adds broker comment
Firestone Diamonds’ (LON:FDI) development plans for its Liqhobong mine in Lesotho have received a shot in the arm after a punchy valuation from an independent study.
The SAMREC compliant definitive feasibility study (DFS) estimated a net present value for the project of US$441 mln (£274 mln) based on average annual production of 1.2 mln carats over a 15 year mine life.
Capital expenditure costs to get the mine up and running were estimated at US$167 mln, while the NPV assumed an average diamond price of US$100/ct and 3% annual inflation for prices.
Firestone said it is already progressing discussions with debt providers and considering other marketing arrangements to minimise dilution to shareholders.
Tim Wilkes, Firestone’s chief executive, added that the NPV assumptions also excluded the potential benefit of large and special stones at Liqhobong.
Earlier this month, Firestone said it had recovered a fragment of a diamond in excess of 200 carats, but its was broken as its pilot plant at present cannot handle stones with dimensions larger than 25mm.
Firestone also recently recovered a batch of very rare type 2 diamonds from Liqhobong and found an even rarer blue diamond.
Wilkes described the results of DFS as highly attractive and added the recovery of larger special diamonds will be catered for in the design of the new treatment plant.
The DFS was completed by DRA Projects Limited. Liqhobong is 75% owned by Firestone and 25% by the Lesotho government.
Broker Fairfax added that the base case for operating expenses per tonne was $14/t against revenue per tonne of $33/t generating a post tax IRR of 40%.
The development is expected to take 24 months with commissioning expected in the second half of 2015 with the project deemed most sensitive to grade, diamond value then to operating cost and capex.
The broker added that the DFS was reasonable with lower capex than it had expected, especially as it included a slimes dam, which it says is important to the management of this project.
Grades and valuations were at the lower end of expectations and Fairax hopes to see the valuation on $/carat basis increase as the new plant is configured to capture bigger stones.
The scope for having bigger stones could be a swing factor on the upside with a 20% increase in diamond value increasing project IRRs to 52%and the NPV by 7%.
The 8% discount rate was also low said the broker, which said 12% was a more applicable discount rate.
Fairfax expects a range of funding options to be used including offtakes particularly for the premium priced yellow stones.