Proactive investors

Epic & Msn data

Epic	FDI
Time:	11:22:52
Mid Price:	20.50
Change Today:	0.25
Change % Today:	1.23
Fifty Two Week High:	200.50
Fifty Two Week Low:	18.00
Market Capital:	12.66

Period & price data

Period	Price
Now:	20.50
3 Months ago:	39.00
6 Months ago:
1 Year ago:

Additional information

Additional	Information
Market:	AIM
Sector:	General Mining - Diamonds & Gemstones
Epic:	FDI
News:	Latest news
Web Site:	Firestone Diamonds
Other Articles:	06-10-200816-07-200827-06-2008

Firestone Diamonds - starting to sparkle?

by Ian Mclelland

The last time we discussed Firestone Diamonds, we focused on the fact that to be in the diamond discovery business, you need to have a large portfolio of targets to explore.  Simply put, in this industry, it?s a numbers game.  The odds of finding an economic diamond mine heavily depend on your postal address too.  Finding a viable mine is more difficult in Russia or Canada then it is in Southern Africa. Even in Southern Africa, there is a wide margin between feasible projects from country to country.  It is widely accepted that the best place in the world to find a diamond mine is Botswana. Why?  Infrastructure is excellent, the mining code is supportive, operating costs are low, and it?s flatter than an English pancake - which makes exploration easier. So statistically, the chances of a new kimberlite discovery becoming a mine are far higher than anywhere else in the world. 

Firestone Diamonds originally began with a focus on South Africa, which was once the hub of the world?s diamond industry. Times have changed however. Black Empowerment legislation, power supply issues, a strong Rand versus the dollar and the other factors helped to push up the cost to operate a mine, and the scope for new hard rock diamond discoveries in South Africa are limited.  Except for a few small alluvial operations in South Africa, Firestone is a pure play on kimberlite hunting in Botswana.

Shares in Firestone Diamonds have been a pretty solid performer over the past few years as the company has expanded its footprint in Botswana, and brought in some additional expertise at board level. With a market cap just shy of £100 million, Firestone is still technically a small-cap stock, but in the PLC diamond sector, it is one of the bigger company?s around.  This probably brings more benefits than at first may appear. The London diamond sector is littered with microcap diamond companies trying to drum up a discovery ? all hampered by a lack of capital to conduct any serious exploration. At the other end of the spectrum, there is DeBeers, which you cannot invest in directly, only indirectly through its partial owner, Anglo American. This leaves investors looking for exposure to the diamond industry few choices, which has played into Firestone?s hands.  With a larger market cap than many of its peers, it can attract institutional support others cannot.

Yesterday Firestone passed an important milestone in its life a diamond company. For the first time it could reasonably argue that it had a commercially viable hard rock mine in the making. The update referred to BK11, which Firestone only gained control of in early 2007. Firestone has an 80% interest. BK11 is located in Orapa ? the heart of Botswana?s diamond mining industry.  As with many pipes in Orapa, the project was thrown aside by DeBeers for being too small.  DeBeers leftovers should not be sniffed at!  Bulk sampling at BK11 by Firestone has highlighted good quality, mostly white diamonds with an estimated carat value of $200 per carat.  Overall, the sampling returned a grade of 10 cpht. It would be easy to misunderstand the magnitude of this result. Firestone originally modelled BK11 on 16cpht and $100/carat, or in simpler terms, $16 per tonne of rock.  At 10cpht and $200/carat, the value per tonne of rock has increased to $20.  Firestone are very confident that the actual modelled grade for  BK11, which is based on all the data collected, rather than the one bulk sample is closer to the real grade of the pipe.  However, if the grade turns out to be in the 15-20 cpht that Firestone believes it will be, the value per tonne could increase to $30-40.  Typical operating costs in Botswana are $7-8 per tonne.  The final numbers will not be known for some time, but suffice to say Phillip Kenny, CEO of Firestone Diamonds told Proactive that the company is of the view that BK11 stacks up and is likely to be a mine. 

Additional large diameter drilling and trenching is now earmarked for BK11 to help firm up the diamond distribution, calculate an indicated resource, and begin mine development, all before the end of next year.  The development argument for BK11 was additionally buoyed by a further announcement that Firestone had entered into an agreement with SouternEra Diamonds, a subsidiary of Mwana Africa, for BK16.  BK16 is of a similar size and grade to BK11, and is only 22 kilometres north-east of BK11. Firestone can earn 87.5% interesting BK16 by completing a bankable feasibility study and paying Mwana £60,000.

It doesn?t take a genius to join the dots together on this announcement. By advancing both pipes simultaneously, Firestone could easily truck concentrates from both pipes to one central processing plant, thereby cutting overall capex development costs as opposed to the projects being developed separately.   Firestone went one step further too, adding that it was also commencing a scoping study into the feasibility of having a satellite mining project capable of processing four million tonnes per annum from both pipes, and potentially other small kimberlites nearby.  At 4mtpa, BK11 and BK16 would supply enough feed for 8.5 years. At this size, the operation would be comparable to the nearby AK6 Mine being developed by African Diamonds and DeBeers.
Additional ore may also just derive from 6 new kimberlite discoveries made recently by DeBeers and Firestone.  The two companies have parted ways on their JV, but Firestone gets all the data and regains 100% ownership of the licences.

Firestone also has high hopes for the Tsabong Kimberlite Field in the south of Botswana.  Tsabong has an unusual history.  The area is absolutely littered with massive kimberlites, but due to an average of 80 metres of sand sitting on top of them, has never been properly evaluated.  We suspect if there is one lesson Firestone has learned since inception, is that new exploration of old discoveries has repeatedly shown that grades and size are often originally underestimated.  This appears to be case at MK1, where microdiamond analyses from samples from two large diameter drill holes have estimated a macrodiamond grade of 25 carats per hundred tonnes (cpht).  This is considerably higher than previous estimates, and certainly warrants further assessment of the pipe. There are 85 known kimberlites at Tsabong, 30 are between 20 and 50 hectares, 5 are 50 hectares or bigger and the MK1 kimberlite is a whopping 180 hectares.  Additional details on the material recovered from MK1 have been hampered by a high clay content and high concentration of Zircon, but modifications to the bulk sample plant are underway which are expected to take around 2 months.  Nonetheless, developments from Tsabong to date have been very encouraging.

Considerable progress has been made in Orapa and Tsabong, and Firestone?s share price has held up remarkably well compared to the rest of the AIM mining sector.  The company has clearly benefited from its appeal as a pure play on diamond development in Botswana, arguably the best place in the world to have a diamond discovery.  Going forward, plenty of work is still required at Tsabong, BK11 and now BK16.  The development plate looks pretty full, and we wouldn?t be that surprised if assets in South Africa were divested of all together to help fund operations in Botswana.  Tsabong is undoubtedly the project that still offers serious blue sky potential, but BK11 and BK16 offer substantial potential in their own right.

Register here to be notified of future Firestone Diamonds articles.