Firestone Diamonds – springboard to success

Botswana is home to Orapa, the largest kimberlite diamond mine in the world …owned and operated by Debswana, the joint venture between De Beers and the Botswana government. Debswana also operate two smaller mines in the Orapa cluster at Letlhakane and Damtshaa. The Orapa field is prolific: around 10% of its kimberlites are not only diamondiferous but are also economically mineable – unusual by comparison with the international average of 1%.

Virtually all of the Orapa kimberlite field is staked, and no-one’s landholding is now larger than that of Firestone Diamonds (AIM:FDI), whose 14,000 sq kilometres contain what will in Q2 of this year become the fourth diamond mine in the Orapa cluster, the BK11 kimberlite.

Originally discovered by De Beers in 1974, BK11 was initially sampled at 16 cpht, which in those days was very small beer for De Beers. The kimberlite was later vended into the Boteti joint venture between De Beers and African Diamonds, but limited sampling failed to yield definitive results before their prospecting licence expired.  BK11 was secured by Firestone in March 2007 and a speedy but thorough programme of evaluation and development over the last three years has resulted in the definition of an economically mineable deposit now ready for exploitation. Accordingly, BK11 will shortly join Orapa, Damtshaa and Letlhakane as Botswana’s fourth operating diamond mine. 

In common with both Orapa and Jwaneng, the western portion of the 8 ha pipe hosts a higher grade unit – known as KW – which will be the initial focus of mining operations. Resources so far defined comprise 12 million tonnes containing 800,000 carats to a depth of to 120 metres; which includes six million tonnes in the KW area, where the average grade is 10 carats per hundred tonnes (cpht). An additional six million tonnes containing 200,000 carats lies beneath this upper envelope, between 120-250 metres, where there is ample opportunity to increase the resource. Gem-quality diamonds dominate this deposit: overall carat value has been independently assessed at current prices to be $137 per carat, with the KW zone generating $157 per carat – high by comparison with the values at Orapa, and only a little below the $180 previously generated by Debswana’s Jwaneng, said to be the richest diamond mine in the world.

Costs at BK11 are low. Not only has the company slashed its capex requirement by refurbishing and re-using existing plant – which they had retained following the termination of their Bonte Koe alluvial tolling contract with De Beers - but it will benefit from very well-established infrastructure in the region, often a major cost element in establishing and operating a new mine. Firestone anticipate that the upper level of the KW zone (KWU) will generate revenue of $16 per tonne at operating costs of just $6.50 per tonne. When full production of 1.5 million tonnes pa is reached – expected before the end of the calendar year – broker Mirabaud expects a revenue stream of US$22.1m in the first full year of production (FY2011) and with operating costs starting at ~US$7.00/t, forecast operating margins of 46.5%.   Firestone have financed their Botswana partners to production and thus been able to earn a further 10% of the project, giving them an attributable share of 90%. And – unusually in this day and age – the entire mine development programme has been fully funded from Firestone’s treasury, following last summer’s 20p placing.

It’s quite an achievement for an AIM-listed junior. Not only will Firestone soon join the ranks of the world’s exclusive club of kimberlite miners, they have achieved this without penalising shareholders with massive dilution, nor have they hung debt for the future around the company’s neck.

But BK11 is only the springboard. Just as Debswana’s Damtshaa mine harnesses the output of a number of different kimberlites, so will BK11 act as the hub for the rest of Firestone’s Orapa portfolio, which now contains 18 kimberlites, a dozen of which are diamondiferous, and many of which could act as low-cost satellite pipes for a central processing operation.  Even a low-grade pipe or a high grade zone of a pipe, which might be uneconomic as a stand-alone mine, would be worthy of development in this scenario.

BK16 is the next pipe due for evaluation during 2010, and initial assessment has indicated potential for grades and values similar to those of BK11. Lying just 12km to the north of the Letlhakane mine, BK16 was discovered by De Beers in the 1970's and a grade of 15 cpht was reported from bulk sampling. As at BK11, stones recovered during sampling were predominantly high quality white gemstones, which the company anticipates may be valued similarly. Based on a review of historic and current sampling data and geophysical surveys, Firestone believe BK16 could contain around 17 million tonnes of kimberlite to a depth of 200 metres. Work planned for 2010 includes large diameter drill bulk sampling in order to provide an estimate of grade and diamond value. The pipe is subject to an earn-in from SouthernEra International – a 100% subsidiary of Mwana Africa - under which Firestone can attain an 87.5% interest in return for funding all development through to a feasibility study.

Firestone have also recently announced a joint venture with Tawana Resources, another specialist diamond exploration company who own eight kimberlites – BK19-BK26 - in the Orapa field, as well as 1,500 sq km of highly prospective ground in the Francistown area. The terms of the deal are that Firestone can earn 70% of each kimberlite that they fund through to first stage bulk sampling. Following that point, Tawana can choose to fund further development in proportion to their equity, or if they elect not to, Firestone can continue funding to the point of a production decision to earn a further 15%. All the Tawana kimberlites are known to contain diamonds, although there has been limited exploration until now.

The largest and most interesting of the Tawana pipes is BK24 - some 40 km from BK11 – with an estimated area of over 3 ha. The top 25-30 metres of the pipe is predominantly a basalt breccia, containing very little kimberlite material. Hence, the previous recovery of macrodiamonds from this shallow layer during pitting exercises bodes extremely well for the content of the fresh, undiluted rock which lies below. Grades from limited sampling showed up to 5 cpht, and once BK11 is up and running, Firestone plan to press ahead with large diameter drilling at BK24 to collect further samples for evaluation. Geophysical surveys and core drilling on the remaining kimberlites are also planned, to determine whether any of them warrant LDD sampling.

But not content with putting a new mine into operation and conducting an extensive exploration programme to develop potential satellite mines, Firestone are active on a number of other fronts.

They have just been selected, after a two year bidding process, to be the preferred supplier and operator of the Dredge and Floating Treatment Plant (FTP) planned by Namdeb – the JV between the Namibian government and De Beers - for their Namibian coastal alluvial diamond deposits. These deposits consist of diamond-bearing gravels that have washed down from the hinterland and have accumulated over millions of years, both as beach “benches” and extending out to sea. The FTP is an integrated production unit that will dredge overburden from both on-shore and shallow sub-sea diamondiferous gravels and treat the gravels using a floating treatment plant in a single synchronous operation, resulting in lower operational costs. Envisaged for use in Namdeb’s Mining Area 1 close to the mouth of the Orange River, the FTP will have a target production capacity of 11.5 million tonnes per annum and will be designed for a minimum 15 year life, commencing in 2012. Firestone are currently working with Namdeb to finalise a pre-feasibility study, which – once approved by the Namdeb board – will result in formal contracts for Firestone to build and operate the FTP on a toll-treatment basis.

Further evidence of the close relationship Firestone have built with De Beers over the years is the Jwaneng tailings project, where – subject to feasibility - Firestone will build and operate a modular tailings recovery plant for Debswana, which if successful, could be rolled out to other Debswana operations in the future.

Add to this a controlling position in the Tsabong kimberlite province, where 14 out of 95 kimberlites are already showing diamond potential and the MK1 kimberlite – at 180 ha - exceeds Orapa in size, plus 100% ownership of 6,000 sq km of ground in the Jwaneng area, and Firestone emerges as a positive force in Botswana, rivalled only by De Beers in its landholdings and prospectivity.

From a junior handling other people’s alluvials in South Africa to the second ever – and only independent - kimberlite miner in Botswana and one of only three junior kimberlite miners in the world is a big jump. But Firestone have done it, and seemingly, have many more jumps to make.

http://www.proactiveinvestors.com.au/companies/news/5974/firestone-diamonds-springboard-to-success-5974.html