RNS Number:7307A
Firestone Diamonds PLC
31 March 2006
Firestone Diamonds plc
Development of new mining project with De Beers on Buffels River
Groen River and Botswana exploration and bulk sampling update
Unaudited interim results for the six months to 31 December 2005
LONDON: 31 March 2006
Firestone Diamonds plc, ("Firestone" or "the Company"; AIM: FDI), the AIM-quoted
diamond mining and exploration company, announces that it has signed a
memorandum of understanding with De Beers Consolidated Mines to cooperate on the
development of a new mining operation on the Buffels River centered around the
Bonte Koe Mine. The Company also announces unaudited interim results for the
six months to 31 December 2005, and provides an update on bulk sampling and
exploration at its Groen River Valley, Orapa and Mopipi exploration projects.
SUMMARY
Buffels River project
* Memorandum of understanding signed with De Beers
* New mining operation planned with Firestone's black-empowerment
subsidiary, African Star Minerals
Groen River Valley
* Bulk sampling under way
* Results from HL deposit expected in May
Botswana
* Bulk sampling results received for AK21, AK22 and AK23
* Further evaluation planned on BK53
* BK18 drilling completed and awaiting test results
* De Beers continuing extensive exploration in Orapa, Mopipi and
Jwaneng areas
* De Beers to use new Zeppelin geophysical system over Firestone
ground from Q3 2006
Mining operations
* Limited mining operations at Avontuur while preparing for Hondeklip
Bay expansion
* Resource evaluation programme planned at Hondeklip Bay
Corporate
* Acquired 6.5% interest in African Diamonds plc in October 2005
* Appointed Tim Wilkes to position of Chief Operating Officer in
December 2005
Financial
* Turnover for H1 2006 down 30% on prior 6 months due to disruptions
at Avontuur; operating loss of #0.4 million
* #10 million equity financing completed in November 2005
* Current cash position over #8 million
Outlook
* Significant new exploration projects being evaluated in Botswana and
South Africa
* Significant improvement expected in turnover and financial
performance in coming year
New mining project
During the second half of 2005, discussions were held with De Beers in respect
of a proposal to use the Bonte Koe Mine, which is owned by the Company's 75%
owned black-empowerment joint venture subsidiary, African Star Minerals, to
exploit De Beers' nearby Buffels Inland Complex ("BIC") deposits. The BIC
comprises two deposits located adjacent to Bonte Koe, and two located further
downstream. The key to the new development is the substantial investment that
Firestone has made in plant and infrastructure at Bonte Koe, which includes a
150 tonne per hour gravel processing plant, a 16 km power line and a 35 km
process water supply pipeline.
The Company is pleased to announce that, following the completion of a detailed
technical due diligence exercise and feasibility study by De Beers in the fourth
quarter of 2005, a memorandum of understanding has been signed with De Beers to
cooperate in the development of a new mining operation on the Buffels River.
The memorandum of understanding is to be superseded by a more detailed
agreement, which is at an advanced stage and is expected to be concluded in
April 2006. Details of the terms of the agreement, including the financial
arrangements between African Star Minerals and De Beers, will be announced at
that time.
Operations highlights
The Groen River Valley project is one of Firestone's most promising exploration
projects in South Africa due to the high quality and large size of diamonds that
have been mined in the area, and the large area controlled by the Company.
Following the signing of a joint venture agreement with De Beers in June 2005,
substantial exploration work has been carried out on the project. Thirteen
deposits have been identified to date with an estimated size of 360 million
tonnes. With regional grades of 2 to 3 carats per hundred tonnes, and a
modelled diamond value of $300 to $500 per carat, this indicates a potential
multi billion dollar gross value for these deposits. Evaluation of the HL
deposit commenced at the end of 2005 and is proceeding well, with bulk sampling
scheduled to be completed in May and sample treatment shortly thereafter.
A significant amount of work has been carried out on our kimberlite exploration
projects in Botswana since June. We have received results from bulk sampling of
the AK21, AK22 and AK23 kimberlites in the Orapa area, which were discovered in
2005. These results indicate that the kimberlites are unlikely to have economic
potential and no further evaluation work is planned on them. While these
results are disappointing, it should be noted that only 10% of the 75 known
kimberlites in the Orapa area are economic, and we are still awaiting the
results from De Beers' evaluation of BK53, which was also discovered last year.
With De Beers continuing to conduct extensive exploration and evaluation work
elsewhere in the Orapa area, we believe that the prospects for new economic
discoveries in the area are good.
The other major development in Botswana during the period was the introduction
of De Beers' new Zeppelin Airborne Gravity Gradiometer system, which is the most
advanced airborne gravity system in the world. The Zeppelin system produces a
five to ten-fold improvement in data quality compared to other airborne gravity
systems, and is expected to start conducting surveys over Firestone's Orapa,
Mopipi and Jwaneng joint venture projects in the second half of 2006.
The Company started exploration on the Daly City project, which is located close
to the Orapa and Letlhakane mines, during the period. Three holes have recently
been drilled into kimberlite BK18, which indicate that it is 2.5-3 hectares in
size. Samples recovered from drilling have been submitted for microdiamond
recovery and analysis of kimberlite indicator minerals, and results are expected
to be received in the second quarter of 2006.
In respect of our mining operations, production at Bonte Koe during the period
increased 36% compared to the previous six months, while production at Oena
stayed at similar levels. Following a strategic review of the Company's mining
operations carried out last year, operations at Avontuur during the period were
focused on preparations to take over the adjoining Hondeklip Bay Mine from Trans
Hex. As a result, production at Avontuur declined 53%, but is expected to
increase back to and above previous levels once operations at the Hondeklip Bay
Mine commence, as planned, in the next quarter.
Corporate
In October 2005, Firestone expanded its interests in Botswana by issuing #2.8
million in new shares to acquire a 6.5% interest in African Diamonds plc.
African Diamonds has a joint venture with De Beers over ground which adjoins
Firestone's Orapa and Mopipi projects. African Diamonds' share price has
increased significantly following positive results from evaluation of the AK6
kimberlite, and the value of Firestone's shareholding has increased to
approximately #8.7 million as of today.
Tim Wilkes was promoted to the position of Chief Operating Officer during the
period, with responsibility for managing all operational aspects of the
company's portfolio of mining and exploration projects
Financial
Overall production for the period was 30% lower than the previous six months.
With increased production at Bonte Koe and no change at Oena, the drop was
primarily accounted for by the limited mining operations at Avontuur. As a
result, and with increased costs at Bonte Koe as operations were ramping up, the
Company reported a small pre-tax loss for the period of #0.4 million (6 mos to
31 Dec 2004: profit #0.2 million). We expect to see a substantial improvement
in the Company's production and financial performance in the coming year.
The Company completed a #10 million equity placing in November 2005 to finance a
significant expansion of the Company's mining and exploration activities in
South Africa and Botswana, and currently has cash balances of over #8 million.
Outlook
In terms of Firestone's current exploration projects, we expect substantial
activity at the Groen River Valley, with exploration drilling and bulk sampling
planned to continue throughout the year. We believe that the project has the
potential to become a major new alluvial diamond mining area, producing high
quality diamonds. The results of bulk sampling on the HL deposit are expected
to be announced shortly.
In Botswana, where Firestone is the largest holder of diamond exploration rights
around the Orapa Mine, and the only significant holder of diamond exploration
rights, other than De Beers, around the Jwaneng Mine, substantial activity is
also planned, both on the De Beers joint venture project and on the Company's
own projects. We believe that the potential for new economic discoveries in
Botswana is very good.
In terms of the Company's current mining operations, the proposed development of
the Buffels River project with De Beers is a major milestone. The project is
expected to provide us with significant revenue and cash flow over its projected
six-year life and will significantly extend the duration of operations at Bonte
Koe. With production from the Buffels River project and the Hondeklip Bay Mine
both planned to commence in the second quarter of 2006, we expect overall
production targets for the current financial year to be met, and to see a very
substantial increase in production in 2007.
Firestone is also pursuing a number of new opportunities. Having demonstrated
that the Company has the capability to design, build and operate efficient, cost
effective mining operations to the standard required by De Beers, we hope to
expand the Company's relationship with De Beers and investigate other known
resources in the Namaqualand region that can be jointly exploited. A number of
new, large scale mining and exploration projects in South Africa and Botswana
are currently being evaluated, and we expect to be able to update shareholders
in this regard in the coming months.
Philip Kenny, CEO of Firestone Diamonds, said: "We are very pleased with the
substantial progress that we have made since last year. With the Company's
strong financial position, a very experienced management team in place, a highly
prospective project portfolio, and good prospects for the rough diamond market,
we are confident that we can achieve the Company's objective of becoming a
leading mid-tier diamond mining and exploration company."
www.firestonediamonds.com
For further information:
Philip Kenny, Firestone Diamonds +44 20 8834 1028 / +44 7831 324 645
Leesa Peters, Conduit PR +44 20 7429 6600 / +44 7812 159 885
Jamie Cumming, Bell Lawrie +44 141 314 8103 / +44 7768 044 620
Review of Projects
Groen River Valley, South Africa
A programme of drilling and bulk sampling commenced during the period to further
evaluate the area's economic potential. The first phase of this programme
includes bulk sampling of the most advanced of the 13 deposits identified in the
project area, the HL deposit, which is 7 km long and up to 700 metres wide.
Bulk sampling of the HL deposit is being carried out using a 2.5 metre diameter
Bauer BG36C large diameter auger ("LDA") drill, and results from this work will
give an initial indication of the economic potential of the deposit.
A 32 hole LDA drilling programme commenced on the HL deposit at the end of 2005.
Although the programme has been delayed by about five weeks as a result of
strong water being encountered in the deeper parts of the deposit, bulk sampling
is now proceeding well. LDA holes drilled to date have recovered basal gravel
with an average thickness of 2.7 metres, under an average overburden depth of 18
metres, with one hole intersecting 5 metres of well developed clast-supported
basal gravel. Gravel samples are bagged, labelled and transported under
security escort to the sample treatment facility at De Beers' Koingnaas Mine,
approximately 75 km to the north. The samples are currently being stockpiled in
Koingnaas, and will be treated in batches to eliminate any contamination from
other material being treated at the facility.
LDA drilling is now scheduled to be completed in May, with sample treatment and
diamond recovery to be completed shortly thereafter. Depending on these
results, a second phase intensive bulk sampling programme will be carried out to
determine the grade and diamond value of the HL deposit to a high level of
confidence. Provisional planning has already commenced for this next phase of
work. Two of the other 12 deposits in the area, the KK and KR deposits, have
been drilled and are ready for bulk sampling. A decision in this regard will be
made once drilling of the HL deposit has been completed.
Bonte Koe Mine, South Africa
A total of 1,708 carats were recovered from Firestone's mining operations at
Bonte Koe during the period, an increase of 36% over the previous six months.
Diamonds produced were an average size of 0.45 carats per stone, and the average
price for diamonds sold was $201 per carat.
Planning and design work for the new Buffels River project commenced during the
period, following the completion of De Beers' technical due diligence exercise
and feasibility study. Firestone will be required to make a number of
modifications to the Bonte Koe plant, including upgrading of the DMS capacity
and the crushing circuit. Planning and design work for the modifications has
already been completed, and site works have recently commenced. Firestone and
De Beers are reviewing plans to commence treatment of BIC gravels immediately
following finalisation of the formal agreement, while the required modifications
are being implemented.
Under the terms of the proposed agreement, De Beers will be responsible for
overburden stripping, gravel mining and the delivery of gravel from the BIC to
Bonte Koe. Firestone will use the processing plant and infrastructure at Bonte
Koe Mine to process the gravel and produce a DMS concentrate, and will be
responsible for disposal and rehabilitation of tailings from the operation. The
DMS concentrate will be transported for diamond recovery at De Beers' Kleinzee
Mine, located at the coast 15 km downstream of Bonte Koe.
With the plant at Bonte Koe expected to be dedicated to processing the
significantly larger BIC gravel resources for the six year life of the project,
Firestone plans to continue to exploit its own gravel resources at Bonte Koe
after processing of the BIC gravels has been completed.
Orapa and Mopipi, Botswana
The Orapa and Mopipi projects cover an area of approximately 4,900 sq. km close
to Debswana's Orapa, Letlhakane and Damtshaa diamond mines, and are being
explored by De Beers in joint venture with the Company. Four kimberlites were
discovered in the Orapa and Mopipi project areas in 2005 - AK21, AK22, AK23 and
BK53.
During the period, large diameter drilling ("LDD") was carried out on AK21, AK22
and AK23 to recover material for testing for the presence of macrodiamonds.
Results have been received from the processing of this material, as follows:
Kimberlite LDD holes drilled Kimberlite Macrodiamonds Macrodiamonds
sampled recovered recovered
(tonnes)
(number) (carats)
AK21 4 82.4 2 0.285
AK22 5 152.7 6 0.390
AK23 6 87.3 0 0
As a result of the low macrodiamond recoveries results, no further evaluation
work is planned on these kimberlites, although De Beers continues to conduct
extensive exploration and evaluation work elsewhere in the Orapa and Mopipi
project areas.
Additional evaluation work is being carried out on BK53, which is located
approximately 10 km north of the Letlhakane Mine. Probe drilling on BK53
encountered kimberlite at a depth of 12 metres, beneath a cover of Kalahari
sediments, and remained in kimberlite to a depth of 92 metres, where it entered
Karoo sandstone. Core drilling will now be undertaken on BK53 in the next
quarter to recover material for microdiamond and mineral chemistry analysis and
petrographic studies, in order to allow a preliminary evaluation of the economic
potential of the kimberlite to be made.
Exploration is continuing on the targets identified by follow-up ground and
airborne geophysical surveys conducted during the second half of 2005, and the
next phase of work will include the drilling of a further eighteen targets. One
of the high priority target areas for exploration in 2006 is located midway
between Orapa and Mopipi, where recent drilling by De Beers has resulted in the
recovery of abundant, unabraded kimberlite indicator mineral grains from within
Karoo sediments, over an interval of 36 metres. As the kimberlites in the Orapa
field are younger than the Karoo, this may indicate the presence of older
kimberlite sources in the area. Many of the kimberlite indicator mineral grains
recovered exhibit remnant kelyphitic surfaces, which suggests that they are very
close to their source. Further drilling is planned in this area to locate the
source of these indicator minerals. De Beers also plans to carry out
geophysical surveys in the Orapa area with its Zeppelin Airborne Gravity
Gradiometer system during 2006.
Daly City Ventures, Botswana
Firestone entered into an agreement in March 2005 under which it can earn an 81%
interest in Daly City Ventures, which holds a prospecting licence in the Orapa
region over an area of approximately 380 sq. km.
Exploration on the Daly City project area commenced during the period and has
been focused on parts of the prospecting licence located close to the Letlhakane
Mine and on kimberlite BK18, which was discovered by De Beers in the early
1990's, but relinquished after initial evaluation indicated it was too small to
be of economic interest. Firestone has recently completed high resolution
ground magnetic and gravity surveys and probe drilling on BK18, resulting in
kimberlite being encountered in three holes, as follows:
Hole number Hole depth Kalahari cover Kimberlite intersection
(m) (m)
(m)
BK18-1 100 48 48-87
BK18-2 70 48 48-70
BK18-3 112 48 48-112
The results of this work confirm that BK18 is bigger than previously thought, at
between 2.5-3 hectares in size. A 100 kg sample of kimberlite has been sent to
Kennecott Exploration's laboratory in Canada for microdiamond recovery by
caustic fusion. A 12 kg sample has also been sent to Mineral-Logic in South
Africa, for recovery and analysis of kimberlite indicator minerals. Results
from the laboratory work are expected in the second quarter of 2006.
A review of past exploration in the Daly City project area has indicated that
significant portions of the licence area close to the Letlhakane Mine and other
known kimberlites have never had detailed aeromagnetic surveys conducted over
them. These areas are likely to contain high interest geophysical targets, and
Firestone plans to conduct high resolution aeromagnetic surveys over these areas
to identify potential drilling targets.
Jwaneng, Botswana
The Jwaneng project covers an area of approximately 3,700 sq. km, located close
to the Jwaneng Mine, and is being explored by De Beers in joint venture with the
Company.
The Zeppelin system is currently surveying De Beers' prospecting licence areas
immediately surrounding the Jwaneng Mine. Following completion of these
surveys, it is expected that the Zeppelin system will start work on Firestone's
prospecting licence areas in the Jwaneng area. A probe drilling programme is
planned for the second half of 2006 to test gravity anomalies generated by the
Zeppelin system.
Avontuur Mine, South Africa
As previously announced, the Company is in the process of making a significant
expansion to its operations at Avontuur to exploit the substantial resources at
the Hondeklip Bay Mine and Marine Concession 7a. This is expected to result in
a significant increase in the Company's diamond resources and production in
Hondeklip Bay. The Company's activities at the Avontuur Mine during the period
were primarily focused on preparations for this expansion and the development of
a detailed resource evaluation programme. As a result, production for the
period was lower than the previous six months, at 805 carats, a reduction of
53%. The average price for run of mine production at Avontuur was unchanged at
approximately $120 per carat.
Oena Mine, South Africa
The Company's efforts at Oena during the period were focused on securing a new
mining contractor to take over operations at the mine, with the objective of
significantly increasing earthmoving and processing capacity. Negotiations with
two mining contractors are at an advanced stage, with an appointment expected to
be made shortly. Production at Oena during the period was is line with the
previous six months at 207 carats, with an average size of 1.49 carats per
stone. The average price for diamonds sold was 3% lower at $1,161 per carat.
A number of high value diamonds were recovered during the period, including
stones of 18.99 and 20.24 carats that were valued at $3,800 and $5,600 per
carat, respectively.
US Exploration Project
Exploration at the Company's kimberlite exploration project in the United States
indicates that at least one previously unknown kimberlite field is located in
the project area, and that some of these kimberlites may be diamondiferous.
Results from the first phase of sampling carried out by the Company's joint
venture partner, American Diamonds, has confirmed the high priority target areas
identified by previous exploration. The next stage for exploration on the
project will be to conduct airborne geophysical surveys over the high priority
areas and select targets for drilling.
FIRESTONE DIAMONDS PLC
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS TO 31 DECEMBER 2005
2005 2004
# #
Production 302,359 495,317
Turnover 253,903 506,310
Change in stocks of finished goods and in work in progress 48,455 (10,993)
Other operating income - -
Raw materials and consumables (124,004) (59,800)
Staff costs (165,319) (115,709)
Depreciation and amortisation (159,553) (62,192)
Other operating charges (193,871) (104,417)
Operating profit (340,389) 153,199
Interest receivable and similar income 33,436 9,428
Interest payable and similar charges (50,724) (126)
Profit on ordinary activities before taxation (357,678) 162,501
Deferred tax on profit on ordinary activities - (22,489)
Profit on ordinary activities after taxation (357,678) 140,012
Minority interests (13,714) (6,423)
Retained profit for the period (371,392) 133,588
Earnings per share
Basic profit per share (0.8) 0.3
Diluted profit per share (0.8) 0.3
FIRESTONE DIAMONDS PLC
UNAUDITED CONSOLIDATED BALANCE SHEET
31 DECEMBER 2005
2005 2004
# # # #
Fixed Assets
Intangible assets 6,890,032 5,586,713
Tangible assets 12,627,225 10,811,169
Investments 3,078,549 660,960
22,595,807 17,058,842
Current Assets
Stocks 189,050 109,785
Debtors 675,645 312,504
Cash at bank and in hand 8,999,951 497,933
9,864,646 920,221
Creditors
Amounts falling due within one year (1,490,161) (797,280)
Net Current Assets 8,374,485 122,941
Total Assets less Current Liabilities 30,970,292 17,181,783
Creditors
Amounts falling due after one year (774,842) (1,638,554)
Provisions for Liabilities and Charges
Other provisions (1,098,868) (1,061,934)
Deferred taxation (474,647) (469,013)
(1,573,515) (1,530,947)
Net assets 28,621,934 14,012,281
Capital and Reserves
Called up share capital 11,172,975 8,737,372
Share premium account 19,145,753 5,320,353
Merger reserve (1,076,399) (1,076,399)
Profit and loss account (580,180) 1,033,414
Equity Shareholders' Funds 28,662,148 14,014,740
Minority equity interests (40,214) (2,459)
28,621,934 14,012,281
FIRESTONE DIAMONDS PLC
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS TO 31 DECEMBER 2005
2005 2004
# # # #
Net cash (outflow)/inflow from operating (978,530) 1,016,879
activities
Returns on investments and servicing of finance
Interest received 33,436 9,428
Interest element of finance lease payments (24,565) (126)
Interest paid on loans (50,724) -
Net cash inflow from returns on
investments and servicing of finance (41,854) 9,301
Capital expenditure and financial investment
Payments to acquire intangible fixed assets (1,074,727) (1,094,310)
Payments to acquire tangible fixed assets (334,945) (1,081,354)
Receipts from sales of tangible fixed assets - -
Payments to acquire investments (2,848,111) 2,051
Net cash outflow from capital expenditure
and financial investment (4,556,361) (2,173,613)
Net cash outflow before use of
liquid resources and financing (5,576,745) (1,147,433)
Financing
New long term loans 187,016 -
Repayment of long term loans (85,541) -
Issue of ordinary share capital 12,417,784 1,384,849
Finance lease payments (203,079) (80,806)
- 1,384,849
Increase/(decrease) in cash 8,552,911 156,610
Notes:
1. The financial statements have been prepared in accordance with
applicable UK accounting standards and under the historical cost convention.
The principal accounting policies of the group are set out in the group's 2005
annual report and financial statements.
2. 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 2005, 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 Registrar of Companies.
3. Basic loss per share is based on the weighted average number of shares
in issue for the period of 46,603,164. Diluted loss per share has been
calculated on the same basis as basic loss per share because the effect of the
potential ordinary shares (share options) reduces the net loss per share and is
therefore anti-dilutive.
4. The directors are not declaring a dividend for the period.
5. The information in this statement has been reviewed by Mr. Tim Wilkes,
BSc, MSAIMM, 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 24 years experience in diamond mining and
exploration. Mr. Wilkes is currently Chairman of the sub-committee for
diamonds of the South African Mineral Resource Committee (SAMREC).
6. Copies of this report are being sent to all shareholders. Additional
copies will be available to the public from the offices of Bell Lawrie White, 48
St Vincent Street, Glasgow, G2 5TS and will be posted on the Company's website
at www.firestonediamonds.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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