Firestone Diamonds plc is an emerging force in diamond mining in Africa, with a diversified portfolio of production, development and exploration stage projects. Firestone operates the world class Liqhobong Mine in Lesotho and the BK11 Mine in Botswana. The planned expansion of production from Liqhobong is expected to move Firestone into the ranks of leading mid-tier diamond producers. Firestone is the largest holder of diamond exploration rights in Botswana's diamondiferous kimberlite fields, controlling 174 kimberlites, of which 43 are diamondiferous.
The Liqhobong mine in Lesotho is now Firestone's focus after its BK11 project in Botswana was placed on care and maintenance in February due to operational challenges and a weak diamond market.
Following a meeting with chief executive Tim Wilkes, the broker said it expected to see an increase in the grade and value of the gems produced from Liqhobong due to the firm's actions.
Last month, the company reported good production from Liqhobong in the first quarter, and revealed it had uncovered an unbroken 74 carat yellow gem.
It also unearthed a 39 carat light yellow gem and a 26 carat white stone. However, both were fragments of much larger stones. In total, 67,148 carats were sold for US$71 a carat in the period.
"The key issues at the mine relate to the re-aligning of the existing process plant to the ores being processed and completing the DFS (definitive feasibility study) for the main pipe and plant," noted Fairfax mining analyst John Meyer.
Action aimed at reducing diamond breakages within the larger stones is now gaining traction, he said in a note.
This is being achieved by a trammel screen with a double deck screen which will help keep the diamonds away from the crushers.
"The DFS for the main mine and plant is four weeks away from completion and is expected to be published in the third quarter," he added.
The analyst also noted that the next diamond tender for stones from Liqhobong would be on Monday (June 18) where 47,000 carats will be up for tender in Botswana and Amsterdam.
"There will a number of special stones offered at this tender including the 74 carat light yellow and a 9 carat which is valued at $15,000 carat," said Meyer.
Meyer concluded: "Things are running in a positive direction for Firestone – the issues around the breakages and the plant are being attended to with Tim Wilkes now spending a considerable amount of time on site. While they will not be fully resolved given the current design of the plant, breakages should improve."
He said the DFS opened the prospect up for a much larger scale operation which, importantly, would have a plant designed specifically for the finer ore from the main pipe.
Thus, the quality of the stones recovered have a good chance of improving, he said.
"Assuming an EBITDA margin for this mine of around 30 per cent and potential for revenues of $20m, the company could generate an EBITDA of $6mln," he said, adding that there would be scope for margins to improve.
"This is an interesting turn around story and is a buy at this level. The medium term outlook for diamonds is positive based on supply shortages although in the short term the sector will be driven much more about demand concerns. The tender coming up in June will be useful test."