Preliminary Results

13th Nov 2009 07:00



Firestone Diamonds plc

Preliminary announcement of results for the year ended 30 June, 2009

LONDON: 13 November, 2009

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, 2009.

HIGHLIGHTS

BK11 Kimberlite Project

	•	Inferred resource of 12 million tonnes defined containing approximately 830,000 carats
	•	High grade and diamond values recovered
			-potential revenue over $20M per annum at margins in excess of 50%
	•	Final phase of evaluation nearing completion
			-results to date in line with expectations
			-mine development decision on target to be made in Q4 2009
			-environmental Impact Assessment recently approved, and mining lease application being readied for submission in Q4 2009
	•	Production could commence in mid 2010
			-development costs fully funded by proceeds of July 2009 placing

Jwaneng Tailings Project

	•	Selected as preferred bidder for tailings treatment project at the Jwaneng Mine in Botswana in February 2009
	•	Contract signing expected in Q1 2010 due to delays in finalising project financing structure
	•	Initial production of 2 million tonnes per annum targeted to commence in 2011

Tsabong Kimberlite Field

	•	Macrodiamonds recovered from five of six kimberlites sampled
	•	Good results from MK1 kimberlite
	•	79 additional kimberlites to be evaluated
	•	Joint venture discussions continuing

Financial

	•	Revenue increased 22% to £4m (2008: £3.3m)
	•	Operating profit of £0.7 million before impairment charges (2008: Profit of £2.1m)
	•	South African alluvial assets fully impaired, resulting in £11.2 million charge for the year
	•	£5.0 million equity financing completed in July 2008
	•	£7.2 million equity financing completed in July 2009

Outlook

	•	Primary focus on development of a new mining operation at BK11 and concluding Jwaneng tailings contract in 2010
	•	Target development of Orapa satellite mining operation around BK16 and other Orapa kimberlites
	•	At advanced stage in negotiations for new kimberlites in the Orapa area
	•	In discussions on significant new toll treatment project
	•	In discussions on significant new toll treatment project
	•	Company well funded and confident about prospects in Botswana

Philip Kenny, CEO of Firestone Diamonds, commented: "We are very pleased with the progress that we have made in Botswana over the past year. We continue to work towards making a mine development decision on BK11 before the end of 2009 and to signing an agreement with Debswana on the Jwaneng tailings project in 2010. With funding in place to cover mine development costs at BK11, and with prices in the rough diamond market continuing to recover from their recent lows, we remain confident about Firestone's prospects."

Dear Shareholder,

We are pleased to report that Firestone continued to make good progress in the growth and development of its project portfolio during the past year. 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 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 BK11 in the Orapa area of Botswana, where evaluation results confirmed that the project has significant economic potential. The high grade areas identified at BK11 could produce annual revenues of over $20 million per annum at operating margins of in excess of 50%. Subject to the results of the final phase of evaluation which is nearing completion, BK11 could be brought into production in mid 2010.

The Company's objective in the Orapa area will be to use a new mining operation at BK11 as the centre of a satellite mining operation that would exploit multiple kimberlites in the area. Evaluation work on the nearby BK16 kimberlite, which is believed to have similar potential to BK11, is planned to be undertaken in 2010. The Company has six other kimberlites in the Orapa area and is also at an advanced stage in negotiations in relation to a number of other kimberlites in the area which have been proven to be diamondiferous. The Company believes that it has the potential to develop a sizeable operation in the Orapa area based on BK11 and these other kimberlites.

The Company has continued to pursue 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 Diamond Company ("Debswana") to design, construct and operate a tailings plant at the Jwaneng Mine in Botswana on a toll treatment basis. Contract negotiations have not yet been concluded due to delays in finalising project financing structure, but are now at an advanced stage and expected to be concluded in Q1 2010, rather than Q4 2009. The Company is also in discussions in relation to another significant toll treatment project on which we expect to be able to provide more information to shareholders shortly.

Good results were obtained from bulk sampling carried out at Tsabong during the year. 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 kimberlites, it was decided to focus the Company's resources on BK11 and toll treatment projects, and to seek a joint venture partner for Tsabong. A number of joint venture offers have been received, but not yet on terms acceptable to the Company, and discussions are continuing. 

The past year has been a very challenging one for companies in the diamond mining and exploration sector and we believe that it is likely that many of the companies in our sector will not remain independent, due to continued scarcity of both debt and equity finance. In that context, the fact that Firestone successfully raised £7.2 million in July 2009 reflects the high quality of the Company's project portfolio and capability of our management team.

With finance now in place to fund the development of commercial mining operations on BK11, a number of exciting opportunities available to us and a significant shortfall in rough diamond supply projected in the coming years, we remain confident about Firestone's future prospects. 

BK11, Botswana 

Excellent progress was made on BK11, with approximately 2,300 metres of percussion, core and 36 inch large diameter drilling ("LDD") completed during the year. Independent modelling of grade and diamond values resulted in the definition of an inferred resource of 12 million tonnes containing approximately 830,000 carats and a diamond value of $135/carat, which is a very high value for kimberlite production. With revenue estimates of between $13 and $17 per tonne for the KW zone, which is the area initially targeted for development, and with low operating costs in the Orapa area of approximately $6.50 per tonne, the economic potential of BK11 looks very promising.

Final phase of evaluation under way

A pilot production plant and earthmoving equipment were relocated from the Company's operations in South Africa in May 2009 and are being used to carry out the final phase of evaluation on BK11. The objective of this phase is to recover a sufficiently large parcel of diamonds to obtain a high confidence diamond valuation. Grade and diamond quality from material processed to date have been in line with expectations, and the Company expects to be in a position to make a decision to commence mine development based on the results of this work in Q4 2009, subject to which production is expected to commence in mid 2010.

Mine development planning advancing

The Company has continued to advance its planning and preparations for the development of a commercial mining operation on BK11. The required development costs of approximately £5 million are fully financed from the proceeds of the share placing that was completed in July 2009.

Much of the infrastructure established to support the pilot production plant has been designed to support full scale mining operations. The mining equipment currently on site is expected to be sufficient to deliver the mine production target of 1.5 million tonnes per annum, and sufficient water supply and storage capacity is now in place to support commercial production. Work on preparing the production plant at the Company's Bonte Koe Mine in South Africa for relocation to BK11 is at an advanced stage and ahead of schedule.

The Environmental Impact Assessment for BK11 has recently been approved by the Department of Environmental Affairs. Discussions have also commenced with the Department of Mines in relation to a mining lease application, and it is expected that the application will be ready for submission by the end of the 2009.

Jwaneng Tailings Project, Botswana

In February 2009, Firestone announced that it had been selected by Debswana as the preferred bidder to supply, construct and operate a modular tailings 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 Jwaneng plant is intended to serve as a pilot facility to demonstrate the economics and capability of the modular plant concept on the Jwaneng tailings resource, which is estimated to be in excess of 30 million tonnes.  The plant is being designed by ADP Projects, with whom Firestone has a strategic alliance to jointly design, build and operate modular diamond tailings processing plants. Detailed design work commenced in April 2009 and is now at an advanced stage.

Firestone and Debswana have established a joint steering committee for the project to negotiate and agree detailed technical and commercial provisions for the project. While technical discussions in relation to the operating contract for the plant have reached an advanced stage, discussions with Debswana on structure of the financing that will be required for the project's estimated $40 million capital cost have taken longer than anticipated. Although Debswana and Firestone have now agreed on the financing structure, the target date for finalising and signing an agreement has been delayed as a result from Q4 2009 to Q1 2010. Discussions have also progressed well with a number of interested lenders in relation to providing debt financing for the project through a special purpose vehicle.

Based on contract rates from the Company's previous toll treatment operations in South Africa, the Directors anticipate that the Jwaneng tailings project has the potential to contribute approximately $150 million in toll treatment revenue for the Company.  The successful implementation of this project could potentially lead to the deployment by Firestone of similar plants to exploit additional tailings resources at Debswana's other mines at Orapa and Letlhakane. With the total tailings resources at Debswana's mines estimated to be approximately 300 million tonnes, the Directors estimate that they represent a very significant revenue opportunity for the Company.

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 carats per hundred tonnes ("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 drilled three core holes on BK16 during the year for a total of 620 metres.

Based on a review of drilling and geophysical surveys undertaken on BK16, Company estimates indicate that it contains approximately 17 million tonnes of kimberlite to a depth of 200 metres. The Company plans to carry out evaluation and resource development work on BK16 in 2010. This work will comprise large diameter drill bulk sampling in order to provide an estimate of grade and diamond value, and will be undertaken after a mine development decision is made on BK11.

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.

Evaluation work at Tsabong during the year was focused on completion of LDD sampling on six of the fourteen high interest kimberlites that have been identified to date. 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 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 and a microdiamond grade estimate of 25 to 30 cpht from MK38 are also considered very encouraging.

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 have been undertaken with a number of potential joint venture partners. A number of joint venture offers have been received, but not on terms acceptable to the Company and discussions are continuing. Should the Company not receive a joint venture offer that it considers acceptable, we will consider the alternative of continuing our own evaluation work at Tsabong once cash flow from the Company's Botswana operations allows.

South African Operations 

During the first half of the year the Company's operations in South Africa were focused on the toll treatment joint venture with De Beers at the Bonte Koe Mine, which operated successfully at its target production capacity. At the beginning of 2009 De Beers elected to terminate the toll treatment agreement as a result of a decrease in diamond prices and an increase in mining costs. De Beers made a payment of approximately £2.3 million to the Company as compensation for early termination. The Bonte Koe plant and infrastructure are now being readied for relocation to BK11, subject to results from the final phase of evaluation work on the project.

With the Company's operations now focused primarily on kimberlite projects in Botswana, the Company carried out a review during the year of its South African alluvial diamond assets, which are considered to be non-core. The Company has been seeking to either sell or joint venture these assets, but due to the downturn in the diamond market over the past year, which has had a particularly severe impact on alluvial diamond producers, there is little interest in projects of this nature currently. While this position may change as the diamond market continues to recover, the Company has decided to make a full impairment provision in respect of its South African minerals rights.

Financial

Revenue for the year increased 22% to £4 million due to the termination payment from De Beers in relation to the Bonte Koe toll treatment project. The Company produced an operating profit of £0.7 million before impairment charges of £11.2 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. In July 2009 the Company raised a further £7.2 million from a share placement to finance the development and commissioning of a mine at BK11, to undertake evaluation and resource development work at BK16, and to provide general working capital for the Company.

Diamond market

While prices for rough diamonds increased during the year and reached a record high in the first half of 2008, they subsequently fell by about 50% during the last quarter of 2008. This fall was primarily due to severe restrictions in credit availability to the rough diamond market, which caused very substantial drops in trading activity. Wholesale prices for polished diamonds fell by about 20% over the same period, reflecting a drop in retail demand in the major diamond jewellery markets and running down of inventories.

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, and worldwide production in 2009 is expected to be approximately 35% lower than 2008. As a result of these actions rough diamond prices have increased more than 30% from their recent lows. The Company continues 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 continue to increase as the global economy recovers from recession.

James F Kenny

Chairman

 

12 November 2009

FIRESTONE DIAMONDS PLC

CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 30 JUNE 2009

	2009	2008
	£000	£000
Revenue	4,034	3,309
Changes in inventories	-	(110)
Raw materials and consumables used	(170)	(603)
Employee costs	(801)	(1,198)
Amortisation and depreciation	(640)	(972)
Impairment of mineral rights and mining properties	(8,773)	(2,167)
Impairment of goodwill	(2,473)	-
Other operating expenses	(1,728)	(1,328)
Gain on sale of investments	-	3,030
Loss on disposal of derivative financial instruments	-	(65
	_________	_________
Operating loss	(10,551)	(104)
Financial income	117	134
Finance expense	(324)	(326)
	_________	_________
Loss before tax	(10,758)	(296)
Taxation	(233)	59
	_________	_________
Loss after tax for the year attributable to equity shareholders	(10,991)	(237)
	_________	_________
Basic loss per share	(17.9)p	(0.4)p
	_________	_________
Diluted loss per share	(17.9)p	(0.4)p
	_________	_________

FIRESTONE DIAMONDS PLC

CONSOLIDATED BALANCE SHEET

30 JUNE 2009

	2009	2008
	£000	£000
Assets
Non-current assets
Goodwill	-	2,058
Intangible mining assets	15,485	10,832
Property, plant and equipment	8,771	12,008
Deferred tax asset	-	247
	_________	_________
	24,256	25,145
	_________	_________
Current assets
Inventories	29	312
Trade and other receivables	586	1,345
Cash and cash equivalents	1,019	381
	_________	_________
	1,634	2,038
	_________	_________
Total assets	25,890	27,183
	_________	_________
Equity and liabilities
Equity
Share capital	12,346	11,170
Share premium	22,768	19,278
Merger reserve	(1,076)	(1,076)
Translation reserve	(703)	(5,021)
Accumulated losses	(12,905)	(2,257)
	_________	_________
Total equity attributable to equity holders of the parent	20,430	22,094
	_________	_________
Non-current liabilities
Interest-bearing loans and borrowings	1,864	1,861
Deferred tax	-	37
Provisions	188	200
	_________	_________
	2,052	2,097
	_________	_________
Current liabilities
Interest-bearing loans and borrowings	1,137	775
Trade and other payables	1,361	1,642
Current tax liabilities	-	9
Provisions	910	566
	_________	_________
	3,408	2,992
	_________	_________
Total equity and liabilities	25,890	27,183
	_________	_________

FIRESTONE DIAMONDS PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2009

	Share Capital  £000	Share Premium  £000	Merger Reserve  £000	Fair-value reserve  £000	Translation reserve £000	Accumulated losses £000	Total Equity £000
At 1 July 2007	11,158	19,182	(1,076)	2,947	(2,134)	(2,584)	27,493
Loss for the year	-	-	-	-	-	(237)	(237)
	-	-	-	-	-	(237)	(237)
Deferred tax on net investment in subsidiary	-	-	-	-	-	271	271
Translation of foreign subsidiaries	-	-	-	-	(2,887)	-	(2,887)
Sale of available-for-sale investments	-	-	-	(2,947)	-	-	(2,947)
Total income and expense recognised in equity in the year	-	-	-	(2,947)	(2,887)	271	(5,563
Total recognised income and expense in the year	-	-	-	(2,947)	(2,887)	34	(5,800)
Shares issued in year	12	96	-	-	-	-	108
Share-based payment adjustment	-	-	-	-	-	293	293
At 30 June 2008	11,170	19,278	(1,076)	-	(5,021)	(2,257)	22,094
At 1 July 2008	11,170	19,278	(1,076)	-	(5,021)	(2,257)	22,094
Loss for the year	-	-	-	-	-	(10,991)	(10,991)
	-	-	-	-	-	(10,991)	(10,991)
Translation of foreign subsidiaries	-	-	-	-	4,318	-	4,318
Total income and expense recognised in equity for the year	-	-	-	-	4,318	-	4,318
Total recognised income and expense in the year	-	-	-	-	4,318	(10,991)	(6,673)
Shares issued in year	1,176	3,824	-	-	-	-	5,000
Share issue expenses	-	(334)	-	-	-	-	(334)
Share-based payment adjustment	-	-	-		-	343	343
At 30 June 2009	12,346	22,768	(1,076)	-	(703)	(12,905)	20,430

FIRESTONE DIAMONDS PLC

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 JUNE 2009

	2009	2008
	£000	£000
Cash flow from operating activities
Loss before taxation	(10,758)	(296)
Adjustments for
Depreciation, amortisation and impairment	11,791	3,139
Effect of foreign exchange movements	894	(284
Interest payable	323	326
Equity-settled share-based payment	343	293
Loss on sale of derivative financial instruments	-	64
Profit on sale of investment in shares	-	(3,030)
Loss on sale of property, plant and equipment	-	17
	_________	_________
Net cash flow from operating activities before changes in working capital	2,593	229
Decrease/(increase) in inventories	26	(36)
Decrease in trade and other receivables	737	918
(Decrease)/increase in trade and other payables	(322)	360
Increase/(decrease) in provisions	180	(280)
	_________	_________
Net cash flow generated from operating activities	3,214	1,190
	_________	_________
Investing activities
Payments for property, plant and equipment	(1,268)	(1,506)
Payments for non-current intangible assets	(5,635)	(4,084)
Costs capitalised within non-current intangible assets	-	(955)
Payments to settle liability arising on derivative financial instruments	-	(726)
Proceeds from sale of investment in shares	-	5,621
	_________	_________
Net cash flow from investing activities	3,214	1,190
	_________	_________
Financing activities
Issue of ordinary shares	5,000	108
Share issue expenses	(334)	-
Proceeds from long-term borrowings	900	238
Proceeds from lease finance arrangements	-	48
Repayment of long-term borrowings	(905)	(336)
Repayment of lease finance	(11)	(9)
Interest paid	(323)	(326)
	_________	_________
Net cash flow from/(used in) financing activities	4,327	(277)
	_________	_________
Net increase/(decrease) in cash and cash equivalents in the year	638	(737)
Cash and cash equivalents at the beginning of the year	381	1,119
	_________	_________
Cash and cash equivalents at the end of the year	1,019	381
	_________	_________

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 November 2009.

The financial information set out in the announcement does not constitute the Company's statutory accounts for the year ended 30 June 2009 or the year ended 30 June 2008. The financial information for the year ended 30 June 2009 and the year ended 30 June 2008 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 2009 accounts have been prepared on a basis consistent with the accounting policies set out in the 2008 accounts.

2. Exceptional charges included within operating loss

During the year the Group recognised full impairment of the value of deferred exploration and development expenditure and mining properties in respect of its South African operations where exploration, development and mining operations have been discontinued. This exercise has resulted in a full impairment charge of £8,773,000 (2008: £2,167,000) being made for the year. The Group has also recognised the full impairment of its goodwill, all of which arises from investments in South Africa.

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 £10,991,000 (2008 - loss of £237,000) and a weighted average number of shares in issue for the year of 61,329,293 (2008 - 55,793,360). 

Post year end the Group issued new equity totaling 35,873,480 ordinary shares of £0.20 each.  The loss per share when this is taken into consideration would be £0.11.

The diluted loss per share in 2009 and 2008 is the same as the basic loss per share as the losses have an anti-dilutive effect.

4. Annual General Meeting

The company's Annual General Meeting will be held at MWB Business Exchange, 60 Cannon Street, London EC4N 6NP on 15 December, 2009 at 12 noon.

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 12 November 2009.

The Annual Report for the year ended 30 June 2009, 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 

ENDFR KGMMMLZVGLZM

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