Firestone Diamonds' (LON:FDI) flagship Liqhobong mine development in Lesotho is world class, with full ramp up to deliver 1mln carats a year, says resource specialist broker SP Angel, which has started covering the share with a 'buy' recommendation.
Its target price is 42.5p, representing a near 25% increase on the current price of 34.25p.
The City firm said Liqhobong was at the "low end" of the cost curve of the mines and potential mines of the junior AIM miners atUS$14.2 per tonne against a value per tonne of US$37/t giving a potential EBITDA margin of over 50%.
It assumes main diamond sales will start in the beginning of full year 2017 with 188,000 carats produced in the fourth quarter of 2016.
The initial capital costs to achieve the mine plan is put at US$185mln.
The fact the firm has full funding and has completed the bankable feasibility study de-risks the development and mine plan, the broker also noted.
The new processing plant will be fit for purpose and will cater for annual production rising to 3.6 million tonnes at 500 tph (tonnes per hour) at the plant with average production of 1.15 mln carats.
This will far exceed pilot plant levels of 160,000 – 180,000 carats a year, notes SP Angel.
The broker also notes that diamonds continue to perform in terms of supply and demand.
Liqhobong is 75% owned by Firestone and 25% by the Lesotho government.
The firm started building the main plant and related infrastructure in July 2014 with full production targeted for the middle of 2016.