TIDMFDI
RNS Number : 9535D
Firestone Diamonds PLC
25 February 2020
25 February 2020
FIRESTONE DIAMONDS Plc
("Firestone", the "Group" or the "Company")
Quarterly Update on Operations
Firestone Diamonds plc (AIM: FDI), provides its quarterly update
on operations at its Liqhobong Diamond Mine ("Liqhobong") for the
quarter ended 31 December 2019 (Q2 of the Company's 2020 financial
year).
Second quarter ended 31 December 2019
Summary:
-- Lost time injury free quarter (Q1: lost time injury free);
-- Diamond recoveries of 138 000 carats (Q1: 201 091 carats);
-- Grade of 21 carats per hundred tonnes ("cpht") (Q1: 21 cpht);
-- Waste tonnes moved for the quarter of 1 070 854 tonnes (Q1: 1 379 758 tonnes);
-- The following results were impacted by the power disruption:
o Fewer ore tonnes treated of 668 120 tonnes (Q1: 963 986
tonnes);
o Higher operating cost of US$14.90 per tonne treated (Q1:
US$10.32 per tonne treated);
o Two sales took place during the quarter at which 132 885
carats were sold (Q1: 168 612 carats), realising revenue of US$9.7
million (Q1: US$10.6 million) at an average value of US$73 per
carat (Q1: US$63 per carat); and
o Lower cash balance at 31 December 2019 of US$17.0 million (Q1:
US$21.8 million).
Power disruption
As announced previously, power supply to the mine was disrupted
on 1 October causing the processing plant to be shut down until 26
October when alternative electricity supply was provided by diesel
generators which were sourced from South Africa. During this time,
no ore could be treated. From 27 October, the mine ran on generator
power, albeit at a marginally lower capacity of approximately 90%
until 1 December when the grid power was restored and operations
returned to normal. The power disruption impacted operations,
resulting in approximately 230 000 fewer ore tonnes being treated
for the quarter and therefore fewer carat recoveries which
translated into lower revenue. Operating costs for the quarter were
US$1.1 million higher as they included the additional costs
associated with renting and operating the diesel generators. The
total impact of the power disruption to the business is estimated
to be US$4.6 million.
Revised guidance for FY2020
Due to the power disruption and a subsequent review of the mine
plan, the production guidance for FY2020 has been revised as
follows:
-- Diamond recoveries of between 720 000 and 750 000 carats
(previously between 820 000 and 870 000 carats);
-- Ore tonnes treated of between 3.3 and 3.6 million tonnes
("mt") (previously between 3.6 and 3.8 mt);
-- Waste tonnes moved of between 4.9 and 5.2 mt (previously between 6.0 and 6.5 mt); and
-- Operating cost remain at between US$13.50 (1) and US$14.50 (1) per tonne treated.
1 - Based on an average Rand:USDollar exchange rate of
R14.50
Paul Bosma, Chief Executive Officer, commented:
"The unexpected power disruption had a devastating impact on
production and revenue generation. The team however, did well to
salvage the situation by procuring and installing generators from
South Africa in record time to allow for operations to
recommence.
As a result of the power disruption, we have reduced our
guidance for the year in respect of diamond recoveries and ore
tonnes treated.
During the quarter, good progress was made with our Lenders and
non-binding term sheets were signed before year end with ABSA bank
for a debt repayment standstill until 31 March 2021 and with our
bondholders for a working capital facility of US$6 million for the
same period. We expect both of these agreements to be formally
documented before our financial year-end.
Due to the production setback and continued lacklustre market
conditions, the Board has decided that it is imperative that it
does all it can to reduce costs in order to survive the prolonged
downturn. As announced earlier today, this includes delisting from
AIM and reducing the size of the Board."
Operations
During the quarter ended 31 December 2019, Liqhobong treated
only 668 120 tonnes of ore compared to its plan of approximately
900 000 tonnes due to an unexpected power disruption. The power
disruption prevented any ore from being treated from 1 October
until 27 October, when alternative power provided by rented diesel
generators made it possible to recommence treating ore at a
marginally lower throughput rate of approximately 90%. From 1
December, operations returned to normal and capacity returned to
100% as grid power was restored. The lower tonnage treated resulted
in fewer carats recovered for the quarter of 138 000 carats (Q1:
201 091 carats).
Mining continued in predominantly the higher-grade southern part
of the pit during the quarter in order to further excavate the sump
that is planned to be used to store water during 2020. The
recovered grade of 21 cpht was unchanged from the previous quarter
and continued to be lower than the expected reserve grade. Work to
improve the situation is continuing.
A total of 1 070 854 waste tonnes was moved during the quarter
which was less than the 1 379 758 tonnes that was moved in the
previous quarter. The waste mining plan was reduced due to a
steepening of the cut 2 south design and the guidance has been
updated accordingly.
Safety, Health & Environment
The first quarter was worked safely with no Lost Time Injury's
recorded.
Financial
The combination of fewer ore tonnes treated and the increased
cost of using generator power resulted in higher operating costs
for the quarter of US$14.90 per tonne treated (Q1: US$10.32 per
tonne treated) including waste stripping. However, operating costs
on a year to date basis of US$12.19 per tonne treated including
waste stripping remain well below guidance of between US$13.50 and
US$14.50 per tonne treated due to fewer waste tonnes mined and cost
savings across the operation as a result of stringent cost
management. The total additional cost associated with renting and
operating the diesel generators during the quarter was US$1.1
million with the total cash impact due to the power disruption
estimated at US$4.6 million. However, Liqhobong's insurer has
surprisingly repudiated the claim relating to the power disruption
and Management is now considering its options in this regard. The
cash balance at the end of the quarter was US$17.0 million (Q1:
US$21.8 million).
Diamond Sales and Market Outlook
During the quarter, sales volumes decreased by 21% due to the
power disruption to 132 885 carats compared to 168 612 carats sold
in the previous quarter. However, average diamond values of US$73
per carat were higher than US$63 per carat in the previous quarter
due to a number of larger and better-quality diamonds that were
recovered and sold including one plus 100 carat diamond and two
plus 90 carat diamonds. As a result, the sales value for the
quarter of US$9.7 million was only 8% lower than US$10.6 million in
the previous quarter.
The prices realised for the smaller goods that make up the bulk
of our production by volume, remain subdued, impacted by a build-up
of rough and polished inventory in the midstream. Initial
indications are that the peak retail season at the end of the 2019
was satisfactory and therefore, it is anticipated that some
restocking should take place during early 2020. However, due to the
excess inventory held in the midstream and by the two largest
producers, we expect that it will take some time for the value
chain to rebalance and for there to be a sustained increase in
prices. Other downside risks include ongoing US-China trade
tensions and more recently the uncertain impact of the coronavirus
on demand.
Debt restructuring
The electricity supply disruption has exacerbated an already
challenging outlook for the Company, resulting in an inability to
meet its scheduled debt repayments in the near term and as a
result, agreement was reached with ABSA Bank to defer the December
capital repayment of US$2.5 million. In addition, non-binding term
sheets were signed with ABSA for the deferral of capital repayments
for a 15-month period to 31 March 2021; and with our bondholders to
provide a US$6.0 million working capital facility until 31 March
2021. We expect to have definitive agreements in place by
year-end.
For more information please visit www.firestonediamonds.com or contact:
+ 44 (0)20
Firestone Diamonds plc 3319 1690
Paul Bosma
Grant Ferriman
Macquarie Capital (Europe) Limited (Nomad +44 (0)20 3037
and Broker) 2000
Alex Reynolds
+44 (0)20 7920
Tavistock (Public and Investor Relations) 3150
Jos Simson
Gareth Tredway
Annabel de Morgan
Background information on Firestone
Firestone is an international diamond mining company with
operations in Lesotho. Firestone commenced commercial production in
July 2017 at the Liqhobong Diamond Mine. Liqhobong is owned 75% by
Firestone and 25% by the Government of Lesotho. Lesotho is one of
Africa's significant new diamond producers, hosting Gem Diamonds'
Letšeng Mine, Firestone's Liqhobong Mine, Namakwa Diamonds' Kao
Mine and Lucapa's Mothae Mine.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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