Firestone to wait out low prices

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

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

Firestone, a London Stock Exchange Alternative Investment Market (AIM)-traded firm, 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 carats of diamonds a year, is not a major producer but is home to the world’s most valuable and consistently large diamonds, 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, said CEO Paul Bosma.

It has restructured the bulk of its debt with Absa bank, 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.

“For us, we have no choice but to bunker down and survive at $75/carat. We are ensuring our balance sheet is bulletproof,” 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 cashflush companies hold the upper hand, but Firestone wants to remain a diamond producer.

Part of the plan is to hire a highly specialised machine to check if the plant’s X-ray sorters miss any diamonds that do not fluoresce and are missed, ending up on the tailing dump. Nearby Letseng nearly missed a 900-carat rough diamond because the gem had not 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, lowervalue diamonds, which means Firestone is heavily exposed to the downturn in diamond prices that 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, purchases of the smaller stones by India’s cutters and polishers have slowed because of difficulties in securing working capital after two industry scandals.

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

WE RESTRUCTURED THE BULK OF OUR DEBT, PAYING JUST INTEREST FOR 18 MONTHS, AND ARE IN TALKS WITH TWO CORE INVESTORS