JOHANNESBURG (miningweekly.com) – Aim-listed Firestone Diamonds has made a good start to mining at the Liqhobong mine, in Lesotho, with all operational targets within management's control having either been met or exceeded after the mine development project was completed within budget.
However, lower-than-expected average diamond values have necessitated a revised mine plan to better mitigate the current environment and ensure sustainable mining.
The lower-than-expected diamond prices and subsequent assessment of the carrying value of the Liqhobong mine asset led to a $122.6-million impairment charge during the financial year ended June 30.
The revised mine plan dictated a temporary transition to a nine-year mine plan with higher near-term cash generation, while retaining the flexibility to revert to the original 14-year plan should diamond prices recover materially.
In line with the revised mine plan, Firestone is embarking on a potential $25-million (£18.5-million) capital raise and a restructuring of its Absa debt facility to unlock the financial strength and flexibility to continue to develop the Liqhobong mine.
"The 2017 financial year was successful. We achieved a number of milestones. However, the weaker-than-expected diamond market, together with our lower-than-anticipated recovery of higher-value diamonds, has put pressure on our cash reserves and meant that we have had to raise additional equity and restructure our debt in order to be able to adopt a revised mining plan which seeks to maximise cash flow in the shorter term while we address the issues affecting value recovered,” said Firestone CEO Stuart Brown.
Firestone’s fundraising comprises a firm placing and a placing, subject to clawback under an open offer, through the issue of new ordinary shares at an issue price of 10p apiece.
The company has also reached an in-principle agreement with lender Absa to defer capital repayments under its debt facility for 18 months from January 2018 to June 30, 2019, and extend the final maturity date by 30 months to December 2023.
This is conditional upon completion of the fundraising and approval of both commercial and political risk insurance by the Export Credit Insurance Corporation of South Africa.
“Using a low-case diamond price assumption of $75/ct, the directors anticipate that, including the net proceeds of the fundraising and the 18-month standstill on the Absa debt facility capital repayments, Liqhobong will be cash flow breakeven after servicing all interest on the Absa debt facility, working costs and stay-in-business capital as well as the necessary small corporate overhead,” he explained.
The net proceeds of the fundraising will be used to fund mining activities and provide sufficient headroom while the diamond market prices remain subdued, as well as for general ongoing working capital expenditure.
It will also be used to service the December 2017 capital repayment of $5.2-million under the Absa debt facility and fund the debt service reserve account of the group with $4.6-million in respect of the interest due under the facility during the standstill period.
Firestone posted earnings before interest, taxes, depreciation and amortisation of $4.6-million for the year ended June 30.
A loss before tax of $130-million had been reported, an increase on the $9-million recorded the year before, while the net loss for the year reached $151.7-million. This included the impairment charge of $122.6-million.
The 2017 financial year saw the beginning of cash flow from operations at Liqhobong, with $13.7-million received from the company's first two sales of diamonds in Antwerp in the third quarter and $14.1-million in the fourth quarter of the financial year.
The diamond producer recovered 365 891 ct during the year under review, with 310 376 ct sold at an average price of $90/ct and generating revenue of $27.8-million.
Further sales took place in the current quarter of the new financial year, generating proceeds of $13.5-million.