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Firestone Raising Cash After Price Drop
Dec 4, 2017 6:49 AM
By Rapaport News
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RAPAPORT... Firestone Diamonds is looking to raise $25 million (GBP 18.5
million) to fund operations at its Liqhobong mine in Lesotho after weak rough
prices drove the company to a loss and forced it to rethink its plan for the
asset.
Disappointing demand resulted in the miner achieving an
average price of only $77 per carat in its fourth fiscal quarter, the company
explained in a statement last week. This brought the total average for the financial
year that ended June 30 to $90 per carat, compared with an original
estimate of $107 per carat, it said.
When the mine’s value dropped as a result of the
lower-than-expected prices, Firestone incurred an “impairment charge” of $122.6
million, meaning the devaluation counted against the company’s profits. This
led the producer to a loss of $120.3 million for the fiscal year, versus a loss
of $6.4 million the previous year. The miner also reduced Liqhobong’s annual
production estimate to 800,000 carats from 1 million carats.
To raise the cash it needs, Firestone will
issue new shares at $0.13 (GBP 0.10), a 49% discount to its November 30 closing
stock price of $0.27 (GBP 0.20). The company has also reached an
agreement with its lender, the South Africa-based ABSA Bank, to defer debt
repayments from January 1, 2018, to June 30, 2019.
In addition to paying back those debts, the company will use
the extra money to fund mining, and to provide “headroom” while prices remain
subdued, enabling it to get a better understanding of the mine’s ore body, it
said.
At press time, Firestone’s share price on the London Stock
Exchange’s Alternative Investment Market had dived 39% since the announcement.
Under the new mining plan, Firestone estimates the asset will
remain in operation for nine years, compared with a previous projection of 14
years. It also lowered its estimate of the total volume of rough diamonds in
the mine to 7.7 million carats from 13.9 million carats.
“The
weaker-than-expected diamond market, together with our lower-than-anticipated
recovery of higher-value diamonds, has put pressure on our cash reserves and
meant that we have had to raise additional equity and restructure our debt in
order to be able to adopt a revised mining plan,” Firestone CEO Stuart Brown
said.
That plan “seeks to maximize cash flow in the shorter term
while we address the issues affecting value recovered,” he added.
Production at Liqhobong started last year, with the first
sale taking place in February of this year. During the latest fiscal year,
Firestone sold 310,376 carats for a total of $27.8 million.
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Tags:
ABSA Bank, Firestone, Lesotho, Liqhobong, Liqhobong mine, Production, Rapaport News, rough prices, stuart brown
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