Firestone Diamonds (LON:FDI) said today it has suspended operations at its BK11 mine in Botswana and placed it on care and maintenance.

In a statement, the firm said it would now focus on the flagship Liqhobong Mine in Lesotho which has proven large scale diamond recoveries.

The care and maintenance programme for BK11 is aimed at keeping the mine so operations there could be readily re-started, the company said.

It comes after an operations update earlier this month, in which the company said technical problems with the secondary crushing circuit at the plant were continuing and management were considering a number of strategic options.

Firestone said the decision was due to operational challenges and current weakness in the diamond market.

Today, chief executive Tim Wilkes said: "We remain committed to the operations in Botswana and the programme at BK11 is a temporary measure that has been designed to enable a rapid re-start of operations when the technical and market challenges have been resolved. 

"The company will now focus on the flagship Liqhobong Mine in Lesotho which has proven large scale diamond recoveries and remains on track to announce the definitive feasibility study in June 2012 and produce 1 million carats by 2014."

The indicative monthly holding costs of the care and maintenance programme are around US $65,000, the firm added.

Firestone also said today it had concluded consultation with its employees at the mine to ensure a "transparent and legitimate process" covering a number of options, which are in line with the labour and mining acts within Botswana.

The company received US$2.8 million for the 47,576 carats on offer in this, its fourth sale of the year. 

Firestone also said the run of mine value of production from its Liqhobong operation in Lesotho and BK11 in Botswana is estimated to be $95 and $180 per carat, respectively.

The diamond market, which is down around 30 per cent from its peak in July, is reported to have stabilsed thanks to growing demand from China and India.

CEO Wilkes said: “We are pleased to have been able to sell all of the diamond production offered at our recent tender, the results of which indicate that some stability has returned to the rough diamond market after the volatility of the past few months.  

“We remain positive about the fundamentals of the diamond market, with long term demand, which is largely driven by growth in India and China, expected to continue to outstrip supply, and expect to see prices for both Liqhobong and BK11 production increase in 2012."

UPDATE: Adds comments from broker Evolution Securities

Firestone Diamonds (LON:FDI) is set for a US$863,037 cash boost following its latest diamond auction in Gaborone in Botswana.

The company offered much larger volumes in this latest auction, thanks to its growing production at the Liqhobong and BK11 diamond mines, in Lesotho and Botswana respectively.

It made 24,109 carats available for sale - 69 per cent more that in July - however a drop in overall rough diamond prices meant that around 20,000 carats, principally comprising smaller diamonds, did not meet their reserve prices and consequently these diamonds were not sold. 

In total 3,395 carats were sold for US$863,037. Of these sales 1,846 carats came from Liqhobong with an average price of US$231 per carat, while 1,549 carats were from BK11 and were priced at US$282 a carat.

"We have continued to make significant progress at both Liqhobong and BK11, with a 69% increase in production available for sale from the last tender in July 2011,” said chief executive Tim Wilkes.

"Although demand for smaller diamonds has decreased, it has remained firm for larger, better quality diamonds, and we are confident that we will see increased demand for our full range of production later in 2011."

After the auction Firestone received a number of enquiries about the un-sold diamonds, but today it said that these diamonds will be held over to the next sale, which will occur later in the fourth quarter.

“The company expects that stability will return to the rough diamond market later in 2011 and that the shortfall in rough diamond supply will limit any further significant decreases in rough diamond prices,” Firestone said. 

It also clarified that its cash position remains secure, following its £13.5 million financing in July, and therefore it has the ability to withhold any production that does not achieve reserve prices until stability returns to the rough diamond market later in 2011 or in early 2012.  

Firestone explained that rough diamond prices increased approximately 40 per cent during the first half of this year, driven by significant growth in demand from China and India, but since the beginning of August prices have fallen back around 15 – 20 per cent.

"Fundamentals remain positive, with demand from China and India and shortfall in supply expected to continue to support prices,” the company said. 

Evolution Securities mining analyst Charles Kernot showed his faith in the company, repeating his ‘buy’ recommendation in a note to clients today. “This is based on our view of the longer term fundamentals of the diamond sector and our belief that the group has significant long term potential in its Liqhobong asset.” 

Kernot's 'buy' recommendation comes with a 40 pence a share target, which suggests the stock could almost double from the current price of 20.75 pence.

Firestone Diamonds (LON:FDI) is set for a US$863,037 cash boost following its latest diamond auction in Gaborone in Botswana.

The company offered much larger volumes in this latest auction, thanks to its growing production at the Liqhobong and BK11 diamond mines, in Lesotho and Botswana respectively.

It made 24,109 carats available for sale - 69 per cent more that in July - however a drop in overall rough diamond prices meant that around 20,000 carats, principally comprising smaller diamonds, did not meet their reserve prices and consequently these diamonds were not sold. 

In total 3,395 carats were sold for US$863,037. Of these sales 1,846 carats came from Liqhobong with an average price of US$231 per carat, while 1,549 carats were from BK11 and were priced at US$282 a carat.

"We have continued to make significant progress at both Liqhobong and BK11, with a 69% increase in production available for sale from the last tender in July 2011,” said chief executive Tim Wilkes .

"Although demand for smaller diamonds has decreased, it has remained firm for larger, better quality diamonds, and we are confident that we will see increased demand for our full range of production later in 2011."

After the auction Firestone received a number of enquiries about the un-sold diamonds, but today it said that these diamonds will be held over to the next sale, which will occur later in the fourth quarter.

“The company expects that stability will return to the rough diamond market later in 2011 and that the shortfall in rough diamond supply will limit any further significant decreases in rough diamond prices,” Firestone said. 

It also clarified that its cash position remains secure, following its £13.5 million financing in July, and therefore it has the ability to withhold any production that does not achieve reserve prices until stability returns to the rough diamond market later in 2011 or in early 2012.  

Firestone explained that rough diamond prices increased approximately 40 per cent during the first half of this year, driven by significant growth in demand from China and India, but since the beginning of August prices have fallen back around 15 – 20 per cent.

"Fundamentals remain positive, with demand from China and India and shortfall in supply expected to continue to support prices,” the company said. 

Firestone Diamonds (LON:FDI) has raised £13.5 million through a placing to advance its Liqhobong mine in Lesotho and activities in Botswana, it emerged.

The company placed 48.64 million new shares at 27.75 pence with institutional and other investors.

The placing price represents a middle market share price yesterday (July 27), said Firestone.

The firm said the cash would be used to accelerate work at the Lesotho mine, including a definitive feasibility study for the expansion of Plant 2.

The funds will also be used to complete connection to the power grid at the BK11 mine in Botswana, and for other working capital purposes.

Firestone's chief executive Tim Wilkes said he was very pleased to have received significant support from existing and new institutional shareholders for the cashcall.

"We have made significant progress at Liqhobong, with grades and diamond prices increasing substantially since production commenced in February 2011.

"In Botswana, we are pleased with the progress that we are making at the BK11 Mine and that we are now in a position to recommence evaluation activities on our portfolio of 174 kimberlites, which we believe has the potential for further economic discoveries."

Firestone Diamonds said it had decided to accelerate work on the Definitive feasibility Study  (DFS) at Liqhobong and to begin work on the tailings dam and related infrastructure that will be required to support Plant 2.

Discussions are currently underway with a number of lenders in relation to debt financing for the construction of Plant 2.  These discussions are expected to be finished shortly after the completion of the DFS, it said.

AT BK11, the company said following significant increases in liberation and grade of diamonds since July 2011, it has decided to connect the mine to the new power line being constructed by Botswana Power Corporation.

"It is expected that grid power will be available at BK11 in Q3 2011, which will result in both lower costs and improved production plant availability," added the company.

Over the past two years, the firm has concentrated on Liqhobong and BK11, and with both mines now in production Firestone will begin again its Botswana kimberlite programme.

This will initially focus on BK16, BK24 and other high interest kimberlites in the Orapa region in Botswana that can be evaluated and exploited using the infrastructure that the company has established at BK11, but will then be expanded in 2012 to include the high interest kimberlites identified at Kokong and Tsabong, it said.

Broker Fairfax welcomed the developments and its analysts said of the Liqhobong mine: "We always thought this was a better mine than the geo-statistics had indicated and that a fair portion of good quality stones were likely from the processing of this kimberlite.

"Tim Wilkes at Firestone is now starting to show the mine's true potential value and the expansion of the mine should bring a sizeable increase in diamond production at a time of higher diamond prices."

This morning the AIM-listed diamond producer gave investors an update on the mine expansion programme at Liqhobong.

At the moment the plant one is operating at 400,000 tonnes per annum rated capacity and this is set to expand to 600,000 tonnes by the end of the second quarter through the phase one expansion. 

Beyond that it will expand further, through phase two, up to 1.3 million tonnes per annum by the end of 2011. Currently plant one is achieving a mining grade of 32 carats per hundred tonnes (cpht), which is 15 percent higher than the 28 cpht resource grade.

"We are very excited with the progress that we have made at Liqhobong in the three months since production commenced,” chief executive Tim Wilkes said.

“We believe that Liqhobong will soon become a large scale profitable mining operation, particularly once we commence mining the high grade K5 and K6 units in the second half of this year. We also expect to reach full production levels at BK11 shortly."

Firestone also highlighted that open pit reserves have increased by 15 percent to 70 million tonnes, which contains 23 million carats.

Separately Firestone also provided an update on the BK11 mine in Botswana, where a secondary crushing circuit is currently being commissioned to improve diamond liberation.

At BK11 mining is now ahead of schedule. Two million tonnes have been mined between January and April 2011.

Firestone noted that the next batch of diamond sales are due later this month, at a tender auction in Gabon. Sales are expected to be significantly larger than the last tender in April 2011, the company said.

Northland Capital analyst Andrew McGeary emphasised the project’s potential while acknowledging that there is still plenty to do.

“With resources established the company faces the not inconsiderable execution risk and in Losotho operates at high altitude in one of the world’s poorest countries which provides significant challenges,” McGeary said in a note to clients.

“However, progress towards key milestones could make the current £90 million market valuation look undemanding.”

The analyst also highlighted that Firestone is set for a number of catalysts. “The next key newsflow relates to an upcoming valuation of a diamond parcel,” he added. 

“Given significant inflation this year, the valuation could provide a useful near term catalyst. Longer term indications of progress towards successful delivery of the 1.3 million tonne per annum run rate could see more significant share price performance."