FIRESTONE Diamonds lost $1.1m renting diesel generators whilst its Liqhobong mine in Lesotho was without grid power in October.
The UK-listed diamond miner said in an announcement today that it would submit an insurance claim for the sum. As of end November, Firestone Diamonds had a cash balance of $17m of which $9.3m was unrestricted.
The mine was without power from the grid following a two month shut down of the Muela Hydropower station which is operated by the Lesotho Electricity Company. Power from the station was restored on December 1.
In order to keep the processing facilities at Liqhobong operating at around 80% to 90% of capacity, Firestone Diamonds commissioned diesel generators. But the power interruption did mean processing facilities were not operating for about 25 days in October.
Firestone Diamonds said: “… an insurance claim in respect of the loss of profit and the additional operating costs is in the process of being compiled”. Shares in the company were more than 170% strong today recovering partially some of the collapse in value from about 12 months ago.
The production interruptions, and hike in power costs, came at an awkward time for Firestone amid poor diamond market conditions and pressure on the company to repay debt this financial year. It said in July that it planned to repay $10.2m in debt to South African bank, ABSA. This would be financed from operating cash flow and existing cash resources, which stood at $26.3m as of the year-end.
Operating costs were already expected to be higher in the 2020 financial year compared to 2019 owing to increased waste stripping.
Firestone said previously that production for the 2020 financial year would be between 820,000 and 870,000 carats – the same as 2019 guidance. Production for 2019 came in at the low end of guidance at some 829,458 carats.
In April, the company iced plans to expand the life of its Liqhobong mine in Lesotho owing to market conditions that it said did not currently support the project.
Commenting on the viability of the Cut 3 extension, Firestone Diamonds CEO, Paul Bosma, said in April the results from the project study indicated a life of mine extension of three years and 40% more carats compared to the current eight-year mine plan.
“However, at the current average diamond values realised and based on current economic assumptions, the cost of the additional Cut 3 waste tonnes renders the extension uneconomically viable at this stage,” he said.
The jury is out on whether the diamond market will recover next year.
A lack of credit to the midstream of the diamond sector – cutters and polishers – has seen appetite for new rough diamond purchases from the likes of De Beers decline, according to a report today by the Financial Times.
The Anglo American subsidiary is due for its worst sales in four years, the newspaper said. The mid-stream is focusing on running down inventories instead, despite De Beers having dropped rough diamond prices 5% recently, its largest discount in years.