Name and Location
Liqhobong diamond project, Lesotho.

Client
Liqhobong Mining Development Company, comprising Firestone Diamonds (75%) and the Lesotho government (25%).

Project Description
The Liqhobong mine development project’s 8.6 ha orebody contains a probable reserve of 11.4-million carats. It has a total indicated and inferred resource of 90-million tonnes, containing an estimated 29.6-million carats (down to 510 m) and is still open at depth.

The project envisages a potential openpit mine plan to a depth of 390 m below surface, producing 17.6-million carats, with a life-of-mine of 15 years.

Firestone updated Liqhobong’s October 2012 definitive feasibility study (DFS) in November 2013, which reaffirmed the project’s robust economics and secured its funding. The updated study was based on additional work for Firestone’s ongoing project-finance process, which also incorporated the benefits of the company's updated diamond price assumptions, the revalidation of its operating and capital cost assumptions, and its updated foreign exchange rates.

The updated DFS envisages the construction of a new 500 t/h main treatment plant and supporting infrastructure to treat 3.6-million tonnes of ore and recover more than one-million carats a year, which would place it in the top tier of diamond mines globally.

The main treatment plant comprises purpose-built crushing, scrubbing, screening and recovery technology.

The mining and processing will be contractor operated.

Net Present Value/Internal Rate of Return
The updated DFS, which assumes a 3% growth in the diamond price with all costs being kept flat, sets out a base case project-level post-tax net present value (NPV) – using $107/ct and an 8% discount rate – of about $379-million and a post-tax internal rate of return (IRR) of 30%. An upside project-level post-tax NPV, taking into account the potential revenues from stones larger than 100 ct and using $156/ct and an 8% discount rate, is estimated at about $728-million, with a post-tax IRR of 45%.

Value
The updated DFS includes a revalidation of the total project capital scope and cost requirement. Total initial capital costs are estimated at $185.4-million. The project capital has increased from $167-million to $185.4-million – an increase of 11%, compared with the October 2012 DFS.

The revised and revalidated initial capital cost estimate includes an additional $5-million to provide grid power for the project, with the project carrying the full cost of power infrastructure ($15-million). Previously, this had been modelled on the basis of shared infrastructure with other neighbouring mines.  The owner's team’s costs and contingency allowances were also included.

Duration
Initial production is expected to start in late 2016.

Latest Developments
Adverse weather and increased overburden at the Liqhobong mine development project has led to a R156-million increase in costs, Firestone has reported.

It has further indicated that production will now start only in the fourth quarter, rather than in the first half of 2016 as previously expected.

Liqhobong CEO Stuart Brown has noted that the costs of additional work crews and the acceleration of certain key areas to stay within the revised schedule to production have all been accommodated within the project's original $185.4-million budget.

Despite the increased earthworks, the company is confident that it can make up lost time through remedial action. It has been working on rescheduling additional earthworks.

“A number of initiatives have been implemented to reduce any resulting delay to the overall programme, including the introduction of an additional shift, additional work crews and the redeployment of contractors to areas that are on the critical path from areas which are ahead of schedule,” Firestone has said in a statement.

Further, the company wants to delay the delivery of constructed steel and other work streams to allow for the earthworks to get back on schedule, while reducing the cash drawdown requirements and associated financing charges.

By end-May, Firestone had spent R830-million on the project.

Meanwhile, Firestone has signed an agreement with Storm Mountain Diamonds, the owner of the Kao mine, in Lesotho, to use the power line with Firestone and contribute R94.5-million of the revised project costs to connect both mines to the national electricity grid.

The grid power project is progressing ahead of schedule and is within budget, with connection to the grid expected in the third quarter. The company estimates that it has made net savings of R70.5-million.

“This is an important milestone for the company, as it will enable Liqhobong to use grid power on site during construction earlier than planned, thus reducing the diesel generating costs and realising a small saving,” Firestone CEO Stuart Brown has noted.

Key Contracts and Suppliers
DRA Projects (EPCM); Stefanutti Stocks (earthworks and civils); Turnkey Civils Lesotho (residue storage facility) and S.M.E.I Projects (structural, mechanicals, platework and piping).

On Budget and on Time?
The project is on time and within budget, with initial production currently on target to start at the end of the first half of 2016.

Contact Details for Project Information
Firestone Diamonds, tel +44 20 8741 7810, fax +44 20 8748 3261 or email info@firestonediamonds.com.