Firestone under strain on prices

Former financial head of De Beers Stuart Brown is drawing down on all his skills as CE of Londonlisted Firestone Diamonds, which is realising prices far below plan at its new R2.1bn Liqhobong mine in Lesotho, putting the company under financial strain.

Former financial head of De Beer, Stuart Brown is drawing down on all his skills as CE of London-listed Firestone Diamonds, which is realising prices far below plan at its new R2.1bn Liqhobong mine in Lesotho, putting the company under financial strain.

Fresh from agreeing to a delay in the implementation of debt-facility covenants regarding an $82.4m facility with Absa, Firestone, which is traded on London’s Alternative Investments Market, said on Friday it needed extra money and had to restructure its debt obligations.

The Liqhobong mine is producing diamonds realising well below what Firestone planned in setting up the mine and securing finance for it, causing financial stress and forcing a change to the plan to source higher-value diamonds.

Liqhobong diamonds have realised an average of just $69 per carat compared with expectations of $107 per carat that was mapped out in the bankable feasibility study.

The new mine plan will be based on a fresh forecast price per carat, which will be lower than $107 per carat. The market punished Firestone on Friday in London, sending the share price down 31%, leaving it with a market capitalisation of £62m.

Firestone’s average realised diamond price has been steadily sliding, noted Yuen Low, an analyst with Shore Capital, pointing out that the 195,300 carats sold for $13.5m in July and September had reached an average of $69 per carat compared to the 2017 financial year’s $90 per carat average.

“All things considered, although the share price has already halved since the start of calendar year 2017, we would not be surprised to see the shares sink further,” Low said on Friday. The weakness in the share price would make a rights issue expensive and dilute existing shareholders heavily.

Firestone said in August it had lowered its full-year production forecast from the mine until the end of June 2018 to between 800,000 and 850,000 carats, down from the 1-millioncarat target it had set. It warned that the reduction would affect revenues negatively.

Coupled with lower-thanexpected prices per carat, Firestone has been forced to consider financing options. The company said it had been in “productive discussions with both its major shareholders and its debt provider Absa with a view to reaching a solution”.