Firestone Diamonds to ride out low-price doldrums

Firestone Diamonds has decided to lie low as it waits for a price recovery in small diamonds and the closure of the Rio Tinto’s Argyle mine to spur the improvement.

Firestone, a London Stock Exchange Alternative Investment Market (AIM)-traded company, recently finished building the $185m Liqhobong diamond mine in Lesotho, becoming the fourth mine within a 50km radius to come into production, leading to heightened expectations of consolidation of the separately owned operations.

Lesotho, which generates roughly 1.5-million diamonds carats a year, is not a major producer of diamonds but it is home to the world’s most valuable and consistently large diamonds, which come predominantly from London-listed Gem Diamonds’ Letseng mine high in the Maluti mountains.

Firestone, which will produce up to 870,000 carats, is prepared to sit out average prices of $75/carat, having restructured the bulk of its debt with banking group Absa, paying just interest for 18 months, and it is in talks with its two cornerstone investors to restructure their bonds to give the company the critical space to wait for a recovery in prices, said CEO Paul Bosma.

“For us, we have no choice but to bunker down and survive at $75/carat. We are ensuring our balance sheet is bullet proof,” he said in an interview on the sidelines of the Investing in Africa Mining Indaba.

Firestone has $26m of cash after a $25m rights issue late in 2018. That money will remain untouched and allow it to sit out the low-price environment, he said, pointing out “our operations are washing their face at these levels ... This is going to be another tough year. I can’t see prices recovering yet”.

Asked where Firestone would be placed in a consolidation process, Bosma said it is cash-flush companies that hold the upper hand, but Firestone wants to remain a diamond producer.

Specialised machinery

As part of the plan is the hiring of a highly specialised machine to check if the plant’s X-ray sorters miss any diamonds that don’t fluoresce and are missed, ending up on the tailing dump. Nearby, Letseng nearly missed a 900-carat rough diamond because it hadn’t fluoresced when hit by X-rays.

Firestone will develop a better understanding of the two portions of its pit that it extracts in six-month cycles to adapt to the wet and dry periods.

While the grade is fairly well understood, the value of the diamonds contained in the northern block need a better understanding, Bosma said. About 80% of Liqhobong’s production is  classified as small, lower value diamonds, which mean Firestone is heavily exposed to the downturn in diamond prices, which is affecting all miners, including giants such as De Beers and Alrosa.

Part of the reason for the drop in prices is the development of three new mines in the past two years, which have added about 10-million carats to world supply. Meanwhile, buying of the smaller stones by India’s cutters and polishers has slowed because of difficulties in securing working capital after two scandals in the industry there.

Jewellers have moved to a system of only paying for diamonds once they are sold, further squeezing India’s cutters and polishers and leading to reduced consumption.

Many diamond miners are hoping for some respite in the next few years as Argyle, once a source of 50-million carats a year, starts closing from 2021, taking about 10-million carats a year of diamonds off the market, said Bosma.

seccombea@bdfm.co.za