Firestone Diamonds - Transforming Into A Major Diamond Producer | Susan Marmor

16th Jun '11 by Susan Marmor

80 comments 29510 reads

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…

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Amanpulo

4th Jul '11

smarm,

So it appears you are implying they never mentioned the deal to get a "good price".

That does concern me regardless of being a shareholder or not given the comments of Mr Kenny which I have highlighted previously and also below to refresh:

Published: May 10 2010 13:02 | Last updated: May 10 2010 13:02

One of the companies that is currently on the market is Kopane Diamond Developments, with assets in Lesotho and Finland.

Firestone’s Chief Executive Officer Philip Kenny however, told this news service that the company is not actively searching for deals at the moment.

http://www.ft.com/cms/s/2/1a9c58f2-5c2a-11df-95f9-00144feab49a.html#axzz1OyJAE4Sf

Yet on July 21st, a little over 2 months later, they revealed they had made an offer for KDD. Surely they were conducting DD before the release of the article or if not it was certainly a rushed deal.

This along with the cash flow comment of Mr Wilkes raises some very serious questions in my opinion.

You as a shareholder can dodge the issues raised but history validates their inability to deliver and I fully expect many more disappointments along the way.

Susan Marmor

I have no idea what happened but I do know that a predator doesn't announce to his prey that he's about to attack.

I fully appreciate your frustration but Liqhobong is potentially a game changer and we are now waiting to see how it develops. As neither you nor I can see into the future, I can see no point in continuing this discussion until we get some news further down the line. .

Thank you for your interest in my article.

This comment has been moderated

I am not implying anything. I am simply telling you that buyers don't usually tell sellers they are on the prowl.

S

smarm,

It is very obvious what you are implying.

I have contacted Mr Kenny regarding this matter and I assume he will be very keen to clarify his position which has been clearly put in serious doubt.

I have reported you for bringing me into this nonsense.

5th Jul '11

Sorry but far from 'Exceptional' in my book.

I am of the opinion that the use of the word is totally incorrect and it is used simply to bull it up again.

$600k more than previous tender and it is clear the recovery at BK11 is still posing problems with a mere 2,035 carats being sold.

Tenders such as this certainly will not inspire the market at all.

6th Jul '11

"Tenders such as this certainly will not inspire the market at all"

As can be clearly seen, very far from 'Exceptional' in the eyes of the general market.

In fact it is very disappointing in my opinion after such a totally inappropriate title heading. Very embarrassing indeed and I sense the "credibility gap" has just become a little wider.

30th Jul '11

"Development in 2011 is funded by December 2010 financing, and steady state production has been achieved in Q2 2011 (Source: Firestone)"

Oh dear smarm, I would assume the additional recent placing of £13.5 million may have taken you by surprise given your stated belief in your article. It did not surprise me in the slightest as certain balanced observers were fully expecting this as detailed over on ADVFN despite the rosy eyed bulls dismissal.

I did highlight the suspect capabilities of management in my previous contributions which have been very evident during their existence. Even Mr Wilkes recently acknowledged the "credibility gap" and here we have another slug of exactly that involving the recent placing.

I fully expect much more disappointment along the way as this dog continues its slide despite "Exceptional" tender results, a supposed positive update AND a "shock" placing of an additional £13.5 million to those out of touch.

On 20th July we were updated that the BK11 secondary crushing unit has been operational since start of July and significant diamond liberation has been achieved. This is in line with their stated intention to increase capacity to .65 mtpa by Q2. Funding for this was covered by 2010 financing. A further $5m (estimated) is earmarked to further Increase capacity by Q4 (source: Firestone).

The placing brings forward plant 2 development plan, confirms BK16 and BK24 are back on the agenda ( as promised once BK11 in full production. Source: Firestone.) and funds work on power supply to BK11, which was flagged as an infrastructure requirement in a recent presentation.

Facts only here please.

31st Jul '11

smarm,

You appear to misunderstand yet again.

What about the ADDITIONAL £3.5M for Liqhobong Plant 1 or the need for £2.1M working capital which you fail to mention?

May I remind you that ALL of the expense going forward was supposed to come from proceeds of diamond sales from BK11 and Liqhobong. It does not take a genius to know that sales have been minimal and costs have been massive hence the reason for the placing. Problems still exist at both mines.

The recent placing are ADDITIONAL funds which even Mr Wilkes stated would not be required just 2 months ago at the Proactive event as detailed by "Soundingman" over on iii where he asked the direct question.

Please see below and I have provided links for validation:

Some iii bulls absolutely scathing, namely "soundingman", at FDI management regarding the recent placing.

It appears he feels that Mr Wilkes recently filled him with a load of bullcaca regarding funds going forward.

2011-06-02 10:28

"Cash left was £5.5m plus US$6m just borrowed. Makes £10m and adequate for the rest of the year and Liqhobong upgrade"

http://www.iii.co.uk/investment/detail?code=cotn%3AFDI.L&display=discussion&threshold=0&action=detail&id=8337686

Thursday 10:01am:

"Responding to a direct question from me at Proactive Wilkes confirmed cash available was enough to bring Liqhobong to 1.3 mio tons pa"

http://www.iii.co.uk/investment/detail?code=cotn%3AFDI.L&display=discussion&action=detail&id=8588530

today 13:44:

"The timing of the placing is worrying, about one month from the next auction, I know not the procedure - whether cash on the nail or the buyers get credit!

Either:-

1. I have not been told the truth in a spectacular fashion.
2. Financial engineering to favour Institutional Investors is in process.

I will stop before I get angry, roll on November AGM, some searching questions are in order"

http://www.iii.co.uk/investment/detail?code=cotn%3AFDI.L&display=discussion&action=detail&id=8594312

You may like to consider also that "Soundingman" has a very good reputation and has attended many FDI presentations whilst holding FDI in very high regard.

Obviously he is now thinking along different lines after this misleading info given to him.

Anyway, this dog continues its merry slide just as predicted.

--------------------------------------------------------------------------------------------------------------------------------------------

Adding to this I suggest you pay close attention to the very recent presentation on the FDI website which confirms these additional funds such as the ADDITIONAL £3.5M for a "New wet front end will address the problem" due to "Excessive fines" hindering DMS process.

Regardless of the recent £13.5 million placing the estimated CapEx of Liqhobong going forward remains exactly the same at $70m as detailed in the most recent presentation which clearly states "Plant 2 capex of $70m to be funded by 70% debt/30% equity and out of cash flow".

As any sensible balanced investor can clearly see significant additional dilution is required going forward, not to mention a hefty debt with its % interest..

Many clued up investors predicted this recent placing and past performance. I suggest you start listening to them and stop burying you head in the sand.

PS: You may also like to view the bulled up stones which are shown on the presentation. In my opinion the "Vivid Yellow" is just "Fancy Yellow", the "very attractive 1.7 carat pink diamond" is hardly "Pink" at all, the "33 carat white" has some very serious inclusion and the "high quality 8 carat white octahedron" may turn out to be the best of the lot in terms of sale value. Lets just hope they detail the values of each of these this time instead of hiding it like the 13carat stone which they previously bulled up.

When replying last night I had not see the updated presentation on the FDI website.

Liqhobong:

We note that Plant 1 expansion plans have slipped from reaching 1.3mtpa capacity in Q4 '11 to Q1 '12.

We note that Plant 2 development plan has been accelerated.

In June, development of Plant 2 was said to be funded from Liqhobong and BK11 cash flow and debt.

We now learn Plant 2 capex will be funded 70% debt/30% equity and out of cash flow.

In June Annual revenue for Phase 2 of Plant 2 was estimated at $185, now it is estimated at an improved $200.

Production:

We note that recovered grade is higher than reserve grade and that revenue is up to $51/ton. Diamond production for August tender on track.

We note that a prolonged dry season and/or heavy rainy season could cause delays/challenges.

We note BK11 is now delivering $24/t revenue vs $9/t costs and the secondary crusher is being commissioned. We note that stripping is ahead of plan. On production we note that plant tonnage throughput on plan, mobile secondary crushers in production in about 2 weeks, a marked increase in grade noted from bench 4 (2cpht to 4cpht).

Tender:

We note that their third tender is currently in progress, with 32 international buyers attending and that a further 3 tenders are planned for 2011 and 6 in 2012.

Resource summary:

BK11 has 11.1mt and a gross value of $211. Annual profit expected to reach $16

Liqhobong has 90.6mt and a gross value of $4,634. Annual profit is expected to reach $160.

5 year Carat forecast is to reach 1.6m per anum.

Valuation:

NPV (10%) , 3% real diamond inflation, Firestone place a valuation on BK11 and Liqhobong of £330m.

NPV (10%), 3% real diamond price inflation and diamond price 15% above last sales price, Firestone place a valuation of BK11 and Liqhobong of £462m.

Opra, Tsabong and Kotong (new licences) are in for free.

Firestone has a current market cap of £86m (before placing if voted through).

Placing:

We note the £3.5m for Plant 1 improvements from placing monies and agree this was not expected

Investors:

We note that Firestone has some strong instituational backing: Audley Capital, L&G, Gartmore, JPMogan, Lanstead and AXA/Framlington.

We note that investors were willing to invest £13.5m in the project at very little discount to prevaling price. Also noted is that the Company has to obtain shareholder approval for £5,490,060m, for which a general meeting has been convened on 30th August

Gems:

We are not qualified to comment on the quality of the gems shown in the presenatation.

Source throughout: Firestone

I note that you have not addressed any of the issues which I have correctly stated.

Please continue with your head in the sand totally oblivious of the current situation of company you are invested in/promoting and its many misleading contradictory comments as highlighted by me and also "soundingman" on iii.

Thank you. It is indeed for each of us to make our own investment decisions.

6th Aug '11

smarm,

I think it is only fair that you confirm to the many readers of this article that you are no longer invested in Firestone Diamonds. Afterall the disclosure at the foot of the article is now misleading and totally inaccurate.

You recently declared on ADVFN that you have had your stop losses triggered therefore you no longer hold your position.

Given this fact it is obvious you are sitting at a loss. Also, given the fact that you declare you invest in the fundamentals of a company I find it very contradictory that you would even set up a stop loss.

Strange and and a costly lesson for all that have taken your advice.

Amanpulo

No contradiction. The market crashed last week and I sold my position in FDI.

The company, nor my views on it have changed but the market has. I look forward to buying back when the time is right for me.

There is no advice here, just an article with a view of an opportunity. That view could be right or wrong, it is for each of us to make our own investment decisions.

Please limit your content here to fact and opinion about FDI or I will ask for further moderation.

Thanks.

Smarm,

I am sorry that you misunderstand but you appear to change the facts to suit yourself.

You declared on ADVFN "I am out of FDI.....price fell through my stop". Therefore this indicates that you created a stop loss. This action alone contradicts your statement which sits at the right of this page clearly stating "I use a blend of fundamentals and TA ".

You now sit at a loss and do not hold an active invested interest therefore the disclosure at the foot of the article is incorrect. Very clear and obvious.

Also, I do not take to kindly to threats of moderation. I am simply providing the facts to other readers which you appear to change, misconstrue and dodge. I have also provided factual details of many FDI issues which you have failed to discuss. This thread is for debate and opinion and your threat of moderation is clearly unfair simply because you do not agree with a less than positive opoinion. Balance posts should be the order of the day. Also, I think you will find that your short term opinion of the company have been very far from current day hence the reason of the significant decline in the SP which started way before this weeks market collapse. Infact I correctly predicted this which you did not. My correct opinion again which you seem to take affense to.

May I remind you that this is a free BB and you of all posters should not be misleading posters and readers regarding your vested interest in this company when it is simply not true. You were stopped out and it is as simple as that. Additional to this, despite the solid fundamentals which you claim, you still set up a stop loss which flies in the face of your bullish stance of this company.

Come on Susan, lets not get away from the real facts.

For the fact ledger and the benefit of all onlookers, despite the disclosure at the foot of the article the author DOES NOT hold shares in this company.

Yes, the market crashed and I was sopped out on my protective stop.

Please do keep posting balance, all good, I am just not going to debate with you. Readers can read what we have both written and make up their own minds.

Thanks.

Fangorn

I have to say I agree with Smarm - I set a mental stop loss where I will sell, if a non core stock falls to that level, whether or not the fundies have changed. It's often about capital preservation,and if market sentiment changes dramatically, then I'm prone to lighten my non core holdings....if it is a core holding where I am still of the belief that value will out then I'll buy more eg Aviva, Bae.

All depends on your personal approach and to call Smarm out because she was stopped out, despite saying she looks at both Fundies and TA(ergo she is being contradictory in here approach) is plainly ridiculous.

Frankly I can't believe she has engage with you for so long on this pointless discussion. As to expecting her o declare her position every time, that's plainly ridiculous. Despite some very interesting constructive points you seem intent on focusing on something which is, in my view, irrelevant to the discussion.

Do you hold shares in Firestone diamonds? If not, why are you continually commenting on this thread? (A pointless question I know, similar to your declaration that she no longer holds so why is she discussing the pros and cons of this company)

And no, I don' hold either, but have been a potential investor hence I've followed her musings(and some of your responses) with interest - always good to see other people's thoughts.

Firestone Diamonds - Transforming into a Major Diamond Producer

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Susan Marmor

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