Evolution Securities revisited its valuation of Firestone Diamonds (AIM: FDI) after the South Africa and Botswana operating diamond miner released its full year results, reducing the target price to 50 pence, but maintaining its “buy” recommendation for the stock with expectations of a significant newsflow over the next nine months.
The earnings expectations were reduced due to the slight delays at the Jwaneng mine, where negotiations with Debswana over the construction and operation of a tailings plant at the mine were now expected to be concluded in Q1 2010 instead of the final quarter of this year.
The group is also developing a mining operation on its 80% owned BK11 kimberlite in the Orapa kimberlite in northern Botswana, whose high grade areas could produce revenues of US$20 million pa (per annum) and operating margins in excess of 50%.
While obtaining good results from bulk sampling carried out at its 100% owned Tsabong project, Firestone Diamonds reaffirmed its focus on these two projects, having ceded activities at the Bonte Koe operation in South Africa, which Evolution said was the key feature of the full year results as it led to a termination payment from De Beers and a subsequent write-down of the £11.2 million carrying value of its South African alluvial properties and assets.
The company said it was well funded and confident about its prospects in Botswana after raising £7.5 million this year on top of the £5 million raised last year.
Evolution commented that the start-up at BK11 would be a transformational event for the company, with its potential not being fully reflected in the share price.
Shares in Firestone Diamonds last traded at 32.75 pence.