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Profile: Stuart Brown

Jan 26, 2014 5:23 AM   By Rapaport News
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RAPAPORT... Firestone Diamonds is an international diamond mining and exploration company with operations in Lesotho and Botswana.

Name: Stuart Brown
From: South Africa
Company: Firestone Diamonds – CEO

Rapaport News: What prompted you to pursue a career in the diamond industry?

I joined De Beers in 1992. I knew what De Beers was but I had no idea that I would spend the next 20 years working for one of the greatest diamond mining companies in the world. I worked in auditing and moved between various mining positions, eventually becoming CFO. I really enjoyed the role and I came to love the product.

It's such a unique and interesting commodity and it fascinated me. When I left De Beers, having being CFO for six years and acting joint-CEO for a year, I knew I wanted to be a CEO at a mining company. In the two years that I subsequently spent outside the diamond industry I came to realize that it was something that I missed and knew a great deal about. The Firestone opportunity came along at the right time and was exactly what I was looking for.

Rapaport News: Have you developed an overall philosophy that guides you in your work?

In my work at De Beers I always had the ability to roll my sleeves up and understand the problem. My philosophy was I would never ask anyone to do something that I didn't know how to do or hadn't done myself at some stage.

My philosophy built up over many years of managing budgets is to plan meticulously and execute properly with the appropriate team. Do it right the first time. I pride myself on picking a good team that is motivated around a common goal.

Rapaport News: What are the notable changes that you've observed in the diamond industry over the course of your career?

SB: At De Beers, we used to mine everything and were always looking to increase production and volume. I think the biggest change came with the acknowledgment that you may make a profit when you add all the mines together, but when you break them down individually you'll see some mines make very good profits, while others do not.

The realization that you have to make a profit at every level influenced the industry to focus on keeping costs down while capital costs were increasing dramatically. Companies were only just staying in business as any profits made were simply reinvested in the mine for next year. We’ve seen a lot more capital-driven decisions across the whole mining industry, but more specifically in diamonds. Post crisis, production levels have dropped and the market is sustaining itself with fewer carats.

The method of selling has also changed and continues to do so. Before companies tried to replicate the sightholder system, but now we see more auctioning and tendering and more diversified production and sales platforms.

We’re also seeing more informed pricing from the commercial rather than the contractual placement of goods. We’re hearing the word tender a lot but people are auctioning goods more now.

We’re also seeing the Botswana government flex its muscles and selling on its own behalf. The result of all this is profitability is now inevitable for more producers.

Rapaport News:
How did you develop your business model, and how do changes in the industry affect Firestone?

SB: We came to the market and tested our tendering system in Botswana and Antwerp, and have emerged with a good reputation and significant anticipation for our production. But it's more about making sure our product is understood, and having the right people sorting and profiling the goods in the right size categories in order to maximize price. We feel we've established that.

At the moment we use a fixed tender system where bids are received electronically with only one bid allowed per person. Then we'll select the highest one and accept or decline it. I worked a lot on the development of auctions at De Beers outside of the sightholder system and I think more companies are now moving in that direction.

Rapaport News: What trends were apparent in the rough market in 2013 in terms of pricing, and supply and demand?

SB: The rough market held its own. We saw good increases in the beginning of the year, then the market slowed from fears about China and the potential impact on commodity prices. In addition, companies weren't producing huge volumes compared to 2012. So we saw some price declines, but toward the end of the year there was more positive sentiment, due in part to a better than expected Christmas season.

There was also a lot of worry over the diamond lending institutions cutting back, which made people more aware of the cash flow situation and also influenced pricing.

I thought 2013 was a marginally positive year, and hopefully we'll start 2014 with a more positive feeling.

Rapaport News: What are your expectations for the coming year?

SB: People are naturally cautious but they’re also feeling a bit more optimistic for 2014, especially since we had some positive results in the retail sector.

I don't think people have gone crazy expanding operations. There is some new Russian production coming online, but I think whatever gets produced will be absorbed by the market, especially as China continues to grow. So I see 2014 as being more positive, barring anything catastrophic happening. I think Europe's still behind the curve, but the U.S. is certainly feeling like it's recovering stronger than people anticipated and the market in China has not been as bad as people might have expected.

Rapaport News: How does your market outlook influence your plans for developing the Liqhobong mine?

Liqhobong will be in construction over the next two years, but we expect it to be commissioned in the latter part of 2015. The mine will produce about 1.1 million carats per year. We don't believe that our 1.1 million carats is going to tip the whole supply and demand curve over the edge and cause everyone to reassess the industry.

The two to four major mining companies that produce about 70 percent of the world’s supply, they really influence the market’s supply and demand growth estimates.

If someone came along with 20 million carats of extra production, then we would reassess, but I don't think it's my job to worry about the supply and demand imbalance. Obviously we factor it into our thought process, but for Liqhobong, to decide to scale back to 900,000 carats because we don't think the market will be able to accept an extra 200,000 carats would be absolutely insane.

Rapaport News: What is the timeline for Liqhobong now that you have your financing in place?

We have to get the documentation [for the financing] in place and get regulatory approval. Assuming that happens by the end of February, we'll be ready to kick the project off by the end of March, beginning of April.

We then anticipate about 18 months of construction and another six months to commission the mine. We anticipate being at 1.1 million carats per year capacity by the first quarter of 2016.

Rapaport News: What do you expect in terms of your pricing at Liqhobong?

We have a base price of $107 a carat, based off the 300,000 plus carats that we've sold and analyzed independently. We anticipate that with the proper recovery plant the average price will be around $107 to $126 a carat, but $107 is our base. We think on average prices will grow 3 percent a year.

We know that we do recover large diamonds in our plant, which have been broken in the pilot plant. Analysis we’ve done on the fragments of the stones indicates a large potential for large stones. Taking large stones into consideration pushes the average price up to well over $150 a carat.

We see prices growing over the next two years, as confidence grows. Then if the economy recovers to a healthy growth rate, prices will start to increase more from 2016 onwards.

Rapaport News: What about your BK11 mine in Botswana?

SB: We are doing a strategic review of all our Botswana assets. Our focus over the next two years is purely on Liqhobong; that's what we raised all the money for. We will come up with a plan for Botswana shortly, but for now our growth will be Lesotho and Liqhobong driven.

Rapaport News:
Where do you envision your company 10 years from now?

SB: I think in two years' time everyone will stand back and say this is a remarkable effort. Not only did we raise the money, but we built the mine on schedule and on target. That then makes the team we put together highly marketable, and we would hopefully be trading at a premium compared to our peers.

An acquisition would make financial sense but we're not a company that just decides to grow because we're looking to increase turnover. An opportunity has to be profitable and give upside returns to the people that invest in the company. So that's our strategy and we would look at any opportunity that adds value.

Rapaport News: What advice would you give to someone starting out in the diamond industry?

SB: You have to work hard and know the people around you. I think the reason people are successful in the industry is because they work extremely hard and they don't try to move too far away from their core business. If you're going to get into mining and you're good at mining, stay in mining; don't go into marketing. Stick to your core skills and don't try and do everything yourself.

But it's a really difficult industry to be in. It's got some very good people in it and it’s a very honorable industry. I've thoroughly enjoyed my career and that's why I'm really enjoying this latest chapter. The key to it all is hard work. If you want 10 years of experience in the diamond mining industry, it's going to take you 10 years to get it. People often think they can do it in a quicker timeframe and it's just not possible.  
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Tags: BK11, Botswana, diamonds, Firestone Diamonds, Lesotho, Liqhobong, Rapaport News, Rough Diamonds, stuart brown
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