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AIM Listed Firestone Diamonds (LSE:FDI) was a duff tip from me from my days at t1ps.com. Even when you average gain per tip over 12 years was 42.7% you have losers and this was one of them. I advised bailing out at 6.125p on October 25th. Results are out today, the shares are still 6.125p but they are, I am afraid an open invitation to sell. A piece of broker research from the excellent Roger Bade at Whitman Howard says it all:
“As expected full year results to end June 2012 are grim for the Lesotho diamond producer. The £30.4m loss included a £19.8m impairment of their now closed BK1 diamond mine in Botswana. The cash loss declined from £4.8m in the first half to £4m in the second, but comprehensive income also included a £12m forex loss as well. The cash outflow of £18.8m was more than covered by the £27.1m of equity they managed to raise in the period. They ended the period with £10.6m of cash. With their Liqhobong mine, as it is currently constituted, running at close to breakeven and diamond prices that remain weak, they seem likely to continue to struggle to raise the finance to expand the mine. The economic numbers look OK on constrained diamond prices, but it is still not clear where the finance will be forthcoming to take this forward.”
And that is the rub. Actually the true cash position ( if one removes debt and net current assets/liabilities) was c £5.6 million at 30th June and based on the burn rate it is probably sub £4 million by now. The company needs to raise a vast amount to expand production but with its track record and given that it operates in Lesotho and that diamond prices are weak that is going to be very tough indeed. And if it does not raise a vast amount then the operation as it stands will be down to negative net cash at some stage next year. As such the £33 million market cap looks mighty generous to me.
There are far better bets elsewhere.
My highly detailed original analysis can be found here.
Tom’s premium share website The Nifty Fifty was launched on October 28th 2012. Having created and run the t1ps website for 12 year his average gain per tip there was 42.7% (over 241 tips) with an average holding period of 36 months. His new website promises more of the same – for immediate access to his ideas (including two new share tips due this week) click here
Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that free material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith
