For Philip Kenny, CEO of Firestone Diamonds, the current rush of diamonds companies listing on AIM with varying assets in Africa, is slightly bemusing. Firestone Diamonds knows how difficult it is to find an economically viable diamond deposit, whether it be an alluvial, or hard rock deposit. Even harder still, and an area where Firestone has faced challenges, is building a mine and moving it into consistent, profitable production.
The recent flood of diamond companies listing on AIM would suggest otherwise. The vast majority of them are focused on southern Africa, the stable of the world diamond production. Yet the projects on the table are either alluvial, tailing reprocessing, or kimberlite mines, that have been long forgotten about and considered uneconomical. The valuations that some of these same companies have been getting upon listing on AIM leaves a lot of potential downside in the share price if things don?t go to plan.
Whilst this rush of diamonds companies has hit the market, Firestone, who in comparison looks like an industry veteran, has until recently been very quiet.
Firestone was for years focused on several small but potentially material producing projects in South Africa, namely the Buffels River Alluvial Project, and the Oena and Avontuur mine. What is different about Firestone is that despite the difficulties associated with diamond mining including controlling costs and grades, building up consistent production, they have survived, and even flourished from a share price perspective. This is partly down to their strategy of using cash flow from their mining operations to attempt to land a big company making project. Until recently this potential company maker was primarily the Groen River Alluvial Project, which many observers believe to be one of the last big alluvial diamond projects left in South Africa. As we mentioned before however, alluvial resources are very difficult to prove up. Firestone appeared to have mitigated this problem at Groen by signing a JV with De Beers which was quite unprecedented, as De Beers are usually only interested in large projects, so it implied a certain amount of confidence in what Firestone may have identified. Unfortunately the first holes drilled by the JV in first of the 13 deposits in the Groen to be sampled recovered no diamonds.
Philip says 'We were stunned. Not even De Beers expected this. It was a complete surprise as diamonds have been recovered in numerous locations in the Groen area. The drilling focused on the northern part of the HL channel? the results have made us step back and rethink how the alluvial system is structured.' The JV is now reassessing the geological interpretation in order to determine the next steps in exploration of the area.
Firestone?s other blue sky targets, in Botswana, also have yet to show much material progress. Firestone, like African Diamonds (in which Firestone holds a 7% equity stake) staked most of the ground around De Beers? lucrative Orapa and Lethlakane Mines. Both companies have also entered into JV?s with De Beers over their land grabs. Thus far the clear winner has been the AK6 kimberlite held by African Diamonds (AIM: AFD). Firestone has also secured a significant land position around the Jwaneng Mine, which is the richest diamond mine in the world, and this ground has also been joint ventured with De Beers. The good news is that De Beers are using their new toy, a Zeppelin equipped with gravity gradiometry technology on Firestone?s exploration acreage around Jwaneng. The Zeppelin is able to carry out gravity surveys 45 times faster than by conventional techniques, so drill targets should come in thick and fast and offers the hope of better news flow from the JV in the coming year.
While Groen River has hit a snag, and the Botswana licences are only starting to gather pace, Firestone has been tidying up its historical projects in South Africa and snapping up exploration rights over another big play, the Tsabong Kimberlite Field in Botswana.
Phillip says: 'This is a numbers game. Everyone knows you need lots of kimberlites if you want any chance of finding an economical pipe. That is what we are doing. Buffels River is now in a JV with De Beers, whereby we use our existing equipment to process the gravels and De Beers provides the feed and takes the diamonds away for sorting. We are guaranteed £3 million revenue per annum from the JV, which should produce approximately £2 million in profits. We are pursuing other similar opportunities with De Beers in the area around our existing mines in the region. This will provide a stable income to fund our bigger exploration targets like Tsabong.'
Tsabong is indeed a big project. The Tsabong Kimberlite Field is one of the largest kimberlite fields in the world, yet to date never properly evaluated. The primary reason behind this is the amount of ?cover? (overburden) sitting on top of the pipes ? on average 80 meters, which was too deep for previous exploration, but is no longer problematic. Grade and diamond values required for economic viability are modest ? 15 to 20 cpht and $100/carat. By comparison, the African Diamonds / De Beers AK6 pipe at Orapa has 25 cpht and $150/ct. But if there is one thing Tsabong has, it is big kimberlites. There are 67 known kimberlites at Tsabong, 30 are between 20 and 50 hectares, 5 are 50 hectares or bigger and the M1 kimberlite is a whopping 180 hectares. By comparison, AK6 is relatively small at 9.5 hectares. In addition, 17 of the 67 kimberlites are already shown to be diamondiferous, and Philip believes many more kimberlites will be discovered once Firestone start a two pronged program in November to drill known kimberlites and simultaneously test new targets. Firestone have no intention of a JV anytime soon at Tsabong either. With many of the company?s other projects tied up neatly with De Beers funding exploration costs or under consideration for JV?s, Philip is more than happy to keep this project to himself. Fortunately, one thing Firestone has never had difficulty in doing is raising cash. Current liquid assets stand at around £12 million - more than enough to cover existing budgets for the foreseeable future.
If one was looking to find a criticism with Firestone, it would have to be said that the company has yet to produce a ?big? find from its various projects despite some very optimistic sound bites from the company over the last 2 years highlighting the potential of the company?s exploration acreage and relationship with De Beers.
There is a certain deja vu about the excitement surround Tsabong, which only 12 months ago was surrounding Groen River. On the flip side, Firestone does have producing assets, cash in the bank, a healthy market valuation and has managed to build a enviable land position in some highly prospective regions of Southern Africa while avoiding the more politically risky regions of Angola, Democratic Republic of Congo or Sierra Leone.
Still a solid player in a sector fraught with danger.