Firestone Diamonds - Transforming into a Major Diamond Producer

Thursday, Jun 16 2011 by
5
Firestone Diamonds   Transforming into a Major Diamond Producer

Firestone Diamonds (LON:FDI) is finally poised to transform into a major diamond producer. The path has been long, hard and at times serially disappointing but having survived an almost 100% implosion of the diamond market in 2008, Firestone has emerged as a company on the cusp of major production. In 2008, diamond prices (rough) fell from $190 to around $110 per carat. At that price mining projects were mothballed and the industry more or less shut down but not Firestone, they kept plugging away, sometimes changing direction, and at times infuriating shareholders with dilutive fund raisings. As we reach mid-2011, the news flow looks a lot better.

Firestone is one of just 3 listed kimberlite producers outside the majors. They focus on Lesotho and Botswana and have some high quality projects:

  • Production at Liqhobong and BK11
  • Evaluation of 108 kimberlites in the Orapa and Tsabong kimberlite fields
  • Exploration potential for discoveries at Tsabong

There have not been any significant new diamond mine finds for a long time and global reserves are falling. There could be less than 20 years of known reserves left in the world (source BHP Billiton, De Beers, Firestone estimates), so looking forward it’s hard not to see a supply/demand imbalance creeping into the market at some point. And Firestone are ready to benefit from it.

Liqhobong is one of the most attractive underdeveloped kimberlite resources in the world. Situated in Lesotho, it was originally discovered in 1950’s. The main pipe is estimated to contain 90 million tonnes @ 34 carats per hundred tonnes, giving a total gross value of 28.7m carats with $4B value (sources: Firestone, ACA Howe/MPH Consulting). The mine produced from 2005-2008 and Firestone bought the mine Q4 2010 with mining license in place and resumed production in Q1 2011.

Development in 2011 is funded by December 2010 financing, and steady state production has been achieved in Q2 2011 (Source: Firestone). Eventually there will be two Plants. Expansion plans for Plant 1 in 2011 see targets of 1.3 million tonnes per annum (mtpa) capacity by Q4, targeting 37,000 monthly carats with an annual revenue of $57m. Plant 2 follows 18 months on and targets 2.5mtpa and annual revenue of $110m. 12 months on from there the target is 4.2 mtpa with annual revenue of $185m. Plant 2 will be funded from Liqhobong and BK11 cash flow and debt. Grid power is expected at Liqhobong H1 2012.

BK11 has resource of 12mt and should generate revenue up to $24 per tonne with operating costs of around $9 per tonne (Source:Firestone). Commercial production commenced July 2010 and mine life is expected to be 10 years.

In summary, Firestone is well placed to grow into a major producer. Liqhobong and BK11 alone forecast a non-discounted annual profit in the region of $147m per annum and there are the evaluation and exploration projects as well. FDI has a current market cap of £98m. News of the latest sale (due shortly) should reassure the market that everything is on target and if nothing goes wrong from here, famous last words where any mining project is concerned, then the price should see a significant re-rating at some point.

Disclosure: As at the date of publication (June 16th 2011), the author held shares in Firestone Diamonds (LON:FDI)


Filed Under: Diamonds, Resources,

About the Author's Financial Training

Susan Marmor Profile Image Promotional

I give a couple of TA seminars a year to those who have already attended a seminar given by Robbie Burns, a.k.a The Naked Trader, or who can demonstrate they are not new to investing/trading. The next seminar is on Sunday 9th December at a hotel near Heathrow. Further details… ...read more or visit website »


Disclaimer:  

Please keep in mind that all comments made by Susan Marmor are for educational purposes only and should not be construed as investment advice regarding the purchase or sale of securities, options, futures or any other financial instrument of any kind. Consult with your investment advisor before making an investment decision regarding any securities mentioned herein. Susan Marmor assumes no responsibility for your trading and investment results. Susan Marmor does not warrant completeness or accuracy for any observations made herein, or warrant any results from the use of the information. Susan Marmor may have a position in the securities and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. There is a very high degree of risk involved in any type of trading. Past results are not indicative of future returns. Securities, options, futures and any other financial instruments can go down as well as plunge.


Do you like this Post?
Yes
No
6 thumbs up
1 thumb down
Share this post with friends



Firestone Diamonds plc is a United Kingdom-based holding company. The Company is engaged in diamond exploration and mining in Southern Africa. The Company’s projects include BK11 Mine, Liqhobong Mine and Other Botswana Projects. The BK11 Mine is located approximately seven kilometers north-west and 20 kilometers south-east of De Beers' Letlhakane and Orapa mines, respectively, and is within five kilometers of the proposed new mine at AK6. The Liqhobong Mine is consisting of the Main Pipe and the Satellite Pipe, which cover areas of 8.5 hectares and 0.8 hectares, respectively. The Company controls 21 other kimberlites in the Orapa kimberlite field, of which 13 have diamondiferous, and 86 kimberlites in the Tsabong kimberlite field. In July 2009, it commenced work on the final phase of evaluation on BK11Mine. On September 29, 2010, it acquired Kopane Diamond Developments plc (KDD). In October 2010, Obtala Resources Plc disposed of its entire interest in the Company. more »

Share Price (AIM)
33.75p
Change
-0.3  -0.7%
P/E (fwd)
n/a
Yield (fwd)
n/a
Mkt Cap (£m)
104.3



  Is Firestone Diamonds fundamentally strong or weak? Find out More »


80 Comments on this Article show/hide all

Amanpulo 20th Sep '11 61 of 80

After this sour experience, the company is forced to call off two tenders planned before the end of this year, leaving it with only one tender expected in last quarter of 2011, for the company to sell the withdrawn diamonds. Firestone promised shareholders that the timing will be selected on the basis of financial market and rough diamond market conditions.

http://www.sundaystandard.info/article.php?NewsID=11922&GroupID=3

| Link | Share
MadDutch 27th Sep '11 62 of 80
4

In reply to marben100, post #55

Good morning Mark. My very sincere apologies for the delay in replying.I am on a campsite a short distance from the Mediterranean at trhe Cap d'Agde, and have a few minutes of web access.

I did not know Diamondcorp before, so thanks for showing me. It looks like a well run diamond mining business which could make a good investment. My only reservation so far is why they need so many financial people on their boards of directors. I make it 4 people with diamond mining and business experience, but nine from the financial markets; stockbroking, banking etc. I would check how much of shareholders money they will be creaming off for themselves, and whether their skills are really needed.

They do have 2 good diamond people. Steve West at Lace mine is a De Beers man, and that is very good. Also Nicholas Allen comes from CAST, from memory (I hate acronyms!) Consolidated African Selection Trust who were very active in diamonds in the 1960s when I was employed by the family business. He also comes from Drukker who were diamond tool competitors, much respected by my family firm, from memory active in manufacturing diamond drill bits, I believe they were merged into the division of France's St Gobain, where our various busineses now are.

I need a lot of time to send you all the info I want but cannot this morning; it will follow. It is hard to type with the bright sun in my eyes, and I keep getting distracted by the beautiful women; it is a naturist camping!

Regards,

Mike


| Link | Share | 1 reply
MadDutch 27th Sep '11 63 of 80
8

The Geology of Diamonds

Originally written for my fellow investors on TMF, it has been altered and updated in Sept 06. Also 27th September 2011 on Stockopedia.

Diamond a form of pure carbon which crystalises at about 1000 times atmospheric pressure and about 1000 degrees centigrade. Such conditions exist only a short distance from us, wherever we are in the world; only 60 miles away but are not accessible because the direction is straight down; we are discussing the deep molten rocks of the Earth's mantle. There are some parts of our planet's crust which lie over very ancient mantle, these are called plutons and cratons, vast rock formations which are very stable; stability which is believed to allow plumes of lava to gradually work their way up to the surface.

Then the vulcano erupts. When eruption ends, erosion starts and the cone erodes; the lava becomes clay and is washed downhill into river beds. There are 2 types of diamond deposit, alluvial and kimberlite, requiring completely different types of mining. They depend on where the diamonds were when the lava stopped flowing.

Diamonds which were below the original ground level before the volcanic eruption are still there today unless mined; in the ancient tube or pipe which carried the lava and the precious stones in it to the surface. They are still in the kimberlite (named after Kimberly where it was first discovered) which at the surface is the result of decomposition of the original lava into clay; but becomes a softish rock below the level of oxidation. It follows that all such diamonds are concentrated into the same place, an underground cone shaped zone of soft rock, surrounded by harder local geology, it tapers underground to the point of being uneconomic, usually around 2000 feet down. Kimberlites are found by digging into river bedrocks, looking for indicator minerals like pyrope garnet and illmenite which also occur in kimberlites. Their shapes are indicative of how far they have travelled in the river bed; the more waterworn, the further they are from the kimberlite source. A more modern method is using aerial survey, which identifies shapes of abnormalities in the magnetic or gravity fields. Promising ones are checked on the ground by digging pits. Once identified, drilling is used. Large diameter core drills up to 24 inches in diameter take samples at different depths so the shape of the pipe and the potential yield can be assessed. African Diamonds have published interesting computer generated models showing the shape of their kimberlite AK6 and others.

Mining is very easy because the pipe is undercut so the miners work in comfortable conditions, created by constructing an underground grid of many concrete cones with draglines under, and an underground railway underneath that. The ore falls down the pipe and into the cones, coming to the miners thanks to gravity. Under the cones, the ore is dragged to holes in the floor and falls into the railway ore carriers underneath. Security is not a big problem because some men have spent their working lives in kimberlite mines and never seen a diamond in the ore.

OTOH The alluvial stones are those that had been ejected from the original vulcano, or were in the volume of the cone shaped mountain plus all the lava flows from it. In the millions of years since, almost everything has been washed away by erosion, so today only the densest minerals remain, including the diamonds. Due to the nature of rivers which change course many times over millions of years, the alluvial material can cover dozens, hundreds or even thousands of square miles, though the best places to dig are close to the kimberlite due to their specific gravity (it is 3.5 times heavier than water). Miners try to find the course of an ancient river, and keep following it until digging is no longer economic. Mining involves hundreds of men with picks & shovels, or modern earth moving machines. Conditions are primitive and harsh. Many stones are picked up, and the ease of swallowing a valuable stone makes security a nightmare. This is one reason why management with considerable experience of diamond mining should run mines; not financial experts and bureaucrats.

The economics depend on the value of the diamonds (ratio of large valuable white gemstones to almost worthless small cracked brown industrials). Valuations should be treated with caution unless done by a reputable miner like De Beers, BHP or Rio Tinto. The amount of diamonds, expressed in CPHT - carats per hectaton - and the cost of recovering them, are the second and third factors in the valuation. CPHT is quite misleading because it sounds like something big. It is not! One metric carat is one fifth of a gram, or two hundred thousandths of a kilo. A one carat diamond is quite a big one, most are far smaller. A hectaton is 100 metric tonnes; whereas mining gold is quite difficult because the metal is in parts per million; diamond miners are seeking parts per billion. That is why they are a store of wealth, and very expensive. It is also why miners almost never see diamonds in kimberlite mining.

In addition, extracting diamonds from the ore is very diffficult and many stones are not found. For example, some stones do not stick to grease, which was the only way to process tons of ore quickly, up to the 1960s. Reworking old mine tips can be profitable, especially after advances in detection technology.

Don't get excited by "we have found a kimberlite BUY BUY BUY!" ramps. About one kimberlite in a hundred is economic, and many have no diamonds in them as all. I am (in 2005) invested in African Diamonds because they appear to have found a good one; and in Xceldiam because I believe they have a very good chance of doing the same. This is not a reccomendation to buy! (2011; it was a bad investment for me).

Diamonds are also found in lamprolite, the enormous Argyll mine in Australia is the best known example. Also Panna, the original diamond deposit in India, mined since pre history. Someone else will have to explain the geology.

Industrials are very important in engineering and mineral exploration, they are the stones that cannot be used in jewellery due to flaws and colour. There is an intermediate grade called "near gem" where the value of the stone is the same in either application. Vast quantities of tiny synthetic diamonds are made every year for use as abrasives in diamond tools, they are usually bright yellow under the microscope.

Large synthetics are a cause of fear to some investors, but not at all to me. A stone created by nature, 60 miles down and under the conditions describled above will be different from the conditions of manufacture of a man made copy out of a factory. The French chemist Verneuille discovered a process for making enormous perfect & flawless synthetic rubies and sapphires in 1904; the trade thought they would destroy the gemstone market and were wrong; they are made by the ton for use in lazers, watch jewels etc; and have made no difference whatsoever to the trade in natural gemstones, and selling them as real is a criminal fraud. Diamonds have been cleverly marketed by DeBeers as a symbol of love; would anyone really want a diamond ring containing a synthetic fake? I ignore the marketing puff from synthetic diamond factories, except to laugh at it.

The important thing that interests us as investors is to recognise an diamond explorer's potential for transition from digging alluvials to a miner with a good kimberlite pipe. Lets pool our knowledge and try to identify the few winners!

Figures given here are from memory and approximate. This article was written 6 years ago, and I will update it when I have time to do so. I hope it is useful.

| Link | Share | 2 replies
Amanpulo 28th Sep '11 64 of 80

Sorry but why are others cluttering this page with non related posts about another company, DCP, and "The Geology of Diamonds" both of which serve no purpose to the current status of Firestone Diamonds.

The company has a huge amount of ground to make up and since the publication of the original article by 'smarm' on the 16th June the SP has declined by 52% (30.8p to 14.75P). It is also worth noting that the author has actually sold out.

Surely relevent current issues would be more worthy of discussion instead of another company or even how diamonds are formed or even the many facts I have previously highlighted about the poor preformance of the company in light of the huge salary award to PK or the comical SP predictions by the company just 2 years ago with just BK11 running or the misguided cashflow predictions of the new CEO just over a year ago when in fact they have done the complete opposite and raised over GBP35.95MILLION since that statment in April 2010 or GBP43.15MILLION since July 2009! 

The bullish initial posts following this bullish article have been very misguided indeed and I just hope some paid attention to my warnings instead of reporting them simply because they did not run parallel with the bullish opinions.

| Link | Share
smarm 28th Sep '11 65 of 80
2

In reply to MadDutch, post #63

Many thanks, very interesting.

| Link | Share
Fangorn 28th Sep '11 66 of 80
4

"Sorry but why are others cluttering this page with non related posts about another company, DCP"

Presumably because DCP is also in the diamond business and a comparative analysis to ascertain whether the problems were FDI specific or not.

Seriously, you have made some great comments but stop being arrogant. If you don't like the tangents this thread goes on bugger off back to Advfn. It isn't even your thread either so you've no right to police (as you are) what people write.

| Link | Share
Amanpulo 28th Sep '11 67 of 80
3

Fangorm,

Many thanks for the abuse. If you have nothing useful to contribute then I suggest you take your chavish behaviour elsewhere.

Good day ;-)

| Link | Share
extrader 28th Sep '11 68 of 80
2

Hi amanpulo,

Your own contributions have been helpful - the first time.

But you keep on banging on about how right you were and how wrong everyone else was.

If you were a deramping shorter, I could understand your agenda. If you're not, I can't.

Life's too short to be small.

Having made your point, why not move elsewhere and apply your skills for the benefit of others ?

Discl.: I've never had shares in any diamond miner, the nearest was PDL when Sa'ad was a key investor, and that was on the basis of 'follow the money' more than anything else.

Good luck with your OTHER investments.

ATB

| Link | Share
Amanpulo 28th Sep '11 69 of 80
4

"like a dog returning to its own vomit"

Extrader, nice to know you find my "vomit" tasty enough to warrant a comment from you.

I will decide when I have made my point not you and the issues I have posted recently are up to date involving the recent tender amongst other issues.

If you do not like the facts do not read them and certainly do not comment when all you can muster is of no use at all to anyone.

"Life's too short to be small" so don't be just as you have shown.

| Link | Share
Fangorn 28th Sep '11 70 of 80
1

Maybe if you hadn't been such a confrontational hibbert your excellent comments on the pitfalls of FDI would have accepted more readily. 

Let's review your contribution shall we - not only did you repeatedly attack Smarm, but you've now chosen to denigrate another poster who, according to yourself, has cluttered this forum with non FDI specific comments. The fact that DCP is also in the diamond business conveniently escapes you - as does your realisation that it isn't your thread,nor your right to dictate what people do or do not comment upon.

I personally found MadDutch's comments pretty informative because I haven't placed much emphasis in my portfolio on diamonds.

If only there was a "filter" option for what otherwise is a pretty informative thread.

| Link | Share
Murakami 28th Sep '11 71 of 80
1

Hi All, let's move on. We're happy for any diamond investing-related comments on this thread as we don't have another active thread for that. Please avoid any ad hominem attacks, as they will just be moderated, and do keep the tone collaborative as that's what Stockopedia is all about. Best, Admin

| Link | Share
Amanpulo 28th Sep '11 Moderated for Disruptive Behaviour
4
marben100 28th Sep '11 73 of 80
1

In reply to MadDutch, post #62

Hi Mike,

Thanks very much for your kind reply and subsequent informative post. Glad to hear you're enjoying yourself at Cap d'Agde. :0)

So as not to "contaminate" this thread, I though it best to continue discussion about Diamondcorp (LON:DCP) in the proper place, here: http://www.stockopedia.com/content/diamondcorp-bulk-testing-news-on-the-horizon-56510/

Best,

Mark

| Link | Share
Amanpulo 28th Sep '11 Moderated for Off-Topic Comment
3
Fangorn 28th Sep '11 Moderated for Off-Topic Comment
Amanpulo 28th Sep '11 Moderated for Off-Topic Comment
4
BobGe 29th Sep '11 77 of 80
1

In reply to MadDutch, post #63

Seconded! Thanks, very informative.

| Link | Share
Fangorn 28th Feb '12 78 of 80

http://www.investegate.co.uk/Article.aspx?id=201202281059392581Y

Operations update for anyone still interested.

Have moved on from Diamonds myself , and am no longer looking at the sector

| Link | Share | 1 reply
smarm 7th Mar '12 79 of 80

In reply to Fangorn, post #78

I have to agree. It all looked very good on paper but FDI has demonstrably failed to deliver. I too have left the sector behind. Thank goodness for stop losses!

| Link | Share
Fangorn 13th Nov '12 80 of 80

Oh dear....Firestone profits drop like a stone

http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=20495523

| Link | Share

What's your view on this article? to Comment Now

 
 
You are feeling neutral

Use the £ sign in front of a ticker to turn £VOD into Vodafone PLC

You can track all @StockoChat comments via Twitter

 Are Firestone Diamonds's fundamentals sound as an investment? Find out More »



About smarm

Susan Marmor

Follow

Susan Marmor has been trading her SIPP and ISA full time for 7 years.  She has made money every year since she started, including 2008.  She uses a blend of fundamentals and TA and she specialise in smallcaps. Also happy to take advantage of some of the high yielding FTSE100/250 stocks as a replacement for savings interest.  Her time horizon is not fixed and she can hold from anything from minutes to years. She posts on Twitter as stoplosssue. more »



Stock Picking Tutorial Centre


Related Content
Firestone Diamonds
Firestone Diamonds
Firestone Diamonds 29th Jul '11

Highlights from my portfolio 200211
Highlights from my portfolio 20/02/11
African Eagle Resources 20th Feb '11


StockRanks  upgrades and downgrades  October 28th
StockRanks - upgrades and downgrades - October 28th
British Polythene Industries Tue 5:43pm



Stock Picking Simplified

Stockopedia takes your stock picking to the next level with cutting edge Stock Reports & Screening tools.


Get started
or Take a Tour to find out more.