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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Firestone Diamonds Plc | LSE:FDI | London | Ordinary Share | GB00BKX59Y86 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.20 | 0.15 | 0.25 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMFDI
RNS Number : 0709Y
Firestone Diamonds PLC
01 December 2017
1 December 2017
Firestone Diamonds plc
("Firestone", the "Group" or the "Company")
Final results for the year ended 30 June 2017
Firestone Diamonds (AIM: FDI), a new diamond producer with operations focused in Lesotho, announces its final audited results for the year ended 30 June 2017.
On 30 June 2017, Firestone achieved commercial production at the Liqhobong Mine, which is expected to achieve production in excess of 800 000 (previously one million) carats per annum
Summary
Liqhobong Diamond Mine ("Liqhobong", the "Project" or the "Mine")
Hot Features
Premium
-- Successful construction completion achieved in December 2016
-- Operational ramp-up commenced in October 2016
-- First sale conducted in Antwerp in February 2017
-- First-plus 100 carat diamond recovered in April 2017
-- Commercial production achieved on 30 June 2017
-- 2 646 640 Lost Time Injury ("LTI") free hours recorded with zero-LTI record maintained
-- 365 891 carats recovered
-- 310 376 carats sold at an average price of US$90 per carat generating revenue of US$27.8 million(1)
-- Cash operating costs well managed at US$12.26 per tonne treated
Financial
-- Mine Development Project completed within US$185.4 million budget -- Revenue of US$27.8 million(1) -- EBITDA of US$4.6 million
-- Loss before tax of US$130.0 million (2016: US$9.0 million) which includes an impairment charge of US$122.6 million
-- Cash balance at year end of US$17.3 million -- Standby facility of US$10.0 million available -- Commencement of repayment of ABSA debt facility
Post year-end
-- Revised nine year life of mine with the option to revert to the 14 year mine plan should the quality of the recovered assortment and rough diamond market improve
-- Restructuring of the Group's ABSA debt facility, extending its maturity to December 2023 and obtaining an 18 month standstill on capital repayments from January 2018 to June 2019
-- Potential capital raise of US$25.0 million to provide additional working capital and to sustain the Group at the current lower than expected average diamond values
Key statistics
-- Liqhobong Diamond Resource: 22.5 million carats (2015: 23.1 million carats)
-- In-situ value of US$1.7 billion at US$75/ct (base case un-escalated) (2015: US$3.0 billion at US$132/ct)
-- Life of mine nine years (2015: 15 years)
(1) Common convention during commissioning and test production phases of operation is such that all revenues and operating costs are capitalised to the cost of the
asset in the Statement of Financial Position until commercial production is achieved.
For more information please visit www.firestonediamonds.com or contact:
+44 (0)20
Firestone Diamonds plc 8741 7810
Stuart Brown
Macquarie Capital (Europe) Limited +44 (0)20
(Nomad and Broker) 3037 2000
Nick Stamp
Nicholas Harland
Tavistock (Public and Investor +44 (0)20
Relations) 7920 3150
Simon Hudson
Jos Simson
Barney Hayward
STRATEGIC REVIEW
Introduction
Summary
-- Construction of the Mine Development Project completed -- Over four million man-hours worked without any LTI's -- Production commenced October 2016 -- First diamond sales in third quarter of FY2016 -- Commercial production achieved on 30 June 2017
Firestone's objective has always been to become a mid-tier diamond producer and the preferred and trusted partner of choice for its stakeholders and local communities alike. The Company seeks to achieve this goal initially through the financing and development of, and commercial production from, the Liqhobong Diamond Mine in Lesotho, Southern Africa. Liqhobong is 75% owned by Firestone and 25% owned by the Government of Lesotho.
With financial closure secured, the two and a half year construction phase commenced in mid-2014 and was completed successfully, on time and on budget, in the first half of the financial year under review. Production of diamonds began in October 2016 and ramped up to full scale commercial production levels in June of this year. A detailed description of both finalising construction and the ramp-up of production is contained in the Operational Review.
The achievements of the past year represent the successful execution of Firestone's strategy by the management team and all of the Company's employees. Bringing Liqhobong into production creates an asset that benefits shareholders, staff and local communities. Firestone takes very seriously its responsibility to minimise the impact of its operations on the environment and to provide an economic uplift to the surrounding local communities. The Company also places great emphasis on its responsibilities to its employees to provide safe working conditions. In the 2017 financial year, Liqhobong maintained its zero Lost Time Injury record with a further 2.65 million man hours LTI free, resulting in a total, since Project commencement, of over four million man hours LTI free.
FY2017 saw the beginning of cash flow from operations at Liqhobong with US$13.7 million received from the Company's first two sales of diamonds in Antwerp in the third quarter and US$14.1 million in the fourth quarter of the financial year. Further sales took place in the current quarter of the new financial year generating proceeds of US$13.5 million. The Company has made a good start to mining at Liqhobong where all operational targets within managements control have either been met or exceeded. A particular highlight of the year under review was the recovery of Liqhobong's first plus 100 carat stone in April - a 109 carat gem-quality light yellow diamond.
The weakness in the diamond market which is discussed in the Market Context section and the lower than expected occurrence of larger, better quality diamonds have resulted in lower prices being achieved at the Company's sales. This has prompted a review of the mine plan which resulted in the Company adopting a shorter nine year revised mine plan (previously 14 years) which it believes will deliver the best returns in the medium term at low risk whilst at the same time offering optionality of taking advantage of the longer life of mine should the average diamond values received increase or should there be an improvement in market conditions. Taken together, this has required the Company to recognise an impairment charge (non-cash) on the carrying value of Liqhobong. A more detailed explanation of the impairment charge is contained in the Financial Review section. The lower average diamond prices achieved at sale to date have been disappointing but an improvement in average value per carat recovered is expected as mining progresses into all areas of the pit.
In the other sections of this announcement, shareholders will find discussion on the diamond market, Firestone's strategy and values, the risks facing the Company and the steps taken to mitigate those, key performance indicators, a financial review and the detailed operational review. At the end of the Strategic Report, there is a report on health, safety, the environment and community engagement. This is followed by a brief look forward into the current financial year.
MARKET CONTEXT
The rough diamond market has been mixed during the financial year: prices for higher value, better quality goods have been robust with modest growth during the year, while prices for the smaller "Indian market" run of mine production have been more difficult. The market for the smaller goods has been influenced by two factors: firstly, the Indian demonetisation impact from November 2016 and secondly, the subsequent oversupply of these goods early in 2017. The demonetisation effect had an immediate short-term negative impact on prices. Early in 2017, as demand for these goods returned, there was a sustained level of supply from all producers that is keeping prices under pressure for the remainder of 2017.
We believe that the reported increase in advertising spend by the leading diamond producers, and marketing initiatives by the Diamond Producers Association will result in a stronger 2017/18 retail season. We expect that demand for all categories of diamond jewellery will assist in rebalancing the current oversupply of rough and polished diamonds. This has the potential to translate into a modest recovery in the lower priced category goods in the short to medium term. Supply of these category goods will remain robust in the short term but in the medium term, Firestone believes supply will diminish and demand will continue to grow, notwithstanding the threat of laboratory-grown diamonds.
STRATEGY
Firestone is aiming to become a mid-tier diamond producer and the preferred and trusted partner of choice for its stakeholders and local communities alike.
Our strategy is to operate our diamond mine responsibly, to maximise results and to minimise the impact of our operations on the environment and to continue to uplift local communities and leave the area in better economic condition at the end of the life of mine.
Strategic How we achieve the objective
objective
------------------- -------------------------------------------
Quality management We employ suitably experienced people,
with appropriate qualifications and
experience to ensure that the Company's
operations are managed successfully.
------------------- -------------------------------------------
Safety first Firestone established very high safety
standards when it commenced construction
of the Mine in 2014. The same safety
culture has been transferred to the
operational team who treat safety
as a priority.
------------------- -------------------------------------------
Community Employment opportunities are offered
relations to local communities first. We have
open dialogue with our local communities
and we work closely with them to identify
and develop sustainable projects which
will improve living standards.
------------------- -------------------------------------------
Skills development On-the-job training is provided to
upskill people who have been identified
for certain positions.
------------------- -------------------------------------------
Environmental We operate very strict environmental
monitoring practices.
------------------- -------------------------------------------
Performance We manage the Group's performance
by benchmarking achievement against
set KPIs.
------------------- -------------------------------------------
KEY PERFORMANCE INDICATORS
Safety Ore tonnes Waste tonnes
----------------------- ----------------------- ---------------------------
LTIFR: zero 1.97mt 1.78mt
----------------------- ----------------------- ---------------------------
Performance Performance Performance
The Group managed The Mine performed Waste stripping
to maintain its well to process activities during
exemplary zero the tonnage which the year were sufficient
LTIFR since July was in line with to meet the objectives
2014 due to adherence guidance of between of the Mine's development
with Standard 1.8 and 2 million plan.
operating procedures tonnes.
and an embedded
safety culture.
----------------------- ----------------------- ---------------------------
Risk management Risk management Risk management
The Group has The mining department The waste stripping
adequate policies is staffed with plan ensures that
and procedures appropriately adequate quantities
and monitoring skilled people of ore are accessible
systems in place who ensure that to meet the throughput
to ensure a safe operations run requirements of
working environment. smoothly. An ore the treatment plant
stockpile provides for a sustained
security of supply period.
of material to
the plant for
processing for
a period of up
to five days should
the main pit become
inaccessible.
----------------------- ----------------------- ---------------------------
Grade Plant utilisation Carats recovered
------------------------ -------------------------- --------------------------
18.61 cpht 72% 365 891 cts
------------------------ -------------------------- --------------------------
Performance Performance Performance
The grade for Plant utilisation Carats recovered
the year was lower was higher than for the year were
than the average expected during slightly below
resource grade, the commissioning the guidance of
mainly as a result phase of the plant 380 000 to 450
of lower quality, as a result of 000 mainly due
highly weathered limiting unplanned to the lower initial
ore processed maintenance and recoveries and
and plant start-up downtime through grade achieved
issues during adhering to the as a result of
the initial production preventative maintenance processing highly
ramp-up period. planning schedule. weathered, mixed
ore stockpiles
during the commissioning
phase.
------------------------ -------------------------- --------------------------
Risk management Risk management Risk management
Liqhobong's Mineral Liqhobong's engineering Liqhobong's MRM
Resource Management department adheres department reconciles
("MRM") department to a strict preventative grade recovery
reconciles grade maintenance system. daily to address
recovery daily any anomalies.
to address any
anomalies.
------------------------ -------------------------- --------------------------
Revenue US$ per carat US$ per tonne treated
---------------------- --------------------- ------------------------
US$27.8m US$90/ct US$12.26/t
---------------------- --------------------- ------------------------
Performance Performance Performance
Revenue for the US$107/ct was As a result of
year was lower achieved for the strong cost management
than expected first two sales. cash operating
as a result of An increase in costs for the year
lower average the recovery of were at the lower
diamond values mainly small and end of guidance
achieved. less valuable of US$12 to US$14
diamonds in Q3 per tonne treated.
and Q4 FY2017
resulted in a
lower average
value of US$77
for the quarter
and an overall
price achieved
of US$90/ct for
the year.
---------------------- --------------------- ------------------------
Risk management Risk management Risk management
Revenue is mainly Revenue is mainly Operating costs
impacted by the impacted by the are closely managed
average diamond average diamond and are measured
value achieved, value achieved against forecasts
which is outside which is largely which are regularly
the Group's control. outside the Group's updated.
control.
---------------------- --------------------- ------------------------
RISK REVIEW
Firestone's focus is the successful operation of the Liqhobong Mine in Lesotho.
The new main treatment plant was commissioned during the year and is capable of processing ore at a rate of 500 tonnes per hour. The focus is now on ensuring that the Mine operates successfully over its planned life and at the designed specification to deliver the anticipated returns.
The Company is exposed to a number of risks and uncertainties, which, if they occur, could have a material impact on the successful achievement of its goals. Management of these risks and uncertainties is a key function of the Board and management of the Company.
The following risks have been identified as the main risks that could potentially impact on the Company achieving its goals:
COMMODITY RISK COMMODITY RISK COMMODITY RISK
Security of product Diamond quality Diamond price risk
Diamonds are highly Natural diamonds, The Group's financial
valued and easily by their very nature, performance is primarily
transportable. Product are distinct. No determined by the
security is a key two stones are alike volume of diamonds
risk area that is and value differs recovered and the
constantly reviewed. from stone to stone. average value realised
Crime and theft There is a risk from the sale of
syndicates are very that, even if the its rough diamonds.
sophisticated and expected quantity Rough diamond prices
operate globally. of carats is recovered, are influenced by
that the quality many factors beyond
of the diamonds the Group's control,
recovered is lower including:
than expected, resulting * over/undersupply of rough diamonds in the general
in lower revenues. market;
Control over frequency
of recovery is not
currently possible * the strength/weakness of rough and polished diamond
to manage or predict prices;
with a high level
of confidence, this
will come over time * the impact of synthetic diamonds;
as we better understand
the ore body through
continuous mining. * economic factors globally;
* consumer trends; and
* secondary market financing.
------------------------- ------------------------- ------------------------------------------------------------
Mitigation Mitigation Mitigation
Liqhobong operates Liqhobong uses reference The Group monitors
a completely enclosed, from diamonds sold the market continuously
hands-off diamond recently together to ensure that it
recovery system with information is up to date on
which ensures that from its diamond current diamond
no physical access broker to determine market information
is available to expected values and trends.
diamonds. Over and on site. These are Conservative prices
above a permanently monitored daily are used when modelling
monitored camera to assess performance cash requirements
surveillance system, against the business of the Group to
security protocols plan. Where possible, ensure that it is
are constantly reviewed volumes are increased funded with sufficient
and updated on a to offset any lower headroom to withstand
regular basis. Personnel values indicated. potential lower
who exit the red pricing outcomes.
area, or recovery
area, are subject
to full body search
and X-ray scanning.
------------------------- ------------------------- ------------------------------------------------------------
EXTERNAL RISK EXTERNAL RISK EXTERNAL RISK
Laboratory grown Country and political Foreign currency
or synthetic diamonds Liqhobong is situated exposure
Synthetics have in Lesotho and BK11 The Group earns
been available for in Botswana, both revenue in US Dollars
many years. Technological southern African from the sale of
advancements have countries. Whilst its rough diamonds
resulted in gem-quality Botswana has been and incurs operating
synthetics being politically stable costs in mainly
more widely available. over its history the Lesotho Maloti
There is a risk the same is not (which is pegged
that the demand true for Lesotho to the South African
for natural diamonds where a snap election Rand) and to a lesser
could be impacted. was held as recently extent Pound Sterling
as June this year. and the Botswana
Emerging markets Pula.
economies are generally Fluctuations in
subject to greater these currencies
volatility and political may have a significant
risk. impact on the Group's
performance.
--------------------------- ----------------------------- ------------------------
Mitigation Mitigation Mitigation
As technology advances The Firestone team The Company monitors
it is likely that has extensive experience the movement of
a larger market of operating in the Rand against
for the use of synthetics southern Africa. the US Dollar very
in jewellery will The Company keeps closely. The Company
develop. However, in close contact has a policy to
the Company expects with representatives lock in rates where
this to be a secondary of the Government significant capital
market segment, of Lesotho to ensure expenditure is to
with natural diamonds it keeps abreast be incurred. Where
remaining the premium of all political possible and where
product. Synthetics and regulatory developments. liquidity allows,
are also required The political changes short-term forward
to be certificated, and developments contracts are entered
and this represents in Lesotho during into when Rand weakness
a key industry control 2017 have not materially is experienced,
which is essential disrupted the Company's to the extent that
to maintaining consumer operations but they the Company requires
confidence. In addition, do cause uncertainty funding for short-term
marketing work performed with international purposes.
by the leading diamond investors and other
producers and the interested and affected
expanding Diamond parties.
Producers Association
will assist in maintaining
the profile of natural
diamonds as the
premium product.
--------------------------- ----------------------------- ------------------------
OPERATIONAL RISK OPERATIONAL RISK OPERATIONAL RISK
Resource Mining and processing Grade variability
The Group's financial The successful operation The Group's financial
performance is impacted of a diamond mine performance is impacted
by the number of is dependent upon by the number of
carats recovered its ability to extract carats recovered
at Liqhobong, and ore at a sufficient from Liqhobong.
is based on the rate to meet the The production plant
stated resource. required treatment is specified to
The resource as capacity of the process ore at a
determined is based processing plant. rate of 500 tonnes
on actual results A number of factors per hour or 3.6
from drilling and affect ore availability million tonnes per
bulk sampling which from the pit. These annum. Grade variability
was done during include inclement results in greater
the feasibility weather conditions, or fewer carats
stage. This is then mining equipment recovered and consequently
extrapolated across reliability and impacts revenue.
the deposit. There availability and
is a risk, especially achieving waste
early in a mine's rock mining targets.
life, that the recovered Risks facing ore
grade of diamonds treatment include
may differ from unscheduled shutdowns,
the theoretical technical failures,
quantity calculated higher than expected
in the resource. wear rates and power
outages.
-------------------------- -------------------------- ---------------------------
Mitigation Mitigation Mitigation
Liqhobong's resource Liqhobong has established Liqhobong's grade
was independently teams with core estimate was based
verified. The Mine's competencies in on large diameter
MRM department reconciles each discipline: drilling and bulk
resource grades mining, plant operations, sampling and was
against recovered health and safety, independently compiled
grades which would engineering and and signed off.
identify material support services. At an operational
changes that would Each team is staffed level, Liqhobong's
require further with the key skills MRM department focuses
investigation. and specialist knowledge on grade control
required of each on an ongoing basis.
distinct discipline. Grades recovered
A structured planned are reconciled to
maintenance programme the resource grades
is followed ensuring of particular areas
maximum operational mined to ensure
uptime and reducing that discrepancies
the number of unscheduled are identified.
plant stoppages. The Mine operates
Ore and waste tonnages, an audit plant which
recovery results reprocesses red
and other performance area recovery tailings
metrics are monitored to ensure that all
daily to ensure diamonds are recovered.
early identification
of any adverse trends.
An ore stockpile
is maintained which
is sufficient to
keep the plant in
operation for up
to five days should
mining from the
pit cease.
-------------------------- -------------------------- ---------------------------
OPERATIONAL RISK OPERATIONAL RISK OPERATIONAL RISK
Health and safety Electricity supply Water supply
Mining operations Liqhobong is connected Southern Africa,
involve a range to the Lesotho National including Lesotho,
of day to day activities Power Grid through is still experiencing
which could result a 132kW power line the after effects
in accidents, and constructed as part of one of the worst
in the worst case, of the Mine's development. droughts in recent
the loss of life The power line stretches history. The limited
should safety standards 28km from the Ha availability for
not be adhered to. Lejone substation water storage facilities
over mountainous in the Liqhobong
terrain and is susceptible valley poses a risk
to lightning strikes. to normal operation
These can and do of the production
lead to power supply plant.
interruptions to
the Mine, disrupting
operations.
-------------------------- --------------------------- --------------------------
Mitigation Mitigation Mitigation
Liqhobong is focused A power factor correction The Mine currently
on maintaining its unit was installed has sufficient storage
safety record through on site, which manages capacity for its
continued adherence constant power supply water needs under
to strict safety to the Mine site normal annual rainfall
criteria. The Company and eliminates any conditions and carefully
follows a risk based power surges. The manages its various
approach, assessing Mine has a close water storage facilities,
and adequately addressing relationship with ensuring that as
the risks in a particular the Lesotho Electricity much as possible
work area prior Company ("LEC") is harvested and
to work being performed which ensures prompt stored on site.
in that area. Continuous action if and when The Mine also prioritises
training takes place power supply problems effective water
and safety awareness occur. use. It operates
is practiced by a closed circuit,
all employees. encourages reducing
water use and recycles
all water for further
use. The Mine has
the necessary approvals
in place to build
another water storage
dam should the need
arise.
-------------------------- --------------------------- --------------------------
OPERATIONAL RISK OPERATIONAL RISK STRATEGIC RISK
Cost control Workforce and community Retention of key
The total operating relations personnel
costs of mining The Group's performance The Company is heavily
activities comprise is impacted by relations reliant on a small
both fixed and variable with its workforce group of key staff
components. There and local communities. to achieve its objectives.
is a risk that fixed There is a risk
costs may increase that increased workforce
ahead of expectations and community expectations
or that variable can lead to labour
costs escalate, or community unrest
resulting in lower and strikes.
profitability.
------------------------- ---------------------------- ---------------------------
Mitigation Mitigation Mitigation
Firestone has a Our workforce and Firestone ensures
culture of cost surrounding communities that appropriate
consciousness which form an integral remuneration structures
ensures that all part of Firestone's are in place to
costs are carefully strategy. The Company attract and to retain
considered on a operates strict staff with the required
continuous basis. safety protocols skills and experience
The Group also measures which aim at ensuring to ensure that operational
its performance employees' safety, requirements are
on a monthly basis and adequate long met. Remuneration
against the approved and short-term remuneration structures include
budget and latest structures assist a balance of fixed
forecast to ensure in maintaining a and variable remuneration
that costs are in committed and motivated based on the key
line with expectations workforce. There performance indicators
and investigates is a Community Relations for the individual
further where necessary. Department which and for the Group
attends regular as a whole.
meetings with the
local communities
to ensure that mutually
beneficial relations
are maintained.
------------------------- ---------------------------- ---------------------------
STRATEGIC RISK STRATEGIC RISK
Financing Interest rate exposure
Mining activities risk
are subject to a The Group is exposed
number of inherent to risk posed by
risks. The most floating interest
significant risk rates charged on
would be lower than the Project's debt
expected diamond facilities. Rising
revenues as this interest rates pose
could lead to a a risk to the Group's
shortfall in the cash flow, which
amount of cash required could lead to the
to fund ongoing Group not being
operational costs able to meet its
and debt repayments. operational and
debt covenant cash
requirements.
------------------------ -----------------------
Mitigation Mitigation
Management prepares By applying the
detailed annual Group's hedging
budgets and monthly policy the Group
forecasts based has entered into
on recent performance floating to fixed
and results to ensure interest swaps for
that it is adequately 50% of the ABSA
financed. Action debt, which will
is undertaken at ensure that a portion
the appropriate of the total interest
time if and when charge remains fixed
it appears that for the duration
a funding shortfall of the debt facility.
may occur.
------------------------ -----------------------
OPERATIONAL REVIEW
Liqhobong
Liqhobong commenced production in October 2016 and established commercial production at the end of the financial year.
Highlights
-- 2 million ore tonnes treated -- 365 891 carats recovered -- Average value per carat of US$90 achieved -- Cash operating cost per tonne treated (including waste) of US$12.26
Introduction
During the 2017 financial year, the Group completed construction of the Liqhobong Diamond Mine, thereby marking the Group's transition from development to diamond production. The transition was well managed and nameplate capacity of the plant was achieved early in the ramp-up phase. Steady state production targets for ore treated and waste mined were achieved from April 2017 onwards, only seven months after commencing operations.
The ramp-up was not without its challenges, with recovered grade being an initial issue. This, together with other commissioning issues which are normal in the ramp-up phase of a new plant, were resolved as far as possible by the end of March 2017 which enabled the plant to run at full production levels for a sustained three-month period, achieving commercial production by the end of the financial year.
It was particularly pleasing that we achieved all of our performance targets without a single Lost Time Injury, which is an exceptional achievement.
Construction activities
The Company began the year with the Project 85% complete, having spent US$142.0 million against the budget of US$185.4 million and having achieved zero Lost Time Injuries for 2.7 million man-hours worked. The momentum and safety record achieved was maintained in the current year as evidenced by the cumulative total of 4.4 million LTI-free hours worked at the end of the year. All major construction activities were completed in October 2016, and by the end of December construction had reached 100% completion at a total cost of US$183.3 million, having achieved 3.6 million LTI-free hours.
Q1 Q2 Q3 Q4 FY2017
Production
343 697 925 1 966
Ore (tonnes) - 618 106 769 493
392 421 415 554 1 784
Waste (tonnes) 339 839 910 806 894
----- ------- ------ ------ -------
392 765 1 113 1 480 3 751
Total (tonnes) 339 457 016 575 387
Carats recovered 109 204 365 (carats) - 51 898 369 624 891 Grade (carats per hundred tonnes) - 15.15 15.69 22.10 18.61 Revenue Diamonds sold 127 182 310 (carats) - - 590 786 376 Revenue (US$'m) - - 13.7 14.1 27.8 Price achieved (US$/ct) - - 107 77 90
Production
The Mine commenced initial production late in October 2016, when the initial wet commissioning phase took place. Before this, each item of major equipment was tested individually and commissioned without any material. The wet commissioning phase was therefore very important as it tested the plant's performance under load for the very first time. Since issues are expected to occur during the commissioning phase, the plant was initially fed with material from highly weathered low grade stock piles. At the end of December, 51 898 carats were recovered from 343 618 tonnes of lower grade ore resulting in a recovered grade of 15.15 carats per hundred tonnes ("cpht"). An under recovery of the lower value finer diamonds during the commissioning phase led to plant modifications and changes to operating parameters, which once implemented, contributed to an improvement in grade from 15.69 cpht in Q3 to 22.10 cpht in Q4, and in an overall average recovered grade of 18.61 cpht for the year. In addition access to more areas of the pit, in particular the higher grade K5 ore, increased as mining operations advanced during Q4, also contributing to the increase in grade.
During the year, the Mine treated a total of 1 966 493 tonnes of ore, 80% from the lower grade K2 material in the pit which included some dilution, 8% from K5, 7% from K4 and the remaining 5% from historic low grade stockpiles.
Mine development
Mine development and the waste stripping programme for the year focused on de-risking operations by increasing access to more ore areas, whilst ensuring that sufficient waste rock was available to meet the material requirements for construction of the Residue Storage Facility ("RSF") wall. The height of the RSF wall needs to increase in line with the rate of tailings being generated by the plant and a combination of waste rock and course tailings are being used for its ongoing construction.
During the year, 1 784 894 tonnes of waste was mined and placed on the RSF wall.
Costs
The cash cost for the year of US$12.26 per tonne treated was at the lower end of guidance of US$12.0 to US$14.0 per tonne, which was a particularly pleasing result as the Company had to work with a significantly stronger ZAR:US$ exchange rate of ZAR12.89 compared to the budgeted ZAR14.77. The cash cost per tonne treated is competitive considering the relatively low tonnage processed during the year.
Diamond Resource and Reserve update for Liqhobong
Diamond Resource
The 2015 SAMREC compliant Diamond Resource was updated at the end of the financial year to account for the mining that took place from October 2016 to June 2017. A total of 1.9 million tonnes and 0.472 million carats was depleted as a result of mining. A further total of 0.394 million tonnes and 0.114 million carats was reclassified as waste as a result of overburden and other dilution encountered during the initial stages of mining which rendered the ore uneconomic to treat. At the end of the financial year, a total of 0.062 million tonnes of ore and 0.011 million carats resided on the ROM and low grade stockpiles. Therefore, as at 30 June 2017, the total Indicated Resource was 33 million tonnes at a grade of 27 cpht and 8.935 million carats which is a 6.7% reduction compared to the 2015 Indicated Diamond Resource statement. There were no changes to the Inferred Resource.
SAMREC compliant Diamond Resource statement for Liqhobong Main Pipe as at 30 June 2017 (including Reserves)
Diamond Resource
-----------------------------------------------------------
Volume in Specific Metric tonnes Grade Carats
m(3) gravity
Diamond Resource Depth from (millions) (tonnes/m(3) (millions) (cpht) (millions)
category and to )
----------------- ----------- ---------- ------------ ------------- ------ ----------
Surface (2
631 masl)
to 2 467
Indicated masl 12.624 2.61 33.002 27 8.935
2 467 masl
to 2 127
Inferred masl 18.135 2.65 48.064 28 13.553
----------------- ----------- ---------- ------------ ------------- ------ ----------
Total Diamond
Resource 30.759 2.64 81.066 28 22.488
------------------------------ ---------- ------------ ------------- ------ ----------
-- Diamond Resources as at 30 June 2017, reported inclusive of reserves.
-- Tonnes are metric tonnes and totals are rounded.
-- Stated at a bottom-cut off of 1.25mm square apertures.
Diamond Reserve
As a result of lower than expected sales prices achieved from March to August 2017, a new mine plan was derived at an assumed US$/ct of US$75. This resulted in a shorter overall life-of-mine ("LOM") and a reduction in the Probable Reserve compared to the 2015 plan. The reduction in the Probable Reserve is also a result of the mining depletions and reclassification mentioned above in the Diamond Resource section as well as the application of a resource to reserve modifying factor of 0.84 to compensate for the use of 1.25mm slotted bottom cut-off screens. Therefore, as at 30 June 2017, the total Probable Reserve was 26.7 million tonnes at a grade of 23 cpht and 6.233 million carats, which is a 34.5% reduction compared to the 2015 Probable Diamond Reserve statement.
In addition to the Probable Diamond Reserve, the 2017 split shell mine plan also assumes the mining of a portion of the Inferred Diamond Resource totalling some 5.5 million tonnes and 1.33 million carats. The latest 2017 mine plan contemplates the mining of a cut 1 and cut 2 and has the optionality to revert to a longer LOM which includes the original cut 3 within a three year period should there be a general improvement in the quality of diamonds recovered or a substantial increase in rough diamond prices.
SAMREC compliant Diamond Reserve statement for the Liqhobong Main Pipe as at 30 June 2017
Diamond Reserve
---------------------------------
Metric tonnes Grade Carats
Diamond Reserve Depth from and to (millions) (cpht) (millions)
category
---------------- --------------------- ------------- ------ ----------
Surface (2 631 masl)
Probable to 2 467 masl 26.704 23 6.233
---------------- --------------------- ------------- ------ ----------
Total Diamond
Reserve 26.704 23 6.233
--------------------------------------- ------------- ------ ----------
-- The above Diamond Reserve is stated at a 1.25mm slotted bottom cut-off.
-- The average diamond price per carat is estimated at US$75/ct.
-- The plant is currently using a BCO configuration of 1.25mm slotted screens which necessitates the application of a resource to reserve modifying factor of 0.84 for mine planning purposes.
-- Tonnes are metric tonnes and totals are rounded.
Further detailed information on the Diamond Resource and Diamond Reserve, which have been prepared in accordance with SAMREC guidelines (2009), can be found within the Company's internal Technical Report. This Technical Report does not constitute a Competent Person's Report as defined in the AIM Rules.
FINANCIAL REVIEW
We successfully completed the Liqhobong construction project within budget and ramped up to full production during the year.
Summary
-- Mine Development Project completed within US$185.4 million budget -- Revenue of US$27.84 million -- 310 376 carats sold -- Average value per carat of US$90 achieved -- Cash operating cost per tonne treated (including waste) of US$12.26
-- Loss before tax of US$130.0 million (2016: US$9.0 million) which includes an impairment charge of US$122.6 million
-- Standby facility of US$10.0 million available -- First repayment of ABSA debt facility in March 2017
Financial statement presentation
Common convention during commissioning and test production phases of operation is such that all revenues and operating costs are capitalised to the cost of the asset in the Statement of Financial Position until commercial production is achieved. Once achieved, revenues and operating costs are recognised in the Statement of Comprehensive Income.
Accounting for change
Commercial production was established at the end of June when commissioning activities, which included certain modifications to the plant, were complete and full nameplate production targets had been reached consistently over a three month period. Since commercial production was established at the end of the financial year, all revenues and operating costs for the year were capitalised to the cost of the asset. This financial review presents the financial performance prior to capitalisation.
Diamond sales
Q1 Q2 Q3 Q4 FY2017
Revenue
Diamonds sold (carats) - - 127 590 182 786 310 376
Revenue (US$'m) - - 13.7 14.1 27.8
Price achieved (US$/ct) - - 107 77 90
The Group recognised total revenue for the year from four sales of US$27.8 million where 310 376 carats were sold at an average price of US$90 per carat.
Firestone's first diamond sale took place in February 2017, when all of the 75 936 carats offered for sale, which included a 37.7 carat flawless "D" colour diamond, were sold for US$8.14 million, realising an average price of US$107 per carat. The first sale was strongly supported, with over 90 different companies viewing the diamonds and more than 38 of them becoming successful bidders.
In April 2017, a 109 carat light yellow diamond was recovered, providing further evidence of the large stone potential of Liqhobong. Minor modifications to the plant together with changes to the plant's operating parameters during Q3 resulted in increased recoveries, particularly of the finer lower quality diamonds. This had a positive impact on grade which improved from 15.69 cpht in Q3 to 22.10 cpht in Q4, but impacted negatively on US$ per carat, which decreased from US$107 per carat in Q3 to US$77 per carat in Q4. The resultant reduction in average value was a combination of the value recovered and the impact of the Indian demonetisation programme late in 2016 and early 2017.
Liqhobong operating costs
Mine operating costs for the year comprise on-mine cash costs, off-site administration and selling expenses incurred from the time that operations commenced in October 2016. Operating costs of US$12.26 per tonne treated were in line with expectation at the lower end of guidance of between US$12 and US$14 per tonne treated.
During the year, the local currency strengthened by 12.74% from LSL14.77:US$1 to LSL12.89:US$1 which resulted in higher than expected costs in US Dollar terms. However, careful cost management early on in the production cycle resulted in cost savings which offset the higher cost resulting from the stronger local currency.
2017 2016
US$'million
On-mine cash costs 19.8 -
Diamond royalties 1.1 -
Diamond inventory movement (3.9) -
Administration and
selling expenses 0.6 -
------ -----
Total cash operating
cost 17.6 -
Depreciation 1.0 -
Waste stripping amortised 2.3 -
Share-based payment
expense 0.2 -
------ -----
Accounting mining cost 21.1 -
KPIs:
Cash operating cost
per tonne treated 12.26 -
Accounting cost per
tonne treated 11.69 -
--------------------------- ------ -----
BK11 care and maintenance
The BK11 care and maintenance cost of US$0.5 million remained the same as the previous year. Amulet Diamond Corporation began contributing up to US$30 000 of the monthly cost from 1 June 2017 in terms of an Option Agreement which was entered into on 24 May 2017.
Corporate overhead
Corporate costs for the year of US$3.2 million compared favourably, once again, to the previous year's US$3.4 million, evidencing management's continued commitment to cost control and reduction where possible.
Depreciation
The depreciation charge for the year of US$2.3 million comprises US$1.2 million for the BK11 mine assets, US$1.0 million for the powerline which provides electricity to the Liqhobong Mine and US$0.1 million for other assets.
Impairment
Lower than expected average diamond prices achieved is an indicator of potential impairment resulting in an assessment of the carrying value of the Liqhobong Mine asset in the Statement of Financial Position. The result of the assessment, as described more fully in Note 3 to the financial statements, has led to an impairment charge of US$122.6 million. It must be noted that a reversal of a portion or all of the impairment could take place in the future, should the Mine recover more higher quality diamonds resulting in a higher average value or general rough diamond market conditions improve.
Tax charge
The net tax charge for the year of US$21.7 million comprises a deferred tax charge of US$18.7 million and an income tax charge of US$3.0 million in Kopane Diamonds. The deferred tax charge is due to the reversal of the deferred tax asset recognised in 2016. This is due to the lower average diamond price environment. The tax charge resulted from taxable interest income earned on loan funding provided to the Liqhobong Mine. Withholding tax is levied by the Lesotho Revenue Authority on the interest paid by Liqhobong at a rate of 10% which was sufficient to offset the tax payable by Kopane.
Net loss for the year
In summary, the Group incurred a loss for the year of US$151.7 million, made up as follows:
US$'millions
Income 29.1
Less:
Operating costs 17.6
-------------
Reclassification of
Liqhobong gross profit 10.3
Administration and
other costs 7.8
Impairment 122.6
Finance cost 0.8
-------------
Loss before tax 130.0
Income tax charge 21.7
Net loss after tax 151.7
------------------------- -------------
CAPEX
During the year US$35.1 million was capitalised to the Liqhobong Mine asset and includes additions of US$25.7 million (net of revenue of US$27.8 million), capitalised borrowing costs of US$5.1 million and a capitalised effective interest charge of US$4.3 million.
The total cost of constructing the Liqhobong Mine of US$183.3 million was marginally less than the budget of US$185.4 million. The cost of removing additional overburden which was encountered early in the construction phase and the additional cost of risk mitigation items which included increased on site water storage capacity were fortunately offset by foreign currency exchange gains of US$28.0 million.
Debt
Interest Facility 2017 2016
rate amount US$'000 US$'000
US$ 3
month
ABSA debt LIBOR
facility plus margin(1) 82.4 81.0 43.4
Eurobond
(Series
A) 8% p.a. 30.0 30.0 30.0
Eurobond
(Series
B) 8% p.a. 15.0 5.0 -
--------- --------- ---------
127.4 116.0 73.4
----------------------------- --------- --------- ---------
1 Tranche A (85% of loan balance) - Margin of 1.8%
Tranche B (15% of loan balance) - Margin of 10% pre-financial completion and 7.5% post-financial completion
The Group drew the final amount available under the US$82.4 million ABSA debt facility in January 2017. Quarterly repayments commenced in March when US$1.4 million of capital was repaid. The June capital repayment of US$3.3 million cleared shortly after year end.
The Group ended the year with US$116.0 million of debt. At 30 June 2017, the Group had US$10.0 million available from the Series B Eurobond facility ("Standby Facility").
Covenant measurement
During the year, ABSA Bank agreed to extend the period for first covenant measurement from December 2017 to June 2018, by which time, unless agreed otherwise, Liqhobong must have achieved financial completion.
Covenants are measured as follows:
Maintenance
following
Financial financial
completion(5) completion(6)
---------------------- --------------- ---------------
Forecast debt service
cover ratio(1) >=2 times >=1.5 times
---------------------- --------------- ---------------
Historic debt service
cover ratio(2) >=2 times >=1.5 times
---------------------- --------------- ---------------
Loan life cover ratio >=2.2 times >=1.7 times
---------------------- --------------- ---------------
Debt/equity ratio(3) n/a <=55:45
---------------------- --------------- ---------------
Reserve tail ratio(4) >=40% >=30%
---------------------- --------------- ---------------
1 The ratio of forecast operational cash flow for a three month period, to the next quarterly debt repayment which includes capital and interest.
2 The ratio of historic operational cash flow generated for a three month period, to the quarterly debt repayment due, which includes capital and interest.
3 The ratio of forecast operational cash flow over the life of the loan, to total debt under the facility.
4 The ratio of the remaining diamond reserve, to the total diamond reserve of 36.4 million tonnes.
5 Ratios to be met no later than 30 June 2018.
6 Ratios are measured on a quarterly basis commencing 30 September 2018.
Cash flow
The Group began the year with US$10.3 million in cash. Cash spend for the year of US$36.8 million included US$3.7 million on operations and US$30.9 million on the project, and foreign exchange adjustments resulted in a decrease of US$0.5 million. During the year, the Group drew a total of US$44.0 million from debt facilities, US$39.0 million from the ABSA project debt facility and US$5.0 million from the Standby Facility, and repaid US$1.5 million of the ABSA facility and other loans. The Group ended the year with a cash balance of US$17.1 million.
HEALTH, SAFETY, ENVIRONMENT AND COMMUNITY
Health and safety
Achievements:
-- successful transition of the Safety Management System from the Construction team to the Liqhobong Management team;
-- total of 4 437 107 cumulative man-hours worked without any Lost Time Injuries; and -- zero Lost Time Injuries.
Firestone strives to provide all its employees, contractors and stakeholders with a safe and healthy working environment. We aim to achieve this by maintaining a high standard of safety reporting, adherence with policies and procedures, holding awareness campaigns, running training programmes and by instilling a strong culture of safety awareness. Regular training and retraining of all employees and contractors takes place at the Mine and all visitors to the Mine are subjected to a comprehensive safety induction session.
While the operations have been designed in such a way that they are as safe as possible, and policies and procedures are in place to help prevent accidents from occurring, accidents can still occur. In many instances, accidents are as a result of non-compliance with standard safety procedures, whereupon refresher training is conducted and safety standards are reinforced. The Company operates a Safety Management system which records all incidents as well as near misses. All incidents are investigated to identify the reasons for them occurring, and the corrective action required to prevent them from re-occurring. Firestone also recognises the importance of reporting all near misses, so that corrective action is taken to prevent these from resulting in incidents in the future.
The health of our people is also important as there are mutual benefits for the Company and for the individual. The Mine has a gym which is equipped to assist people to stay fit whilst on site, and there is a clinic which is adequately resourced to treat people for a range of medical issues and emergencies. Procedures are in place for medical evacuation to more suitable medical facilities should this be required. HIV/AIDS has a high prevalence in Lesotho and all employees are encouraged to determine their status. Counselling is offered and the clinic is available to assist people in managing the illness.
Firestone maintained its zero Lost Time Injury Frequency Rate ("LTIFR") and Fatal Injury Frequency Rate ("FIFR") safety record in FY2017. We thank all those involved in maintaining this exemplary record from construction of the Liqhobong Mine which commenced in July 2014, throughout commissioning and ramp-up of the operations during the year.
Environment
Achievements:
-- 10% reduction in water consumption per tonne processed; -- reduced electricity consumption of 10kW per hour per tonne processed;
-- successful implementation of a closed-circuit water management programme that ensures water quality meets South African National Standards ("SANS") for drinking water and livestock watering;
-- successful implementation of an advanced dust suppression system throughout the operation that reduced the risk of dust pollution which can impact neighbouring communities and employees;
-- zero major environmental incidents; and -- 100% compliance with all environmental regulations, licences and permits.
Firestone is committed to minimising its impact on the environment in which it operates. We conduct business in a sustainable, socially and environmentally responsible manner, since the long-term sustainability of our business is dependent upon good practices in both the protection of the environment and the efficient management of the mining and processing of our mineral resources.
The physical location of the Liqhobong Mine in the mountainous highlands of Lesotho required a significant transformation to create level areas where infrastructure such as the processing plant and access roads could be constructed. The construction activities which commenced in June 2014, and which were substantially completed at the end of 2016, were governed by our Environmental Management Plan ("EMP"). Our aim now is to ensure that we adhere to our EMP by putting in place pro-active environmental monitoring and management plans so that the required standards of environmental protection are achieved and maintained throughout the life of the Mine. We report our performance against the plan to the Lesotho Department of Environment bi-annually and ensure that we are accountable to all our stakeholders.
Our employees and contractors form an integral part of the environmental management system within the Company, and through inductions and training are aware of their impact on the environment and their responsibilities. Management systems include information on how to contribute meaningfully to bio-diversity and conservation, as well as the procedures in place to reduce, re-use and recycle waste thereby promoting efficient use of natural resources and minimising the quantity of final waste disposal. There is a strong culture of re-use and recycling at the Mine and all waste is handled and disposed of in a responsible manner.
Operational activities at the Mine require substantial volumes of water. Managing water supply is increasingly important given the fact that water is becoming a scarce resource in southern Africa, due to ongoing droughts, which have resulted from increasingly irregular annual rainfall patterns. We are therefore committed to responsible water management by continuously assessing our impact on the natural water resources with a strong focus on water reclamation, recycling and re-use in the operation. We continually participate in forums to discuss and share lessons learnt and exchange ideas regarding the environmental management of water resources.
Our operations are dependent on electricity supplied from the local grid, and our approach to energy management is focused on the awareness and reduction of energy consumption where at all possible. A number of energy efficiency initiatives were implemented during the year which included the installation of energy efficient LED lighting equipment throughout the operation, installing variable speed drives on appropriate equipment and optimising the use of power on the Mine.
Community
Firestone is committed to a Corporate Social Responsibility and Investment ("CSRI") programme in order to build long-term, transparent and mutually beneficial relationships with our two closest villages in particular, Liqhobong and Pulane, which are most affected by our operations. These relationships are important in balancing the community's expectations against the Group's strategy to develop sustainable projects and increase basic living standards in the area.
We have therefore maintained an open dialogue with the community, worked together with government departments and non-governmental organisations and, over the years, consistently delivered on resulting projects and initiatives. We have actively engaged with the community to understand its basic needs and to ensure that these projects benefit the community as a whole.
During the year, we embarked on community projects which focused on two important, life-changing aspects: providing clean potable water to the two villages adjacent to the Mine and improving school facilities.
Fresh drinking water is now available from 20 tap points, which are conveniently located within the villages. The water is sourced from 13 springs from the surrounding areas which are connected by a series of pipelines and other infrastructure. All of the work on this project was performed by the villagers together with the assistance of our own employees who have the required knowledge and skills to ensure that the project was a success.
Basic education is a priority, and an ongoing challenge in southern Africa. We built and equipped a crèche, where young children can be schooled prior to starting their formal education at the Liqhobong Primary School. During the year, we also increased the Primary School's capability by building an additional classroom and a school office. One of our partners, the Crossroads Foundation, provided school furniture and equipment, educational material and school uniforms, as well as clothing and other supplies which were distributed to those most in need.
We recognise the employment needs of the local communities and the positive impact that employment has on the local economy. It is for this reason that we always consider employing people from the local communities before searching further afield. We are particularly proud that Liqhobong Mine employs 94% of its people from within the country.
One of the challenges we face is that of increasing community expectation. We understand that the community needs to voice its concerns. Ongoing engagement and communication ensures that issues are identified and resolved satisfactorily. During the year we concluded an agreement of understanding with the two villages which clearly demonstrated our commitment to them.
We continue to work with the local communities to identify and implement successful and sustainable projects which benefit the communities as a whole, helping us achieve our strategic objective of increasing basic living standards in the area.
STRATEGIC REVIEW CONCLUSION
The current year has started well with 199 007 carats recovered during the first quarter, including the largest diamond recovered to date, a 133 carat light yellow stone, as well as 45 specials (larger than 10.8 carats). Mining is proceeding to plan and Firestone is gradually extending operations to additional areas in the pit and, as more detailed knowledge of the pit is acquired over the coming months, the Company expects to be able to fully optimise operations at Liqhobong. As announced today, management, aided by consultants, has developed a revised mine plan to better cater for the current lower than expected diamond sales results and ensure the Company can mine sustainably should the lower average diamond values being achieved persist.
In parallel with finalising the new mine plan, Firestone has been in discussions with its major shareholders and debt providers on the future financing of the Company. These discussions have been productive and have yielded a positive outcome for the Company. We have today announced a potential US$25 million capital raise and a restructuring of the ABSA debt facility (see Note 2 for more detail). Together, these will provide the Group with financial strength and flexibility to continue to develop the Liqhobong Mine for the benefit of all of our stakeholders.
Strategic Report
This Strategic Report was approved by the Board on 30 November 2017 and is signed on its behalf by:
Lucio Genovese
Non-Executive Chairman
Stuart Brown
Chief Executive Officer
DIRECTORS' REPORT
The Directors present their Annual Report and Accounts for the year ended 30 June 2017. The contents of this report meet the disclosure requirements of the Companies Act 2006 and AIM Rules and, where the Directors have deemed it appropriate, the Listing Rules and the UKLA Disclosure and Transparency Rules. The Strategic Report, the Corporate Governance Statement and the Directors' Remuneration Report should be read in conjunction with this report.
Results and dividends
The Group made a loss after taxation of US$151.7 million (2016: profit after tax of US$13.6 million). Further details are shown in the Consolidated Statement of Comprehensive Income.
The Directors do not recommend a dividend (2016: nil).
Capital structure
The Company's share capital consists of one class of ordinary shares and two classes of deferred shares. At the date of this report the ordinary share capital of the Company was 320 271 086 ordinary shares of 1 pence each (2016: 314 948 244 ordinary shares of 1 pence each).
Other than the general provision of the Articles (and prevailing legislation) there are no specific restrictions on the size of a holding or on the transfer of ordinary shares.
The Directors are not aware of any agreement between holders of the Company's shares that may result in the restriction of the transfer or securities or on voting rights. No shareholder holds any securities carrying any special rights or control over the Company's share capital.
At the date of this report the Company had been notified of the following interests in the issued ordinary share capital:
Shares % holding
-------------------------------- ------ ---------
77 083
Resource Capital Fund VI L.P. 679 24.07%
76 488
Pacific Road Resources(1) 367 23.88%
31 653
Edwards Family Holdings Limited 174 9.99%
26 168
Sustainable Capital Limited 661 8.26%
-------------------------------- ------ ---------
1 Includes Pacific Road Resources Fund II L.P. ("PRC LP") and Pacific Road Resources Fund II ("PC Trust").
Directors
The Directors who served during the year and up to the date of this report were as follows:
Position Date of change
-------------- ----------------------- --------------------
Stuart Brown Chief Executive Officer
Lucio Genovese Non-Executive Chairman
Deborah Thomas Non-Executive Director Appointed 1 November
2016
Keith Johnson Non-Executive Director
Ken Owen Non-Executive Director
Mike Wittet Non-Executive Director
Niall Young Non-Executive Director
Paul Sobie Non-Executive Director
Braam Jonker Non-Executive Director Resigned 31 October
2016
-------------- ----------------------- --------------------
The Company maintains Directors' and Officers' Liability Insurance which in the view of the Directors, should provide appropriate cover for any potential legal action brought against its Directors. The Company has also provided in its Articles of Association an indemnity for its Directors, which is a qualifying third party indemnity provision for the purposes of section 234 of the Companies Act 2006. This was in place throughout the financial year under review and up to the date of the approval of the financial statements.
Employees
The Group had 202 full time employees at the year end.
Employee involvement
The Company's policy is to actively involve its employees in the business and to ensure that matters of concern to them, including the Group's aims and objectives and the financial and economic factors which impact thereon are communicated in an open and regular manner. This is achieved through regular management briefs.
Financial risk management and exposure to risks from the use of financial instruments
Financial risk disclosures and details of the Group's exposure to risk arising from the use of financial instruments are provided within the Strategic Report and in note 29 to the financial statements.
Going concern
The Directors, after making enquiries and considering uncertainties associated with the Group's operations, believe that, on the basis of a successful equity raise and restructuring of the ABSA debt facility, the Group and Company have, or have access to, the necessary financial resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and Accounts which do not include any adjustments that would result from the going concern basis of preparation being inappropriate. Further details are included within note 2 going concern.
Post-balance sheet events
Post-balance sheet events are detailed in note 13.
Political donations
The Company made no political donations during the year.
Disclosure of information to the auditor
In the case of each person who was a Director at the time this report was approved:
-- so far as that Director was aware, there was no relevant available information of which the Company's auditor is unaware; and
-- that Director has taken all steps that the Director ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditor was aware of that information.
A resolution to re-appoint BDO LLP as auditor to the Company will be proposed at the forthcoming Annual General Meeting.
On behalf of the Board
Lucio Genovese
Non-Executive Chairman
30 November 2017
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF FIRESTONE DIAMONDS PLC
Opinion
We have audited the financial statements of Firestone Diamonds plc (the "Company") and its subsidiaries (the "Group") for the year ended 30 June 2017 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Company Statement of Financial Position, the Company Statement of Changes in Equity, the Company Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards ("IFRS") as adopted by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
-- the financial statements give a true and fair view of the state of the Group's and of the Company's affairs as at 30 June 2017 and of the Group's loss for the year then ended;
-- the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
-- the Company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
-- the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainties in relation to going concern
We draw attention to note 1 in the financial statements which states that the Group cannot repay the ABSA debt facility on the original repayment schedule. The Directors have engaged with ABSA and its major shareholders. ABSA have conditionally agreed to restructure the debt in line with the disclosures made in note 1. However, the debt restructure is subject to ECIC ("Export Credit Insurance Corporation of South Africa SOC Limited") approval which will occur after the date of these financial statements and may or may not be forthcoming. The debt restructure is further conditional upon the successful equity placement which is due to complete imminently but is not currently based upon legally binding agreements and funds have not yet been received and the ability to meet the revised covenant terms which include that the mine is operated in line with the mine plan.
These events or conditions, along with the other matters as set forth in note 1, indicate that material uncertainties exists that may cast significant doubt on the Group and the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Given the conditions and uncertainties noted above we considered going concern to be a key audit matter. We have performed the following work as part of our audit:
-- we challenged the Directors' forecasts to assess the Group and Company's ability to meet its financial obligations as they fall due for a period of at least 12 month from the date of approval of the financial statements. We reviewed the consistency of committed cash flows against contractual arrangements, and compared forecast operating levels, production costs and overheads in the life of mine model to current run rates;
-- we reviewed the terms of the debt restructure to understand the conditions attached to both the debt and equity raise. We reviewed the revised covenant terms with the ABSA term sheet and whether these could be met based upon the cash flow forecasts and life of mine model. We assessed these to be in line with the disclosures in the financial statements to ensure these had been adequately disclosed; and
-- we confirmed the equity placement to the placing book confirming anticipated uptake, which was based on verbal confirmations and is not contractually binding.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
KEY AUDIT MATTER OUR RESPONSE
=================================== ==============================================================
Carrying value of Liqhobong Our procedures in relation
Diamond Mine to management's assessment
of the carrying value of
The carrying value of Liqhobong Diamond Mine
the Liqhobong Diamond included:
Mine at 30 June 2017 represented * evaluating management's impairment model against the
a significant risk for revised life of mine plan and our understanding of
our audit given the level the operations. We critically reviewed the revised
of estimation and judgments mine plan against resource and reserve reports and
required such as future mine optimisation review undertaken by an independent
diamond pricing, foreign third party expert;
exchange rates, diamond
recoveries, operational
inputs and discount rate * testing whether the methodology applied in the value
and the possibility that in use calculation is compliant with the requirements
these judgements and estimates of International Accounting Standards ('IAS') 36
could be influenced by Impairment of Assets, and the mathematical accuracy
management bias. There of management's model;
is a risk that the Liqhobong
Diamond Mine is carried
at an amount greater than * challenging the significant inputs and assumptions
its recoverable amount used in the impairment model and whether these were
through continued use indicative of potential bias. Our testing included:
or sale.
The continued volatility * assessment of the diamond price forecasts to prices
in diamond prices and achieved in the year and to third party reports in
the lower than expected respect of past sales. We critically assessed the
quality of diamonds recovered revenue assumptions regarding the diamond assortment
at the Liqhobong Mine and considered the appropriateness of growth
are factors which heighten assumptions based on empirical data and industry
the risk of impairment. peers;
In total, impairments
amounting to US$122.6 * critically analysing the inputs in management's
million were recognised calculated discount rate. We engaged BDO valuation
in the year ended 30 June specialists to assess the reasonableness of the
2017. Further disclosure methodology used in determining the discount rate and
is made within notes 2 challenged management's discount rate assumptions by
and 9 of the financial benchmarking against industry peers and published
statements. market consensus;
* comparison of foreign exchange rate assumptions to
year end spot rates, and
* critical review of the forecast costs against the
expected production profiles in the revised mine
plan.
* we also assessed the adequacy of impairment related
disclosures contained within the financial
statements.
=================================== ==============================================================
KEY AUDIT MATTER OUR RESPONSE
Recoverability of deferred Our procedures in relation
tax assets to management's assessment
of the recoverability of
As disclosed in note 13 deferred tax assets included:
to the consolidated financial * evaluating management's assessment of the sufficiency
statements, as at 30 June of future taxable profits in support of the
2017 the Group has recognised recognition of deferred tax assets by comparing
US$3.8 million of deferred management's forecasts of future profits consistent
tax assets in the consolidated with the life of mine model and critically assessing
statement of financial the assumptions and judgments included in these
position (30 June 2016: forecasts by considering the accuracy of forecasts
US$20.3 million). against historic activity and the sensitivities of
the profit forecasts;
As a result of a change
in the Liqhobong Mine
plan and life of mine * assessing the recovery of the level of deferred tax
model, the Group recognised asset balance recognised in the Statement of
a reversal of the previously Financial Position in accordance with the provisions
recognised deferred tax of IAS 12 Income Taxes; and
asset, totalling US$18.7
million, in the current
financial year. * considering the adequacy of the tax disclosures (note
2) in the consolidated financial statements setting
We identified the recoverability out the basis of the deferred tax balance and the
of deferred tax assets level of estimation involved.
as a key audit matter
due to the recognition
of these assets involving
judgement by management
as to the likelihood of
the realisation of these
deferred tax assets, which
is based on a number of
factors, including whether
there will be sufficient
taxable profits in the
near term to support recognition.
The risk is that the Group
does not generate the
anticipated profits and
the asset is therefore
not recoverable and impaired.
------------------------------------ --------------------------------------------------------------
Our application of materiality
Group materiality Group materiality Basis for materiality
FY 2017 FY 2016
================== ================== =========================
US$2.0 million US$2.5 million Approximately 1.5%
of total assets (2016:
approximately 1.5%
of total assets)
================== ================== =========================
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Our basis for the determination of materiality has remained unchanged. The benchmark percentage for calculating materiality has remained unchanged at 1.5% in 2016 to 2017 which reflect the public interest in the project as it nears completion of development. We consider total assets to be the most significant determinant of the Group's financial performance used by shareholders.
Whilst materiality for the financial statements as a whole was US$2.0 million, each significant component of the Group was audited to a lower level of materiality ranging from US$1.3 million to US$0.2 million which is used to determine the financial statement areas that are included within the scope of our audit and the extent of sample sizes during the audit.
We agreed with the audit committee that we would report to the committee all individual audit differences identified during the course of our audit in excess of US$0.1 million (2016: US$0.1 million). We also agreed to report differences below these thresholds that, in our view warranted reporting on qualitative grounds.
An overview of the scope of our audit
Our Group audit scope focused on the Group's principal operating company, Liqhobong Mining Development Company (Pty) Limited ("LMDC") which holds the Liqhobong mine in Lesotho. LMDC was subject to a full scope audit as were the Company and its Group consolidation as these represent the other significant components of the Group.
The remaining components of the Group were considered non-significant and were principally subject to analytical review procedures, together with additional substantive testing over the areas applicable to that component. We set out below the extent to which the Group's revenue and total assets were subject to audit versus review procedures.
Entities subject to full scope audits account for 90% of the total assets.
The audits of each of the components were principally performed in South Africa and the United Kingdom. All of the audits were conducted by BDO LLP and a BDO member firm.
As part of our audit strategy, as Group auditors:
-- detailed Group reporting instructions were sent to the component auditors, which included the significant areas to be covered by the audits (including areas where there was considered to be a significant risk of material misstatement), and set out the information required to be reported to the Group audit team;
-- the Group audit team was actively involved in the direction of the audits performed by the component auditors for Group reporting purposes, along with the consideration of findings and determination of conclusions drawn; and
-- a senior member of the Group audit team visited the Liqhobong Diamond Mine site, and attended the local audit clearance meeting.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
-- the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
-- the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors' Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
-- adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
-- the Company financial statements are not in agreement with the accounting records and returns; or
-- certain disclosures of Directors' remuneration specified by law are not made; or -- we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors' responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group's and the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Scott Knight (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
30 November 2017
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Consolidated statement of comprehensive income for the year ended 30 June 2017
2017 2016
Note US$'000 US$'000
-------------------------------------------- ---- --------- --------
Other income 1 232 450
Total administrative expenses 130 472 7 396
--------- --------
Other administrative expenses 518 290
Impairment charge 3 122 602 -
Amortisation and depreciation 6 2 316 2 464
Share-based payments 1 268 775
Care and maintenance 534 518
Corporate expenses 3 234 3 349
-------------------------------------------- ---- --------- --------
Loss before finance charges and
income tax (129 240) (6 946)
Finance income 460 111
Finance costs 1 235 2 198
-------------------------------------------- ---- --------- --------
Loss before tax (130 015) (9 033)
Taxation charge/(credit) 4 21 664 (22 641)
-------------------------------------------- ---- --------- --------
(Loss)/profit after tax for the
year (151 679) 13 608
-------------------------------------------- ---- --------- --------
(Loss)/profit after tax for the
year attributable to:
Owners of the parent (116 411) 7 884
Non-controlling interests (35 268) 5 724
-------------------------------------------- ---- --------- --------
(Loss)/profit after tax for the
year (151 679) 13 608
-------------------------------------------- ---- --------- --------
Other comprehensive income/(loss):
Items that may be reclassified subsequently to profit and loss Exchange differences on translating foreign operations net of tax 29 878 (20 337) Profit on cash flow hedges 1 498 344 -------------------------------------------- ---- --------- -------- Other comprehensive income/(loss) 31 376 (19 993) -------------------------------------------- ---- --------- -------- Total comprehensive loss for the year (120 303) (6 385) -------------------------------------------- ---- --------- -------- Total comprehensive loss for the year attributable to: Owners of the parent (92 475) (7 541) Non-controlling interests (27 828) 1 156 -------------------------------------------- ---- --------- -------- Total comprehensive loss for the year (120 303) (6 385) -------------------------------------------- ---- --------- -------- (Loss)/profit per share Basic (loss)/profit per share from continuing operations (US cents) 5 (36.9) 2.5 -------------------------------------------- ---- --------- -------- Diluted (loss)/profit per share Diluted (loss)/profit per share from continuing operations (US cents) 5 (36.9) 2.5 -------------------------------------------- ---- --------- --------
Consolidated statement of financial position as at 30 June 2017
2017 2016
Note US$'000 US$'000
------------------------------------ ---- --------- ---------
ASSETS
Non-current assets
Property, plant and equipment 6 118 590 177 141
Deferred tax 7 3 761 20 248
Loan receivable - 2 816
------------------------------------ ---- --------- ---------
Total non-current assets 122 351 200 205
------------------------------------ ---- --------- ---------
Current assets
Inventory 8 6 420 248
Trade and other receivables 9 3 590 3 420
Cash and cash equivalents 17 053 10 282
------------------------------------ ---- --------- ---------
Total current assets 27 063 13 950
------------------------------------ ---- --------- ---------
Total assets 149 414 214 155
------------------------------------ ---- --------- ---------
EQUITY
Share capital 163 557 163 493
Share premium 167 349 164 680
Reserves (20 089) (46 065)
Accumulated losses (245 452) (129 041)
------------------------------------ ---- --------- ---------
Total equity attributable to equity
holders of the parent 65 365 153 067
Non-controlling interests (42 194) (13 402)
------------------------------------ ---- --------- ---------
Total equity 23 171 139 665
------------------------------------ ---- --------- ---------
LIABILITIES
Non-current liabilities
Borrowings 10 79 734 50 097
Rehabilitation provisions 11 4 233 3 306
------------------------------------ ---- --------- ---------
Total non-current liabilities 83 967 53 403
------------------------------------ ---- --------- ---------
Current liabilities
Borrowings 10 23 057 4 680
Other financial liabilities 357 1 688
Trade and other payables 12 18 472 14 198
Provisions 390 521
------------------------------------ ---- --------- ---------
Total current liabilities 42 276 21 087
------------------------------------ ---- --------- ---------
Total liabilities 126 243 74 490
------------------------------------ ---- --------- ---------
Total equity and liabilities 149 414 214 155
------------------------------------ ---- --------- ---------
The financial statements were approved by the Board of Directors and authorised for issue on 30 November 2017.
Lucio Genovese
Director
Consolidated statement of changes in equity for the year ended 30 June 2017
Equity
Share attributable
based to holders Non-
Share Share Warrant Merger Hedging payment Translation Accumulated of the controlling Total
capital premium reserve reserve reserve reserve reserve losses parent interests equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Balance as at 134
30 June 2015 163 441 163 600 - (1 614) (1 828) 3 542 (39 283) (134 250) 153 608 (18 975) 633
---------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Comprehensive
income
Profit for the 13
year - - - - - - - 7 884 7 884 5 724 608
Other
comprehensive
loss for the
year
Exchange losses
on translating
foreign (20
operations - - - - - - (15 685) - (15 685) (4 652) 337)
Profit on cash
flow hedges - - - - 260 - - - 260 84 344
---------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Total
comprehensive
loss for the (6
year - - - - 260 - (15 685) 7 884 (7 541) 1 156 385)
---------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Contributions by
and
distributions to
owners
Shares issued in
the year 52 1 080 - - - - - - 1 132 - 1 132
Warrants issued
in the year - - 7 609 - - - - - 7 609 - 7 609
Non-controlling
interest in
subsidiary - - - - - - - (2 749) (2 749) 4 582 1 833
Share-based
payment
transactions - - - - - 1 008 - - 1 008 - 1 008
Share-based
payments
lapsed/expired - - - - - (74) - 74 - - -
Dividends paid
to minorities - - - - - - - - - (165) (165)
---------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Total
contributions
by and
distributions 11
to owners 52 1 080 7 609 - - 934 - (2 675) 7 000 4 417 417
---------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Balance as at 139
30 June 2016 163 493 164 680 7 609 (1 614) (1 568) 4 476 (54 968) (129 041) 153 067 (13 402) 665
Comprehensive
loss
Loss for the (151
year - - - - - - - (116 411) (116 411) (35 268) 679)
Other
comprehensive
income for the
year
Exchange gains
on translating
foreign 29
operations - - - - - - 22 391 - 22 391 7 487 878
Profit on cash
flow hedges - - - - 1 545 - - - 1 545 (47) 1 498
---------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Total
comprehensive
loss for the (120 year - - - - 1 545 - 22 391 (116 411) (92 475) (27 828) 303) ---------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- ------- Contributions by and distributions to owners Shares issued in the year 64 2 669 - - - - - - 2 733 - 2 733 Non-controlling interest in subsidiary - - - - - - - - - 492 492 Transfer to (1 other loans - - - - - - - - - (1 456) 456) Share-based payment transactions - - - - - 2 040 - - 2 040 - 2 040 Total contributions by and distributions to owners 64 2 669 - - - 2 040 - - 4 773 (964) 3 809 ---------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- ------- Balance as at 30 23 June 2017 163 557 167 349 7 609 (1 614) (23) 6 516 (32 577) (245 452) 65 365 (42 194) 171 ---------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Consolidated statement of cash flows for the year ended 30 June 2017
2017 2016
Note US$'000 US$'000
---------------------------------------- ---- --------- --------
Cash flows used in operating activities
Loss before taxation (130 015) (9 033)
Adjustments for:
Impairment charge 3 122 602 -
Depreciation and amortisation 6 2 316 2 464
Effect of foreign exchange movements - (2 615)
Equity-settled share-based payments 1 268 775
Profit on sale of assets - (3)
Changes in provisions (11) 157
Finance income (460) (111)
Finance cost 1 235 2 198
---------------------------------------- ---- --------- --------
Net cash flows used in operating
activities before working capital
changes (3 065) (6 168)
Increase in inventories (5 714) -
(Increase)/decrease in trade and
other receivables (648) 7 853
Increase/(decrease) in trade and
other payables 5 696 (1 307)
---------------------------------------- ---- --------- --------
Net cash flows (used in)/from operating
activities (3 731) 378
---------------------------------------- ---- --------- --------
Cash flows used in investing activities
Additions to property, plant and
equipment (31 158) (68 209)
Proceeds on disposal of property,
plant and equipment - 16
---------------------------------------- ---- --------- --------
Net cash used in investing activities (31 158) (68 193)
---------------------------------------- ---- --------- --------
Cash flows from financing activities
Increase in borrowings 44 000 73 400
Repayment of borrowings (1 509) -
Finance income 73 111
Finance cost (462) (12 062)
Dividends paid to minorities - (165)
---------------------------------------- ---- --------- --------
Net cash from financing activities 42 102 61 284
---------------------------------------- ---- --------- --------
Net increase/(decrease) in cash
and cash equivalents 7 213 (6 531)
Cash and cash equivalents at beginning
of the year 10 282 17 628
Exchange rate movement on cash and
cash equivalents at beginning of
year (442) (815)
---------------------------------------- ---- --------- --------
Cash and cash equivalents at end
of the year 17 053 10 282
---------------------------------------- ---- --------- --------
Notes to the extract of the Consolidated Financial Statements for the year ended 30 June 2017
1 Basis of preparation
Firestone Diamonds plc (the "Company") is a company domiciled in the United Kingdom and is quoted on the AIM market of the London Stock Exchange. The consolidated financial statements of the Company for the year ended 30 June 2017 comprise the Company and its subsidiaries (together referred to as the "Group"). The Group is primarily involved in diamond mining and exploration in southern Africa.
The financial information for the years ended 30 June 2017 and 30 June 2016 does not constitute statutory accounts as defined by section 435 of the Companies Act 2006 but is extracted from the audited accounts for those years.
The Company has adopted International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board and as adopted for use in the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
2. Going concern
The Group currently has two mines, the Liqhobong Diamond Mine in Lesotho where construction was completed and operations ramped up, achieving commercial production on 30 June 2017, and the BK11 Mine in Botswana which is currently being operated by Amulet in terms of an option agreement concluded in May 2017.
As a result of the lower quality recoveries referred to in the section headed "Production" in the Operational Review, and a lower than expected average diamond value referred to in the "Diamond sales" section of the Financial Review, the Group has realised a lower than expected average value at sale, such that the Group requires additional equity and a restructure of its existing debt arrangements in order to continue as a going concern.
The Directors recognised the challenge of operating at the current lower average price realised to date of US$82 per carat, which prompted a revision of the Liqhobong Mine business plan, the result of which was a shorter nine year life of mine compared to the existing 14 year mine plan. The shorter nine year mine plan reserves optionality to convert to the longer mine plan should the average diamond value realised improve substantially over the next three years.
Debt restructure and capital raise
The Directors recognised that, at the current lower than expected average diamond values, the Group could not afford to repay the ABSA bank debt on the original repayment schedule and that, even in the event of restructuring the ABSA bank debt, the Group would require additional equity funding. The Directors and management therefore engaged with ABSA and Firestone's major shareholders to find a solution. Both the bank and major shareholders have been supportive throughout the process as evidenced by the progress made on the debt restructuring and capital raise to date.
ABSA bank has conditionally agreed to the following revised terms which are subject to ECIC approval, a successful capital raise of US$20.0 to US$25.0 million and certain other conditions. The key revised terms include:
- December 2017 capital repayment of US$5.2 million to be made according to the original repayment schedule;
- an 18 month debt standstill on capital repayments from January 2018 to June 2019; - an extension of debt tenor by two and a half years to December 2023; - re-profiled debt repayments; - amendments to covenants and reporting requirements;
- a credit review in twelve months' time, no later than the end of November 2018 to assess actual performance against expectations and consider additional restructuring actions if necessary;
- the ability to call a credit review before December 2018, or to declare default in the event of average diamond values for three consecutive sales being below US$70 per carat, which is below the base case value of US$75 per carat adopted by ABSA for measurement during the standstill period;
- an increase of between 0.25% and 0.50% in the margin rates payable; - an increase in the cash sweep from 40% to 50% of excess operational cash generated; and - a restructuring fee of US$169,000.
In addition, the Group expects to raise US$25 million from existing shareholders and new investors through a fundraising, the preliminary announcement of which was made on Friday 1 December 2017, and the results of which are expected to be announced on Friday 1 December 2017.
Conclusion
The Directors have reviewed cash flow forecasts for the Group which include the proposed amendments to the ABSA debt facility and the anticipated proceeds from the fundraising.
The Directors recognise that the cash flow forecasts are based on certain forward looking assumptions, including average diamond price, operating cost per tonne treated, and exchange rates. These uncertainties are disclosed in the Risk Review section. As part of the debt restructuring there are a number of amended covenants and conditions, as stated above, which, if not achieved, could result in further restructuring or an event of default. Whilst the Group expects to comply with the amended covenants and conditions in the future, there can be no guarantee that these will be achieved.
Having reviewed the key assumptions and considered the impact of the debt restructuring and capital raise, the Directors are confident that the existing cash resources together with the remaining balance of US$8.0 million available under the Standby Facility, anticipated net proceeds from the capital raise of approximately US$24 million, and a restructuring of the ABSA debt facility are sufficient to enable the Group to fund its operational requirements, for a period of at least twelve months from the date of approval of this Annual Report. On this basis, the Directors have therefore concluded that it is appropriate to prepare the financial statements on a going concern basis. However, there is no certainty that ECIC will provide approval of the ABSA debt restructuring or that the equity placement will complete or that the Mine will continue to operate according to the financial plan thus remaining within the amended covenants. These conditions indicate the existence of a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
3 Impairment
At the end of each reporting period the Group assesses whether there is an indication that an asset or cash-generating unit ("CGU") may be impaired. If an indication exists, the Group estimates the recoverable amount of the asset in order to determine if an impairment charge is necessary.
The Group has two cash-generating units, the Liqhobong and BK11 Mines, which are situated in Lesotho and Botswana respectively. During the year, a general downturn in diamond prices was experienced, which in itself, is an impairment indicator. As the carrying value of the BK11 CGU is lower than the recoverable amount, no further impairment is necessary. However, the carrying value of the Liqhobong CGU was subjected to impairment testing and resulted in an impairment charge.
Liqhobong Mine
Production at the Mine commenced from October 2016, at which time construction activities were substantially completed. Operational ramp-up proceeded according to plan with the operation achieving all of its production goals.
The average diamond prices achieved at sale during the year were lower than expected, mainly as a result of the Indian demonetisation programme, an over-supply of finer lower quality diamonds and the lower than expected occurrence of larger, better quality diamonds at Liqhobong itself. During the early stage of mining, it became clear that early waste stripping activities were required to secure adequate supply of ore to the production plant. Both the lower average prices achieved, and the impact of earlier waste stripping activities are indicators of impairment and result in lower than expected cash flows.
It is important to note that should market prices improve to levels above the current average price of US$82 per carat that it is possible for a portion or all of the impairment charge to reverse.
The recoverable amount of the Liqhobong CGU of US$118.6 million was determined using its value in use based on a discounted cash flow model.
Value in use of Liqhobong Mine
The value in use of the Liqhobong CGU is based on discounted cash flows over a revised nine year mine life (previously 14 year mine life).
The key assumptions used in the value in use calculation are as follows:
Key assumptions Value Basis for assumption
Discount 9.2% The discount rate used to account
rate for the time value of money represents
the pre-tax weighted average cost
of capital (WACC) that that would
be expected by market participants
based on risks specific to the Liqhobong
Mine. The rate included adjustments
for market risk, volatility and
risks specific to the asset.
Diamond price US$82 The average diamond price is based
(US$/carat) on average historic sales data of
Liqhobong's assortment.
Real diamond 3% The diamond price growth is based
price growth on long-term diamond price projections.
Exchange R12.89 The exchange rate is based on the
rate (ZAR:US$) spot rate as at 30 June 2017.
--------------- ------ -----------------------------------------
The value in use of the Liqhobong Mine is impacted mostly by changes in the average diamond price followed by changes in, particularly, the ZAR:US$ exchange rate.
Impairment summary
The following table presents current and previous impairments recorded against the Group's two CGU's, the Liqhobong and BK11 mines:
Liqhobong BK11 Total
Cash-generating unit US$'000 US$'000 US$'000
-------------------------------- --------- ------- -------
Carrying value 241 205 7 338 248 543
Accumulated impairment - 3 125 3 125
--------- ------- -------
At 1 July 241 205 4 213 245 418
Impairment charge for the year 122 602 - 122 602
--------- ------- -------
Carrying value after impairment 118 603 4 213 122 816
-------------------------------- --------- ------- -------
Impairment charge
Group
----------------
2017 2016
US$'000 US$'000
------------------------------------ ------- -------
Property, plant and equipment (note
6) 118 908 -
Loans receivable 3 694 -
------------------------------------ ------- -------
122 602 -
------------------------------------ ------- -------
4 Taxation
Group
-----------------
2017 2016
US$'000 US$'000
--------------------------------------- ------- --------
Current tax 2 998 -
Deferred tax charge/(credit) 18 666 (22 641)
--------------------------------------- ------- --------
Total tax charge/(credit) for the year 21 664 (22 641)
--------------------------------------- ------- --------
Factors affecting the tax charge for the year
The reasons for the difference between the actual tax charge and the standard rate of corporation tax of 20% (2016: 20%) in the United Kingdom applied to the loss for the year are as follows:
Group
------------------
2017 2016
US$'000 US$'000
--------------------------------------------------------------------- -------- --------
Loss before tax 130 015 9 033
--------------------------------------------------------------------- -------- --------
Tax credit on loss at standard rate of 20% (2016: 20%) (26 003) (1 807)
Adjustments to deferred tax not recognised 44 145 -
Effect of tax in foreign jurisdictions 354 (1 397)
Effect of the change in the standard tax rate - 126
Foreign exchange adjustment on effective interest rate on borrowings 1 423 307
Withholding tax credits relinquished 1 273 -
Recognition of previously unrecognised deferred tax assets 472 (19 871)
Expenses not deductible for tax purposes - 1
21 664 (22 641)
--------------------------------------------------------------------- -------- --------
Other comprehensive income
There is no tax movement arising in respect of the Group's other comprehensive income.
5 Profit/(loss) per share
The calculation of the basic profit/(loss) per share is based upon the net loss after tax attributable to ordinary shareholders of US$116.4 million (2016: US$7.9 million profit) and a weighted average number of shares in issue for the year of 315 161 224 (2016: 310 377 720).
Diluted profit/(loss) per share
The dilutive loss per share in 2017 is the same as the basic loss per share as the potential ordinary shares to be issued have no dilutive effect.
The calculation of the dilutive profit or loss per share in 2016 was based upon the net profit after tax attributable to ordinary shareholders US$7.9 million. The weighted average number of shares in issue for the year of 312 373 475, includes potentially issuable shares in respect of share options issued to employees of 1 995 755.
The Company has a further 23 313 589 (2016: 13 544 834) potentially issuable shares in respect of share options issued to employees that do not have a dilutive effect as at 30 June 2017 and 59 202 488 (2016: 48 786 437) potentially issuable shares in respect of warrants issued to strategic investors.
6 Property, plant and equipment
Mining Plant and Motor vehicles
US$'000 property equipment and other Total
assets
--------------------------------------------------------------- -------- --------- -------------- --------
Cost
At 1 July 2015 130 514 17 516 2 323 150 353
Additions 71 652 - 233 71 885
-------- --------- -------------- --------
Assets purchased 66 518 - 233 66 751
Finance cost capitalised 4 232 - - 4 232
Share-based payments capitalised 902 - - 902
-------- --------- -------------- --------
Disposals - - (45) (45)
Exchange difference (23 381) (1 695) (246) (25 322)
--------------------------------------------------------------- -------- --------- -------------- --------
At 30 June 2016 178 785 15 821 2 265 196 871
Additions 34 297 80 705 35 082
-------- --------- -------------- --------
Assets purchased 34 363 80 705 35 148
Operating profit reclassified to property, plant and equipment (10 280) - - (10 280)
Finance cost capitalised 9 442 - - 9 442
Share-based payments capitalised 772 - - 772
-------- --------- -------------- --------
Exchange difference 28 585 905 742 30 232
--------------------------------------------------------------- -------- --------- -------------- --------
At 30 June 2017 241 667 16 806 3 712 262 185
--------------------------------------------------------------- -------- --------- -------------- --------
Accumulated depreciation and impairments
At 30 June 2015 10 364 8 405 1 308 20 077
Amortisation and depreciation charge for the year 652 1 599 213 2 464
Disposals - - (32) (32)
Exchange difference (1 763) (889) (127) (2 779)
--------------------------------------------------------------- -------- --------- -------------- --------
At 30 June 2016 9 253 9 115 1 362 19 730
Amortisation and depreciation charge for the year 575 1 239 502 2 316
Impairment charge for the year 118 908 - - 118 908
Exchange difference 2 033 581 27 2 641
--------------------------------------------------------------- -------- --------- -------------- --------
At 30 June 2017 130 769 10 935 1 891 143 595
--------------------------------------------------------------- -------- --------- -------------- --------
Net book value at 1 July 2015 120 150 9 111 1 015 130 276
--------------------------------------------------------------- -------- --------- -------------- --------
Net book value at 30 June 2016 169 532 6 706 903 177 141
--------------------------------------------------------------- -------- --------- -------------- --------
Net book value at 30 June 2017 110 898 5 871 1 821 118 590
--------------------------------------------------------------- -------- --------- -------------- --------
The Group capitalised total net borrowing costs of US$9.4 million (2016: US$4.3 million) as part of the cost of the Project. All borrowing costs capitalised are Project-specific.
7 Deferred tax
The deferred tax included in the balance sheet is as follows:
Group
-----------------
2017 2016
Deferred tax asset/(liability) US$'000 US$'000
------------------------------------------------------- -------- -------
At 1 July 20 248 (3 480)
Movement in temporary differences recognised in income (18 666) 22 641
Exchange difference 3 052 214
Income tax credits receivable (873) 873
------------------------------------------------------- -------- -------
At 30 June 3 761 20 248
------------------------------------------------------- -------- -------
The deferred tax asset/(liability) comprises:
Group
------------------
2017 2016
US$'000 US$'000
-------------------------------------------------------------------------- -------- --------
Accelerated capital allowances (25 250) (37 718)
Provisions 698 502
Borrowings (1 980) (2 471)
Losses available for offsetting against future taxable income 33 185 61 954
Income tax credits available for offsetting against future taxable income - 873
Temporary difference arising on acquisition of subsidiary (2 892) (2 892)
-------------------------------------------------------------------------- -------- --------
3 761 20 248
-------------------------------------------------------------------------- -------- --------
In the previous financial year, a deferred tax asset was raised in respect of the entire assessed tax loss at Liqhobong of US$247.8 million as there was compelling evidence at the time that this amount would be recovered over the medium term. However, as sales took place during the year, it became apparent that a lower price environment existed. The Directors, having reconsidered the financial projections of Liqhobong at lower average diamond prices, determined that there is compelling evidence to support a deferred tax asset that is based on the value of the taxable profit which is expected to be generated over the next three years. No deferred tax asset was raised for assessed losses remaining to be utilised after the initial three-year period and these losses do not have an expiry date.
Deferred tax assets and deferred tax liabilities relating to the same tax authorities have been disclosed as a net asset or liability.
The Group has unrecognised tax losses of approximately US$205.0 million (2016: US$61.4 million), of which US$163.3 million relates to the Liqhobong Mine (2016: US$ nil), US$34.2 million to the BK11 Mine (2016: US$51.5 million) and US$7.5 million to the Group's Corporate entities in the UK and South Africa (2016: US$ 9.9 million).
8 Inventory
Group
----------------
2017 2016
US$'000 US$'000
Diamond inventory 4 237 -
Spares and consumables 2 183 248
----------------------- ------- -------
6 420 248
----------------------- ------- -------
At the end of the year, the value of uncut diamond inventory was written down by US$0.4 million to net realisable value of US$75 per carat. The net realisable value adjustment was capitalised to the cost of the Liqhobong Mine Development Project along with revenues and production costs for the period.
9 Trade and other receivables
Group
----------------
2017 2016
US$'000 US$'000
------------------ ------- -------
Trade receivables 1 262 -
Other receivables 2 010 2 715
Prepayments 318 705
------------------ ------- -------
3 590 3 420
------------------ ------- -------
Trade receivables relate to proceeds that were received shortly after year end relating to the diamond sale that completed on 23 June 2017. Other receivables relate to value added taxation due mainly from the Lesotho Revenue Authority. None of the trade and other receivables are past due date or considered to be impaired, and there is no significant difference between the fair value of the trade and other receivables and the values stated above.
10 Borrowings
Group - 2017
-------------------------------------------------------
ABSA Series Series
debt A B Other
facility Eurobonds Eurobonds loans Total
US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------- --------- ---------- ---------- ---------- --------
Capital amount
At 1 July 43 400 30 000 - - 73 400
Additions 39 000 - 5 000 1 456 45 456
Foreign exchange adjustments - - - 212 212
Capital repayments (1 393) - - (117) (1 510)
------------------------------- --------- ---------- ---------- ---------- --------
117
At 30 June 81 007 30 000 5 000 1 551 558
------------------------------- --------- ---------- ---------- ---------- --------
Finance cost to be amortised
over the life of the facility
(10 (18
At 1 July 763) (7 860) - - 623)
Additions (178) - (300) - (478)
Finance cost capitalised
to property, plant and
equipment 3 057 1 277 - - 4 334
------------------------------- --------- ---------- ---------- ---------- --------
(14
At 30 June (7 884) (6 583) (300) - 767)
------------------------------- --------- ---------- ---------- ---------- --------
At amortised cost
Non-current liabilities 50 307 23 417 4 700 1 310 79 734
Current liabilities 22 816 - - 241 23 057
------------------------------- --------- ---------- ---------- ---------- --------
102
Total 73 123 23 417 4 700 1 551 791
------------------------------- --------- ---------- ---------- ---------- --------
Group - 2016
ABSA Series
debt A
facility Eurobonds Total
US$'000 US$'000 US$'000
------------------------------------------------------ ---------- ---------- --------
Capital amount
At 1 July - - -
Additions 43 400 30 000 73 400
Capital repayments - - -
------------------------------------------------------ ---------- ---------- --------
At 30 June 43 400 30 000 73 400
------------------------------------------------------ ---------- ---------- --------
Finance cost to be amortised over
the life of the facility
At 1 July - - -
(11 (20
Additions 243) (8 959) 202)
Finance cost capitalised to property,
plant and equipment 480 1 099 1 579
------------------------------------------------------ ---------- ---------- --------
(10 (18
At 30 June 763) (7 860) 623)
------------------------------------------------------ ---------- ---------- --------
At amortised cost
Non-current liabilities 27 957 22 140 50 097
Current liabilities 4 680 - 4 680
------------------------------------------------------ ---------- ---------- --------
Total 32 637 22 140 54 777
------------------------------------------------------ ---------- ---------- --------
Group
----------------
2017 2016
Finance charges - ABSA debt facility US$'000 US$'000
------------------------------------- ------- -------
Interest paid 2 666 914
Amortised finance charges 3 057 480
------------------------------------- ------- -------
5 723 1 394
------------------------------------- ------- -------
Interest on the ABSA facility is calculated at 3-month US$ LIBOR plus the following margin:
-- Tranche A (85% of the loan balance) - 1.8%; and
-- Tranche B (15% of the loan balance) - 10% pre-financial completion and 7.5% post-financial completion.
The effective interest rate is, in aggregate 9.90% (2016: 9.60%). The facility is repayable in 18 quarterly instalments which commenced 31 March 2017.
The ABSA debt facility is secured by a first ranking general notarial bond over all movable assets for a total capital amount of US$165.0 million.
Group
----------------
2017 2016
Finance charges - Series A Eurobonds US$'000 US$'000
------------------------------------- ------- -------
Interest settled in shares 2 442 1 739
Amortised finance charges 1 277 1 099
------------------------------------- ------- -------
3 719 2 838
------------------------------------- ------- -------
The Series A Eurobonds have a coupon rate of 8.00% per annum payable quarterly. The effective interest rate is, in aggregate 13.77% (2016: 12.33%). The interest can be settled in cash or through the issue of ordinary shares at market value based on the volume-weighted average share price ("VWAP") and average GBP:$ exchange rate for the 20 days preceding the interest calculation date.
The Series A bonds are repayable on the final maturity date, which is August 2022.
Finance charges - Series B Eurobonds
The Series B Eurobonds were first exercised at year end.
The Series B Eurobonds have a coupon rate of 8.00% per annum, which is capitalised quarterly and is payable at maturity, and an effective interest rate in aggregate of 10.18%.
Warrants are issued upon exercise of the Series B Bonds which entitle the bondholder to receive shares in lieu of cash in respect of the outstanding balance in respect of the bonds. The exercise price is calculated based on the lower of a) an amount equal to a 10% premium to the VWAP of an ordinary share over a 30-day period immediately prior to the issue of the bonds and b) 37.5 pence, using an average GBP:$ exchange rate over a 20-day period immediately prior to the issue.
The Series B bonds are repayable no later than 36 months following the first drawdown, being 21 June 2020.
Group
----------------
2017 2016
Finance charges - other loans US$'000 US$'000
------------------------------ ------- -------
Interest paid 394 -
------------------------------ ------- -------
Finance charges
Finance charges capitalised to property,
plant and equipment 9 442 4 232
Finance charges recognised in profit
and loss 394 110
----------------------------------------- ----- -----
9 836 4 342
----------------------------------------- ----- -----
The Directors are of the opinion that the carrying value of borrowings approximates their fair value based on similar loan terms in the market.
11 Rehabilitation provision
Group
----------------
2017 2016
US$'000 US$'000
---------------------------------------- ------- -------
At 1 July 3 306 3 078
Exchange difference 367 (425)
---------------------------------------- ------- -------
Opening balance restated for effect
of foreign exchange 3 673 2 653
Increase in the year 282 442
Unwinding of discount on rehabilitation
liability 278 211
---------------------------------------- ------- -------
At 30 June 4 233 3 306
---------------------------------------- ------- -------
The Group raised a provision for the rehabilitation of the environmental disturbances caused by the construction of the Project that commenced in July 2014 and which has been capitalised as part of the cost of the asset.
The environmental rehabilitation provision is based on current best practice and the current Environmental Management Plan.
Significant estimates and assumptions are made in determining the amount attributable to this rehabilitation provision. These include uncertainties such as the legal and regulatory framework, and timing and value of future costs. Management estimates the cost of rehabilitation with reference to the rehabilitation activities contained in the Environmental Management Plan. In determining the amount attributable to the rehabilitation provision, management used the following assumptions:
Group
-----------------
2017 2016
----------------------- ------- --------
Discount rate 8.0% 8.0%
Lesotho inflation rate 4.7% 4.7%
Open pit life of mine 9 years 15 years
----------------------- ------- --------
12 Trade and other payables
Group
----------------
2017 2016
US$'000 US$'000
---------------------------- ------- -------
Trade payables 5 518 2 306
Tax and social security 250 245
Accruals and other payables 12 704 11 647
---------------------------- ------- -------
18 472 14 198
---------------------------- ------- -------
The Directors consider there to be no material difference between the book values and fair values of trade and other payables.
13 Post balance sheet events
Capital raise
On 1 December 2017 Firestone Diamonds plc announced a potential capital raise. The net proceeds will be used to sustain the Group at the current lower than expected average diamond values and to fund working capital for the foreseeable future.
Amendment of ABSA debt facility
The Group has agreed revised terms which are conditional upon ECIC approval, the success of the capital raise mentioned above, and certain other conditions. The key revised terms can be found in the Going Concern paragraph.
14 AGM
The Annual General Meeting ("AGM") of the Company will be held at the offices of Tavistock Communications, 1 Cornhill London EC3V 3ND at 10:30 a.m. on Friday, 29 December 2017. Copies of the Annual Report and the notice of AGM will be sent to shareholders shortly and will be available on the Company's website today.
-ends-
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UROORBAAAOUA
(END) Dow Jones Newswires
December 01, 2017 02:01 ET (07:01 GMT)
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