Firestone Diamonds : Unaudited results for six months to 31 Dec 2018

results for six months to 31 Dec 2018

Released : 28 Mar 2019 07:00

RNS Number : 2292U

Firestone Diamonds PLC

28 March 2019

28 March 2019

Firestone Diamonds plc

("Firestone", the "Group" or the "Company") (AIM: FDI)

Unaudited Interim Results for the six months to 31 December 2018

Firestone Diamonds plc, the AIM‐quoted diamond mining company, is pleased to announce its unaudited interim results for the six months ended 31 December 2018 ("H1 2019" or the "Period").

HIGHLIGHTS FOR THE PERIOD

LIQHOBONG DIAMOND MINE ("Liqhobong" or the "Mine")

On track to meet guidance:

∙1.9 million tonnes ("mt") treated in the period (H1 2018: 1.9mt), within full year guidance of between 3.6mt and 3.8mt;

∙Higher average grade of 24.6 carats per hundred tonnes ("cpht") in the period (H1 2018: 19.9 cpht) mainly due to treating more of the higher grade ore blocks in the southern part of the open pit;

∙465 680 carats recovered (H1 2018: 379 716 carats), within full year guidance range of between 820 000 and 870 000 carats, and including the recovery of the largest diamond to date, a 326 carat light yellow makeable stone;

∙Average value per carat of US$71 (H1 2018: US$74) realised in the period, impacted by prices for smaller, lower value diamonds;

∙Cash operating cost per tonne treated (including waste) of US$10.96 (H1 2018: US$11.97), well below full year guidance of US$15‐16 per tonne treated; and

∙1.9mt of waste stripped, with a plan in place to increase waste tonnes mined to meet full year guidance of between 4.3mt and 4.8mt.

FINANCIAL

∙Revenue of US$27.4 million from three sales (H1 2018: US$26.0 million from four sales);

∙EBITDA1 of US$5.9 million (H1 2018: US$7.3 million);

∙Loss for the period of US$6.6 million (H1 2018: US$7.8 million);

∙Loss per share of 1.3 US cents (H1 2018: 2.2 US cents);

∙Positive cash flow of US$6.7 million generated from operations during the period (H1 2018: US$2.1 million2); and

∙Cash balance at 31 December of US$26.2 million (H1 2018: US$29.7 million).

POST PERIOD

∙An average value of US$90 per carat was realised at the most recent sale which concluded on 22 March, resulting in a higher average value realised of US$80 for the third quarter of the financial year, and US$74 per carat for the first nine months of the

financial year;

∙Record price realised for a single stone sold from Liqhobong, a 70 carat diamond recovered in January;

∙Positive impact of weaker LSL:US$ exchange rates on mine operating costs expected to continue as currency hedging in place for the remainder of the 2019 financial year at average rates exceeding LSL14.50:US$1; and

∙First significant rains of the season have yet to arrive on site, management are keeping a close watch on water levels in the reservoirs, currently estimated at two to three months' supply.

1 ‐ The measure of operational cash performance calculated as earnings before interest, tax, depreciation and amortisation .

2‐ A m o u n t i s c a l c u l a t e d a s c a s h g e n e r a t e d f r o m o p e r a t i o n s o f U S $ 8 . 8 m i l l i o n l e s s U S $ 6 . 7 m i l l i o n o f c a p i t a l i s e d w a s t e s t r i p p i n g c o s t s w h i c h w e r e subsequently expensed at the 2018 year‐end.

Paul Bosma, Chief Executive Officer of Firestone, commented:

"The second half of 2018 saw a global price slump in the smaller, lower value goods which negatively impacted our average dollar per carat achieved. Since then, prices have stabilised at these lower levels and we are looking forward to some improvement once inventory levels in the midstream of the diamond market normalise. Production is on track to meet guidance and we once again did well to manage costs, which are well below full year guidance. Pleasingly, we sold our most valuable stone to date at the recent sale, a 70 carat makeable recovered in January, and aided by a modest price increase in the smaller fraction we realised our highest average sale price since declaring commercial production in mid‐2017 of US$90/ct."

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

For further information, please visit www.firestonediamonds.comor contact:

Firestone Diamonds plc	[phone]
Paul Bosma
Grant Ferriman
Macquarie Capital (Europe) Limited (Nomad and Broker)	[phone]
Nick Stamp
Nicholas Harland
Tavistock (Public and Investor Relations)	[phone]
Jos Simson
Gareth Tredway
Annabel de Morgan

Background information on Firestone

Firestone is an international diamond mining company with operations in Lesotho. Firestone commenced commercial production in July 2017 at the Liqhobong Diamond Mine. Liqhobong is owned 75% by Firestone and 25% by the Government of Lesotho. Lesotho is one of Africa's significant new diamond producers, hosting Gem Diamonds' Letšeng Mine, Firestone's Liqhobong Mine, Namakwa Diamonds' Kao Mine and Lucapa's Mothae Mine.

OPERATIONAL REVIEW FOR THE 6 MONTH PERIOD ENDING 31 DECEMBER 2018

Introduction

The strong operational performance achieved in 2018, Liqhobong's first full year of commercial production, continued into the first half of 2019. Tonnages treated for the period were in‐line with expectation despite unscheduled repair work on one of the scrubbers which resulted in lower throughput for a short time.

During the first quarter, there was an unfortunate lost time injury after having worked 6.7 million injury‐free man hours. Thankfully the incident was not too serious with the employee returning to work three days later. The Company takes safety very seriously and no lost time injuries were recorded since then.

The demand for smaller diamonds, below 3 grainers (<0.66ct), remained subdued during the first 6 months of the financial year, mainly as a result of pressure on the Indian midstream. This led to a lower average value achieved of US$71 per carat for the period. Pleasingly there continued to be strong demand for our special diamonds during the period.

Production

Production	H1 2019	H1 2018	FY2018
Ore (tonnes)	1 896 575	1 907 795	3 802 568
Waste (tonnes)	1 863 164	1 488 073	2 910 636

Total (tonnes)	3 759 739	3 395 868	6 713 204
Carats recovered (carats)	465 680	379 716	835 832
Grade (carats per hundred tonnes)	24.6	19.9	22.0

The strong operational performance at the end of the 2018 financial year continued into the early part of the current financial year, resulting once again in a solid operational performance.

Liqhobong treated 1,896,575 tonnes of ore during the period which was marginally lower than the 1,907,795 tonnes treated in H1 2018, despite experiencing a period of approximately 3 weeks of reduced production throughput as a result of unscheduled repair work that was required on one of the two scrubbers during November 2018.

The average grade was higher during the period at 24.6 carats per hundred tonnes ("cpht") compared to 19.9 cpht in H1 2018, mainly due to treating proportionately more of the higher grade ore blocks in the southern part of the open pit. The higher grade resulted in 23% more carats recovered for the period of 465,680 compared to 379,716 carats in H1 2018.

A total of 1,863,164 tonnes of waste was mined during the period compared to 1,488,073 tonnes in H1 2018 as waste stripping of Cut 2 south commenced and new access roads and excavation platforms were established. The establishment of the new access roads and platforms took longer than expected due to the steep topography of the Cut 2 work area, resulting in fewer waste tonnes mined than expected.

Life of mine

During the period, the work on the Life of Mine ("LOM") plan was completed to determine the viability of a Cut 3 extension based on optimised slope angles. The results indicated that a Cut 3 could increase the life of mine by 3 years and result in 40% more carats compared to the current 8 year mine plan. However, at the current average diamond values realised and based on current economic assumptions, the cost of the additional Cut 3 waste tonnes renders the extension uneconomically viable at this stage.

The Company will however keep under review the option to extend the mine life should economic conditions, particularly the average value per carat and projected price growth assumptions, improve. The Company retains the ability to revert to the longer term plan until FY2021, after which time a mine life extension would become significantly more costly due to the increased amount of waste tonnes that would need to be mined.

Health and safety

The Company considers the health and safety of its employees and contractors a top priority as the results indicate. Liqhobong recorded its first lost time injury during the period having worked a total of 6.7 million man‐hours since project commencement in July 2014. Fortunately, the incident was not too serious. The operational team will continue to focus on safety in the workplace as a priority in an effort to maintain the exemplary safety record.

Diamond sales

Diamond sales	H1 2019	H1 2018	FY2018
Diamonds sold (carats)	385 941	352 272	831 638
Revenue (US$'m)	27.4	26.0	62.2
Average value (US$/ct)	71	74	75
Number of sales	3	4	8

A total of 385,941 carats were sold across three sales during the period compared to 352,272 carats across four sales during H1 2018. Total sales for the period of US$27.4 million was marginally higher than sales of US$26.0 million in H1 2018 despite a lower average value realised of US$71/ct (H1 2018: US$74/ct) as a result of the higher quantity of carats sold. The lower average value realised during the period was due mainly to the decrease in prices for run of mine production (minus 3 grainers), which comprises approximately 80% of Liqhobong's production, as a result of pressure on the Indian midstream due to a weaker local currency, high inventory levels and reduced lending into the industry. Pricing for larger, more valuable diamonds remained robust during the period as evidenced by a 68 carat white makeable which sold for more than US$900k.

Operating costs

Management is committed to stringent cost management and as a result, cash operating costs for the period of US$10.96 per tonne treated were lower than H1 2018 of US$11.97 per tonne treated. The lower cash operating cost per tonne treated can mainly be attributed to the weaker local currency, the Lesotho Maloti which was 5% weaker against the dollar at LSL14.15:US$1 for the period compared to LSL13.42:US$1 in H1 2018, and also to the fewer waste tonnes mined in the period.

The accounting cost per tonne treated includes non‐cash items such as depreciation and amortisation charges and amounted to US$13.37 per tonnes treated which was significantly lower than the cost per tonne treated in H1 2018 of US$16.32.

Cost per tonne treated (US$/tonne)	H1 2019	H1 2018	FY2018
Cash operating cost (incl. waste)	10.96	11.97	11.62
Accounting cost	13.37	16.32	14.45

Cashflow

During the period, the Group generated cash of US$6.7 million from operations including waste stripping costs, which compared favourably

to H1 2018 of US$2.1 million after adjusting for US$6.7 million of capitalised waste stripping costs. A decrease in working capital of US$4.1 million, which was mainly due to the receipt of the June 2018 sale proceeds in July 2018, resulted in net cash flow from operating activities of US$10.8 million (H1 2018: US$4.1 million). The cash generated was sufficient to fund US$0.7 million of stay in business capital at Liqhobong and net debt service costs of US$2.4 million, resulting in a net increase in cash of US$7.7 million for the period (H1 2018: net increase in cash of US$12.2 million after net proceeds from a capital raise and Series A Eurobond facility of US$26.0 million).

The Group ended the period with a cash balance of US$26.2 million (H1 2018: US$29.7 million).

Impairment of BK11

The value of the BK11 asset, which is no longer considered core to the Group's business, was impaired by US$2.2 million during the period.

Conclusion

The Group has once again performed well from an operational perspective with all of its key metrics on track to meet guidance by the year‐ end. We have demonstrated that the production plant is capable of treating ore at rates exceeding its nameplate capacity which has assisted in making up processing shortfalls which have resulted from unexpected interruptions as mentioned previously. Mine development is slightly behind schedule, however plans are in place to increase waste mining over the coming months and we expect to achieve our guidance range of between 4.3mt and 4.8mt by the year‐end.

Operating costs remain well managed and even though we anticipate an increase over the second half of the year due to higher waste tonnages, we still expect these to remain well below the lower end of guidance of between US$15 and US$16 per tonne treated.

The average value realised for the three sales during the first half of the financial year was disappointing and unfortunately mainly the result of a downturn in the market for smaller diamonds. On a positive note, we saw a modest improvement in pricing for this segment at the recent sale and are hopeful that this trend will continue as the over‐stocking works its way through the pipeline. Despite the weaker pricing environment, the Group generated positive cash flow of US$6.7 million from operations during the period. Pleasingly, pricing has remained robust for the larger, better quality diamonds.

Consolidated Statement of Comprehensive Income For the six months ended 31 December 2018 (Unaudited)

		6 months		6 months
		ended		ended		Year ended
		31 December		31 December
		2018		2017		30 June 2018
		Unaudited		Unaudited		Audited
	Note	US$'000		US$'000		US$'000
Revenue	2	27 382		25 990		62 246
Cost of sales		21 945		23 415		57 116
Gross Profit		5 437		2 575		5 130
Other income		764		443		1 267
Total administrative expenses		8 185		6 977		13 707
Other administrative expenses		1 144		957		1 784
Diamond royalty and selling expenses		1 800		1 674		4 318
Impairment charge	3	2 239		‐		‐
Amortisation and depreciation		1 069		1 252		2 408
Share‐based payments		391		1 464		1 345
Care and maintenance		120		‐		485
Corporate expenses		1 422		1 630		3 367
Loss before finance charges and income tax		(1 984)		(3 959)		(7 310)
Finance income		697		67		794
Finance costs	4	5 385		6 427		11 021
Loss before tax		(6 672)		(10 319)		(17 537)
Taxation credit	5	25		2 569		3 304
Loss after tax for the period		(6 647)		(7 750)		(14 233)
Loss after tax for the period attributable to:
Owners of the parent		(6 794)		(7 180)		(11 635)

Non‐controlling interest			147		(570)		(2 598)
Loss after tax for the period			(6 647)		(7 750)		(14 233)
Other comprehensive income:
Items that may be reclassified subsequently
to profit and loss
Exchange gains on translating foreign
operations net of tax			(5 436)		5 540		(7 426)
Profit on cash flow hedges			(79)		349		791
Other comprehensive income			(5 515)		5 889		(6 635)
Total comprehensive loss for the period
			(12 162)		(1 861)		(20 868)
Total comprehensive loss for the period
attributable to:
Owners of the parent			(10 635)		(2 790)		(16 432)
Non‐controlling interests			(1 527)		929		(4 436)
Total comprehensive loss for the period			(12 162)		(1 861)		(20 868)
Loss per share
Basic and diluted loss per share (US cents)	6		(1.3)		(2.2)		(2.8)
Consolidated Statement of Financial Position
As at 31 December 2018
(Unaudited)			31 December		31 December
			2018		2017		30 June 2018
			Unaudited		Unaudited		Audited
ASSETS	Note		US$'000		US$'000		US$'000
Non‐current assets
Property, plant and equipment	7		89 274		119 859		101 220
Deferred tax	8		6 058		6 627		6 501
Loan receivable			754		‐		487
Total non‐current assets			96 086		126 486		108 208
Current assets
Inventories	9		9 724		9 961		5 881
Trade and other receivables			1 916		3 001		13 288
Other financial assets			172		‐		265
Cash and cash equivalents			26 230		29 688		18 421
Total current assets			38 042		42 650		37 855
Total assets			134 128		169 136		146 063
EQUITY
Share capital	10		166 469		166 094		166 239
Share premium			192 191		190 056		191 201
Reserves			(27 532)		(14 280)		(24 201)
Accumulated losses			(262 271)		(252 587)		(255 607)
Total equity attributable to equity
holders of the parent			68 857		89 283		77 632
Non‐controlling interests			(48 157)		(41 265)		(46 630)
Total equity			20 700		48 018		31 002

LIABILITIES

Non‐current liabilities

Borrowings11 Provisions

Total non‐current liabilities

Current liabilities

Borrowings11 Other financial liabilities

Trade and other payables Provisions

Total current liabilities

Total liabilities

90 596	99 169	94 225
4 277	4 566	4 313
94 873	103 735	98 538
6 628	285	2 143
‐	24	‐
11 457	16 625	14 055
470	449	325
18 555	17 383	16 523
113 428	121 118	115 061