10 Dec 2008 07:00
Firestone Diamonds plc
Preliminary announcement of results for the year ended 30 June, 2008
LONDON: 10 December, 2008
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, 2008.
HIGHLIGHTS
Financial
| * | Turnover increased 102% to £3.3m (2007: £1.6m) |
| * | Loss of £0.2m (2007: Loss of £0.5m); diluted loss per share 0.4p (2007: Loss 1p) |
| * | Gain of £2.8 million on disposal of interest in African Diamonds plc |
| * | Bonte Koe toll treatment project with De Beers reached full production and positive cash flow |
| * | £5 million financing completed in July 2008 |
BK11, Botswana
| * | Positive results from Phase 1 bulk sampling | |
| - | sample grade of 10 cpht and modelled grade of 15 cpht | |
| - | diamond value estimated at $200/carat in June 2008 | |
| * | Phase 2 bulk sampling under way | |
| - | first hole returned sample grade of 10 cpht | |
| - | full results expected in early 2009 | |
| * | Inferred resource statement expected Q1 2009 | |
| * | Possible production in 2010 | |
BK16, Botswana
| * | Agreement to acquire 87.5% interest in BK16 | |
| * | Good economic potential | |
| - | historical sampling recovered grades up to 15 cpht and high quality diamonds | |
| * | Drilling commenced in November 2008 | |
| * | Over 10,000 metres of percussion, core and LDD drilling completed |
| * | Independent data review concluded that Tsabong has the potential for economic large sized kimberlite deposits |
| * | LDD drilling completed on MK1 during the year and on five more kimberlites since year end |
| * | Bulk sampling results expected in early 2009 |
Outlook
| * | Company well funded and confident about prospects despite challenging market conditions |
| * | Increased focus on cash and cash flow |
| * | New toll treatment projects being pursued |
| * | BK11 and BK16 will be primary focus in Botswana |
| * | Considering joint venture partner for Tsabong |
Speaking today, Philip Kenny, CEO of Firestone Diamonds, said "We have made good progress in Botswana and South Africa over the past year. Bulk sampling results from BK11 have been very promising and we continue to believe that the prospects for identifying economic kimberlites at Tsabong are good. Revenues at Bonte Koe in South Africa increased by over 100% during the year, and we are pursuing a number of similar new toll treatment projects."
For further information, visit the Company's web site at www.firestonediamonds.com, or contact:
| Philip Kenny, Firestone Diamonds | +44 20 8834 1028/+44 7831 324 645 |
| Gareth Tredway, Jos Simson, Conduit PR | +44 20 7429 6603/+44 7899 870 450 |
| Mike Jones/Ryan Gaffney, Canaccord Adams (Joint Broker) | +44 020 7050 6500 |
| Jerry Keen, Blue Oar (Joint Broker) | +44 20 7448 4492/+44 777 069 7358 |
| Alexander Dewar, Brewin Dolphin (Nominated Adviser) | +44 131 529 0276 |
Dear Shareholder,
The past year has seen continued good progress in the growth and development of Firestone's project portfolio. Activities during the year were primarily focused on Botswana, which is the world's largest and lowest cost producer of diamonds. Firestone is the largest holder of diamond exploration rights in Botswana's kimberlite fields, with approximately 25,000 square kilometres now under license, and has 95 known kimberlites within its licence areas.
Overview
The most significant developments during the year were at the BK11 evaluation project in Botswana, where we made good progress towards confirming its economic potential. We also acquired rights to the nearby BK16 kimberlite, which we believe has similar potential to BK11. We commenced a significant bulk sampling programme at Tsabong, where we believe that the prospects for identifying economic kimberlites are very good. Activities in South Africa were focused on the Company's toll treatment joint venture with De Beers at the Bonte Koe Mine in Namaqualand. The operation reached its full design capacity and achieved target revenue of £3.3 million for the year.
With appetite for risk greatly reduced in current market conditions and investors primarily concerned about cash and cash flow, we are focusing most of our activities on BK11 and BK16, which are at a more advanced stage of evaluation. In relation to BK11, we believe that, subject to the results of the next phase of evaluation, it could be brought into production as early as mid 2010. We are also continuing to pursue new toll treatment projects, which are increasingly attractive in the current economic environment as a source of consistent and predictable revenue and cash flow.
While we believe that Tsabong has very substantial economic potential, it is at an earlier stage than our Orapa projects and will need significant investment to confirm economic viability. We have therefore decided to reduce expenditure on Tsabong and are considering the introduction of a joint venture partner to finance further work. Despite current market conditions, interest in the project remains high and a number of expressions of interest have already been received.
The crises that have damaged the world's financial markets and the global economy are without precedent and have had a very significant impact on the mining sector. Share prices of most companies in the sector, both large and small, including Firestone, have experienced substantial declines as a result. While many of these companies may not survive or remain independent due to depressed commodity prices and limited availability of debt and equity finance, we remain confident about Firestone's prospects. The Company's cash position remains secure, we have a very experienced and capable management team, a highly prospective portfolio of projects and a clear vision of how to continue successfully developing our company in these challenging times.
Financial
Turnover for the period increased 102% to £3.3 million compared to last year, principally as a result of Bonte Koe reaching full production capacity during the year. The Company produced an operating profit of £2.1 million before impairment charges of £2.2 million related to its South African alluvial assets. During the year the Company disposed of its interests in African Diamonds plc, which resulted in a net gain of £2.8 million. Loss per share was 0.4 pence (2007: 1 pence loss per share). In July 2008 the Company raised £5 million from a share placement to finance exploration and evaluation expenditures in Botswana. The Company's current cash position is approximately £2.5 million.
Diamond market
Substantial decreases in prices for rough diamonds have been reported over the past 2 months. These decreases have not been reflected in prices for polished diamonds, which have only declined by about 10% in 2008. We believe that much of the rough price decreases can be attributed to significant reductions in availability of bank financing to rough diamond buyers for inventory and receivables. We continue to believe that the long term prospects for diamonds remain positive due to the projected significant long term shortfall in supply and that diamond prices will increase once again when the global economy begins to recover.
BK11, Botswana
Substantial progress was made at the BK11 kimberlite in the Orapa area during the year. The Phase 1 evaluation programme was completed in June 2008, with very encouraging results. A sample of 135 tonnes of material produced a sample grade of 10 carats per hundred tonnes ("cpht") and a modelled grade of 15 cpht. The quality of diamonds recovered was very good, comprising mostly clear white gemstones and the value was estimated at approximately $200 per carat in June 2008. With low operating costs in the Orapa area of $7-8 per tonne, the economic potential of BK11 looks very promising.
In July 2008, the Company commenced its Phase 2 evaluation programme, comprising approximately 2,300 metres of percussion, core and 36 inch large diameter drilling ("LDD"). Drilling was completed in November 2008 and approximately 1,200 tonnes of kimberlite material from six LDD holes was transported to the Company's bulk sample plant at Tsabong.
In order to improve final diamond recovery from the bulk sampling plant, a modular second stage diamond recovery plant based around automated grease belt technology has been leased. Commissioning of the grease plant was completed in November 2008 and has delayed processing of the LDD samples by six weeks. Results from the first hole have been analysed, and returned a sample grade of 10 cpht from approximately 120 tonnes processed, which is in line with the sample grade from the first three LDD holes drilled in Phase 1.
With annual shutdown starting in mid December, processing of material from the five remaining LDD holes will resume in January 2009. External audits of Phase 2 bulk sampling will be carried out, following which an independent valuation of diamonds recovered will be undertaken. The Company expects that this will provide sufficient data to define an inferred resource. Subject to the results of this work, the Company is evaluating the feasibility of accelerating a development decision on BK11 to allow first production from BK11 to commence in 2010.
BK16, Botswana
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. The Company plans to carry out a programme of core and LDD drilling similar to that undertaken on BK11. Core drilling commenced on BK16 in November 2008.
Tsabong, Botswana
Tsabong is the Company's biggest kimberlite exploration and evaluation project. It contains 85 known kimberlites, including the 180 hectare MK1 kimberlite which is one of the world's largest known diamondiferous kimberlites.
Substantial work was carried out on Tsabong during the year, with over 10,000 metres of percussion, core and LDD drilling completed. An independent review of data from the project was completed and confirmed that the Tsabong field is located in a similar geological setting to the major Jwaneng Mine and that it has the potential to contain economic large sized diamondiferous kimberlite deposits. Evaluation work was focused on 14 high priority kimberlites that had been selected based on diamond content, kimberlite indicator mineral chemistry and size. LDD drilling was carried out on MK1 and macrodiamonds were recovered during the year, but processing of the samples was not completed as a result of metallurgical problems encountered with MK1 material at the bulk sampling plant.
Since the end of the year modifications have been made to the bulk sampling plant and LDD drilling has been completed on a further 5 kimberlites. All LDD samples have been processed through the bulk sampling plant and are now being processed through the newly commissioned grease recovery plant as a final audit. Results are expected in early 2009.
South Africa Activities in South Africa were focused on the Company's toll treatment joint venture with De Beers at the Bonte Koe Mine in Namaqualand. The operation had a very successful year, achieving full design capacity of one million tonnes per annum and positive cash flow in the first half of the year. With the Company's strategic focus increasingly directed towards Botswana, the Company announced during the year that the Company's other alluvial assets in South Africa would be sold or joint ventured. A number of discussions have been held with interested parties, but no agreements have been concluded yet.
Jwaneng, Botswana
Following the completion by De Beers of their initial exploration programme over Firestone's prospecting licences in the Jwaneng region, De Beers and Firestone have agreed to terminate the Jwaneng joint venture. The Company is currently evaluating alternatives for the project.
James F Kenny
Chairman
9 December 2008
FIRESTONE DIAMONDS PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 JUNE 2008
| 2008 | 2007 | |
| £ | £ | |
| Revenue | 3,309,412 | 1,633,393 |
| Changes in inventories | (110,032) | 85,109 |
| Raw materials and consumables used | (603,292) | (274,143) |
| Employee costs | (1,198,505) | (319,990) |
| Amortisation and depreciation | (972,510) | (531,887) |
| Impairment of mineral rights | (2,166,529) | - |
| Other operating expenses | (1,328,399) | (922,184) |
| Gain on sale of investments | 3,030,135 | - |
| Loss on disposal of derivative financial instruments | (64,516) | (668,683) |
| Operating loss | (104,236) | (998,385) |
| Financial income | 134,530 | 280,834 |
| Finance expense | (326,318) | (134,335) |
| Loss before tax | (296,024) | (851,886) |
| Taxation | 58,912 | 308,979 |
| Loss after tax for the year attributable to equity shareholders | (237,112) | (542,907) |
| Basic loss per share | (0.4)p | (1.0p) |
| Diluted loss per share | (0.4)p | (1.0p) |
FIRESTONE DIAMONDS PLC
CONSOLIDATED BALANCE SHEET
30 JUNE 2008
| Assets | 2008 £ | 2007 £ |
| Non-current assets | ||
| Goodwill | 2,057,802 | 2,057,802 |
| Intangible mining assets | 10,832,026 | 9,589,925 |
| Property, plant and equipment | 12,007,707 | 12,568,132 |
| Deferred tax asset | 247,545 | 174,726 |
| 25,145,080 | 24,390,585 | |
| Current assets | ||
| Inventories | 311,592 | 275,508 |
| Trade and other receivables | 1,345,301 | 2,335,709 |
| Available-for-sale investments | - | 5,537,915 |
| Cash and cash equivalents | 381,507 | 1,118,790 |
| 2,038,400 | 9,267,922 | |
| Total assets | 27,183,480 | 33,658,507 |
| Equity and liabilities | ||
| Capital and reserves attributable to equity holders of the parent | ||
| Share capital | 11,169,969 | 11,158,290 |
| Share premium | 19,278,205 | 19,181,560 |
| Merger reserve | (1,076,399) | (1,076,399) |
| Fair-value reserve | - | 2,947,164 |
| Translation reserve | (5,021,312) | (2,134,437) |
| Retained deficit | (2,256,421) | (2,583,363) |
| Total equity | 22,094,042 | 27,492,815 |
| Non-current liabilities | ||
| Interest-bearing loans and borrowings | 1,860,593 | 2,163,178 |
| Deferred tax | 36,714 | 294,161 |
| Provisions | 199,827 | 1,045,469 |
| 2,097,134 | 3,502,808 | |
| Current liabilities | ||
| Interest-bearing loans and borrowings | 775,030 | 635,886 |
| Trade and other payables | 1,642,484 | 1,358,683 |
| Current tax liabilities | 9,376 | 6,382 |
| Other financial liabilities | - | 661,933 |
| Provisions | 565,414 | - |
| 2,992,304 | 2,662,884 | |
| Total equity and liabilities | 27,183,480 | 33,658,507 |
FIRESTONE DIAMONDS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2008
| Share Capital £ | Share Premium £ | Merger Reserve £ | Fair-value reserve £ | Translation reserve £ | Retained Deficit £ | Total Equity £ | |
| At 1 July 2006 | 11,151,581 | 19,132,921 | (1,076,399) | 4,568,841 | - | (1,940,168) | 31,836,776 |
| Loss for the year recognised in income and expense | - | - | - | - | - | (542,907) | (542,907) |
| Deferred tax on net investment in subsidiary | - | - | - | - | - | (308,755) | (308,755) |
| Translation of foreign subsidiaries | - | - | - | - | (2,134,437) | - | (2,134,437) |
| Change in value of available-for-sale investments | - | - | - | (1,621,677) | - | - | (1,621,677) |
| Share-based payment adjustment | - | - | - | - | - | 208,467 | 208,467 |
| Total gains and losses recognised in equity | - | - | - | (1,621,677) | (2,134,437) | 208,467 | (3,547,647) |
| Total recognised gains and losses | - | - | - | (1,621,677) | (2,134,437) | (643,195) | (4,399,309) |
| Shares issued in year | 6,709 | 48,639 | - | - | - | - | 55,348 |
| At 30 June 2007 | 11,158,290 | 19,181,560 | (1,076,399) | 2,947,164 | (2,134,437) | (2,583,363) | 27,492,815 |
| At 1 July 2007 | 11,158,290 | 19,181,560 | (1,076,399) | 2,947,164 | (2,134,437) | (2,583,363) | 27,492,815 |
| Loss for the year recognised in income and expense | - | - | - | - | - | (237,112) | (237,113) |
| Deferred tax on net investment in subsidiary | - | - | - | - | - | 271,354 | 271,355 |
| Translation of foreign subsidiaries | - | - | - | - | (2,886,875) | - | (2,886,875) |
| Sale of available-for-sale investments | - | - | - | (2,947,164) | - | - | (2,947,164) |
| Share-based payment adjustment | - | - | - | - | 292,700 | 292,700 | |
| Total gains and losses recognised in equity | - | - | - | (2,947,164) | (2,886,875) | 292,700 | (5,541,399) |
| Total recognised gains and losses | - | - | - | (2,947,164) | (2,886,875) | 326,942 | (5,507,097) |
| Shares issued in year | 11,679 | 96,645 | - | - | - | - | 108,324 |
| At 30 June 2008 | 11,169,969 | 19,278,205 | (1,076,399) | - | (5,021,312) | (2,256,421) | 22,094,042 |
FIRESTONE DIAMONDS PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2008
| 2008 £ | 2007 £ | |
| Cash flow from operating activities | ||
| Loss before taxation | (296,024) | (851,886) |
| Adjustments for: | ||
| Depreciation, amortisation and impairment | 3,139,039 | 531,887 |
| Effect of foreign exchange movements | (283,933) | (844,433) |
| Interest payable | 326,318 | 134,335 |
| Equity-settled share-based payment | 292,700 | 208,467 |
| Fair-value adjustment in value of investments | - | 781,778 |
| Loss on sale of derivative financial instruments | 64,516 | - |
| Profit on sale of investment in shares | (3,030,135) | (6,593) |
| Loss/(profit) on sale of property, plant and equipment | 16,767 | (22,664) |
| Net cash flow from operating activities before changes in working capital | 229,248 | (69,109) |
| Increase in inventories | (36,084) | (210,938) |
| Decrease/(increase) in trade and other receivables | 917,589 | (623,646) |
| Increase in trade and other payables | 359,613 | 796,604 |
| Decrease in provisions | (280,229) | (242,153) |
| Net cash flow generated from/(used in) operating activities | 1,190,137 | (349,242) |
| Investing activities | ||
| Payments for property, plant and equipment | (1,506,179) | (2,893,420) |
| Payments for non-current intangible assets | (4,083,930) | (1,513,950) |
| Costs capitalised within non-current intangible assets | (954,598) | (1,067,074) |
| Payments to settle liability arising on derivative financial instruments | (726,449) | - |
| Proceeds from sale of investment in shares | 5,620,886 | 270,335 |
| Proceeds from sale of property, plant and equipment | - | 94,696 |
| Net cash flow from investing activities | (1,650,270) | (5,109,413) |
| Financing activities | ||
| Issue of ordinary shares | 108,324 | 55,348 |
| Proceeds from long-term borrowings | 238,144 | 2,132,115 |
| Proceeds from lease finance arrangements | 48,324 | - |
| Repayment of long-term borrowings | (336,878) | (219,342) |
| Repayment of lease finance | (8,746) | (6,847) |
| Interest paid | (326,318) | (134,335) |
| Net cash flow (used in)/ from financing activities | (277,150) | 1,826,939 |
| Net decrease in cash and cash equivalents in the year | (737,283) | (3,631,716) |
| Cash and cash equivalents at the beginning of the year | 1,118,790 | 4,750,506 |
| Cash and cash equivalents at the end of the year | 381,507 | 1,118,790 |
Notes
1. Basis of preparation
The consolidated financial statements of Firestone Diamonds plc have been prepared in accordance with International Financial Reporting Standards (IFRSs), International Accounting Standards (IAS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations (collectively "IFRSs") as adopted for use in the European Union and as issued by the International Accounting Standards Board and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. These consolidated financial statements are the first Firestone Diamonds plc financial statements to be prepared in accordance with IFRS, the transition date being 1 July 2006.
2. First-time adoption
In preparing these financial statements, the Group has elected to apply the following transitional arrangements permitted by IFRS1 'First-time Adoption of International Financial Reporting Standards.
| * | Business combinations effected before 1 July 2006, including those that were accounted for using the merger method of accounting under UK accounting standards, have not been restated. |
| * | Only those exchange differences arising on the retranslation of foreign operations since 1 July 2006 have been recognised as a separate component of equity, with the related reserve being set to zero at that date. |
| * | IFRS2 'Share-based payments' has been applied to employee options granted after 7 November 2002 that had not vested by 1 July 2006. |
The Group has made estimates under IFRSs at the date of transition, which are consistent with those estimates made for the same date under UK GAAP unless there is objective evidence that those estimates were in error, i.e the Group has not reflected any new information in its opening IFRS balance sheet but reflected that new information in its income statement for subsequent periods.
3. Publication of non-statutory accounts
The financial information set out above does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The consolidated income statement, balance sheet, statement of changes in equity and cash flow statement and associated notes have been extracted from the Company's 2008 statutory financial statements, which were approved by the Board on 9 December 2009. The auditors have reported on these financial statements; their report is unqualified and does not 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 due course. The report and accounts will be posted to shareholders in the near future.
4. Earnings/(loss) per share
The calculation of the basic earnings per share is based upon the net profit after tax attributable to ordinary shareholders of £34,242 (2007: loss of £851,662) and a weighted average number of shares in issue for the year of 55,793,360 (2007: 55,758,177). The diluted loss per share in 2008 is based upon the net profit attributable to ordinary shareholders of £34,242 and a weighted average number of shares in issue for the year of 60,207,821. The diluted loss per share in 2007 is the same as the basic loss per share in 2007 as the loss has an anti-dilutive effect.
5. Annual General Meeting
The company's Annual General Meeting will be held at MWB Business Exchange, 60 Cannon Street, London EC4N 6NP on 29 January, 2009 at 11.45 a.m.
6. Dividends
The directors do not recommend the payment of a dividend for the period.
7. 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).