---ADDS BROKER COMMENT AND UPDATES SHARE PRICE---
The economics of Firestone Diamonds’ (LON:FDI) Liqhobong mine are looking even more robust after an increase in the valuation of the diamonds being excavated there.
The company called in an independent consultant to its mine in Lesotho to analyse 22 months of production and sales data, and the upshot was an increase in the base average diamond price, excluding large stones, to US$107 per carat, up from US$98 per carat previously.
The upside price, including large stones, is potentially US$156 per carat, the company revealed.
The company has plugged the new figures into its definitive feasibility study (DFS) model, resulting in the projected project revenue being revised to US$2,289mln, based on an assumed 3% increase per annum in diamond prices.
Stuart Brown, Firestone's incoming chief executive officer, said: "This latest analysis takes into consideration all the data available from the pilot plant, since it commenced production in September 2011 through to July 2013, and the board believes that these new figures further enhance the robust project economics for the Liqhobong project".
Charlie Long, the mining analyst at broker Sanlam Securities, thinks an upside case for the project is a realistic proposition, given the large stone, high value, of certain Lesotho kimberlites.
"Firestone has, on numerous occasions, recovered fragments of very large, high value stones," Long notes.
"It should be straightforward to design a recovery plant with a very coarse fraction circuit to pick out the large stones first," Long postulates.
"This would only increase the processing cost slightly, and bear in mind that diamond processing costs are a small part of total operating costs anyway," he continued.
"Investors and commentators often note that Liqhobong’s pilot plant and tailings are poorly positioned. Having never been to the site, we cannot confirm or reject that point and are similarly not aware of any other potential issues. However, we think Liqhobong is looking like an increasingly attractive project in a relatively good mining jurisdiction and some extra earth works and infrastructure capex will likely be of little or no relevance," Long concluded.
Resources specialist SP Angel expressed its approval of the company’s decision to use the data on all the diamonds recovered to remodel the base case valuation.
“Incorporating the large diamonds that were broken shows the scope for the large stones to skew to the upside,” said SP Angel’s John Meyer.
“The company is currently re-working the DFS and is seeking funding for the new plant. On funding the company has a loyal shareholder base and is in advanced discussions on securing project financing but will be looking for a diverse range of funding sources to meet the US$167mln required for the project and also for working capital purposes during the construction process. The revision of the revenue models should be helpful in their discussions as well as more appetite for the diamond space,” Meyer concluded.
Shares initially rose on the news, trading as high as 4.74p, but after a good run over the last two weeks, profit takers emerged to push the shares down to 4.27p, down 2.4% on the day.