Firestone Diamonds' Rough Prices Fall to $69/ct, May Need More Financing

Mining and Exploration
02/10/2017 14:57

Firestone Diamonds sold a total of 195,330 carats at their latest tenders in July and September 2017 in Antwerp, netting total sale proceeds of US$13.5 million, including the sale of the company's second >US$1 million stone. Nonetheless, the average value per carat fell to $69 from $107/ct. Firestone Diamonds attributes the drop  to lower than expected occurrence of larger, better quality diamonds at its Liqhobong in Lesotho, and a subdued market, where a combination of oversupply and the previously reported Indian de-monetisation program is still having an impact on the lower quality Run of Mine goods, as well as the fact that the summer months are traditionally the quietest time in the rough selling season. Since commencement of production in Q4 CY2016, the Company has sold all 505,706 carats recovered, for $41.3 million, at an average value of $82/ct

Firestone believes the lower frequency of higher value diamonds to date is potentially a function of the mining that has taken place since commissioning in the lower grade areas within the open pit, and which is now nearing completion. Over time, mining will progress into all areas of the open pit and expects the average value per carat to improve. From an operational perspective, Firestone continues to treat ore at nameplate capacity, and is recovering the anticipated reserve grades within operating cost expectations. They anticipate an improvement in the occurrence of higher quality diamonds as the higher grade kimberlite areas are mined and treated. "In the Board's view, this is not an uncommon situation in the early production stages of a new mine, and, in Liqhobong's case, the Board believes that the Company's true value proposition will become clearer as more representative volumes of all the ore facies are mined and treated," the company states.

Firestone continues to work with its consultants in regards to finalising a new mine plan based on a revision of the expected average LOM dollar per carat value, which it anticipates will be higher than the average value of $69/ct realised at its two most recent sales, albeit - due to current market conditions - it expects the average value to be lower than the original figure of $107/ct used in their feasibility study. In the medium term they expect market conditions as well as diamond values to improve, but have said a revised mine plan needs to be developed in the context of the short-term pricing pressures currently being experienced, and with a view to achieving optimal value for shareholders in the longer term. At current values, they conclude, Firestone would require additional financing and would need to restructure its existing debt obligations in order to be able to deliver such a revised mine plan. Firestone has said they will announce further plans once they have discussed the matter and the revised mine plan is agreed, which is expected to take place in Q4 CY2017.