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From: Dale
ArtDate: 31 March 2006
Section: (FILLYABOOTS NEWS RELEASES)
Remote Name: 87.242.148.107
Date: 08/04/06
Time: 11:15
31st March 2006
Firestone Diamonds - New Mining Project, Exploration and Bulk Sampling Update and Interim Results
News Item - Conduit PR
Development of new mining project with De Beers on Buffels River Groen River and Botswana exploration and bulk sampling update Unaudited interim results for the six months to 31 December 2005
LONDON: 31 March 2006
Firestone Diamonds plc, (“Firestone” or “the Company”; AIM: FDI), the AIM-quoted diamond mining and exploration company, announces that it has signed a memorandum of understanding with De Beers Consolidated Mines to cooperate on the development of a new mining operation on the Buffels River centered around the Bonte Koe Mine. The Company also announces unaudited interim results for the six months to 31 December 2005, and provides an update on bulk sampling and exploration at its Groen River Valley, Orapa and Mopipi exploration projects.
SUMMARY
Buffels River project
Memorandum of understanding signed with De Beers New mining operation planned with Firestone’s black-empowerment subsidiary, African Star Minerals Groen River Valley
Bulk sampling under way Results from HL deposit expected in May Botswana
Bulk sampling results received for AK21, AK22 and AK23 Further evaluation planned on BK53 BK18 drilling completed and awaiting test results De Beers continuing extensive exploration in Orapa, Mopipi and Jwaneng areas De Beers to use new Zeppelin geophysical system over Firestone ground from Q3 2006 Mining operations
Limited mining operations at Avontuur while preparing for Hondeklip Bay expansion Resource evaluation programme planned at Hondeklip Bay Corporate
Acquired 6.5% interest in African Diamonds plc in October 2005 Appointed Tim Wilkes to position of Chief Operating Officer in December 2005 Financial
Turnover for H1 2006 down 30% on prior 6 months due to disruptions at Avontuur; operating loss of £0.4 million £10 million equity financing completed in November 2005 Current cash position over £8 million Outlook
Significant new exploration projects being evaluated in Botswana and South Africa Significant improvement expected in turnover and financial performance in coming year New mining project During the second half of 2005, discussions were held with De Beers in respect of a proposal to use the Bonte Koe Mine, which is owned by the Company’s 75% owned black-empowerment joint venture subsidiary, African Star Minerals, to exploit De Beers’ nearby Buffels Inland Complex (“BIC”) deposits. The BIC comprises two deposits located adjacent to Bonte Koe, and two located further downstream. The key to the new development is the substantial investment that Firestone has made in plant and infrastructure at Bonte Koe, which includes a 150 tonne per hour gravel processing plant, a 16 km power line and a 35 km process water supply pipeline.
The Company is pleased to announce that, following the completion of a detailed technical due diligence exercise and feasibility study by De Beers in the fourth quarter of 2005, a memorandum of understanding has been signed with De Beers to cooperate in the development of a new mining operation on the Buffels River. The memorandum of understanding is to be superseded by a more detailed agreement, which is at an advanced stage and is expected to be concluded in April 2006. Details of the terms of the agreement, including the financial arrangements between African Star Minerals and De Beers, will be announced at that time.
Operations highlights The Groen River Valley project is one of Firestone’s most promising exploration projects in South Africa due to the high quality and large size of diamonds that have been mined in the area, and the large area controlled by the Company. Following the signing of a joint venture agreement with De Beers in June 2005, substantial exploration work has been carried out on the project. Thirteen deposits have been identified to date with an estimated size of 360 million tonnes. With regional grades of 2 to 3 carats per hundred tonnes, and a modelled diamond value of $300 to $500 per carat, this indicates a potential multi billion dollar gross value for these deposits. Evaluation of the HL deposit commenced at the end of 2005 and is proceeding well, with bulk sampling scheduled to be completed in May and sample treatment shortly thereafter.
A significant amount of work has been carried out on our kimberlite exploration projects in Botswana since June. We have received results from bulk sampling of the AK21, AK22 and AK23 kimberlites in the Orapa area, which were discovered in 2005. These results indicate that the kimberlites are unlikely to have economic potential and no further evaluation work is planned on them. While these results are disappointing, it should be noted that only 10% of the 75 known kimberlites in the Orapa area are economic, and we are still awaiting the results from De Beers’ evaluation of BK53, which was also discovered last year. With De Beers continuing to conduct extensive exploration and evaluation work elsewhere in the Orapa area, we believe that the prospects for new economic discoveries in the area are good.
The other major development in Botswana during the period was the introduction of De Beers’ new Zeppelin Airborne Gravity Gradiometer system, which is the most advanced airborne gravity system in the world. The Zeppelin system produces a five to ten-fold improvement in data quality compared to other airborne gravity systems, and is expected to start conducting surveys over Firestone’s Orapa, Mopipi and Jwaneng joint venture projects in the second half of 2006.
The Company started exploration on the Daly City project, which is located close to the Orapa and Letlhakane mines, during the period. Three holes have recently been drilled into kimberlite BK18, which indicate that it is 2.5-3 hectares in size. Samples recovered from drilling have been submitted for microdiamond recovery and analysis of kimberlite indicator minerals, and results are expected to be received in the second quarter of 2006.
In respect of our mining operations, production at Bonte Koe during the period increased 36% compared to the previous six months, while production at Oena stayed at similar levels. Following a strategic review of the Company’s mining operations carried out last year, operations at Avontuur during the period were focused on preparations to take over the adjoining Hondeklip Bay Mine from Trans Hex. As a result, production at Avontuur declined 53%, but is expected to increase back to and above previous levels once operations at the Hondeklip Bay Mine commence, as planned, in the next quarter.
Corporate In October 2005, Firestone expanded its interests in Botswana by issuing £2.8 million in new shares to acquire a 6.5% interest in African Diamonds plc. African Diamonds has a joint venture with De Beers over ground which adjoins Firestone’s Orapa and Mopipi projects. African Diamonds’ share price has increased significantly following positive results from evaluation of the AK6 kimberlite, and the value of Firestone’s shareholding has increased to approximately £8.7 million as of today.
Tim Wilkes was promoted to the position of Chief Operating Officer during the period, with responsibility for managing all operational aspects of the company’s portfolio of mining and exploration projects
Financial Overall production for the period was 30% lower than the previous six months. With increased production at Bonte Koe and no change at Oena, the drop was primarily accounted for by the limited mining operations at Avontuur. As a result, and with increased costs at Bonte Koe as operations were ramping up, the Company reported a small pre-tax loss for the period of £0.4 million (6 mos to 31 Dec 2004: profit £0.2 million). We expect to see a substantial improvement in the Company’s production and financial performance in the coming year.
The Company completed a £10 million equity placing in November 2005 to finance a significant expansion of the Company’s mining and exploration activities in South Africa and Botswana, and currently has cash balances of over £8 million.
Outlook In terms of Firestone’s current exploration projects, we expect substantial activity at the Groen River Valley, with exploration drilling and bulk sampling planned to continue throughout the year. We believe that the project has the potential to become a major new alluvial diamond mining area, producing high quality diamonds. The results of bulk sampling on the HL deposit are expected to be announced shortly.
In Botswana, where Firestone is the largest holder of diamond exploration rights around the Orapa Mine, and the only significant holder of diamond exploration rights, other than De Beers, around the Jwaneng Mine, substantial activity is also planned, both on the De Beers joint venture project and on the Company’s own projects. We believe that the potential for new economic discoveries in Botswana is very good.
In terms of the Company’s current mining operations, the proposed development of the Buffels River project with De Beers is a major milestone. The project is expected to provide us with significant revenue and cash flow over its projected six-year life and will significantly extend the duration of operations at Bonte Koe. With production from the Buffels River project and the Hondeklip Bay Mine both planned to commence in the second quarter of 2006, we expect overall production targets for the current financial year to be met, and to see a very substantial increase in production in 2007.
Firestone is also pursuing a number of new opportunities. Having demonstrated that the Company has the capability to design, build and operate efficient, cost effective mining operations to the standard required by De Beers, we hope to expand the Company’s relationship with De Beers and investigate other known resources in the Namaqualand region that can be jointly exploited. A number of new, large scale mining and exploration projects in South Africa and Botswana are currently being evaluated, and we expect to be able to update shareholders in this regard in the coming months.
Philip Kenny, CEO of Firestone Diamonds, said: “We are very pleased with the substantial progress that we have made since last year. With the Company’s strong financial position, a very experienced management team in place, a highly prospective project portfolio, and good prospects for the rough diamond market, we are confident that we can achieve the Company’s objective of becoming a leading mid-tier diamond mining and exploration company.”
www.firestonediamonds.com
For further information:
Philip Kenny Firestone Diamonds +44 20 8834 1028 / +44 7831 324 645
Leesa Peters Conduit PR +44 20 7429 6600 / +44 7812 159 885
Jamie Cumming Bell Lawrie +44 141 314 8103 / +44 7768 044 620
Review of Projects
Groen River Valley, South Africa A programme of drilling and bulk sampling commenced during the period to further evaluate the area’s economic potential. The first phase of this programme includes bulk sampling of the most advanced of the 13 deposits identified in the project area, the HL deposit, which is 7 km long and up to 700 metres wide. Bulk sampling of the HL deposit is being carried out using a 2.5 metre diameter Bauer BG36C large diameter auger (“LDA”) drill, and results from this work will give an initial indication of the economic potential of the deposit.
A 32 hole LDA drilling programme commenced on the HL deposit at the end of 2005. Although the programme has been delayed by about five weeks as a result of strong water being encountered in the deeper parts of the deposit, bulk sampling is now proceeding well. LDA holes drilled to date have recovered basal gravel with an average thickness of 2.7 metres, under an average overburden depth of 18 metres, with one hole intersecting 5 metres of well developed clast-supported basal gravel. Gravel samples are bagged, labelled and transported under security escort to the sample treatment facility at De Beers’ Koingnaas Mine, approximately 75 km to the north. The samples are currently being stockpiled in Koingnaas, and will be treated in batches to eliminate any contamination from other material being treated at the facility.
LDA drilling is now scheduled to be completed in May, with sample treatment and diamond recovery to be completed shortly thereafter. Depending on these results, a second phase intensive bulk sampling programme will be carried out to determine the grade and diamond value of the HL deposit to a high level of confidence. Provisional planning has already commenced for this next phase of work. Two of the other 12 deposits in the area, the KK and KR deposits, have been drilled and are ready for bulk sampling. A decision in this regard will be made once drilling of the HL deposit has been completed.
Bonte Koe Mine, South Africa A total of 1,708 carats were recovered from Firestone’s mining operations at Bonte Koe during the period, an increase of 36% over the previous six months. Diamonds produced were an average size of 0.45 carats per stone, and the average price for diamonds sold was $201 per carat.
Planning and design work for the new Buffels River project commenced during the period, following the completion of De Beers’ technical due diligence exercise and feasibility study. Firestone will be required to make a number of modifications to the Bonte Koe plant, including upgrading of the DMS capacity and the crushing circuit. Planning and design work for the modifications has already been completed, and site works have recently commenced. Firestone and De Beers are reviewing plans to commence treatment of BIC gravels immediately following finalisation of the formal agreement, while the required modifications are being implemented.
Under the terms of the proposed agreement, De Beers will be responsible for overburden stripping, gravel mining and the delivery of gravel from the BIC to Bonte Koe. Firestone will use the processing plant and infrastructure at Bonte Koe Mine to process the gravel and produce a DMS concentrate, and will be responsible for disposal and rehabilitation of tailings from the operation. The DMS concentrate will be transported for diamond recovery at De Beers’ Kleinzee Mine, located at the coast 15 km downstream of Bonte Koe.
With the plant at Bonte Koe expected to be dedicated to processing the significantly larger BIC gravel resources for the six year life of the project, Firestone plans to continue to exploit its own gravel resources at Bonte Koe after processing of the BIC gravels has been completed.
Orapa and Mopipi, Botswana The Orapa and Mopipi projects cover an area of approximately 4,900 sq. km close to Debswana’s Orapa, Letlhakane and Damtshaa diamond mines, and are being explored by De Beers in joint venture with the Company. Four kimberlites were discovered in the Orapa and Mopipi project areas in 2005 - AK21, AK22, AK23 and BK53.
During the period, large diameter drilling (“LDD”) was carried out on AK21, AK22 and AK23 to recover material for testing for the presence of macrodiamonds. Results have been received from the processing of this material, as follows:
Kimberlite LDD holes drilled Kimberlite sampled (tonnes) Macrodiamonds recovered (number) Macrodiamonds recovered (carats)
AK21 4 82.4 2 0.285
AK22 5 152.7 6 0.390
AK23 6 87.3 0 0
As a result of the low macrodiamond recoveries results, no further evaluation work is planned on these kimberlites, although De Beers continues to conduct extensive exploration and evaluation work elsewhere in the Orapa and Mopipi project areas.
Additional evaluation work is being carried out on BK53, which is located approximately 10 km north of the Letlhakane Mine. Probe drilling on BK53 encountered kimberlite at a depth of 12 metres, beneath a cover of Kalahari sediments, and remained in kimberlite to a depth of 92 metres, where it entered Karoo sandstone. Core drilling will now be undertaken on BK53 in the next quarter to recover material for microdiamond and mineral chemistry analysis and petrographic studies, in order to allow a preliminary evaluation of the economic potential of the kimberlite to be made.
Exploration is continuing on the targets identified by follow-up ground and airborne geophysical surveys conducted during the second half of 2005, and the next phase of work will include the drilling of a further eighteen targets. One of the high priority target areas for exploration in 2006 is located midway between Orapa and Mopipi, where recent drilling by De Beers has resulted in the recovery of abundant, unabraded kimberlite indicator mineral grains from within Karoo sediments, over an interval of 36 metres. As the kimberlites in the Orapa field are younger than the Karoo, this may indicate the presence of older kimberlite sources in the area. Many of the kimberlite indicator mineral grains recovered exhibit remnant kelyphitic surfaces, which suggests that they are very close to their source. Further drilling is planned in this area to locate the source of these indicator minerals. De Beers also plans to carry out geophysical surveys in the Orapa area with its Zeppelin Airborne Gravity Gradiometer system during 2006.
Daly City Ventures, Botswana Firestone entered into an agreement in March 2005 under which it can earn an 81% interest in Daly City Ventures, which holds a prospecting licence in the Orapa region over an area of approximately 380 sq. km.
Exploration on the Daly City project area commenced during the period and has been focused on parts of the prospecting licence located close to the Letlhakane Mine and on kimberlite BK18, which was discovered by De Beers in the early 1990’s, but relinquished after initial evaluation indicated it was too small to be of economic interest. Firestone has recently completed high resolution ground magnetic and gravity surveys and probe drilling on BK18, resulting in kimberlite being encountered in three holes, as follows:
Hole number Hole depth (m) Kalahari cover (m) Kimberlite intersection (m)
BK18-1 100 48 48-87
BK18-2 70 48 48-70
BK18-3 112 48 48-112
The results of this work confirm that BK18 is bigger than previously thought, at between 2.5-3 hectares in size. A 100 kg sample of kimberlite has been sent to Kennecott Exploration’s laboratory in Canada for microdiamond recovery by caustic fusion. A 12 kg sample has also been sent to Mineral-Logic in South Africa, for recovery and analysis of kimberlite indicator minerals. Results from the laboratory work are expected in the second quarter of 2006.
A review of past exploration in the Daly City project area has indicated that significant portions of the licence area close to the Letlhakane Mine and other known kimberlites have never had detailed aeromagnetic surveys conducted over them. These areas are likely to contain high interest geophysical targets, and Firestone plans to conduct high resolution aeromagnetic surveys over these areas to identify potential drilling targets.
Jwaneng, Botswana The Jwaneng project covers an area of approximately 3,700 sq. km, located close to the Jwaneng Mine, and is being explored by De Beers in joint venture with the Company.
The Zeppelin system is currently surveying De Beers’ prospecting licence areas immediately surrounding the Jwaneng Mine. Following completion of these surveys, it is expected that the Zeppelin system will start work on Firestone’s prospecting licence areas in the Jwaneng area. A probe drilling programme is planned for the second half of 2006 to test gravity anomalies generated by the Zeppelin system.
Avontuur Mine, South Africa As previously announced, the Company is in the process of making a significant expansion to its operations at Avontuur to exploit the substantial resources at the Hondeklip Bay Mine and Marine Concession 7a. This is expected to result in a significant increase in the Company’s diamond resources and production in Hondeklip Bay. The Company’s activities at the Avontuur Mine during the period were primarily focused on preparations for this expansion and the development of a detailed resource evaluation programme. As a result, production for the period was lower than the previous six months, at 805 carats, a reduction of 53%. The average price for run of mine production at Avontuur was unchanged at approximately $120 per carat.
Oena Mine, South Africa The Company’s efforts at Oena during the period were focused on securing a new mining contractor to take over operations at the mine, with the objective of significantly increasing earthmoving and processing capacity. Negotiations with two mining contractors are at an advanced stage, with an appointment expected to be made shortly. Production at Oena during the period was is line with the previous six months at 207 carats, with an average size of 1.49 carats per stone. The average price for diamonds sold was 3% lower at $1,161 per carat. A number of high value diamonds were recovered during the period, including stones of 18.99 and 20.24 carats that were valued at $3,800 and $5,600 per carat, respectively.
US Exploration Project Exploration at the Company’s kimberlite exploration project in the United States indicates that at least one previously unknown kimberlite field is located in the project area, and that some of these kimberlites may be diamondiferous. Results from the first phase of sampling carried out by the Company’s joint venture partner, American Diamonds, has confirmed the high priority target areas identified by previous exploration. The next stage for exploration on the project will be to conduct airborne geophysical surveys over the high priority areas and select targets for drilling.
Angus Prentice Conduit PR 76 Cannon St London EC4N 6AE Tel: + 44 (0)20 7429 6603 (dir) Mob: +44 (0)7974 982 512 Tel: +44 (0)20 7429 6666 (main) Fax: +44 (0)20 7429 6699
www.conduitpr.com
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