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Firestone Raising Cash After Price Drop

Shares dive as miner reports wider loss.
Dec 4, 2017 6:49 AM   By Rapaport News
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Firestone Diamonds is looking to raise $25 million (GBP 18.5 million) to fund operations at its Liqhobong mine in Lesotho after weak rough prices drove the company to a loss and forced it to rethink its plan for the asset.

Disappointing demand resulted in the miner achieving an average price of only $77 per carat in its fourth fiscal quarter, the company explained in a statement last week. This brought the total average for the financial year that ended June 30 to $90 per carat, compared with an original estimate of $107 per carat, it said.

When the mine’s value dropped as a result of the lower-than-expected prices, Firestone incurred an “impairment charge” of $122.6 million, meaning the devaluation counted against the company’s profits. This led the producer to a loss of $120.3 million for the fiscal year, versus a loss of $6.4 million the previous year. The miner also reduced Liqhobong’s annual production estimate to 800,000 carats from 1 million carats.

To raise the cash it needs, Firestone will issue new shares at $0.13 (GBP 0.10), a 49% discount to its November 30 closing stock price of $0.27 (GBP 0.20). The company has also reached an agreement with its lender, the South Africa-based ABSA Bank, to defer debt repayments from January 1, 2018, to June 30, 2019.

In addition to paying back those debts, the company will use the extra money to fund mining, and to provide “headroom” while prices remain subdued, enabling it to get a better understanding of the mine’s ore body, it said.

At press time, Firestone’s share price on the London Stock Exchange’s Alternative Investment Market had dived 39% since the announcement.

Under the new mining plan, Firestone estimates the asset will remain in operation for nine years, compared with a previous projection of 14 years. It also lowered its estimate of the total volume of rough diamonds in the mine to 7.7 million carats from 13.9 million carats.

“The weaker-than-expected diamond market, together with our lower-than-anticipated recovery of higher-value diamonds, has put pressure on our cash reserves and meant that we have had to raise additional equity and restructure our debt in order to be able to adopt a revised mining plan,” Firestone CEO Stuart Brown said.

That plan “seeks to maximize cash flow in the shorter term while we address the issues affecting value recovered,” he added.

Production at Liqhobong started last year, with the first sale taking place in February of this year. During the latest fiscal year, Firestone sold 310,376 carats for a total of $27.8 million.
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Tags: ABSA Bank, Firestone, Lesotho, Liqhobong, Liqhobong mine, Production, Rapaport News, rough prices, stuart brown
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