SHARES in Firestone Diamonds, the UK-listed operator of Lesotho’s Liqhobong diamond mine, gained up to 12% today after the company’s revenue-generating potential was demonstrated with a yellow ‘fancy’ gem recovery weighing in at 110 carats.
Analysts said the diamond find was a promising signal for the company and follows a 37 carat discovery during the first months of production at Lighobong which began in October following $185m in project expenditure.
“With a global lack of new diamond mine projects post 2018, we see long-term scarcity value in Firestone and the short list of investable midcap diamond producers,” said Macquarie in a note to clients.
“The recovery of fancy yellow diamonds during early production at the mine is an important indicator that there may be significant upside to our base case $107/carat price forecast,” it added.
Firestone CEO, Stuart Brown, said earlier today that the discovery of the yellow gem was “a very exciting and encouraging accomplishment. It confirms our long held belief that Liqhobong has large stone potential”.
Liqhobong was re-engineering by Firestone Diamonds after it bought the asset in 2010 from Mopane Diamonds. It subsequently raised $224.4m in 2014 to build the mine with construction starting in July 2014. Today’s diamond recovery offsets earlier ramp-up problems encountered at the mine.
Investec Securities said it looked “with great anticipation” regarding the price that could be obtained for the diamond as it may alleviate pressure on Firestone’s balance sheet and reduce any need to draw down on a $15m standby facility.
“This is an excellent result for the company to have so quickly recovered a large coloured stone, highlighting the potential for balance sheet transforming stones,” it said.
At 110 carats, however, the yellow gem is fairly lightweight compared to the giant 1,109 carat diamond discovered by Lucara Diamond Company at its Mothae mine in Botswana. It was the largest gem to have been unearthed in more than a century.
Said UK brokerage Mirabaud: “Although it would be premature to try to put a value on this particular stone, it will obviously make a welcome additional contribution to near-term revenues and average sales prices per carat”.
“More importantly, to find such a large stone so early in the mine’s life provides strong support to a central element of the investment thesis for FDI: that over the course of the mine’s life it will recover a significant number of high-value stones that will boost average revenues beyond the base-case assumptions in the mine plan and feasibility study,” it said.
Shares in Firestone Diamonds were last at 49.68 pence per share, a gain of 11% on the previous days close. Trade in peer group firms was relatively sedate with shares in GEM Diamonds, Petra up 0.8% and unchanged respectively.
