Interim Results

31st Mar 2009 07:00



Firestone Diamonds plc

Unaudited interim results for the six months to 31 December 2008

LONDON: 31 March, 2009

The Board of Firestone Diamonds plc, ("Firestone" or "the Company"), the AIM-quoted diamond mining and exploration company (ticker: AIM:FDI), announces unaudited interim results for the six months to 31 December 2008. 

HIGHLIGHTS

BK11

	●	Inferred Resource of 12 million tonnes containing approximately 830,000 carats
	●	High grade and diamond values recovered
		-	Potential revenue of up to $30M per annum at margins of 60-70%
	●	Evaluation and development plans
		-	Mine development decision to be made in Q3 2009 after next stage of sampling
		-	Use of existing Bonte Koe plant would allow production to commence in mid 2010

Jwaneng Tailings Project

	●	Selected as preferred bidder for tailings treatment project at the Jwaneng Mine in Botswana
	●	Initial production of 2 million tonnes per annum targeted to commence in late 2010/early 2011
	●	Potential for expansion to other Debswana mines
	●	Contract negotiations expected to be concluded by Q3 2009

Tsabong

	●	Macrodiamonds recovered from 5 of 6 kimberlites sampled
	●	Good results from MK1
		-	21 macrodiamonds recovered
		-	good indicator mineral chemistry received
	●	Joint venture discussions under way

Financial

	●	Revenue increased 92% to £3.7m (H1 2008: £1.9m)
		-	primarily due to termination payment in relation to the Bonte Koe Mine
	●	Raised £5 million from a share placement in July 2008
	●	Current cash position of £3.1 million

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
Jos Simson/Gareth Tredway, 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 period saw good progress in the growth and development of Firestone's project portfolio. Activities 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 surrounding Botswana's kimberlite fields, with approximately 26,000 square kilometres under license, and has 95 known kimberlites in its licence areas.

Overview

Results from the Phase 2 evaluation programme at BK11 have recently been announced and confirm that BK11 has significant economic potential. Selective mining of the high grade areas identified at BK11 could produce annual revenues of approximately $30 million per annum at operating margins of between 60 to 70%. These results are particularly significant as they are based on current rough diamond prices, which have fallen by approximately 50% over the past six months. Subject to the results of the next phase of evaluation, BK11 could be brought into production as early as mid 2010. 

The Company also continued to work on new toll treatment opportunities, which are increasingly attractive in the current economic environment as a source of consistent and predictable revenue and cash flow. In February 2009, the Company announced that it had been selected by Debswana to design, construct and operate a tailings plant at the Jwaneng Mine in Botswana on a toll treatment basis. Initial production of over two million tonnes per annum is targeted to commence in late 2010 or early 2011, and, subject to Firestone's performance, similar plants could be deployed by Firestone to exploit tailings resources at other Debswana mines. Contract negotiations are expected to be concluded in Q3 2009.

The Company recently announced positive results from bulk sampling undertaken at Tsabong during the period. While the Company considers Tsabong to be one of the most attractive large scale diamond exploration and evaluation projects in the market and to have the potential to contain significant economic deposits, it has decided to focus its resources on more advanced projects that are closer to cash flow, such as BK11 and tailings treatment projects. Following the Company's announcement in December 2008 that it intended to seek a joint venture partner for Tsabong, the project has attracted substantial interest and joint venture discussions are currently under way.

BK11, Botswana

The BK11 kimberlite is situated approximately 20 kilometres south east of Debswana's Orapa Mine and 5 kilometres north east of the AK6 kimberlite, on which De Beers and African Diamonds plan to develop a new mine.

The Company commenced its Phase 2 evaluation programme, comprising approximately 2,300 metres of percussion, core and 36 inch large diameter drilling ("LDD"), in June 2008. Drilling was completed during the period and results from processing of material from the six LDD holes drilled were recently announced.

Independent modelling of grade and diamond values has been carried out and has defined an Inferred Resource of 12 million tonnes containing approximately 830,000 carats. The modelled value of BK11 diamonds is $126/carat (at current market prices), which is a very high value for kimberlite production.

The highlight of the results is the delineation of a high value area on the western side of BK11 ("KW") from which high grades and high value diamonds were recovered. The Company believes that selective mining in the KW area is likely to produce revenue of around $20 per tonne. On the basis of these results, and with operating costs at BK11 estimated to be $6.50 per tonne, the KW zone could produce operating margins of between 60 to 70%. These results are particularly significant as they are based on current rough diamond prices, which have fallen by approximately 50% over the past six months. Any recovery in diamond prices, which the Company believes is likely to occur by 2010, would add substantially to the potential profitability of BK11.

The Company is very encouraged by these results and believes that it is likely that the development of a new mining operation on BK11 will be justified on the basis of the KW resource alone. Evaluation work will now be accelerated, with the objective of establishing a mineable resource and making a mine development decision in Q3 2009. Development costs are estimated to be approximately $7.5 million and production could commence in mid 2010 with an initial capacity of approximately 1.5 million tonnes per annum. At revenues of $20 per tonne, BK11 could produce annual revenues of approximately $30 million per annum and reach payback in less than 6 months.

Jwaneng Tailings Project, Botswana

In February 2009, the Company announced that Firestone and ADP Projects ("ADP") had been selected by Debswana Diamond Company ("Debswana") as the preferred bidders to design, supply, construct and operate a modular tailings dump 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 objective of the Jwaneng Tailings Project is the recovery of diamonds from the tailings resource at Jwaneng, which is estimated to be in excess of 30 million tonnes. Initial production of over two million tonnes per annum is targeted to commence in late 2010 or early 2011. Firestone will be responsible for financing and operating the plant while ADP will be responsible for plant design and construction.

The Jwaneng based plant will serve as a pilot facility to demonstrate the economics and capability of the modular plant concept and could potentially lead to the deployment by Firestone and ADP of similar plants to exploit additional tailings resources at other Debswana mines. Contract negotiations with Debswana are currently under way and are expected to be concluded in Q3 2009.

Tsabong, Botswana

The Tsabong kimberlite field contains 85 kimberlites, including the 180 hectare MK1 kimberlite, which is one of the largest diamondiferous kimberlites in the world.

Evaluation work at Tsabong during the period was focused on completion of LDD sampling on six of the fourteen high interest kimberlites that have been identified to date at Tsabong. Processing of these samples was completed in Q1 2009, with encouraging results.

Macrodiamonds were recovered from five of the six kimberlites sampled, with MK1 producing 19 macrodiamonds, all clear, white gemstones, from one of the two LDD holes drilled. When combined with the recovery of 252 microdiamonds from core drilling, from which a macrodiamond grade estimate of 25 carats per hundred tonnes ("cpht") was made, and analyses of indicator mineral chemistry, these results support the Company's belief that MK1 has significant economic potential.

The recovery of six macrodiamonds from a small sample from MK38 is also considered very encouraging. Previous analysis of the size frequency distribution of microdiamonds recovered from MK38 indicated a potential macrodiamond grade of 25 to 30 cpht.

With eight more high interest kimberlites awaiting bulk sampling, a further 71 kimberlites to evaluate and the likelihood of new discoveries being made with over 80 known geophysical drill targets, the Company continues to believe that the Tsabong kimberlite field has significant economic potential.

In December 2008 the Company announced that it intended to focus its resources on more advanced projects that were closer to cash flow, such as BK11, and that it would consider the introduction of a joint venture partner to finance further work on Tsabong. Interest in the project has been high and negotiations are currently underway with a number of potential joint venture partners.

South Africa

The Company's operations in South Africa were primarily focused on the Company's toll treatment joint venture with De Beers at the Bonte Koe Mine, which continued to operate at full design capacity during the period. In February 2009, the Company announced that the toll treatment agreement had been terminated by De Beers as a result of a decrease in diamond prices and an increase in mining costs. De Beers made a payment of approximately £2.1 million to the Company as compensation for early termination. The Company is now making plans to relocate the Bonte Koe plant and infrastructure to BK11, subject to results from ongoing evaluation work at BK11.

Financial

Revenue for the period increased 92% to £3.7 million. The increase was primarily due to the termination payment from De Beers in relation to the Bonte Koe Mine, which was accounted for in the period under review. The Company produced an operating profit of £1 million before impairment charges of £2.6 million related to its South African alluvial assets. 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 £3.1 million.

Diamond market

While prices for rough diamonds have fallen by about 50% over the past six months, these decreases have not been reflected in prices for polished diamonds, which have only declined by about 20% over the same period. The Company believes that much of the fall in rough prices has been caused by significant reductions in availability of bank financing to rough diamond buyers for inventory and receivables. The major diamond producers, such as Debswana, De Beers and Alrosa, have made very significant cutbacks in their supply of rough diamonds to the market, as a result of which rough diamond prices have stabilised. 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.

James F. Kenny

Chairman

31 March 2009

Unaudited consolidated financial statements for the six month period to 31 December 2008

Consolidated Income Statement
		Six months ended 31 December		Six months ended 31 December				Year ended 30 June
		2008		2007				2008
		£'000		£'000				£'000
Revenue
Trading operations		1,526		1,899					3,309
Compensation payment received		2,126		-					-
		3,652		1,899					3,309
Changes in inventories		(30)		(82)					(110)
Raw materials and consumables used		(946)		(159)					(603)
Employee benefits expense		(459)		(203)					(1,199)
Amortisation and depreciation		(457)		(513)					(972)
Impairment of mineral rights		(2,591)		-					(2,167)
Other operating expenses		(297)		(889)					(1,328)
Gain on sale of investments		-		2,721					3,030
Gain on disposal of derivative financial instruments		-		30					(64)
Operating (loss)/profit		(1,128)		2,804					(104)
Financial income		49		165					134
Financial expense		(181)		(173)					(326)
(Loss)/ profit before tax		(1,260)		2,796					(296)
Taxation		131		(438)					59
(Loss)/profit for the period attributable to equity shareholders		(1,129)		2,358					(237)
Basic (loss)/earnings per share - pence		(1.8p)		4.2p		(0.4p)
Diluted (loss)/earnings per share - pence		(1.8p)		3.8p		(0.4p)
All amounts relate to continuing operations.

Consolidated Balance Sheet
		31 December	31 December	30 June
		2008	2007	2008
		£'000	£'000	£'000
Non-current assets
Goodwill		2,058	2,058	2,058
Intangible mining assets		12,532	10,892	10,832
Property, plant and equipment		12,572	13,912	12,008
Deferred tax asset		350	-	247
		27,512	26,862	25,145
Current assets
Inventories		281	291	311
Trade and other receivables		3,634	2,189	1,345
Cash and cash equivalents		1,566	4,774	382
		5,481	7,254	2,038
Total assets		32,993	34,116	27,183
Equity and liabilities
Equity attributable to ordinary shareholders
Share capital		12,346	11,158	11,170
Share premium		22,768	19,182	19,278
Merger reserve		(1,076)	(1,076)	(1,076)
Translation reserve		(3,064)	1,084	(5,021)
Retained earnings		(3,220)	(1,996)	(2,257)
Total equity attributable to ordinary shareholders		27,754	28,352	22,094
Non-current liabilities
Interest-bearing loans and borrowings		2,273	2,104	1,860
Deferred tax		124	638	37
Provisions		128	364	200
		2,525	3,106	2,097
Current liabilities
Interest-bearing loans and borrowings		1,112	571	775
Trade and other payables		1,002	-	1,642
Current tax liabilities		11	-	9
Provisions		589	2,087	566
		2,714	2,658	2,992
Total equity and liabilities		32,993	34,116	27,183

Consolidated Cash Flow Statement
		Six months ended 31 December	Six months ended 31 December	Year ended 30 June 2008
		2008	2007
		£'000	£'000	£'000
Cash flows from operating activities
(Loss)/profit before tax		(1,260)	2,796	(296)
Adjustments for:
Depreciation, amortisation and impairment		3,542	513	3,139
Effect of foreign exchange movements		327	-	(284)
Interest payable		181	167	326
Equity-settled share-based payment		166	67	293
Loss on sale of derivative financial instruments		-	-	64
Profit on sale of investment in shares		-	(3,435)	(3,030)
Loss on sale of property, plant and equipment		-	-	17
Net cash flow from operating activities before changes in working capital and provisions		2,956	108	229
Decrease/(increase) in inventories		30	(15)	(36)
(Increase)/decrease in trade and other receivables		(2,304)	322	917
(Decrease)/increase in trade and other payables		(483)	1,130	360
Decrease in provisions		(72)	-	(280)
Cash generated from/(absorbed) by operating activities		127	1,545	1,190
Cash flows from investing activities
Payments for property, plant and equipment		(654)	(1,242)	(1,506)
Payments for non-current intangible assets		(3,097)	(1,073)	(5,039)
Payments to settle liability arising on derivative financial instruments		-	-	(726)
Proceeds from sale of investment in shares		-	4,664	5,621
Disposal of property, plant and equipment		-	19	-
Net cash from investing activities		(3,751)	2,368	(1,650)
Cash flows from financing activities
Proceeds from the issue of share capital		5,000	-	108
Share issue expenses		(334)	-	-
Proceeds from interest-bearing borrowings		870	-	286
Repayment of interest-bearing borrowings		(594)	(124)	(345)
Interest paid		(134)	(134)	(326)
Net cash from financing activities		4,808	(258)	(277)
Net increase/(decrease) in cash and cash equivalents		1,184	3,655	(737)
Cash and cash equivalents at the beginning of the period		382	1,119	1,119
Cash and cash equivalents at the end of the period		1,566	4,774	382

Notes

1	Corporate information
	Firestone Diamonds Plc ("the Company") is a company incorporated in England and Wales and quoted on the London Stock Exchange's Alternative Investment Market.

2

Basis of preparation

These consolidated interim financial statements for the six months ended 31 December 2008 have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) as adopted by the European Union and also in accordance with the Companies Act 1985.  The financial information set out above does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. Statutory accounts for the twelve months to 30 June 2008, on which the report of the auditors was unqualified and did not contain a statement under section 237 of the Companies Act 1985, have been filed with the Registrar of Companies.

3	Earnings per share
	The calculation of the basic earnings per share for the six month period to 31 December 2008 is based upon the following:

	Basic	Six months ended 31 December	Six months ended 31 December	Year ended 30 June
		2008	2007	2008
		£	£	£
	(Loss)/earnings per share - pence	(1.8p)	4.2p	(0.4p)
	(Loss)/profit attributable to equity shareholders	(£1,129,000)	£2,358,000	(£237,000)
	Weighted average number of shares in issue	61,732,194	55,791,445	55,849,841
	Diluted
	(Loss)/earnings per share - pence	(1.8p)	3.8p	(0.4p)
	(Loss)/profit attributable to equity shareholders	(£1,129,000)	£2,358,000	(£237,000)
	Weighted average number of shares in issue	61,732,194	62,409,144	55,849,841

4	Dividend
	The directors are not declaring a dividend for the period.

5

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).

ENDIR SDDFWSSUSEDD

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