Firestone Diamonds celebrates its Liqhobong mine in Lesotho

Firestone Diamonds (LON:FDI) said today that recent diamond sales and grade findings underlined its belief that its Liqhobong mine was one of the "most attractive diamond kimberlites" being developed in the industry.

The AIM-listed company, which has projects in Lesotho (Liqhobong) and Botswana in southern Africa, calls the results from the recent diamond sale in Gaborone, Botswana, "exceptional".

The firm achieved a 42 percent rise in value for its diamonds compared to the previous tender in April, it told investors.

Analysts were also impressed with today's sales results, with Charles Kernot, of house broker Evolution Securities, describing Liqhobong as a "great asset" for the company.

Two key points emerged from today's news. Namely, the impressive figures from the Gaborone sale, but also details of the grade from the main kimberlite pipe at Liquobong.

Kimberlite pipes are the vertical formations in the earth's crust, where diamonds are sometimes contained.

Firestone Diamonds said that the grade of material processed from Liqhobong’s main pipe continues to be significantly higher than the published resource grade, with the production grade of 34 carat per hundred tonnes (cpht) from the K2 unit being 30 percent higher than the resource grade of 26 cpht.

Furthermore, the company expects these grades to be maintained, which would give the main pipe a value of over US$50/tonne. Further increases in operating margins are expected when mining of the higher grade, higher revenue per carat K5 and K6 units begins later this year, added the firm.

It sold 12,212 carats from the two parts of Liqhobong - the main pipe and the satellite pipe -  at an average price of US$123/carat - an increase of 12 percent from April.

Main pipe diamonds sold for US$149/carat, an increase of 15 percent from April for run of mine production and up 52 percent from the December 2010 tender. Prices for small diamonds and cape yellows and browns continue to be very strong.

All in all, the company sold 14,248 carats for gross proceeds of around US$2 million. Demand from local and international buyers remained extremely strong, with a total of 31 companies attending the sale.

The group also sold 2,036 carats from its BK11 mine in Botswana at an average US$235/carat - 16 percent higher than in April and up 33 percent from December 2010.
 
Given the long term potential at Liqhobong, the broker has reiterated its "buy" recommendation for the stock.

"We believe that the Liqhobong project is a great asset for Firestone Diamonds and our "buy" recommendation relates primarily to the upside potential we see at this mine.

"We continue to have concerns about BK11, where fewer diamonds have been sold during the course of full year 2011 than we had originally estimated. That said, the company has recently commissioned its second crushing circuit at BK11 which should result in increased diamond liberation," he said.

Meanwhile, Andrew McGeary, of Northland Capital Partners, said particularly encouraging were the results from the main pipe, which exceeded diamond prices incorporated into management economics analysis presented to Northland only last month.

This, he noted, was a good sign ahead of mining higher grade areas in the coming months.

"We expect that the strong inflation is both a reflection of market pricing strength in general and improved outlook for Liqhobong.

"Firestone faces key challenges in fully optimising its Liqhobong mine. However, we continue to expect progress towards key milestones could make the current  £96 million market valuation look undemanding.

"As we have pointed out, if cost estimates are accurate, there is some leeway in the project economics which are expected to see costs of $13 - $15 against a production value of around $41/t, based on 32cpht and an assumed diamond price of $130/ct which has clearly been exceeded in these latest results for the main pipe and now look more like £50/t.

"The mine is attributed an NPV (net present value) of $277million by the company. While this remains relatively aggressive given significant capex and execution risks it nonetheless highlights significant potential for value accretion upon successful delivery of strategy. We continue to see attraction in the shares.”

Firestone said today that three further diamond sales are planned this year in Gaborone, and subject to market conditions and size of production available for sale, it plans to hold a diamond sale around every two months in 2012.

"With significantly higher production expected from Liqhobong in 2012 following the completion of the Plant 1 expansion, which will result in capacity being tripled to 1.3 million tonnes per annum, the 2012 tenders are expected to be significantly larger than those held in 2011," the firm said today.