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An updated definitive feasibility study (DFS) on Firestone Diamonds’ (LON:FDI) Liqhobong mine in Lesotho has confirmed the firm's view it is a world class project that will yield "very good" returns.
The revised study confirms strong base case economics and significant potential for upside if anticipated revenues from large stones, namely more than 100 carats, are included.
As revealed last month, valuation studies have increased the base average diamond price.
In the base case, the average diamond price is now US$107 per carat and the project's post tax net present value (NPV) is US$379mln (compared to US$335mln as of the DFS in 2012).
In the upside case the diamond price is US$156 per carat and the project has a post-tax NPV of US$728mln.
Incoming chief executive Stuart Brown told investors on Tuesday: "The updated DFS has confirmed the board's view that Liqhobong is a world class diamond project that will yield very good returns for all of its stakeholders.
"Alongside the increased diamond values previously reported, our updated numbers released today further demonstrate management's long held belief in the compelling economics of the project."
In line with Firestone's strategy, the operation of the pilot plant has now stopped to allow for preparations to begin on the building of the main treatment plant.
The revised DFS also reflects the basis upon which the company plans to finance and construct the project.
The initial capital expenditure for the project is now put at US$185.4 mln - 11% higher than US$167mln in the 2012 study.
It is expected that construction and early works for the main treatment plant will begin early next year when funding for the project is finalised.
The project is then scheduled to take two years to construct and commission with full production earmarked for early 2016.
Broker Sanlam Securities, which believes the project to be robust and is positive on diamonds, notes that Firestone’s current market cap is US$30mln, showing that the US$185mln it needs will be a challenge and potentially highly dilutive for current shareholders.
But it adds: "However, the company states that 'early works for the main treatment plant will commence in early 2014 when funding for the project is finalised', suggesting a solution has been found / nearly found that could involve convertibles, project level investment or some other structure."
Analyst Charlie Long adds: "Hopefully, existing Firestone shareholders and those that follow their money will own a significant enough stake in the financed project to enjoy some of the upside."
Shares were unchanged at 3.875p.