investor presentation - firestone diamondsinvestor presentation february 2019 liqhobong diamond mine...

Investor Presentation

February 2019

Liqhobong Diamond Mine

Key Facts

Firestone Diamonds is an AIM-listed (AIM: FDI) diamond mining company and holds a 75%

interest in the Liqhobong Diamond Mine, located in the Lesotho highlands, with its 25% partner,

the Government of Lesotho

Early 2014 US$222m raised to fund project comprising US$100m equity and the remainder debt

Construction of the mine completed early Q4 2016, ahead of revised schedule and on budget

(US$185.4m)

Firestone joined the short list of new diamond producers in late October 2016 when first diamond

recoveries commenced. Declared commercial production from 1 July 2017

Challenges when prices were lower than anticipated

As a result, at the end of 2017, a new shorter life mine plan was developed, US$25m capital

raised and debt payment rescheduled to to provide a more appropriate capital profile for

Liqhobong’s full ramp up during which better understanding of the deposit would be obtained

Target to treat 3.6 million tonnes of ore and recover approximately 0.9 million carats per annum

Considerable upside at current market value if diamond prices improve and more valuable stones

are recovered

Firestone Diamonds is currently undervalued and particularly well-positioned to

benefit from a recovery in diamond prices as markets recover

Investment Highlights

• Excellent operational and safety track record

• Very low cost operation

• Supportive cornerstone investors

• Large mineral resource with LOM extension option

• Competent management team

• US$26.2 million cash on hand as at 31 December 2018

3

Satellite pipe 1.6 ha

Main pipe 8.6 ha

Discovery blow 0.15 ha

Blow 0.1 ha

Dyke 2.5 km strike

Liqhobong Mine is in close proximity to Letseng, Mothae and Kao

mines situated in the WNW trending Lemphane – Robert

kimberlite belt occurring in the northern part of Lesotho. With at

least 439 kimberlite occurrences and an average of a kimberlite

body every 25km2 in the Belt.

Location – Liqhobong Diamond Mine

Site Layout

4

Main Pit

RSF 2

Satellite Pit

RSF 1

RSF 3

Seepage Dam

Office Block

Accommodation

Blow

RWD 2

RWD 1

Primary Crusher

Ore Stockpile

EMV workshop

Engineering

workshop

Scrubbers and

Tertiary crushers

Kitchen

Secondary

crushers

DMS

Thickener

Tailings

discharge

conveyor

Waste

haulroadWaste

tipping platform

Ore

haulroad

Successful first full year of production in 2018. Currently on track to meet market guidance

for FY2019.

Operational targets, on track to meet guidance

Production Results – H1-FY2019

80% overall plant utilisation (H1-FY2018: 83%)

1.9 Mt of ore treated (H1-FY2018: 1.9Mt)

465 680 cts recovered (H1-FYY2018: 379 716cts)

1.9 Mt of waste mined (H1-FY2018: 1.5Mt)

Cash Operating cost per tonne treated (incl. waste) of

US$10.96 (H1-FY2018: US$11.90)

Liqhobong safety record of one LTI since project

commencement in 2014

Operational performance - tonnes and grade

Operational performance – diamond production

FY2017 FY2019

FY2017 FY2018

0344

697926 945 963 869

1 026 1 012 884

392

422

416

555861

627

419

1 003 961902

0

5

10

15

20

25

30

0

500

1 000

1 500

2 000

2 500

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Ca

rats

pe

r hu

nd

red

ton

ne

s

To

nn

es (

00

0's

)

Ore

Waste

Grade

FY2018

FY2019

Financial

• Revenue of US$27.4 million from 385 941

carats sold at an average value of

US$71/ct (FY2018: US$75/ct)

• Costs of US$10.96 per tonne treated

including waste stripping (FY2018:

US$11.62)

• Cash generated from operations of

US$6.3 million (FY2018: US$8.1 million)

• Mine operations remain cash positive

• Cash balance at period end of US$26.2

million (FY2018: US$18.4 million)

Financial Results – H1-FY2019 (31 December 2018)

Diamond Sales

Average value per carat impacted by:

• Frequency of larger and better quality diamonds

• Market weakness due to pressure on the Indian

midstream

FY2018FY2017 FY2019

H1-FY2019 Cash Flow

KEY ITEMS

• US$6.3 million generated by operations (2018: US$8.1 million)

• US$2.4 million interest paid

• US$4.7 million working capital inflow

• US$26.2 million closing cash (2018: US$18.4 million)

Consolidated cash flow

Half year to end-December 2018

US$11/t treated Q2 2018 operating cost remains below

guidance due to continued strong operating

cost management and favourable exchange

rate

1,896,575t treated Ahead of guidance at half year

385,941 carats sold Generating proceeds of US$13.9 million

(Q1: US$13.5 million)

US$26.2 million cash

balance(Q1: US$25,7 million).

465,680 carats Recovered at a grade of 25.4 carats per

hundred tonnes (“cpht”) (Q1: grade of

23.8 cpht)

46 carat white stoneRecovery of a good quality 46 carat

white stone in December 2018

* Includes waste stripping

Solid half year results and on track to meet production guidance

FY2019 Guidance

On track to meet guidance of:

Treating 3.6 - 3.8 million tonnes of ore

Recovering 820 000 - 870 000 carats

Stripping 4.3 – 4.8 million tonnes of waste rock

Total cash costs per tonne treated of US$15-16*

Cost per tonne to move waste of US$3.0 - 3.5*

Rough diamond market expected to remain weak for run of mine product in the

short term but demand for quality stones continues to be strong

For the rest of the FY2019, focus on the northern part of the orebody to confirm

overall diamond value and average US$/ct of the lower grade facies

*based on exchange rate of US$1=ZAR12.50

Some examples of special stones recovered in FY2018

45 caratUS$ 1.19 million

US$ 26,455 per carat

Flawless white clivage


US$ 6,880 per carat

Yellow makeable


US$4,986 per carat

Yellow clivage

30 caratUS$ 0,26 million

US$8,401 per carat

White makeable


US$16,360 per carat

Fancy Vivid Yellow


US$112,781 per carat

Fancy Pink

62 carat US$ 0,36 million

US$5,775 per carat

Yellow Clivage


US$11,518 per carat

Sawable fancy yellow


US$14,764 per carat

Fancy Intense Yellow

52 caratUS$ 0,3 mi;llion

US$5,759 per carat

Yellow Clivage

During FY2018, a number of high value stones were recovered including: our largest stone to date (133 carat light

yellow that sold for US$0.9 million), our second most valuable stone to date (45 carat white that sold for US$1.2

million) and the highest dollar per carat for a stone to date (4 carat fancy pink achieved a sale price of US$112 781

per carat)

Some examples of special stones recovered in FY2019 so far…



Sawable vivid yellow



White makeable



Sawable vivid yellow


US$ 6,877 per carat

Yellow clivage


Largest stone recovered to date

Yellow makeable

As a result of falling

diamond prices,

shorter LOM and a

high level of gearing:

Firestone’s share

price is currently at a

long term low,

implying an equity

value of c.$21m

Cash in company

currently exceeds

market cap

-

5

10

15

20

0.00

0.20

0.40

0.60

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

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Volume Share price

Share price performance (Last 5 Years)

Poor market sentiment due to high gearing and illiquidity of shares

Share Price Performance

Commentary

Announced

placing of

c.185m shares

to raise

US$25m and

debt

restructuring

Announces

review of

current life of

mine plan

Enters into a

conditional option

agreement with

Amulet Diamond for

the disposal of its

Botswana operations

for US$5.1m

Sells c.195kcts for total

sales proceed of

US$13.5m (avg. price

of US$69/ct) during Jul

- Sep 2017 sales cycle

Recovery of first diamonds

and commencement of

production ramp‐up

85% completion of

Liqhobong mine with

initial production to

begin in Q4 2016

Project

construction 49%

complete

Agrees upon a $15m

standby debt facility to be

provided by RCF and the

restructuring of its existing

$30m Mezzanine Facility

with no changes to

commercial terms

Secures $222m funding

package, comprising of

bridge and mezzanine

facilities and equity

subscriptions

Announce the

recovery of a 46

carat white,

makeable diamond

In the last two years, a basket of diamond

producer stocks were down 28.9% in 2018,

following a decline of 17.3% in 2017 . This is

in part due to operational challenges that

most of the miners are dealing with in one

way or another. However, investor sentiment

is also undeniably low by valuation standards

projected by future diamond price

expectations.

Source: Paul Zimnisky

Industry Performance

• Big drop in rough prices from the highs of 2013/2014

• Smaller, lower quality goods under pressure since Indian demonitisation event and again during

2018 mainly due to:


Market Outlook – Short Term

150

170

190

210

230

250

270

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

Ind

ex

Va

lue

Bloomberg Rough Price Index (Since January 2013)

• Oversupply of fines from new mines – Gahcho Kue; Renard;

Liqhobong

• Midstream finance – taken over the burden of stockpiling

rough. Due to growing bad debt, bankruptcies and fraud,

leading western banks withdrawing from market.

• Perceived threat from LGD’s

Lab-grown gem prices are falling and will continue to fall as more supply comes to market due to

low barriers to entry


Market Outlook – Lab Grown Diamonds (LGD’s)

• Retail price of gem-quality LGD’s nearly halved over the last

two years and is expected to further decline as production

efficiency increase and new competitors enter the market

especially from China

• LGD’s likely to follow the same trend as what happened with

lab-grown gemstones (rubies, sapphires, emeralds) that are

sold as custom jewellery at a fraction of the price of the

premium natural product

• Over time it is believed that consumers will view lab-grown

diamonds as fashion jewellery but not luxury goods, limiting

the effect on natural diamond demand

• LGD manufacturers have the greatest potential for long-term

growth and profitability in high-tech applications such as

sensors, semiconductors and medical cutting tools

Dwindling supply of natural diamonds

Source: Paul Zimnisky. Scenario 1 ignores uncertain sources that are uncertain – Lauxe mine (Angola),

Marange deposit (Zimbabwe) and Ekati mine expansion (Canada)

Market Outlook – Near Term

Even in optimistic scenarios, rough diamond production is

expected to decrease in short term due to depletion of

existing mines most notably Argyle mine in 2020 which is

currently producing around 14 Mct per annum of mostly

low value stones

Paul Zimnisky predicts that at current diamond prices, the

global portfolio of diamond mines will shrink from over 50

commercial mines today to an estimated 14 by 2040,

consequently production in carat volume will fall from 145

million carats to roughly 60 million carats.

In order to maintain what is currently a $90 billion natural

diamond jewellery industry, diamond prices would have to

more than double

Demand is still expected to exceed supply in the longer term starting with the imminent closure of

Argyle in 2020

Source: Bain Global Diamond Report 2018

Market Outlook – Long Term

• US expected to continue to lead demand for diamond jewellery with real GDP growth between 2 and 3%

• China and India are the major growth centres

• For rough prices to grow it is essential that demand for natural diamond jewellery is stimulated through

effective marketing

• Bain expects demand to grow between 0 and 2% in real value terms

• Large Mineral Resource – current LOM plan (cut 2)

depletes only 38% of total resource tonnes. Two

years to decide LOM extension (cut 3) based on

slope angles, diamond price and exchange rate

• Market recovery – at current low share price and

market cap, Firestone well positioned to take

advantage of recovery in diamond prices

• Recoveries of special stones – as we continue to

mine deeper the possibility exists that the frequency

of specials can improve

• Operational efficiencies – further improve

throughput and availability

• XRT – investigate incidence of Type 2A stones that

are potentially missed by X-ray technology

• Lesotho consolidation – highest grade mine in

Lesotho with exemplary production record and low

cost structure

Liqhobong Upside Potential

6.5M carat Indicated Resource (at 1.25mm slotted BCO)

11.4M carat Inferred Resource (at 1.25mm slotted BCO)

INDICATED

INFERRED

180m

320m

N S

340m

• Firestone business case very sensitive to average US$ per carat

• An increase of US$10/ct to US$85/ct results in a doubling of the cash position

Liqhobong Upside Potential

$/ct = 75

The graphs below show Firestone cash position at various average $/ct value assumptions at 1.5%

real price growth per annum, M14.50:US$1 exchange rate and repayment of ABSA debt

$/ct = 85 $/ct = 95

Firestone Diamonds is currently undervalued and particularly well-positioned to

benefit from a recovery in diamond prices as markets recover

Investment Summary

• Diamond market and pricing currently at a low point as reflected in most junior diamond

company valuations

• Price recovery expected in the short term as supply reduces mainly due to closure of

Argyle and midstream inventory reduces due to sustained consumer demand

Contact UsFirestone Diamonds plc

The Triangle

5-17 Hammersmith Grove

London W6 0LG

Tel: +44 (0)20 8741 7810

Fax: +44 (0)20 8748 3261

[email protected]

Market information

AIM: FDI

Daily average trading volumes (last 90 days) 89,847

Shares in issue 546,572,318

Free float 22.80%

Share price (22 January 2019) 3.12p

Market capitalisation 17.05m

Major shareholders (January 2019) Directors and officers

Paul Bosma Chief Executive Officer

Lucio Genovese Non-Executive Chairman

Ken Owen Non-Executive Director

Paul Sobie Non-Executive Director

Patrick Meier Non-Executive Director

Niall Young Non-Executive Director

Keith Johnson Non-Executive Director

Grant Ferriman Chief Financial Officer

APPENDIX: Firestone Diamonds capital structure

Shareholder Shares % O/S

RCF 152,571,645 27.91%

Pacific Road 151,976,333 27.81%

Edwards Family Holdings 63,472,355 11.61%

Sustainable Capital 59,128,295 10.82%

Other Shareholders 119,423,690 21.85%

Total 546,572,318 100%

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investor presentation - firestone diamondsinvestor presentation february 2019 liqhobong diamond mine...

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