other projects in Botswana, and to provide general working capital for the Company.
The acquisition of Kopane was the most significant event over the past year. This acquisition was implemented by way of the issuance of 0.4657 Firestone shares for every Kopane share. As a result of this acquisition, Kopane shareholders were issued with new Firestone shares equivalent to 52% of Firestone's enlarged share capital.
The Company has recently agreed terms for a credit facility of $6 million in respect of the BK11 Mine. This facility will give the Company greater flexibility in planning and financing its activities elsewhere in Botswana and in Lesotho. The facility is expected to be finalised shortly, at which time further details will be made available.
In Q1 2010 the Company announced that it intended to apply for a secondary listing of shares in the Company on the Botswana Stock Exchange. Submission of the listing application was delayed pending completion of the Kopane acquisition, and listing is now expected to take place before the end of 2010.
Board
At the time that the Kopane offer was made in July 2010 the Company indicated that it intended to appoint Tim Wilkes, our Chief Operating Officer, to the Board and to recruit a new Finance Director with significant experience in the mining sector in Southern Africa. Tim Wilkes is expected to join the board shortly, and a number of candidates have been identified for the Finance Director position.
Considering the significant expansion in nature and scale of the Company's operations over the past year and the further expansion that is expected as production commences at Liqhobong in 2011, we believe that additional changes will be required to strengthen the Board and to ensure that it has the right balance of skills and experience to guide the Company through the next stage of its development. Hugh Jenner-Clarke and I, who have both been directors since the Company listed on AIM in 1998, have therefore agreed to step down from the Board following the forthcoming annual general meeting in order to make way for new directors who will be able to assist the Board in meeting the challenges that lie ahead. A number of potential candidates have been identified and the Company expects to be able to announce new appointments in due course. I am pleased to report that Michael Hampton has agreed to act as Chairman on an interim basis until a replacement has been selected.
Outlook
With Firestone planning to be producing at both BK11 and Liqhobong in 2011, an exciting portfolio of projects to evaluate in Botswana, and the continued positive outlook for the rough diamond market, we believe that the prospects for Firestone are brighter than at any time in the Company's history. We are confident that the target of producing 1 million carats per annum by 2014 is one that the Company is now well positioned to reach.
As this will be the last set of financial results that I report on as Chairman, I would like to put on record my thanks to those shareholders who have continued to support the Company as it has developed and to the management and staff whose commitment and skills have greatly contributed to the Company's progress. I look forward to following the Company's future successes.
James F Kenny
Chairman
23 November 2010
Consolidated statement of comprehensive income
2010 | 2009 | |||
£000 | £000 | |||
Revenue | 3 | 4,034 | ||
Raw materials and consumables used | (180) | (170) | ||
Employee costs | (477) | (801) | ||
Amortisation and depreciation | (369) | (640) | ||
Impairment of mineral rights and mining properties | - | (8,773) | ||
Impairment of goodwill | - | (2,473) | ||
Impairment of property, plant and equipment | (200) | - | ||
Release of rehabilitation provisions | 528 | - | ||
Acquisition expenses | (1,234) | - | ||
Other operating expenses | (490) | (1,728) | ||
Operating loss | (2,419) | (10,551) | ||
Financial income | 24 | 117 | ||
Finance expense | (11) | (324) | ||
Loss before tax | (2,406) | (10,758) | ||
Taxation | - | (233) | ||
Loss after tax for the year | (2,406) | (10,991) | ||
Other comprehensive income: | ||||
Exchange differences on translating foreign operations net of tax | 1,135 | 4,318 | ||
Total comprehensive income and expense for the year | (1,271) | (6,673) | ||
Loss after tax for the year attributable to: | ||||
Equity holders of the parent | (2,478) | (10,991) | ||
Non-controlling interest | 72 | - | ||
Total comprehensive income for the year attributable to: | ||||
Equity holders of the parent | (1,346) | (6,673) | ||
Non-controlling interest | 75 | - | ||
Basic loss per share | (2.3)p | (17.9)p | ||
Basic loss per share | (2.3)p | (17.9)p | ||
All amounts relate to continuing operations. | ||||
Consolidated statement of financial position
2010 | 2009 | |||
£000 | £000 | |||
Assets | ||||
Non-current assets | ||||
Intangible mining assets | 20,129 | 15,485 | ||
Property, plant and equipment | 14,568 | 8,771 | ||
34,697 | 24,256 | |||
Current assets | ||||
Inventories | 29 | 29 | ||
Trade and other receivables | 1,013 | 586 | ||
Cash and cash equivalents | 5,645 | 1,019 | ||
6,687 | 1,634 | |||
Total assets | 41,384 | 25,890 | ||
Equity and liabilities | ||||
Equity | ||||
Share capital | 25,578 | 12,346 | ||
Share premium | 25,380 | 22,768 | ||
Merger reserve | (1,076) | (1,076) | ||
Translation reserve | 429 | (703) | ||
Accumulated losses | (15,106) | (12,905) | ||
Total equity attributable to equity holders of the parent | 35,205 | 20,430 | ||
Non-controlling interests | 75 | - | ||
Total equity | 35,280 | 20,430 | ||
Non-current liabilities | ||||
Interest-bearing loans and borrowings | 1,193 | 1,864 | ||
Deferred tax | - | - | ||
Provisions | - | 188 | ||
1,193 | 2,052 | |||
Current liabilities | ||||
Interest-bearing loans and borrowings | 1,168 | 1,137 | ||
Trade and other payables | 3,045 | 1,361 | ||
Current tax liabilities | 229 | - | ||
Provisions | 469 | 910 | ||
4,911 | 3,408 | |||
Total liabilities | 6,104 | 5,460 | ||
Total equity and liabilities | 41,384 | 25,890 |
Consolidated statement of changes in equity
Share capital £000 | Share premium £000 | Merger reserve £000 | Translation reserve £000 | Accumulated losses £000 | Total
£000 | Non-controlling interests £000 | Total equity £000 | |
At 1 July 2008 | 11,170 | 19,278 | (1,076) | (5,021) | (2,257) | 22,094 | - | 22,094 |
Comprehensive income | ||||||||
Loss for the year | - | - | - | - | (10,991) | (10,991) | - | (10,991) |
Other comprehensive income for the year | ||||||||
Exchange differences on translating foreign operations | - | - | - | 4,318 | - | 4,318 | - | 4,318 |
Total comprehensive income/(loss) for the year | - | - | - | 4,318 | (10,991) | (6,673) | - | (6,673) |
Shares issued in the year | 1,176 | 3,824 | - | - | - | 5,000 | - | 5,000 |
Share issue expenses | - | (334) | - | - | - | (334) | - | (334) |
Share-based payment adjustment | - | - | - | - | 343 | 343 | - | 343 |
At 30 June 2009 | 12,346 | 22,768 | (1,076) | (703) | (12,905) | 20,430 | - | 20,430 |
At 1 July 2009 | 12,346 | 22,768 | (1,076) | (703) | (12,905) | 20,430 | - | 20,430 |
Comprehensive income | ||||||||
Loss for the year | - | - | - | - | (2,478) | (2,478) | 72 | (2,406) |
Other comprehensive income for the year | ||||||||
Exchange differences on translating foreign operations | - | - | - | 1,132 | - | 1,132 | 3 | 1,135 |
Total comprehensive income/(loss) for the year | - | - | - | 1,132 | (2,478) | (1,346) | 75 | (1,271) |
Shares issued in the year | 13,232 | 3,480 | - | - | - | 16,712 | - | 16,712 |
Share issue expenses | - | (868) | - | - | - | (868) | - | (868) |
Share-based payment adjustment | - | - | - | - | 277 | 277 | - | 277 |
At 30 June 2010 | 25,578 | 25,380 | (1,076) | 429 | (15,106) | 35,205 | 75 | 35,280 |
Consolidated statement of cash flows
2010 | 2009 | |||
£000 | £000 | |||
Cash flow from operating activities | ||||
Loss before taxation | (2,406) | (10,758) | ||
Adjustments for: | ||||
Depreciation, amortisation and impairment | 570 | 11,791 | ||
Effect of foreign exchange movements | 157 | 894 | ||
Interest payable | 11 | 323 | ||
Equity-settled share-based payments | 277 | 343 | ||
Net cash flow from operating activities before changes | ||||
in working capital | (1,391) | 2,593 | ||
Decrease in inventories | - | 26 | ||
(Increase)/decrease in trade and other receivables | (426) | 737 | ||
Increase/(decrease) in trade and other payables | 1,926 | (322) | ||
(Decrease)/increase in provisions | (739) | 180 | ||
Net cash flow from operating activities | (630) | 3,214 | ||
Investing activities | ||||
Payments for property, plant and equipment | (5,472) | (1,268) | ||
Payments for non-current intangible assets | (3,991) | (5,635) | ||
Net cash flow from investing activities | (9,463) | (6,903) | ||
Financing activities | ||||
Issue of ordinary shares | 16,712 | 5,000 | ||
Share issue expenses | (868) | (334) | ||
Proceeds from long-term borrowings | - | 900 | ||
Proceeds from lease finance arrangements | 140 | - | ||
Repayment of long-term borrowings | (1,082) | (905) | ||
Repayment of lease finance | (12) | (11) | ||
Interest paid | (171) | (323) | ||
Net cash flow from financing activities | 14,719 | 4,327 | ||
Net increase in cash and cash equivalents in the year | 4,626 | 638 | ||
Cash and cash equivalents at the beginning of the year | 1,019 | 381 | ||
Cash and cash equivalents at the end of the year | 5,645 | 1,019 | ||
Notes
1. Basis of preparation
Whilst the financial information included in this announcement has been prepared in accordance with International Financial Reporting Standards (IFRS), this announcement does not contain sufficient information to comply with IFRS. The Company will publish full financial statements that comply with IFRS in December 2010.
The financial information set out in the announcement does not constitute the Company's statutory accounts for the year ended 30 June 2010 or the year ended 30 June 2009. The financial information for the year ended 30 June 2010 and the year ended 30 June 2009 are extracted from the statutory accounts of Firestone Diamonds plc. The auditors, PKF (UK) LLP, reported on those accounts; their report was unqualified and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.
The 2010 accounts have been prepared on a basis consistent with the accounting policies set out in the 2009 accounts.
The consolidated financial statements of the Company for the year ended 30 June 2010 comprise the Company and its subsidiaries (together referred to as the "Group"). The Group is primarily involved in diamond exploration and production in Southern Africa. The Directors regularly review cash flow forecasts to determine whether the Group will have sufficient cash reserves to meet future working capital requirements, progress its exploration projects and take advantage of business opportunities that may arise.
The Group's mining operations at BK11 have commenced since the year end. Based on performance at BK11 to date and its forecast operating cash flows and the forecast cash flows in respect of the rest of the Group's activities, the Directors are satisfied that the Group will have sufficient cash resources to continue its operations and meet its commitments for the foreseeable future. In arriving at this conclusion they have also taken into consideration that the Group has agreed terms in respect of a $6 million credit facility. This facility will give the Group significantly more flexibility in planning and managing its operations at BK11, Liqhobong and elsewhere, and draw down is subject to conditions precedent that the Company is confident will be satisfied. The Directors have therefore concluded that it is appropriate for the financial statements to be prepared on a going concern basis.
2. Acquisition expenses and impairment charges included within operating loss
In the year the Group and Company incurred fees and expenses amounting to £1,234,000 arising from the pending acquisition of Kopane Diamonds Developments plc. This acquisition was completed on 29 September 2010.
3. Loss per share
The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary shareholders of £2,406,000 (2009: loss of £10,991,000) and a weighted average number of shares in issue for the year of 103,197,603 (2009: 61,329,293). The diluted loss per share in 2010 and 2009 is the same as the basic loss per share as the potential ordinary shares to be issued have an anti-dilutive effect.
On 29 September 2010 the Group issued new equity totalling 140,413,477 ordinary shares of £0.20 each.
4. Annual General Meeting
The company's Annual General Meeting will be held at MWB Business Exchange, 60 Cannon Street, London EC4N 6NP on 23 December, 2010 at 11 am.
5. Dividends
The directors do not recommend the payment of a dividend for the period.
6. Qualified person review
The information in this statement has been reviewed by Mr. Tim Wilkes, B Sc, 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 25 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).
7. Announcement and Annual Report
This announcement was approved by the board on 23 November 2010. The Annual Report for the year ended 30 June 2010, including the auditors' report, will be posted to shareholders and will be available from the same date to be downloaded from the Company's website at www.firestonediamonds.com.