Release date- 08102015 - Firestone Diamonds plc, the AIM-quoted diamond development company, is pleased to announce an update for the Liqhobong Diamond Mine, which is owned 75% by Firestone and 25% by the Government of Lesotho, in respect of the Project's construction, an updated life of mine plan and a Diamond Resource and Reserve update for the Project.
Project construction 49% complete, as at end of September 2015, versus 50% target under the revised timetable, announced in June 2015, and on track for initial production in Q4 2016
Zero lost time injury record maintained, with over 1.3 million man hours worked to date
Capital budget to commencement of production of ZAR2.1 billion, including optimisation projects and reclassification of expenditure from operating expenses to capital, remains within the original US$185.4 million budget
Grid power project complete for Liqhobong significantly ahead of schedule and within budget
Diamond Resource and Diamond Reserve updated based on new geological model, increased bottom cut-off ('BCO') and exclusion of boart carats
Base case life of mine US$ per carat ('US$/ct') increased by 13% from an escalated average of US$146/ct to US$165/ct
New Mine Plan completed and strong base case project economics reconfirmed:
Base case post financing NPV at an 8% discount rate of US$389 million versus previous base case pre-financing NPV at an 8% discount rate of US$379 million
Improved Project IRR of 42% versus previous base case pre-financing IRR of 30%
Improved payback period of 4.1 years versus previous 4.6 years
Stuart Brown, Chief Executive Officer, commented: 'I am pleased to report that construction activities at our Liqhobong Diamond Mine in Lesotho are 49% complete and we are on track to achieve initial production in Q4 2016. This progress reflects the ability and hard work of our team and contractors during the past 15 months and gives us confidence that we will achieve our vision of becoming a mid-tier diamond producer.
'The new Mine Plan and project economics announced today has been a culmination of over a year's work and importantly, further de-risks and enhances the Project's economics following on from the 2013 Definitive Feasibility Study. 'I look forward to delivering further updates on Liqhobong's progress.'
Firestone is pleased to report that the critical path earthworks are complete and civil, structural, mechanical and electrical construction works have begun. As at the end of September 2015, the Project was 49% complete against the revised schedule announced on 23 June 2015, of 50%.
The major critical path items that include the Residue Storage Facility ('RSF'), civils, accommodation and office complex, bulk power and the steel, mechanical, piping and platework erection and fabrication are all on, or close to schedule and within budget. The first steelwork has been assembled and the scheduled delivery of steel to site has commenced. The construction teams are also working hard to get ahead of schedule while there is a favourable weather window.
Overall engineering design is 90% complete, with only the final control and instrumentation interface designs outstanding, this work is progressing on schedule and within budget.
Accordingly, the Company is confident that, with the continued co-operation of the Government of Lesotho in granting the required specialist skills work permits necessary for the short term contractors, it currently remains on target to achieve initial production during Q4 2016.
Firestone is also pleased to report that the grid power project has been completed on budget and ahead of schedule and is undergoing the final commissioning phases having been connected to the national grid.
As at 31 August 2015, a total of approximately ZAR1.0 billion had been spent on the Project against a total Project budget of ZAR2.1 billion, which now includes a reallocation from future operating costs to project capital, and the Project remains within the original US$185.4 million budget and fully funded through to production ramp up. As at 31 August 2015, the Company had US$21.7 million cash on hand and undrawn facilities of US$92.4 million, being US$82.4 million pursuant to the Absa debt facility and US$10.0 million pursuant to the Eurobond facility, plus a US$15.0 million standby facility.
Mine Plan and Project Economics
Over the past year, Firestone has been working hard to finalise a number of specific work streams to further de-risk and enhance the Project. The Project's new economics are based on detailed additional work on the Diamond Resource, updated in 2014, an improved Mine Plan, updated diamond price assumptions, additional Rand capital expenditure, to enhance and de-risk the delivery and operations of the Project, and updated foreign exchange rates to reflect the devaluation of the Rand.
The definitive feasibility study announced in November 2013 ('2013 DFS'), indicated a base case post-tax, pre-financing NPV at an 8% discount rate of US$379 million and an IRR of 30%, with an upside potential post-tax, pre-financing NPV at an 8% discount rate of US$728 million and an IRR of 45%. The revised economics show a higher base case post financing NPV at an 8% discount rate of US$389 million and an improved IRR of 42%. The Project has broadly similar economic returns when compared to the 2013 DFS, but with a significantly de-risked operational start up and delivery. The upside pricing option previously run at US$156 per carat has not been updated to 2015 estimates as the Company remains conservative in its view on diamond pricing, when taking the current market conditions into account. However, the Company remains confident that the long-term supply and demand fundamentals for the diamond industry remain robust.
The new Diamond Resource reflects a number of changes, which include a new geological model with reduced volumes at depth due to the pipe tapering, the removal of the boart carats, as the Company is focusing on gem diamonds, an increase in the BCO to 1.25mm from 1mm, to align to the new treatment plant's BCO which was determined as being optimal during the 2013 DFS, and depletions as a result of the pilot plant production which was closed in 2013.
These changes have had the effect of reducing the overall Diamond Resource grade from 33 to 28 carats per hundred tonnes ('cpht') and the total Diamond Resource carats from 29.7 to 23 million carats ('mct'). As a result the undiluted Mine Plan grade has reduced from 32 cpht to 27 cpht, thereby resulting in a 17% reduction in the overall carats recovered over the Mine Plan, which is partially offset by an increase in the diamond price as described below. When combined with the reduced waste stripping associated with the new split shell mine design, the favourable Rand: US Dollar exchange rate and the changes to the modelled cash flow, the overall Rand revenue per tonne for the Mine Plan has improved.
The stay in business capital and operating costs for the Project have also been reviewed in detail and taking into account inflation, better cost definition and risk mitigation, they have increased in Rand terms by ZAR323 million and ZAR1.9 billion respectively. Following the devaluation of the Rand against the US Dollar (ZAR10:US$1 used in 2013 DFS versus ZAR13.27:US$1 used in the Mine Plan), this translates to an increase in stay in business capital of US$20.6 million and a decrease in operating costs of US$56.8 million. These changes have been included to reduce the overall risk of delivering the Mine Plan, and include, inter alia, the future construction of additional water storage, and to enhance the operations of the Project, with increased engineering support being included in the revised Mine Plan.
The 2013 DFS used a base case average diamond price of US$107/ct with an upside average large stone potential of US$156/ct both at a 1mm BCO. In preparation for defining parameters for running the Mine Plan, independent consultants were appointed to re-price the Liqhobong pilot plant production parcel and compile an updated August 2014 US$/ct diamond revenue estimate. The 2014 US$/ct revenue estimate was based on a combination of modelled size frequency distributions ('SFD') per facies and modelled assortment (US$/carat/sieve size).
The resultant revenue estimate was increased to align to the BCO of the new treatment plant of 1.25mm. Furthermore, the large stone potential was investigated by extrapolation of assortment and SFD data beyond +10.8 ct/stone. Applying the latest revenue estimates in the Mine Plan resulted in a weighted un-escalated average diamond price of US$131/ct, which has equated to an average escalated diamond price over the life of mine of US$165/ct, representing an increase of approximately 13% from the 2013 DFS. Given the current market conditions, the 2014 revenue estimate has not been escalated until 2017 in the financial model.
Diamond Resource and Reserve update for Liqhobong
The first stage in producing the new Mine Plan, involved the appointment of an independent consultant to update the SAMREC compliant 2009 Diamond Resource estimate for Liqhobong.
This process started with a detailed re-logging of the main pipe borehole core, enabling the construction of a new 3D geological solid model for the Project. As part of the re-logging exercise, new density measurements were also collected which allowed for a local block estimate of density for the first time. The previous grade estimate was also based on the wide diameter holes drilled during 2008 but has now been updated to exclude the boart component. The independent work, undertaken in accordance with SAMREC guidelines (2009), estimated that the Liqhobong main pipe contains:
an Indicated Diamond Resource to a depth of 2,467 masl, (183 metres below surface) estimated to comprise 9.5 mct in 35 million tonnes ('mt') of kimberlite at an average grade of 27 cpht and
an Inferred Diamond Resource below 2,467 masl, estimated to contain 13.5 mct in 48 mt at an average grade of 28 cpht.
The 22% carat reduction in the total Diamond Resource from 2009 is mainly a result of the reduced volume due to the new geological model and the pipe tapering at depth, the removal of the boart carats, the increase in the BCO to 1.25mm from 1.0mm and depletions due to the pilot plant.
The updated Diamond Resource and block model prepared by an independent Competent Person, were used to generate a new Mine Plan. After signing off of the relevant operating and economic assumptions and modifying factors, a Whittle pit optimisation study was also conducted by independent Competent Persons for both concentric and split shell mine designs. A split shell design was selected as the most optimal Mine Plan. Based on this work, a Diamond Reserve statement was prepared in accordance with the SAMREC guidelines (2009), to update the existing 2012 Diamond Reserve. The 2015 Probable Diamond Reserve contains some 9.5 mct in 36 mt at an average recovered grade of 26 cpht. In addition to the Probable Diamond Reserve, the 2015 split shell Mine Plan also assumes the mining of a portion of the Inferred Diamond Resource totalling some 17 mt and 4.7 mct.
The 16% carat reduction in the Diamond Reserve from 2012 is predominantly due to the reduction in the Diamond Resource described above.
Further detailed information on the Diamond Resource and Diamond Reserve, which have been prepared in accordance with SAMREC guidelines (2009), can be found within the Company's internal Technical Report, which will shortly be available on the Company's website. The internal Technical Report does not constitute a Competent Persons Report as defined in the AIM Rules.
Firestone Diamonds plc
Tel: +44 (0)20 8741 7810
Strand Hanson Limited
Tel: +44 (0)20 7409 3494
GMP Securities Europe LLP
Tel: +44 (0)20 7647 2800
Mirabaud Securities LLP
Tel: +44 (0)20 7878 3360
Tel: +44 (0)20 7878 3447
Background information on Firestone
Firestone is an international diamond development company with operations focused on Lesotho. Firestone is currently in the process of developing the Liqhobong Mine Development Project in Lesotho to become a one million carat per annum producer.
Lesotho is emerging as one of Africa's significant new diamond producers, and hosts Gem Diamonds' Letseng Mine, Firestone's Liqhobong Mine, as well as Namakwa Diamonds' Kao Mine and the Mothae development project.