TIDMFDI
RNS Number : 5613X
Firestone Diamonds PLC
20 December 2019
20 December 2019
Firestone Diamonds plc
("Firestone", the "Group" or the "Company")
Final results for the year ended 30 June 2019
Firestone Diamonds (AIM: FDI), a diamond producer with
operations focused in Lesotho, announces its final audited results
for the year ended 30 June 2019.
Summary
A disappointing year for the Company despite a solid operational
performance, which saw revenues decline due to a weak diamond
market and a reduction in carats sold.
Liqhobong Diamond Mine ("Liqhobong", the "Project" or the
"Mine")
-- Lost Time Injury Frequency Rate of 0.23 compares favourably to the Group's peers;
-- Strong operational performance:
o 21% increase in total tonnes mined to 8.1 million tonnes
("mt") (2018: 6.7 mt);
o Marginally lower ore tonnes treated of 3.7 mt (2018: 3.8
mt);
o 53% increase in waste tonnes mined to 4.4 mt (2018: 2.9
mt);
o Higher grade of 22.6 carats per hundred tonnes ("cpht") (2018:
22.0 cpht);
o Lower operating cost per tonne treated of US$11.48 (2018:
US$11.62);
o 829 458 carats recovered (2018: 835 832 carats); and
o 774 830 carats sold (2018: 831 637 carats).
-- Largest diamond recovered to date in October 2018 was a 311 carat near-gem diamond; and
-- Most valuable diamond sold to date in March 2019 was a white
makeable diamond which realised US$1.6 million.
Financial
-- Lower revenue of US$57.2 million (2018: US$62.2 million);
-- Lower average diamond value per carat realised of US$73 (2018: US$75);
-- Loss of US$56.9 million (2018: US$14.2 million), which
includes an impairment charge of US$41.6 million and a deferred tax
charge of US$6.3 million;
-- Higher adjusted EBITDA(1) of US$11.7 million (2018: US$7.7 million);
-- Cash balance of US$26.3 million (2018: US$18.4 million);
o US$17.5 million unrestricted (2018:US$9.7 million
unrestricted); and
-- Loss per share of 8.2 US cents (2018: 2.8 US cents).
1 The measure of operational cash performance calculated as
earnings before interest, tax, depreciation, amortisation and
non-cash share-based payments expense.
Post Period
-- Power supply issue:
o Power disruption from 1 October due to 'Muela Hydro-Power
Station shutdown;
o Operations resumed from 26 October using diesel generated
power;
o The disruption caused by the electricity supply issue has
exacerbated a difficult outlook for the Company, resulting in an
inability to meet the scheduled debt repayments in the near
term;
-- December ABSA capital repayment of US$2.0 million deferred;
-- ABSA signed non-binding term sheet received for deferral of
capital repayments for a 15-month period to 31 March 2021; and
-- Non-binding term sheets received from the bondholders to
provide a US$6.0 million working capital facility until 31 March
2021.
Paul Bosma, Chief Executive Officer, commented:
"The year's performance was solid from an operational
perspective, as we delivered results within our guidance range for
all items within our control. From a diamond pricing perspective,
it was a tough year, particularly for the smaller, lower value
goods and these conditions are expected to persist for the
foreseeable future until the end of 2020 when global rough supply
is expected to reduce.
Due to the expectations of a continued subdued pricing
environment, combined with the recent power disruption to
operations, the Company has continued to engage with its
debtholders and has made good progress to ensure it can sustain
operations through the current downturn. More information in this
regard is contained in this announcement as well as the Annual
Report."
Enquiries:
+44 (0)20 3319
Firestone Diamonds plc 1690
Paul Bosma
Grant Ferriman
Macquarie Capital (Europe) Limited (Nomad +44 (0)20 3037
and Broker) 2000
Alex Reynolds
+44 (0)20 7920
Tavistock (Public and Investor Relations) 3150
Jos Simson
Gareth Tredway
Annabel de Morgan
About Firestone
Firestone is an international diamond mining company with
operations focused in Lesotho. Firestone commenced commercial
production in July 2017 at the Liqhobong Diamond Mine. Liqhobong is
owned 75% by Firestone and 25% by the Government of Lesotho.
Lesotho is one of Africa's significant new diamond producers,
hosting Gem Diamonds' Letšeng Mine, Firestone's Liqhobong Mine,
Namakwa Diamonds' Kao Mine and Lucapa's Mothae Mine.
Chairman's letter
Dear shareholder
This has been an extremely challenging year for the diamond
sector as a whole, with depressed diamond prices being experienced,
particularly at the smaller end of the market, which is of
particular relevance to Firestone. As a result the Company has
received lower prices for diamonds sold during the year, which has
resulted in a drop in revenue from expected levels. Our view of
forecast diamond pricing over the short-term has also changed and
this is the main reason for the US$41.6 million impairment recorded
for the year. Nevertheless the team on the ground at our Liqhobong
Mine have done an excellent job at focusing on all elements under
their control and this has resulted in a strong production result
with cost control, in particular, offsetting some of the
disappointing revenue shortfall.
More detail is provided later in this report regarding the
difficult market conditions, but we have sought to manage the
Company such that we can withstand the weakness and maintain our
ability to enjoy the benefits of the anticipated market recovery,
when it comes.
Performance in FY2019
We are extremely proud of our safety record, which has been
exemplary all through construction and during production. Whilst we
still maintained an extremely good safety record this year, by
industry standards, our record of 6.7 million hours worked without
a lost time injury unfortunately came to an end when an incident
occurred in the first quarter, followed by another in the final
quarter to the end of June. Whilst the injuries were minor, we
regard these matters very seriously. We have redoubled our efforts
on safety and awareness, in order to ensure this does not become a
trend and that we maintain industry-beating standards.
We were particularly pleased with the 4-star NOSA rating that
was awarded to Liqhobong during the year in respect of an
occupational health, safety and environmental management system
audit, which acknowledges the Company's very high standards and
performance in this regard.
Firestone realised an average diamond value for the year that
was marginally weaker than a year earlier, mainly due to lower
prices for smaller run-of-mine ("ROM") diamonds, with larger
diamonds helping to boost the average value.
Several larger, more valuable diamonds, the occurrence of which
is unpredictable, were recovered in the year. Highlights in this
category included several plus-50 carat white and yellow diamonds,
as well as some other, smaller high-valued coloured diamonds.
Management did an exemplary job at managing costs during the
year, which were significantly lower than guidance and I am pleased
to see the culture of cost consciousness which exists across the
business. In addition to lower costs in local currency terms, the
weaker local currency also provided opportunities which contributed
to lower costs being reported in US dollars.
Paul Bosma, in his first year as CEO, and the whole team have
done a tremendous job at focusing on those metrics that are within
our control, namely: safety, costs and production.
The actions taken at the back end of 2017 to restructure the
balance sheet and defer debt has proven to be absolutely the
correct decision at the time, given how much further markets have
weakened since then. We continue to engage closely with our major
shareholders, bondholders and lenders, who continue to provide us
with strong support. Prior to year end, ABSA agreed to waive
certain covenants at the end of June measurement date, and our
bondholders also agreed not to receive interest in cash for the
twelve month period to end June 2020, subject to shareholder
approval.
Update and outlook for FY2020
Since the year end, the market has remained subdued and as a
result we realised lower than expected average values for our
September and October sales of US$63 and US$70 respectively. In
terms of resource performance, lower carat recoveries have
persisted in a particular area of the open pit which has resulted
in fewer than expected carats being recovered.
In addition, production was hampered due to an electricity
supply issue which occurred on 1 October 2019. Our Liqhobong Mine
is supplied electricity from the 'Muela Hydro-Power Station which
is owned by the Lesotho Electricity Company ("LEC"). The power
station commenced a two-month maintenance shutdown on 1 October
2019 at which time ongoing supply was expected to be provided by
Eskom, South Africa's power utility company. However, due to
factors that were beyond any of the parties' control, and mainly
due to the long distance between the Mine and Eskom's nearest power
generation facility, the quality of voltage was insufficient to run
our processing plant. Management reacted swiftly, and a battery of
diesel generators was sourced on a short-term rental basis. It took
until 25 October 2019 to conclude the rental agreement, mobilise,
site establish and synchronise with our electrical infrastructure
before production recommenced from 26 October 2019.
Whilst we have been in discussions with ABSA Bank and our
bondholders for several months to find a longer-term solution to
the high levels of debt in the business, the combination of the
factors above placed the Company under increased cash pressure in
the short term and therefore the urgency to find an interim
solution. As disclosed in Note 1 - Going Concern, and subsequent to
the year end, non-binding term sheets were received from ABSA Bank
in respect of a 15-month capital deferral and from the bondholders
in respect of providing a US$6.0 million working capital facility
over the same period.
In the coming year, we will focus on completing the financing
arrangements, and expect to make progress on a potential extension
to the current eight-year mine life. Investigations into the
reasons for the lower recoveries are well underway and a process is
in place to update the mineral resource in early 2020. We will also
continue to ensure that we operate at the required rates and in the
most efficient manner, to control costs and optimise revenue, while
waste stripping increases as the Mine becomes deeper.
Total cash cost for the year, including waste, is expected to be
higher than in FY2019 mainly as a result of the increased waste
stripping requirement, and to range between US$13.50 and US$14.50
per tonne treated based on an average Rand:US Dollar exchange rate
of R14.50.
Board, corporate culture and governance
A number of changes to the Board reflect the current strategic
issues facing the Company as we moved away from construction and
ramp up to ongoing production in challenging market conditions. As
mentioned last year, Patrick Meier joined the Board in July 2018,
and assumed the role of Chair of the Audit Committee. Eileen Carr
joined the Board in April 2019, and has become a member of the
Audit and Remuneration Committees. Patrick Meier also became the
Chair of the Remuneration Committee at the end of April as Paul
Sobie stepped down.
Since the financial year end, Michael Stirzaker has joined as
the Pacific Road nominee to the Board, replacing Niall Young.
I would like to thank Paul Sobie and Niall Young for their hard
work, engagement and wise counsel over many years. Their
contributions were invaluable during a key part of the Company's
transformation into a major diamond producer.
The Board has always been fully committed to high standards of
governance. The Company has adopted the QCA Corporate Governance
Code (the 'QCA Code') and recognises that applying sound principles
in running the Company will provide a solid basis for growth,
optimisation of returns and enhance trust with our
stakeholders.
We are committed to ensuring that the highest safety and
environmental standards are maintained and see to it that
appropriate systems and policies are in place to manage these risks
appropriately. We take a serious approach to all safety and
environmental incidents as we believe that the action taken when a
minor incident occurs will significantly reduce the chances of a
similar but more serious accident from occurring in the future.
Further, we take the maintenance of the highest standards of
corporate culture, integrity and ethics to be key, and a priority
for myself and the Board to instil at all levels of the Company.
From a community relations point of view, our work is guided by our
CSR Policy with its supporting procedures. The policy defines
Liqhobong's standards for corporate social responsibility and
community relations which are essential in creating and sustaining
lasting relations with the communities alongside which we
operate.
In 2018, we conducted an independent community needs analysis so
that, as a business, we remain relevant by aligning our goals with
the long-term interests of communities affected by our operations.
This analysis was used to inform the Company's CSR Policy and will
continue to be useful in formulating our strategies and
initiatives.
Each month, as part of maintaining open and transparent
communication with our communities, we hold leadership meetings
with the Company's management team and community leaders. Through
these meetings, we have a consistent way of addressing grievances,
designing projects and other social responsibility initiatives, and
maintaining open communication and mutual relationships.
Lastly, I would like to extend my thanks to our shareholders and
lenders for their continued support, the management team and our
staff for the excellent operational performance during the year and
for maintaining our first-rate safety record. I look forward to
updating our shareholders and stakeholders in the coming
months.
Lucio Genovese
Non-Executive Chairman
CEO's REVIEW
Highlights
-- 3.7m ore tonnes treated
-- 829 458 carats recovered
-- 4.4m waste tonnes mined
-- US$11.48 cash operating cost per tonne treated
-- 311 carat near-gem diamond recovered, the largest to date at Liqhobong
-- 70 carat white diamond sold for US$1.6m, most valuable diamond sold to date
Introduction
In my first year as CEO of the Company, I am pleased to report
on another strong operational performance from our Liqhobong
Diamond Mine in Lesotho. However, this was against the backdrop of
lower revenue as a result of fewer carats sold, a deteriorating
diamond market and poor average sales values received for the ROM
diamonds less than approximately 0.7 carats per stone that form the
bulk of Liqhobong's production by volume. Nevertheless, we managed
to end the year with a higher cash balance of US$26.3 million,
mainly due to the 18-month debt repayment holiday agreed with ABSA
Bank at the end of 2017. We resumed repayment of our principal debt
with ABSA from June 2019.
During the year there were two lost time injuries that occurred
after working 6.7 million hours lost time injury free. Fortunately,
the two affected contractors sustained minor injuries and were able
to return to work after a period of recovery. There were no major
environmental incidents during the year, only minor incidents
relating mainly to isolated spillages. We recognise that the
communities situated in the vicinity of the Mine are crucial
stakeholders and an important source of local employment. We aim to
provide benefits to those communities and one of the projects that
was initiated during the year, "Lema u Phele" which means plant and
live, involves providing assistance to local farmers in order for
them to grow and harvest fresh produce for sale to the Mine. Five
villages have participated so far and the initiative will be
expanded in the future to increase the variety and quantity of the
fresh produce available for purchase by the Mine.
The operations performed solidly during the year, achieving
guidance in respect of the quantity of carats recovered, ore and
waste tonnes mined, and exceeding guidance in respect of operating
costs. A record quantity of 8.1 million tonnes was mined during the
year in terms of the most recent mine plan, which is 1.4 million
tonnes more than the 6.7 million tonnes mined in the previous year
and includes 4.4 million tonnes of waste (2018: 2.9 million
tonnes). The objective of the mine plan is to 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 increase or should there be an
improvement in market conditions. Operating costs continued to be
very well managed and were well below guidance for the year, both
in local currency terms and in US Dollar terms due to a weaker
Lesotho Maloti.
Water supply is crucial to the Mine's operations, and during the
year, the rainy season commenced very late; however, we managed to
fill our water reservoirs during April just in time, before the
onset of the dry season. Unpredictable weather patterns linked to
global climate change have become a reality over the last few years
in Southern Africa and the rest of the world and we monitor our
water availability and consumption closely. Electricity supply is
also crucial for the Mine's operations, as highlighted by the power
interruption, which occurred subsequent to the year end, and as
more fully described in the Chairman's Letter above.
In order for Firestone to thrive, we need to regularly recover
larger, better quality diamonds and we need to see an increase in
the price we receive for our ROM diamonds. We expect ROM prices to
recover, assuming consumer demand for diamond jewellery remains
stable, as supply decreases as predicted through 2020 and 2021 due
to the closure of mines, most notably the Argyle Mine in
Australia.
Our focus is to ensure that the Company makes it through the
current downturn in the diamond industry by continuing to excel at
the factors that we can control, such as safety, production and
operating costs, and by working with our debt holders and major
shareholders to find a longer-term solution to the high levels of
debt in the business.
Diamond sales
Total Total
Q1 Q2 Q3 Q4 FY2018 Q1 Q2 Q3 Q4 FY2019
---------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Revenue
Diamonds
sold (carats) 195 330 156 942 217 380 261 985 831 637 194 206 191 735 211 368 177 521 774 830
Revenue
(US$'m) 13.5 12.5 17.6 18.6 62.2 13.5 13.9 16.8 12.7 56.9
Average
value (US$/ct) 69 80 81 71 75 70 72 80 71 73
Number
of sales 2 2 2 2 8 1 2 2 2 7
Diamonds which sold for over US$500 000 each
Number 2 5
Value (US$'m) 2.1 4.9
---------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
The Group realised revenue for the year from its seven sales
amounting to US$56.9 million from the sale of 774 830 gem carats at
an average value of US$73 per carat. During the year, higher
revenue from an increased number of valuable diamonds sold for more
than US$500 000 each was offset by a decrease in the average prices
for ROM diamonds.
The average value of Liqhobong's larger, better quality
diamonds, which includes all diamonds larger than 10.8 carats, was
48% higher than in the prior year, buoyed by the recovery of
several high-value diamonds which included a 70 carat white diamond
which sold for US$1.6 million and a 46 carat white clivage diamond
which sold for US$1.2 million. However, the positive impact was
offset by a lower average value realised for ROM diamonds, which
decreased by 23% during the year due to a combination of an
over-supply of smaller goods and reduced lending in the
industry.
Revenue was also lower due to 56 807 fewer carats sold compared
to the previous year as a result of the timing of sales and seven
sales during the year compared to eight sales in the previous year.
Although the average value was lower for the year, it was broadly
in line with the base case assumption used for purposes of the ABSA
debt restructuring which took place during the previous year.
Q1 Q2 Q3 Q4 2019 2018
---------------------------------- --------- --------- --------- --------- --------- ---------
Production
Ore (tonnes) 1 012 323 884 252 862 838 904 902 3 664 315 3 802 568
Waste (tonnes) 961 013 902 151 1 242 481 1 337 281 4 442 926 2 910 636
---------------------------------- --------- --------- --------- --------- --------- ---------
Total (tonnes) 1 973 336 1 786 403 2 105 319 2 242 183 8 107 241 6 713 204
---------------------------------- --------- --------- --------- --------- --------- ---------
Carats recovered (carats) 240 733 224 947 155 206 208 572 829 458 835 832
Grade (carats per hundred tonnes) 23.8 25.4 18.0 23.0 22.6 22.0
---------------------------------- --------- --------- --------- --------- --------- ---------
Production
During the year, a record 8.1 million tonnes was mined, which
was 1.4 million tonnes more than the prior year of 6.7 million
tonnes.
The amount of ore tonnes treated for the year is a function of
the quantity of tonnes available from mining and from stockpiles,
and the availability of the treatment plant which can be impacted
by unscheduled maintenance and breakdown delays. During the first
quarter, over 1 million tonnes of ore was treated. However, fewer
tonnes of ore were treated during Q2 and Q3 due to unplanned
downtime as a result of a scrubber failure in November and front
end and conveyor breakdowns during early January 2019, at a time
when it was challenging to mobilise support crews from South
Africa. During the fourth quarter, production increased to just
over 0.9 million tonnes and contributed towards the achievement of
guidance for the year in respect of ore tonnes treated and carats
recovered.
Although the grade for the year of 22.6cpht was marginally
higher than the prior year's 22.0cpht, a lower Mine Call Factor
("MCF") of 91% was recorded (2018: 98%). MCF is a function of the
actual quantity of carats recovered as a percentage of carats
according to the reserve model of a particular ore block. An
investigation commenced into the reasons for the lower than
expected MCF, particularly in one area in the south eastern part of
the open pit. These results will be incorporated in the updated
block model which is expected to be completed during the 2020
financial year.
Waste mining for the year of 4.4 million tonnes was 1.5 million
tonnes more than the previous year of 2.9 million. During the first
two quarters of the year, 1.0 million tonnes and 0.9 million tonnes
of waste was mined, which was lower due to restricted access to Cut
2 south and poorer equipment availability during that period.
However, there was a marked improvement during Q3 and Q4 as
equipment availability and access to Cut 2 improved and additional
fleet was supplied by the mining contractor.
Mine development
During the year further work was conducted to determine the
viability of a Cut 3 open pit extension based on revised, steeper
slope angles. The results of the exercise indicated that a Cut 3
was potentially viable and could extend the mine life by
approximately three years should the key economic factor, the
average diamond value, improve over time. However, based on average
diamond values realised, and considering the increased cost of
moving the additional waste tonnes, the extension was not
considered economically viable at that stage. However, we continue
to assess alternative life of mine extension options that are based
on steeper slope angles which may result in a partial as opposed to
a full third cut. Work in this regard is expected to be completed
during the 2020 financial year.
Diamond breakage
During the year, a number of minor modifications were made to
the recovery process which resulted in a substantial decrease in
diamond damage to below 2%, which is well within accepted industry
standards.
Resource and reserve statement
Diamond Resource and Reserve update for Liqhobong Diamond
Resource
Diamond Resource
The Diamond Resource was updated at the end of the financial
year to account for the mining that took place during the year. A
total of 3.694 million tonnes and 1.103 million carats were
depleted. There was a net loss of 0.053 million tonnes containing
0.015 million carats due to changes in the pipe contact. At the end
of the year, a total of 0.071 million tonnes of ore and 0.018
million carats was estimated to reside on the ROM, in the pit and
in low-grade stockpiles. Therefore, as at 30 June 2019, the total
Indicated Resource was 25.234 million tonnes at a grade of 27 cpht
containing 6.693 million carats, which is a 13.7% reduction
compared to the 2018 Indicated Diamond Resource statement. There
were no changes to the Inferred Resource.
Diamond Resource statement for Liqhobong Main Pipe as at 30 June
2019 (including reserves)
Diamond Resource
------------------------------------------------------------------
Volume
Diamond Resource in m3
Density Metric
Depth from and (tonnes/m(3) tonnes Grade Carats
category to (millions) ) (millions) (cpht) (millions)
------------------ ---------------- ------------ -------------- ------------ -------- ------------
2 603 masl to
Indicated 2 467 masl 9.618 2.62 25.234 27 6.693
2 467 masl to
Inferred 2 127 masl 18.135 2.65 48.064 28 13.553
------------------ ---------------- ------------ -------------- ------------ -------- ------------
Total Diamond
Resource 27.753 2.64 73.298 28 20.246
------------------------------------ ------------ -------------- ------------ -------- ------------
-- Diamond Resources as at 30 June 2019, 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
The Diamond Reserve was updated at the end of the financial year
to account for mining that took place during the year. Therefore,
as at 30 June 2019, the total Probable Reserve was 25.230 million
tonnes at a grade of 22 cpht containing 5.623 million carats, which
is an 11.6% increase compared to the 2018 Probable Diamond Reserve
statement. Improved pit design optimisation initiatives resulted in
increased recoverable reserves during the period.
In addition to the Probable Diamond Reserve, the 2017 split
shell mine plan also assumes mining of a portion of the Inferred
Diamond Resource totalling some 5.5 million tonnes and 1.33 million
carats. The latest mine plan contemplates mining of a Cut 1 and Cut
2 and has the optionality to revert to a longer LOM plan, which
includes a Cut 3, should there be a general improvement in the
project economics including average diamond values or exchange
rate, or further optimisation which is made possible by adopting
steeper slope angles.
Diamond Reserve statement for the Liqhobong Main Pipe as at 30
June 2019
Diamond Reserve
-------------- --------------------------------------
Density
Diamond Reserve Depth from and (tonnes/m(3) Metric tonnes Grade Carats
category to ) (millions) (cpht) (millions)
----------------- ---------------- -------------- -------------- -------- ------------
2 603 masl to
Probable 2 467 masl 2.62 25.230 22 5.623
Total Diamond
Reserve 2.62 25.230 22 5.623
----------------------------------- -------------- -------------- -------- ------------
-- The above Diamond Reserve is stated at a 1.25mm slotted screen bottom cut-off.
-- The average diamond price per carat is estimated at US$77/ct.
-- The plant is currently using a bottom cut-off 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.
During the 2020 financial year, the geological model will be
updated to reflect all geological changes that have taken place
since production commenced. Once the geological model is updated, a
revised block model will be generated, which will provide the
necessary information to determine the potential for a life of mine
extension.
FINANCIAL REVIEW
Highlights
-- US$57.2m revenue
-- 774 830 carats sold
-- US$10.3m gross profit
-- US$73 average value per carat
-- US$56.9m loss after tax (including an impairment charge of US$41.6 million)
-- US$11.7m Adjusted EBITDA
-- US$26.3m in cash
Summary
The Group had a good year from an operating perspective, having
produced at similar levels to the previous year at an operating
cost of US$46.9 million, which was US$10.2 million lower than the
previous year's US$57.1 million. Operating costs, which continued
to be very well managed during the year, included the full impact
of the lower cost structure of a new mining contractor, which took
over mining activities in the second half of the previous financial
year. However, continued challenging conditions in the diamond
industry resulted in an impairment charge of US$41.6 million and a
tax charge of US$6.3 million, due to the write-back of a deferred
tax asset which relates to the impairment, resulting in a loss for
the year of US$56.9 million (2018: US$14.2 million), and placing
the Group's Statement of Financial Position into a negative equity
position.
Operational cash performance as measured by Adjusted EBITDA was
US$11.7 million, which was US$4.0 million better than the previous
year of US$7.7 million. After working capital changes and capital
spend, the operating cash result is US$13.1 million, which compares
highly favourably to an outflow in the previous year of US$8.6
million. However, this is impacted by the timing of the June 2018
sale proceeds of US$10.4 million which were received at the
beginning of the current financial year, and which, once accounted
for, result in a more comparable operating cash result of US$2.7
million versus US$1.8 million in the previous year.
Net increase in cash was US$7.3 million (2018: US$0.9 million),
mainly due to very low ABSA capital repayments of US$1.9 million in
June 2019, after an 18-month capital grace period, and the Group
ended the year with cash balances of US$26.3 million (2018: US$18.4
million), of which US$17.5 million (2018: US$9.7 million) was
unrestricted.
During the early part of the year, and as a result of the
continued weaker diamond market, the Company engaged with the
bondholders to consider ways to restructure the bond portion of the
Company's debt, having responded in the previous year by shoring up
cash reserves and by restructuring the Group's principal debt with
ABSA Bank. Engagement continued into the second half of the year
when it became evident that, based on lower average diamond value
scenarios, Liqhobong forecast that it would breach two of its
forward-looking covenants with ABSA Bank, namely the forecast debt
service cover ratio and the loan life cover ratio, further details
of which is provided in note 15 of this report. Through the mutual
support and co-operation of ABSA Bank and the bondholders,
agreement was reached and a covenant waiver was granted by ABSA
Bank on 28 June 2019. At the same time, the bondholders agreed to
receive interest on the Series A Eurobonds in shares rather than in
cash, as required by ABSA, and a further condition of maintaining a
minimum Group working capital level of US$2.0 million was agreed
to.
The Group remains under considerable cash pressure due to the
weaker diamond market, and the situation was exacerbated by the
commencement of capital repayments to ABSA Bank after an 18-month
capital grace period which ended on 30 June 2019, and by the loss
of revenue in October and November 2019 due to the power supply
issue. Subsequent to the year end, a non-binding term sheet was
received from ABSA Bank to defer capital repayments for a further
15-month period to 31 March 2021, and additionally, a non-binding
term sheet was received from the bondholders to provide the Company
with a US$6.0 million working capital facility to fund short-term
forecast cash flow shortfalls which result from the irregular
timing of diamond sales proceeds during the same period. The
financing arrangements are discussed under the heading "Update and
outlook for FY2020" in the Chairman's letter, and in the Going
Concern statement. It is anticipated that definitive agreements
will be concluded during the first quarter of 2020. Discussions
will continue with ABSA Bank and the bondholders during the 2020
financial year as further information becomes available regarding
the potential extension of the mine life in order for a longer-term
solution to be structured to address the Group's high levels of
indebtedness, at lower average diamond values.
Statement of profit and loss
US$'million 2019 2018
--------------------------------- ----- ----
Revenue 57.2 62.2
Less:
Cost of sales 46.9 57.1
--------------------------------- ----- ----
Gross profit 10.3 5.1
Other income 1.5 1.3
Selling and administrative costs 5.9 6.1
BK11 care and maintenance 0.3 0.5
Corporate costs 3.2 3.4
Amortisation and depreciation 1.4 2.4
Share-based payments 0.6 1.3
Impairment 41.6 -
Net finance cost 9.3 10.2
--------------------------------- ----- ----
Loss before tax 50.5 17.5
Income tax (charge)/credit (6.4) 3.3
--------------------------------- ----- ----
Net loss after tax 56.9 14.2
--------------------------------- ----- ----
Cost of sales
Cost of sales relates to Liqhobong and comprises the on-mine
operating costs, depreciation and amortisation expenses that are
associated with the diamonds sold during the year.
US$'million 2019 2018
--------------------------------------------- ------ ------
On-mine cash costs excluding waste stripping 32.0 35.6
Waste stripping cost 10.0 8.6
------------------------------------------------ ------ ------
On-mine cash costs 42.0 44.2
Less: Waste stripping cost capitalised (3.0) -
Waste stripping amortised 0.3 0.3
Depreciation 8.6 10.5
Diamond inventory movement (1.3) 1.3
Share-based payments 0.3 0.8
------------------------------------------------ ------ ------
Cost of sales 46.9 57.1
Production
Ore (million tonnes) 3.66 3.80
Waste (million tonnes) 4.44 2.91
KPIs:
Cash operating cost (US$):
- per tonne treated 11.48 11.62
- per tonne mined 5.19 6.59
Cash operating cost (LSL):
- per tonne treated 162.23 149.40
- per tonne mined 73.32 84.70
Accounting cost per tonne treated (US$) 13.09 14.45
------------------------------------------------ ------ ------
Cost of sales for the year of US$46.9 million was US$10.2
million lower than the previous year's US$57.1 million, mainly due
to US$2.2 million lower on-mine cash costs, US$3.0 million of waste
costs being capitalised to the balance sheet, and US$1.9 million
lower depreciation.
On-mine cash costs of US$42.0 million were US$2.2 million lower
than the prior year of US$44.2 million despite a 21% increase in
tonnes moved for the year to 8.1 million tonnes (2018: 6.7 million
tonnes). A combination of continued stringent cost management and
lower costs contributed to the lower cost per tonne mined for the
year, in Lesotho Maloti of LSL73.32 compared to LSL84.70 in the
previous year. The cost per tonne mined was also favourable in US
Dollar terms at US$5.19 compared to US$6.59 in the previous year.
Mining costs were 24% lower for the year at US$2.36 per tonne moved
compared to US$3.11 per tonne moved in the prior year, including
waste, due to a change in rates from a new mining contractor, which
accounts for 15% of the variance, and a weaker Lesotho Maloti
versus the US Dollar of LSL14.14:US$1 (2018: LSL12.86:US$1) which
accounts for the remaining 9% of the variance.
During the year, particularly in the first half, several
unexpected production interruptions were experienced. Minor delays
occurred due to snowfall which hampered access to ore in the pit,
and when one of the two scrubbers was removed from production for a
three-week period while a replacement part was manufactured.
Despite the interruptions, which resulted in marginally fewer
tonnes treated during the year of 3.7 million tonnes (2018: 3.8
million tonnes), and inflationary cost increases in Lesotho, the
cash operating cost per tonne treated was lower than the previous
year at US$11.48 (2018: US$11.62), which is an excellent
result.
Gross profit
Lower revenue for the year of US$57.2 million (2018: US$62.2
million) was offset by lower cost of sales of US$46.9 million
(2018: US$57.1 million), resulting in a US$5.2 million increase in
gross profit to US$10.3 million for the year (2018: US$5.1
million). This represents a significant increase in margin to 18%
(2018: 8%), despite a lower average value achieved for the year of
US$73 per carat (2018: US$75 per carat).
Liqhobong selling and administrative expenses
Selling and administrative costs are specific to the Liqhobong
operation and incorporate costs to maintain the administrative
function of the business and all costs in respect of selling the
diamonds that are recovered from the Mine. Costs for the year of
US$5.9 million were US$0.2 million lower than the previous year of
US$6.1 million mainly due to lower selling costs as a result of
lower revenue for the year.
Corporate overhead
Corporate costs for the year of US$3.2 million were marginally
lower than the previous year's US$3.4 million and reflect
management's continued efforts in reducing operating costs across
the business.
Impairment
The value of the Liqhobong cash-generating unit was reassessed
at year end based upon key assumptions that were considered
reasonable as at the year end, adjusting for relevant impacts that
have occurred since the year end, as disclosed more fully in Note 7
- Impairment.
The key assumptions include forecast average diamond values and
Mine Call Factor ("MCF"), both of which changed compared with those
applied in the previous year. The diamond market has remained weak,
particularly in respect of the smaller, lower-quality diamonds
which comprise 80% of Liqhobong's production by volume. Based on
the forecast diamond supply/demand dynamics as discussed more fully
in the Market Context section of this report, we forecast flat
pricing for better quality stones over the next four years,
thereafter increasing by 1.5% real. The pricing for lower-quality
goods is forecast to recover to 2017 price levels by the 2023
financial year and to recover further to 2013 price levels by the
2024 financial year, at a stage where global supply is forecast to
be at similar levels to those in 2013. Previously, an MCF of 100%
was assumed. Due to the lower than expected MCFs being realised, as
more fully discussed in the Grade and Adjusted EBITDA key
performance indicators in the complete version of the Annual Report
and Accounts, a forecast MCF of 95% has been applied throughout the
life of mine.
These assumptions, together with others, were applied to the
existing seven year life of mine plan, resulting in a recoverable
value for the asset of US$64.3 million, which was US$38.3 million
lower than its carrying value of US$102.6 million, giving rise to
an impairment charge.
Net finance expense
Net finance cost includes the amortisation of upfront fees and,
in the case of the ABSA debt facility, the upfront insurance
premium paid to the Export Credit Insurance Corporation of South
Africa ("ECIC").
2019 2018
-------------------------------------------------- --------------------------------------------
Cost of financing Cash Settled Amortised Total Cash Settled Amortised Total
in in
(US$'million) cost shares Capitalised cost cost cost shares Capitalised cost cost
------------------- ------ ------- ----------- --------- ----- ------ ------- ----------- --------- -----
ABSA debt
facility 3.5 - - 2.4 5.9 3.2 - - 3.0 6.2
Series A Eurobonds - 2.4 - 1.3 3.7 - 2.4 - 1.3 3.7
Series B Eurobonds - - 0.6 0.1 0.7 - - 0.5 0.1 0.6
------------------- ------ ------- ----------- --------- ----- ------ ------- ----------- --------- -----
Other finance
cost 0.1 - 0.1 0.3 0.5 0.2 - - 0.3 0.5
------------------- ------ ------- ----------- --------- ----- ------ ------- ----------- --------- -----
3.6(1) 2.4 0.7 4.1 10.8 3.4 2.4 0.5 4.7 11.0
Less: Finance
income 1.0 - 0.5 - 1.5 0.8 - - - 0.8
------------------- ------ ------- ----------- --------- ----- ------ ------- ----------- --------- -----
Net finance
cost 2.6 2.4 0.2 4.1 9.3 2.6 2.4 0.5 4.7 10.2
------------------- ------ ------- ----------- --------- ----- ------ ------- ----------- --------- -----
1 - In addition, US$1.3 million in cash finance cost was paid
during the year, US$0.9 million of which was accrued in the
previous year, and US$0.4 million in respect of an ECIC premium
adjustment. Total cash finance cost per the cash flow is therefore
US$4.9 million.
During the year, the average US Dollar three-month LIBOR rate
was 2.53%, which was higher than the average rate of 1.66% in the
previous year.
Tax charge
The tax charge for the year of US$6.4 million comprises a
decrease in the deferred tax asset recognised in Liqhobong of
US$6.3 million, and an income tax charge of US$0.1 million in
Kopane Diamonds. Based on the financial model used for purposes of
the impairment assessment discussed above, no tax losses are
forecast to be utilised over the next three-year period to June
2022, resulting in the reversal of the deferred tax asset and the
subsequent deferred tax charge, which are further discussed in Note
8 and 11. The tax charge in Kopane Diamonds relates to expired tax
credits which are chargeable against income.
Net loss for the year
The Group recorded a net loss for the year of US$56.9 million,
which was US$42.7 million more than the prior year's loss of
US$14.2 million, due mainly to the impairment charge of US$41.6
million, and associated deferred tax asset reversal of US$6.3
million.
Debt
At the year end, on 28 June 2019, the Company repaid US$1.9
million of the ABSA debt facility after an 18-month capital grace
period which had been provided by ABSA Bank as part of a debt
restructuring that took place during 2017.
ABSA debt and Eurobonds
Facility 2019 2018
Interest rate amount US$'m US$'m
-------------------- --------------------------- -------- ------ -----
US$ three-month LIBOR plus
ABSA debt facility margin 82.4 65.9 67.8
Eurobond (Series A) 8% p.a. 30.0 30.0 30.0
Eurobond (Series B) 8% p.a. 15.0 8.1(1) 7.5
-------------------- --------------------------- -------- ------ -----
127.4 104.0 105.3
------------------------------------------------ -------- ------ -----
1 - Balance increases each year due to capitalised interest.
Scheduled loan balance and interest margins on the ABSA debt
facility
Interest - US$ three-month LIBOR plus:
--------------------------------------------
Loan balance A Loan B Loan
--------------------- ---------------------- --------------------
Tranche A Tranche B Tranche A Tranche B
A Loan B Loan Total 85% 15% 85% 15%
Year US$'m US$'m US$'m %% %%
----- ------ ------ ----- ---------- --------- --------- --------
2019 36.1 29.8 65.9 1.80 7.50 3.05 7.50
2020 15.9 39.9 55.8 1.80 7.50 3.55 7.50
2021 - 41.8 41.8 -- 4.05 7.50
2022 - 20.6 20.6 -- 4.05 7.50
2023 - 9.0 9.0 -- 4.55 7.50
----- ------ ------ ----- ---------- --------- --------- ---------
Notes:
-- The ECIC insurance provides ABSA Bank with cover over both
Tranche A and Tranche B (together 100%) in respect of political
risk and over Tranche A (85%) in respect of commercial risk.
-- The effective interest rate is in aggregate 9.56% (2018: 9.29%), including upfront costs.
-- The values stated above are subject to change, pending
completion of the proposal to defer capital repayments for a
15-month period.
Covenants
In terms of the debt restructuring that took place in 2017, ABSA
debt covenants were due to be measured on 30 June 2019. Management
assessed the forward-looking covenants ahead of time and determined
that it was likely that certain of the covenants would be breached.
Liqhobong applied to ABSA Bank, which, after due consideration of
the circumstances, and paying particular regard to the weaker
diamond market, granted a waiver in respect of two covenant
breaches in respect to the forecast debt service cover ratio and
the loan life cover ratio. ABSA Bank provided the covenant waivers
on two conditions: firstly that no cash payments were to be made to
the bondholders in respect of interest due for the twelve-month
period from 1 July 2019 to 30 June 2020; and secondly that the
Group maintain a minimum working capital level of US$2.0
million.
Cash flow
US$'million 2019 2018
------------------------------------ ------- -------
Operating cash flows
Loss before taxation (50.5) (17.5)
Adjustments:
Impairment charge 41.6 -
Depreciation and amortisation 10.3 13.2
Equity-settled share-based payments 0.8 1.9
Changes in provisions 0.2 (0.1)
Net finance cost 9.3 10.2
------------------------------------ ------- -------
Adjusted EBITDA 11.7 7.7
Working capital changes 5.4 (14.3)
Stay-in-business capital (4.0) (2.0)
------------------------------------ ------- -------
Operating cash result 13.1 (8.6)
Cash (repaid)/raised
Proceeds from share issue - 24.1
Increase in borrowings - 2.0
ABSA repayments (1.9) (13.5)
Finance income 1.0 0.3
Finance cost (4.9) (3.4)
------------------------------------ ------- -------
Net cash (repaid)/raised (5.8) 9.5
Net increase in cash 7.3 0.9
Opening cash 19.0(1) 17.5(1)
------------------------------------ ------- -------
Closing cash 26.3 18.4
------------------------------------ ------- -------
Notes:
1 Opening cash balance is adjusted for foreign exchange.
The Group's cash performance, as measured by Adjusted EBITDA,
which is determined as earnings before interest, taxation,
depreciation, amortisation and non-cash share-based payment
expense, was US$11.7 million for the year, which was US$4.0 million
more than the previous year of US$7.7 million. Working capital
inflow of US$5.4 million included US$10.4 million proceeds from a
sale that took place in June 2018 and which were received in July
2019, the current financial year.
Stay-in-business capital relates to the Liqhobong Mine and
included capitalised waste stripping cost of US$3.0 million and the
cost of changes that were made to certain parts of the recovery
process which contributed to a significant reduction in diamond
breakage during the year to within industry acceptable levels.
Net cash repaid during the year of US$5.8 million included a
US$1.9 million capital repayment to ABSA Bank on 30 June 2019, and
interest paid to ABSA of US$4.9 million, offset by interest income
on cash balances of US$1.0 million.
The result for the year was a net increase in cash of US$7.3
million, and a closing cash balance of US$26.3 million (2018:
US$18.4 million).
MARKET CONTEXT
We expect the prices of larger, better quality diamonds to
remain strong and for this to partially offset the impact of low
prices for ROM diamonds which we expect to remain at current levels
over the medium term.
The past year was a particularly challenging period for the
diamond industry. The traditional peak retail selling period at the
end of 2018 was disappointing, with consumer sentiment negatively
affected by the United States ("US") stock market's worst
performance for a decade, which ended the year down 4.4%. However
the dominant factor impacting the market is a surplus of
supply.
The market weakness has been particularly prevalent in the
smaller ROM category of diamonds, as opposed to the special
plus-10.8 carat diamond category. There has been a relative
divergence in prices between ROM diamonds and other diamond
categories as a result of increased production of smaller diamonds
over the past 2 years, along with challenges facing Indian
manufacturers dealing in the smaller size categories and the impact
of laboratory grown diamonds ("LGDs") on smaller natural diamonds
in this category. The tough market conditions are reflected in the
reduced sales values recorded so far during 2019 by the two
dominant diamond producers, De Beers and Alrosa, and is reflected
in the weak share price performance of many of the diamond
producers.
Firestone's average values realised for the year were impacted
by the lower prices for ROM diamonds, which comprise a substantial
portion of our production by volume. However, weaker prices for ROM
diamonds were partially offset by strong prices being realised for
larger, better quality diamonds. It is not possible to predict the
recoverability of the larger, better quality diamonds that have a
material impact on the average sale values realised.
Supply
Supply is expected to reduce over coming years.
Factors impacting supply:
-- Lower production from ageing mines, including De Beers'
Victor and Voorspoed Mines which are reaching the end of their
lives, and Rio Tinto's Argyle Mine in Australia, which is due to
close by end 2020;
-- there is a lack of new discoveries. ALROSA completed work on
its Verkhne-Munskoye Mine in Russia in late 2018, leaving only one
large-scale mine available for development, Luaxe situated in
Angola; and
-- De Beers recently allowed its sight-holders to defer some of
their allocations in an attempt to address the imbalance that
currently exists in the diamond pipeline.
Supply peaked recently in 2017 at 152 million carats after
production had commenced from several new mining operations
including De Beers' and Mountain Province's jointly owned Gahcho
Kué Mine, Stornoway's Renard Mine and the Company's own Liqhobong
Mine. Supply is expected to decrease to 134 million carats by 2022,
mainly due to the expected closure of Rio Tinto's Argyle Mine in
Australia at the end of 2020, which will result in 14 million
carats lower supply annually. The reduction in supply should allow
for excess inventories in the midstream to be worked through which
should result in improved diamond prices for producers.
In this regard, Firestone's average annual production, at below
1 million carats, is not deemed to have a significant influence on
the supply dynamics of the global diamond market. Furthermore, the
Mine has limited ability to increase or decrease production volumes
materially.
Demand
Recent developments impacting demand:
-- Tiffany & Co., a major global jewellery retailer,
indicated that it would be entering the Indian market for the first
time through a joint venture with Indian retail conglomerate
Reliance, planning initially to open two stores, one in Delhi and
another in Mumbai in 2020;
-- up until Q4-2018, Greater China retail proxy, Chow Tai Fook,
saw nine consecutive quarters of same store sales growth in
Mainland China, and eight in Hong Kong/Macau;
-- Chow Tai Fook is currently opening new stores at the fastest pace in the company's history;
-- the Chinese Yuan continues to fall versus the US Dollar due
to trade tensions between the two nations. A weaker Yuan tends to
reduce Mainland Chinese diamond demand as consumer purchasing power
is decreased, especially when shopping abroad;
-- De Beers has increased its marketing spend for 2019 to US$170
million, part of which will go towards the Diamond Producers
Association ("DPA") budget, which is expected to be upward of
US$200 million; and
-- the DPA's primary aim in 2019 is to promote self-purchasing,
with a new campaign titled "For me, from me" as it identified that
almost all of the growth seen in 2018 was due to
self-purchasing.
The demand for diamond jewellery has remained steady with the US
continuing to be the leading consumer. Diamond demand growth is
highly correlated with global GDP growth and therefore the ongoing
US-China trade war and other geopolitical uncertainties such as
Brexit need to be resolved in order for demand to improve.
China continues to be the major source of growth for jewellery.
In its recent half-year report, Tiffany's reported a 3% drop in
worldwide sales from a year earlier, which was contrasted to
double-digit growth in Mainland China during the first two quarters
of the fiscal year. We expect this to continue.
From a Firestone perspective, pressure on the ROM category of
diamonds was consistently evident in all sales during the financial
year as high inventories in the midstream continued to hinder
demand. Q3's average value was boosted by the recovery of several
larger, better quality diamonds.
During the year we held seven sales, which were all well
attended.
2019 Revenue
Diamond Price
Quarter sales(carats) per carat
1 194 206 70
2 191 735 72
3 211 368 80
4 177 521 71
Total 774 830 73
Berenberg forecasts demand to remain steady, resulting in a
supply-demand deficit starting to develop from 2020 due to a fall
in rough supply.
Looking Forward
In the medium term, we expect prices to remain subdued for ROM
diamonds, principally due to a build-up of inventory in the
midstream which we think will take time to work through the diamond
pipeline. Offsetting this, we expect to continue to see strong
pricing for Liqhobong's larger, better quality diamonds.
INDEPENT AUDITOR'S REPORT
Opinion
We have audited the financial statements of Firestone Diamonds
plc (the "Parent Company") and its subsidiaries (the "Group") for
the year ended 30 June 2019 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 Parent 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 Parent Company's affairs as at 30
June 2019 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 Parent Company's 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) ("ISA (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 Parent 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 uncertainty related to going concern
We draw attention to note 1 in the financial statements which
states that the Group lacks sufficient liquidity headroom to meet
its debt repayments and other obligations for a period of at least
twelve months.
The Directors have received a signed non-binding term sheet from
ABSA where ABSA have conditionally agreed to restructure the debt
in line with the disclosures made in note 1. However as disclosed
in note 1, the debt restructure is subject to the satisfaction of a
number of conditions precedent.
Furthermore, as disclosed in note 1 the bondholders have
conditionally agreed to restructure the Series A Eurobonds and to
provide the Group with a short-term working capital facility
("working capital facility"). The availability of the working
capital facility is subject to satisfaction of a number of
conditions precedent as disclosed in note 1.
These events or conditions, along with the other matters as set
forth in note 1, indicate that material uncertainties exist that
may cast significant doubt on the Group and the Parent 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 twelve months from the date of
approval of the financial statements:
o we reviewed diamond price forecasts to prices achieved in the
year, pricing trends and market forecasts and considered the
appropriateness of growth assumptions based on empirical data and
industry peers trend growth;
o we compared foreign exchange rate assumptions to market
forecasts; and
o 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 non-binding term sheets with
ABSA and the bondholders to understand the conditions attached to
the ABSA debt restructure, Series A Eurobonds restructure and the
working capital facility;
-- we reviewed the covenant terms in the ABSA non-binding term
sheet and considered whether these could be met based upon the cash
flow forecasts and life of mine model. We reviewed the adequacy of
the working capital facility in funding the Group's operational
requirements for a period of at least twelve months from the date
of approval of the financial statements on the basis that the ABSA
debt and Series A Eurobond restructures are secured; and
-- we reviewed the adequacy of disclosures in the financial
statements in respect of the Group's and Parent Company's funding
position and requirement for additional funding to meet its working
capital requirements and liabilities as they fall due, which the
Directors have concluded represents a material uncertainty
regarding their ability to continue as a going concern.
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. This
matter was 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 this matter. In addition to
the matter described in the material uncertainty related to going
concern section, we have determined the matter described below to
be a key audit matter.
Key audit matter How we addressed the key audit matter in
our audit
---------------------------------- ------------------------------------------------------------------
Carrying value of Liqhobong
Diamond Mine
---------------------------------- ------------------------------------------------------------------
As detailed in note 7 and Our procedures in relation to management's
also explained in note 2, assessment of the carrying value of Liqhobong
the assessment of impairment Diamond Mine included:
to the carrying value of * evaluating management's impairment models against
mining assets require significant approved life of mine plans and our understanding of
judgement and estimate by the operations, and critically reviewing the
management. As at 30 June consistency of the mine plan against resource and
2019, there was a significant reserve reports and mine optimisation review
risk for our audit that undertaken by an independent third party expert;
the Liqhobong Diamond Mine
is carried at an amount
greater than its recoverable * testing whether the methodology applied in the
amount. value-in-use calculation is compliant with the
requirements of International Accounting Standards
In total, impairments amounting ("IAS") 36 Impairment of Assets, and the mathematical
to US$38.3 million were accuracy of management's model;
recognised in the year ended
30 June 2019.
* challenging the significant inputs and assumptions
used in the impairment model and whether these were
indicative of potential bias. Our testing included:
o challenged the short-term pricing assumptions
by evaluating management's diamond price
forecasts against prices achieved in the
year and post year end and challenging management
on their assumptions regarding the impact
that the current market downturn will have
on pricing using public source information
including market analyst and other diamond
producer commentary on the short-term outlook,
together with the effect of product mix
on pricing;
o challenged the long-term pricing where
we considered the appropriateness of the
long-term diamond price escalator of 1.5%
and assessed whether management's estimate
is within an acceptable range by comparing
the price escalator to market guidance and
historical market pricing trends. We searched
for alternative views on the long-term outlook
and challenged management's forecast using
a variety of information sources, including
market analyst commentary, other diamond
producer pricing outlooks and demand and
supply side factors that would be expected
to impact market pricing;
o critically analysing the inputs in management's
calculated discount rate. We engaged BDO
valuation specialists to assess the reasonableness
of the methodology used in determining the
discount rate and challenged managements
discount rate assumptions by benchmarking
against industry peers;
o comparison of foreign exchange rate assumptions
to year-end spot rates; and
o critical review of the forecast costs
against the expected production profiles
in the mine plan and historical performance.
* reviewed management's sensitivity analysis and
performed our own sensitivity analysis over
individual key inputs, together with a combination of
sensitivities over such inputs;
* we held discussions with the Audit Committee to
consider the recoverable amount under the forecasts
and discussed downside risks and sensitivities; and
* assessed the adequacy of impairment related
disclosures contained within note 7 of the financial
statements.
---------------------------------- ------------------------------------------------------------------
Key observation
------------------------------------------------------------------------------------------------------
Based on our work, we found management's key judgements in respect
of the carrying value of Liqhobong Diamond Mine to be reasonable.
------------------------------------------------------------------------------------------------------
Our application of materiality
Group materiality Group materiality Basis for
- 2019 - 2018 materiality
----------------- ----------------- --------------
US$1.2 million US$2.2 million Approximately
1.5% of total
assets (2018:
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 2018 to 2019 which reflect the public
interest in the project as it had two full years of commercial
production. 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$1.2 million, each significant component of the Group was audited
to a lower level of materiality. The Parent Company materiality was
US$0.4 million (2018: US$0.8 million) with the other components
being US$0.9 million. These materiality levels were 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.
Performance materiality is the application of materiality at the
individual account or balance level set at an amount to reduce to
an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality.
Performance materiality was set at 75% (2018: 75%) of the above
materiality levels for both the Group and Parent Company.
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 $0.06 million (2018: $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 Parent 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
material balance where necessary in that component. We set out
below the extent to which the Group's revenue and total assets were
subject to audit versus review procedures.
Components 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;
-- were 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
-- provided for a senior member of the Group audit team to
attend 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 and accounts, 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 Parent 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 Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the Parent 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 Parent 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 Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
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.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company and the
Parent Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Jack Draycott (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
19 December 2019
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30 JUNE 2019
2019 2018
Note US$'000 US$'000
----------------------------------------------------------------------- ---- -------- --------
Revenue 3 57 239 62 246
Cost of sales 46 924 57 116
----------------------------------------------------------------------- ---- -------- --------
Gross profit 10 315 5 130
Other income 1 405 1 267
Selling, administrative and other expenses 52 957 13 707
-------- --------
Other administrative expenses 2 123 1 784
Diamond royalty and selling expenses 3 753 4 318
Impairment charge 7 41 565 -
Amortisation and depreciation 4 1 422 2 408
Share-based payments 552 1 345
Care and maintenance 327 485
Corporate expenses 3 215 3 367
----------------------------------------------------------------------- ---- -------- --------
Loss before finance charges and income tax 4 (41 237) (7 310)
Finance income 6 1 491 794
Finance costs 6 10 764 11 021
----------------------------------------------------------------------- ---- -------- --------
Loss before tax (50 510) (17 537)
Taxation (charge)/credit 8 (6 349) 3 304
----------------------------------------------------------------------- ---- -------- --------
Loss after tax for the year (56 859) (14 233)
----------------------------------------------------------------------- ---- -------- --------
Loss after tax for the year attributable to:
Owners of the parent (44 065) (11 635)
Non-controlling interests (12 794) (2 598)
----------------------------------------------------------------------- ---- -------- --------
Loss after tax for the year (56 859) (14 233)
----------------------------------------------------------------------- ---- -------- --------
Other comprehensive loss:
Items that may be reclassified subsequently to profit and loss
Exchange differences on translating foreign operations net of tax (2 254) (7 426)
Movement on cash flow hedges 104 791
----------------------------------------------------------------------- ---- -------- --------
Other comprehensive loss (2 150) (6 635)
----------------------------------------------------------------------- ---- -------- --------
Total comprehensive loss for the year (59 009) (20 868)
----------------------------------------------------------------------- ---- -------- --------
Total comprehensive loss for the year attributable to:
Owners of the parent (45 479) (16 432)
Non-controlling interests (13 530) (4 436)
----------------------------------------------------------------------- ---- -------- --------
Total comprehensive loss for the year (59 009) (20 868)
----------------------------------------------------------------------- ---- -------- --------
Basic and diluted loss per share
Basic and diluted loss per share from continuing operations (US cents) 9 (8.2) (2.8)
----------------------------------------------------------------------- ---- -------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2019
2019 2018
Note US$'000 US$'000
---------------------------------------------------------- ---- --------- ---------
ASSETS
Non-current assets
Property, plant and equipment 10 51 757 101 220
Deferred tax 11 - 6 501
Loan receivable - 487
---------------------------------------------------------- ---- --------- ---------
Total non-current assets 51 757 108 208
---------------------------------------------------------- ---- --------- ---------
Current assets
Inventory 12 7 453 5 881
Other financial assets 553 265
Trade and other receivables 1 699 13 288
Cash and cash equivalents 13 26 325 18 421
---------------------------------------------------------- ---- --------- ---------
Total current assets 36 030 37 855
---------------------------------------------------------- ---- --------- ---------
Total assets 87 787 146 063
---------------------------------------------------------- ---- --------- ---------
EQUITY
Share capital 14 166 888 166 239
Share premium 192 986 191 201
Reserves (27 427) (24 201)
Accumulated losses (296 997) (255 607)
---------------------------------------------------------- ---- --------- ---------
Total equity attributable to equity holders of the parent 35 450 77 632
Non-controlling interests (60 160) (46 630)
---------------------------------------------------------- ---- --------- ---------
Total equity (24 710) 31 002
---------------------------------------------------------- ---- --------- ---------
LIABILITIES
Non-current liabilities
Borrowings 15 87 076 94 225
Rehabilitation provisions 4 510 4 313
---------------------------------------------------------- ---- --------- ---------
Total non-current liabilities 91 586 98 538
---------------------------------------------------------- ---- --------- ---------
Current liabilities
Borrowings 15 10 492 2 143
Other financial liabilities 34 -
Trade and other payables 9 889 14 055
Provisions 496 325
---------------------------------------------------------- ---- --------- ---------
Total current liabilities 20 911 16 523
---------------------------------------------------------- ---- --------- ---------
Total liabilities 112 497 115 061
---------------------------------------------------------- ---- --------- ---------
Total equity and liabilities 87 787 146 063
---------------------------------------------------------- ---- --------- ---------
The financial statements were approved by the Board of Directors
and authorised for issue on 19 December 2019.
Lucio Genovese
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2019
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
163 167 (32 (245 (42
30 June 2017 557 349 7 609 (1 614) (23) 6 516 577) 452) 65 365 194) 23 171
--------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Comprehensive
loss
Loss for the (11 (14
year - - - - - - - (11 635) 635) (2 598) 233)
Other
comprehensive
income for the
year
Exchange losses
on
translating
foreign
operations - - - - - - (5 429) - (5 429) (1 997) (7 426)
Profit on cash
flow hedges - - - - 632 - - - 632 159 791
--------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Total
comprehensive
loss for the (16 (20
year - - - - 632 - (5 429) (11 635) 432) (4 436) 868)
--------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Contributions
by and
distributions
to owners
Shares issued
in the year 2 682 24 752 - - - - - - 27 434 - 27 434
Share issue
expenses - (900) - - - - - - (900) - (900)
Share-based
payment
transactions - - - - - 2 165 - - 2 165 - 2 165
Share-based
payments
lapsed/expired - - - - - (1 480) - 1 480 - - -
Total
contributions
by and
distributions
to owners 2 682 23 852 - - - 685 - 1 480 28 699 - 28 699
Balance as at 166 191 (38 (255 (46
30 June 2018 239 201 7 609 (1 614) 609 7 201 006) 607) 77 632 630) 31 002
Comprehensive
loss
Loss for the (44 (12 (56
year - - - - - - - (44 065) 065) 794) 859)
Other
comprehensive
income for the
year
Exchange losses
on
translating
foreign
operations - - - - - - (1 452) - (1 452) (802) (2 254)
Profit on cash
flow hedges - - - - 38 - - - 38 66 104
--------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Total
comprehensive
loss for the (45 (13 (59
year - - - - 38 - (1 452) (44 065) 479) 530) 009)
--------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Contributions
by and
distributions
to owners
Shares issued
in the year 649 1 785 - - - - - - 2 434 - 2 434
Share-based
payment
transactions - - - - - 863 - - 863 - 863
Share-based
payments
lapsed/expired - - - - - (2 675) - 2 675 - - -
--------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
Total
contributions
by and
distributions
to owners 649 1 785 - - - (1 812) - 2 675 3 297 - 3 297
Balance as at 166 192 (39 (296 (60 (24
30 June 2019 888 986 7 609 (1 614) 647 5 389 458) 997) 35 450 160) 710)
--------------- ------- ------- ------- ------- ------- ------- ----------- ----------- ------------ ----------- -------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 30 JUNE 2019
2019 2018
Note US$'000 US$'000
------------------------------------------------------------------------- ---- -------- --------
Cash flows from/(used in) operating activities
Loss before taxation (50 510) (17 537)
Adjustments for:
Impairment charge 7 41 565 -
Depreciation and amortisation 10 10 343 13 158
Equity-settled share-based payments 806 1 888
Changes in provisions 171 (65)
Finance income 6 (1 491) (794)
Finance cost 6 10 764 11 021
------------------------------------------------------------------------- ---- -------- --------
Net cash flows from operating activities before working capital changes 11 648 7 671
Increase in inventories (2 089) (34)
Decrease/(increase) in trade and other receivables 11 775 (10 421)
Decrease in trade and other payables (4 287) (3 822)
------------------------------------------------------------------------- ---- -------- --------
Net cash flows from/(used in) operating activities 17 047 (6 606)
------------------------------------------------------------------------- ---- -------- --------
Cash flows used in investing activities
Additions to property, plant and equipment (3 973) (1 977)
------------------------------------------------------------------------- ---- -------- --------
Net cash used in investing activities (3 973) (1 977)
------------------------------------------------------------------------- ---- -------- --------
Cash flows (used in)/from financing activities
Proceeds from the issue of ordinary shares - 25 000
Share issue expense - (900)
Increase in borrowings - 2 000
Repayment of borrowings (1 935) (13 476)
Finance income 995 307
Finance cost (4 879) (3 421)
------------------------------------------------------------------------- ---- -------- --------
Net cash (used in)/from financing activities (5 819) 9 510
------------------------------------------------------------------------- ---- -------- --------
Net increase in cash and cash equivalents 7 255 927
Cash and cash equivalents at beginning of the year 18 421 17 053
Exchange rate movement on cash and cash equivalents at beginning of year 649 441
------------------------------------------------------------------------- ---- -------- --------
Cash and cash equivalents at end of the year 13 26 325 18 421
------------------------------------------------------------------------- ---- -------- --------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 30 JUNE 2019
1 Accounting policies
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 2019 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.
Going concern
The Directors have reviewed the Group's and Company's cash flow
forecast and the forecast covenant compliance in relation to the
ABSA debt facility for a period of twelve months from signing these
annual financial statements.
The cash generated is not forecast to be sufficient to fund
capital and interest repayments to ABSA Bank as currently
scheduled. Therefore, additional funding and a restructuring of the
existing debt is required within the going concern period. The cash
flow forecast shows that without the proposed restructuring, the
Group would have sufficient cash to operate until June 2020.
However, it would be unable to fund the ABSA debt service reserve
account to the required level of six months' debt service during
this period, which in itself would be an event of default and which
could occur as soon as January 2020. The Group also forecasts a
breach of one of its covenants, the project life cover ratio in
June 2020.
The Directors engaged with ABSA Bank and the bondholders to
restructure the existing debt in order to defer capital repayments
in the short term. During these discussions, it was acknowledged
that two key aspects: namely future diamond prices, over which the
Group has no control; and the possible extension of the mine plan,
which requires further work, including an updated resource model
and third-party review, will become clearer in the months to come.
As a result, ABSA Bank has signed a non-binding term sheet to defer
capital repayments and to waive breaches under the forecast and
historic debt service cover ratios and the loan life cover ratio
covenants for a 15-month period until 31 March 2021, and the
bondholders have signed a non-binding term sheet to provide a
US$6.0 million working capital facility to cater for short-term
funding requirements during this period. Additionally, the
bondholders have signed a non-binding term sheet to capitalise
interest due on the Series A Eurobonds for the twelve-month period
from 1 July 2020, after expiry of a whitewash which permits the
Company to issue interest shares in place of paying cash interest.
It is anticipated that a further restructuring will be required in
the future, during the ABSA deferred capital period, at which stage
there is expected to be greater certainty regarding the longer-term
diamond market outlook and confirmation of whether or not there is
potential for a life of mine extension.
The Directors recognise that the forecast is based on certain
forward-looking assumptions, including future diamond prices,
exchange rates - particularly between the South African Rand and
the United States Dollar, and operating cost per tonne treated, and
that the financing arrangements are not legally binding and are
subject to certain conditions precedent which are beyond the
control of the Directors or management.
The Directors, having reviewed the cash flow forecast and having
considered the advanced stage of negotiations with ABSA Bank and
the bondholders and the non-binding term sheets in place at this
time, consider that there is a reasonable expectation that the
Group's existing cash resources, its forecast cash generation and
the working capital facility mentioned above, will be sufficient to
enable the Group to fund its operational requirements and service
the ABSA debt, on a restructured basis, for a period of at least
twelve months from the date of approval of this Annual Report. The
Directors have considered the single forecast covenant breach and
concluded that in light of the efforts being made by all parties to
ensure the financial stability of the business over the next
15-month period and the intentions to further restructure the debt
over the longer term, it is unlikely that it would lead to a
default being called by ABSA which would result in immediate
repayment of the facility.
The Directors have therefore concluded that it is appropriate to
prepare the financial statements on a going concern basis.
Notwithstanding this, the Directors conclude that there is material
uncertainty as to whether either the financing arrangements will be
concluded or that future covenant waivers will be forthcoming or
that covenants will be met and that failure regarding either of
these may cast significant doubt upon the Group and Company's
ability to continue as a going concern and may therefore be unable
to realise their assets and discharge their liabilities in the
ordinary course of business. These financial statements do not
include the adjustments that would result if the Group and Company
were unable to continue as a going concern.
Statement of compliance
These consolidated financial statements of Firestone Diamonds
plc have been prepared in accordance with International Financial
Reporting Standards ("IFRS") 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.
Standards and interpretations issued that became effective and
changes in accounting policies:
The Group adopted IFRS 9 and IFRS 15 on 1 July 2018. The result
of the adoption of IFRS 15 and the changes in the revenue
accounting policy, did not have any effect on the recognition of
the Group's revenue. The result of the adoption of IFRS 9 and the
changes in the financial instrument accounting policy did not have
any impact on the recognition and measurement of the Group's
financial instruments, as previously disclosed. Further details of
the application of these standards are disclosed below:
IFRS 9, Financial Instruments
Classification and measurement of financial instruments
The Group applied IFRS 9 on 1 July 2018. IFRS 9 contains a new
classification and measurement approach for financial assets that
reflects the business model in which assets are managed and their
cash flow characteristics.
IFRS 9 contains three principal classification categories for
financial assets: measured at amortised cost, fair value through
other comprehensive income and fair value through profit or loss,
but remains largely the same for financial liabilities. The
standard eliminates the existing IAS 39 categories of held to
maturity, loans and receivables and available for sale. Based on
the Group's assessment, the new classification requirements,
applied on 1 July 2018, did not have a material impact on its
accounting for trade receivables, trade payables and loans
receivable of the Group or Company.
IFRS 9 replaces the 'incurred loss' model with a forward-looking
expected credit loss ("ECL") model. The expected credit loss model
applies to financial assets measured at amortised cost or fair
value through other comprehensive income, except for investments in
equity instruments, and to contract assets. Other than the
receivable from the Government of Lesotho which was impaired to
nil, the Group does not hold any financial assets that have
extended terms of payment and which are subject to significant
credit risk. Other than the credit loss recognised on the
receivable from the Government of Lesotho the change to the
expected credit loss model did not materially impact the Group's
remaining financial statements.
The Company holds significant financial assets classified under
amortised cost in the form of loans to subsidiaries. The Company
has applied the requirements of IFRS 9 to these loans to
subsidiaries. As required by the standard, no transitional
adjustment was processed at the date of initial application, on 1
July 2018, as the Directors concluded that the loss provision
calculated under an ECL approach to be materially consistent with
the carried forward loss provision in the 30 June 2018 financial
statements.
Hedge accounting
When initially applying IFRS 9, the Group may choose as its
accounting policy to continue to apply the hedge accounting
requirements of IAS 39 instead of the requirements in IFRS 9. On 1
July 2018 the Group applied the requirements of IFRS 9, which had
no impact on the recognition and measurement of current hedging
instruments when transitioning from IAS 39.
IFRS 15, Revenue from Contracts with Customers
The Group applied IFRS 15 on 1 July 2018. Management assessed
the core principles of IFRS 15, which are to recognise revenue to
depict the transfer of diamond sales to customers in an amount that
reflects the consideration to which the Group expects to be
entitled in exchange for the diamonds sold.
This core principle is delivered in a five-step model
framework:
-- identify the contract(s) with a customer;
-- identify the performance obligations in the contract;
-- determine the transaction price;
-- allocate the transaction price to the performance obligations in the contract; and
-- recognise revenue when (or as) the entity satisfies a performance obligation.
Diamond sales are realised through a competitive tender process.
Each individual customer enters into a sale agreement with the
Group once the customer is awarded the winning bid. The transaction
price is determined as the winning bid price per parcel sold. The
performance obligation to transfer the risks and rewards associated
with the ownership of the goods is satisfied when the purchaser has
won the bid on the parcel. The Group retains no further rights to
the diamonds at that stage as it is legally bound by the sale
agreement to deliver the goods to the purchaser.
Following assessment of the new requirements of IFRS 15 and the
terms and conditions of the current sale contract entered into with
each of our customers, we are satisfied that, based on the terms of
the current agreements, there is no change to the timing of revenue
recognition on tender sales under IFRS 15.
Standards and interpretations issued but not yet effective:
The following standards and interpretations that have been
issued but are not yet effective have not been applied by the Group
in these financial statements:
Standard, amendment or Effective date
interpretation
---------------------- ------ -------------------------
IFRS 16 Leases Financial years beginning
on or after 1 January
2019
---------------------- ------ -------------------------
IFRS 16, Leases
The Group is required to apply IFRS 16, which replaces IAS 17
Leases and IFRIC 4 Determining whether an Arrangement contains a
Lease, for financial years beginning on or after 1 January 2019.
IFRS 16 is required to be applied to all contracts where that
contract meets the definition of a lease. A lease is defined in
IFRS 16 as a contract, or part of a contract, that conveys the
right to use an asset (the underlying asset) for a period of time
in exchange for consideration.
IFRS 16 will require lessees to account for leases through the
recognition of a right of use asset, representing the right to use
the leased item and a corresponding liability for future lease
payments. The lease cost, i.e. rental charge or contractor fee,
will be recognised against the lease liability and replaced by the
recognition of a depreciation charge of the right of use asset over
the expected lease term and finance charges representing the
unwinding of discount on the lease liability. This will affect the
classification of cash flow in the Statement of Cash Flows, with
operating lease rental payments and contractors' fees re-classified
under financing activities rather than operating activities.
The Group has assessed the impact that IFRS 16 will have on the
financial statements, through applying the lease definition to
service level agreements and current leases that the Group has
entered into to determine whether these contracts meet the
definition of a lease to be recognised in accordance with IFRS 16.
Depending on the practical expedients used and judgements relating
to the treatment of non-lease payments, the Group expects the
recognition of material right of use assets and corresponding lease
liabilities for its larger service level agreements, such as the
mining contractor agreement and the tailings management
agreement.
The Group expects to apply the modified retrospective approach
on transition. The Group will not recognise low-value assets or
short-term leases with twelve or fewer months remaining in
accordance with the exemptions provided in IFRS 16.
2 Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future,
which by definition will seldom result in actual results that match
the accounting estimate. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial year are
discussed below.
Impairment testing
The recoverable amounts of cash-generating units and individual
assets have been determined based on the higher of value-in-use
calculations and fair value less costs to sell. In determining the
future cash flows of each cash-generating unit, management makes a
number of significant estimates and judgements including the
following (refer to note 7):
-- estimated resources and reserves;
-- estimated life of mine;
-- estimated diamond price per carat;
-- recovery and productivity rates;
-- inflation rates;
-- discount rate; and
-- exchange rates.
It is reasonably possible that assumptions may change, which may
impact our estimates and may then require a material adjustment to
the carrying value of tangible and intangible assets.
The Group reviews and tests the carrying value of tangible and
intangible assets when events or changes in circumstances suggest
that the carrying amount may not be recoverable. Assets are grouped
at the lowest level for which identifiable cash flows are largely
independent of cash flows of other assets and liabilities. If there
are indications that impairment may have occurred, estimates are
prepared of expected future cash flows for each group of assets and
of the likely disposal proceeds and related costs.
Expected future cash flows used to determine the value in use of
tangible and intangible assets are inherently uncertain and could
change materially over time.
The Group currently has two main cash-generating units:
Liqhobong Mine
The Liqhobong Mine, which completed its second year of
commercial production and is the Group's main focus.
BK11 Mine
The BK11 Mine, which was placed on care and maintenance when the
conditional option agreement for the potential disposal to Amulet
Diamond Corporation expired on 18 December 2018.
Cash flow forecasts
As part of determining whether the going concern assumption is
appropriate, management assesses the cash flow forecasts prepared.
The cash flow forecast includes a number of critical estimates and
judgements. These estimates and judgements include:
-- estimated diamond price per carat;
-- estimated production and other operating costs;
-- inflation rates; and
-- exchange rates.
It is management's policy to obtain sufficient supporting
evidence from external sources such as analyst predictions, global
supply and demand curves for diamond price estimates as well as
internal sources such as the Group's diamond sales history and size
distribution to ensure that the cash flow forecast is as accurate
as possible.
Deferred tax assets
The recognition of deferred tax assets is based upon whether
sufficient and suitable taxable profits will be available in the
future against which the reversal of temporary differences can be
deducted. Recognition of deferred tax assets therefore involves
judgement regarding the future financial performance of the
particular legal entity or tax group in which the deferred tax
asset has been recognised. Where the temporary differences are
related to losses, relevant tax law is considered to determine the
availability of the losses to offset against the future taxable
profits.
The amounts recognised in the consolidated financial statements
are derived from the Group's best estimation and judgement as set
out in note 11.
3 Revenue
Group
----------------
2019 2018
US$'000 US$'000
------------------------- ------- -------
Sale of gem diamonds 56 864 62 246
Sale of non-gem diamonds 375 -
------------------------- ------- -------
57 239 62 246
------------------------- ------- -------
All diamonds are sold in Antwerp, Belgium through a competitive
tender process. Below is an analysis of major customers which
account for more than 10% of the Group's revenue from the sale of
gem diamonds:
Group
--------------------------
2019 2018
------------ ------------
US$'000 % US$'000 %
------------------ ------- --- ------- ---
Customer - Europe 5 718 10 6 674 11
Other customers 51 146 90 55 572 89
------------------ ------- --- ------- ---
56 864 100 62 246 100
------------------ ------- --- ------- ---
4 Operating loss
Group
----------------
2019 2018
US$'000 US$'000
------------------------------------------------------------------------------------- ------- -------
Operating loss for the year is stated after charging:
Impairment charge (note 7) 41 565 -
Cost of inventories recognised as an expense excluding amortisation and depreciation 38 003 46 366
Amortisation and depreciation (note 10) 10 343 13 158
------- -------
Included in cost of sales 8 921 10 750
Other 1 422 2 408
------- -------
Employee costs 9 846 11 691
Operating lease rentals 429 203
------------------------------------------------------------------------------------- ------- -------
5 Directors' emoluments
Directors' emoluments for the period that each individual served
as a Director were as follows:
Group
----------------
2019 2018
US$'000 US$'000
--------------------- ------- -------
Short-term benefits 905 1 230
Share-based payments 10 137
--------------------- ------- -------
Total 915 1 367
--------------------- ------- -------
US$'000 Salaries Share-based
Director and fees Bonus payments Total
----------------- -------- ----- ----------- -----
2019
Paul Bosma(1) 410 21 10(4) 441
Lucio Genovese 138 - - 138
Eileen Carr(2) 10 - - 10
Keith Johnson 60 - - 60
Ken Owen 60 - - 60
Niall Young 60 - - 60
Patrick Meier(3) 96 - - 96
Paul Sobie(2) 50 - - 50
----------------- -------- ----- ----------- -----
884 21 10 915
----------------- -------- ----- ----------- -----
US$'000 Salaries Accrued Share-based
Director and fees leave pay Bonus payments Total
------------------ -------- --------- ----- ----------- -----
2018
Stuart Brown(1) 550 154 46 137(5) 887
Lucio Genovese 120 - - - 120
Deborah Thomas(3) 60 - - - 60
Keith Johnson 60 - - - 60
Ken Owen 60 - - - 60
Mike Wittet(6) 60 - - - 60
Niall Young 60 - - - 60
Paul Sobie(2) 60 - - - 60
------------------ -------- --------- ----- ----------- -----
1 030 154 46 137 1 367
------------------ -------- --------- ----- ----------- -----
1 Paul Bosma was appointed on 1 July 2018 as Chief Executive
Officer. He replaced Stuart Brown, who resigned on 30 June
2018.
2 Eileen Carr was appointed on 30 April 2019 as Non-Executive
Director and Member of the Audit and Remuneration Committees. She
replaced Paul Sobie, who resigned on 30 April 2019.
3 Patrick Meier was appointed on 5 July 2018 as Non-Executive
Director and Chair of the Audit Committee and member of the
Remuneration and Nomination Committees. He replaced Deborah Thomas,
who resigned on 5 July 2018.
4 During the year a share-based payment expense of US$228 899
was recognised in relation to restricted share units issued to Paul
Bosma in January 2017, May 2018 and July 2018. The restricted share
units vest in three tranches over a three-year period and the
expense is recognised over the vesting period. Paul exercised 285
793 RSUs with a strike price of 1.00 pence, at 3.38 pence in
January 2019, resulting in a gain of US$10 290.
5 The share-based payment expense relates to share options
issued to Stuart Brown in May 2014 and restricted share units
issued in January 2017. The share options vest over a three-year
period and the expense is recognised over the vesting period. The
restricted share units vest in three tranches over a three-year
period and the expense is recognised over the vesting period.
6 Mike Wittet, Non-Executive Director and Chairman of the
Safety, Health, Environment and Corporate Social Responsibility
Committee and member of the Audit and Remuneration Committees,
resigned on 5 July 2018.
During the year, the total remuneration for Directors was US$915
494 (2018: US$1 351 024) and consisted of remuneration for
qualifying services of US$905 204 (2018: US$1 230 000) and gains on
exercise of options of US$10 290 (2018: US$121 024). The related
aggregate remuneration for the highest paid Director was US$441 494
(2018: US$871 024).
6 Finance income and costs
Group
----------------
2019 2018
US$'000 US$'000
-------------------------------------------------- ------- -------
Interest income on bank deposits 714 202
Interest income on loans receivable 542 487
Foreign exchange adjustments on cash balances 235 105
-------------------------------------------------- ------- -------
Finance income 1 491 794
-------------------------------------------------- ------- -------
Interest on borrowings (note 15) 10 474 10 737
Unwinding of discount on rehabilitation liability 290 284
Finance costs 10 764 11 021
-------------------------------------------------- ------- -------
No borrowing costs were capitalised during the year.
7 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 required.
Liqhobong Mine
At year end, the Group assessed both external and internal
indicators of impairment. The average diamond values achieved at
sale during the year decreased from US$75 per carat in the prior
year to US$73 per carat in the current year mainly as a result of
the oversupply situation affecting the midstream manufacturers that
led to continued low prices being offered to the producers of
predominantly smaller rough diamonds like Liqhobong.
Value in use of Liqhobong Mine
At year end, the recoverable amount of the Liqhobong CGU was
determined using its value in use based on a discounted cash flow
model over the remaining seven-year mine life (2018: eight-year
mine life). The model was stress tested through applying a range of
sensitivities which provided a range of possible values for the
Liqhobong Mine. Based on the range of possible values the Board
concluded that the carrying value of the Liqhobong CGU was US$64.3
million, which is lower than the recoverable amount and as a result
a further impairment of the Liqhobong CGU was recognised. The key
assumptions include:
Key assumptions 2019 2018 Basis for assumption
----------------- --------- ------------ -------------------------------------------
Average diamond US$81 US$75 The forecast average diamond value
value per carat for the next two years is US$71 per
over life of carat, the same value as that recorded
mine (REAL) for the final quarter of the current
financial year. Thereafter, it is
adjusted for a forecast recovery
of ROM diamond prices, which is in
line with forecast supply/demand
dynamics in the diamond industry
as falling supply occurs due to the
closure of certain mines as they
reach the end of their lives. ROM
prices are forecast to remain flat
over the next two years, recovering
thereafter to 2017 price levels (over
a two-year period), and finally recovering
to 2013 price levels by July 2023,
in four years' time. In the previous
year the average diamond value was
based on the average historic sales
data of Liqhobong's assortment.
----------------- --------- ------------ -------------------------------------------
Real diamond 1.5% from 3% The diamond price growth is based
price growth FY2024 on long-term diamond price projections.
----------------- --------- ------------ -------------------------------------------
The MCF is based on lower than expected
recovered grades from a small portion
of ore situated in the southern part
of the pit and is considered to be
a conservative assumption. Further
Mine Call Factor work is being undertaken to understand
("MCF") 95% 100% the impact over the life of mine.
----------------- --------- ------------ -------------------------------------------
Discount rate 11.9% 11.2% (REAL: The discount rate used to account
8.9%) for the time value of money represents
the pre-tax weighted average cost
of capital ("WACC") that would be
expected by market participants based
on risks specific to the Liqhobong
Mine. The rate included adjustments
for market risk, volatility and risks
specific to the asset.
----------------- --------- ------------ -------------------------------------------
Exchange rate R14.09 R13.73 The exchange rate is the spot exchange
(ZAR:US$) rate as at 30 June.
----------------- --------- ------------ -------------------------------------------
The value in use of the Liqhobong Mine is impacted mostly by
changes in the average diamond value followed by changes in,
particularly, the ZAR:US$ exchange rate, sensitivities for which
are not presented as the exchange rate is prescribed. The impact of
applying sensitivities to the average diamond value is shown
below:
% increase/(decrease)
Potential additional in carrying
US$ per carat (impairment)/reversal value
--------------- ----------------------- ----------------------
10% increase 29.1 45%
--------------- ----------------------- ----------------------
5% increase 14.6 23%
--------------- ----------------------- ----------------------
5% decrease (14.6) (23%)
--------------- ----------------------- ----------------------
10% decrease (29.1) (45%)
--------------- ----------------------- ----------------------
BK11 Mine
The expected sale of the BK11 Mine, as reported in the prior
period, was subject to a conditional option agreement which expired
on 18 December 2018. The expiration of the agreement was considered
to be an external indicator of impairment. The Group has previously
determined the recoverable amount of the BK11 Mine based on its
fair value less cost to sell. In the absence of a pending sale and
considering the non-core nature of the asset to the Group, it has
been fully impaired.
Impairment summary
The following table presents current and previous impairments
recorded against the Group's two CGUs:
Liqhobong BK11 Total
Cash-generating unit US$'000 US$'000 US$'000
-------------------------------- --------- ------- ---------
Carrying value pre-impairment 225 154 5 245 230 399
Accumulated impairment (160 899) (5 245) (166 144)
-------------------------------- --------- ------- ---------
Carrying value after impairment 64 255 - 64 255
-------------------------------- --------- ------- ---------
Group
-----------------------------
2019 2018
Impairment charge US$'000 US$'000
--------------------------------------------------------- -------------------- -------
Property, plant and equipment - BK11 Mine (note 10) 2 239 -
Property, plant and equipment - Liqhobong Mine (note 10) 38 297 -
Loans receivable 1 029 -
----------------------------------------------------------- -------------------- -------
41 565 -
--------------------------------------------------------- -------------------- -------
8 Taxation
Group
----------------
2019 2018
US$'000 US$'000
--------------------------------------- ------- -------
Current tax (84) (102)
Deferred tax (charge)/credit (note 11) (6 265) 3 406
--------------------------------------- ------- -------
Total tax (charge)/credit for the year (6 349) 3 304
--------------------------------------- ------- -------
Factors affecting the tax charge for the year
The reasons for the difference between the actual tax
(charge)/credit and the tax (charge)/credit based on the Company's
standard corporation tax rate of 19% (2018: 19%) are as
follows:
Group
------------------
2019 2018
US$'000 US$'000
--------------------------------------------------------------------- -------- --------
Loss before tax (50 510) (17 537)
--------------------------------------------------------------------- -------- --------
Tax credit on loss at standard rate of 19% (2018: 19%) 9 596 3 332
Adjustments to deferred tax not recognised (21 874) (2 432)
Effect of tax in foreign jurisdictions 6 196 2 840
Foreign exchange adjustment on effective interest rate on borrowings (167) (238)
Withholding tax credits relinquished (84) (102)
Expenses not deductible for tax purposes (16) (96)
--------------------------------------------------------------------- -------- --------
(6 349) 3 304
--------------------------------------------------------------------- -------- --------
Other comprehensive income
There is no tax movement arising in respect of the Group's other
comprehensive income.
9 Loss per share
The calculation of the basic loss per share of 8.2 US cents
(2018: 2.8 US cents) is based upon the net loss after tax
attributable to ordinary shareholders of US$44.1 million (2018:
US$11.6 million) and a weighted average number of shares in issue
for the year of 539 644 459 (2018: 419 672 178).
Diluted loss per share
The diluted loss per share in 2019 is equal to (2018: equal to)
the basic loss per share as the potential ordinary shares to be
issued have no dilutive effect.
The Company has a further 21 591 354 (2018: 21 299 898)
potentially issuable shares in respect of share options issued to
employees that do not have a dilutive effect as at 30 June 2019 and
65 101 758 (2018: 65 101 758) potentially issuable shares in
respect of warrants issued to strategic investors that do not have
a dilutive effect as at 30 June 2019. All of the potentially
issuable shares could be dilutive in the future.
10 Property, plant and equipment - Group
Motor
Mining Plant and vehicles
and
US$'000 property equipment other assets Total
-------------------------------------------------- -------- --------- ------------ --------
Cost
At 30 June 2017 241 667 16 806 3 712 262 185
Additions 1 852 35 90 1 977
Disposals - (2) (241) (243)
Exchange difference (16 611) (1 142) (239) (17 992)
-------------------------------------------------- -------- --------- ------------ --------
At 30 June 2018 226 908 15 697 3 322 245 927
Additions 3 910 52 11 3 973
Disposals (656) (180) (276) (1 112)
Exchange difference (6 645) (450) (86) (7 181)
-------------------------------------------------- -------- --------- ------------ --------
At 30 June 2019 223 517 15 119 2 971 241 607
-------------------------------------------------- -------- --------- ------------ --------
Accumulated depreciation and impairments
At 30 June 2017 130 769 10 935 1 891 143 595
Amortisation and depreciation charge for the year 11 315 1 270 573 13 158
Disposals - (2) (216) (218)
Exchange difference (10 867) (839) (122) (11 828)
-------------------------------------------------- -------- --------- ------------ --------
At 30 June 2018 131 217 11 364 2 126 144 707
Amortisation and depreciation charge for the year 9 343 500 500 10 343
Impairment charge (note 7) 38 297 2 239 - 40 536
Disposals (656) (180) (276) (1 112)
Exchange difference (4 498) (64) (62) (4 624)
-------------------------------------------------- -------- --------- ------------ --------
At 30 June 2019 173 703 13 859 2 288 189 850
-------------------------------------------------- -------- --------- ------------ --------
Net book value at 30 June 2017 110 898 5 871 1 821 118 590
-------------------------------------------------- -------- --------- ------------ --------
Net book value at 30 June 2018 95 691 4 333 1 196 101 220
-------------------------------------------------- -------- --------- ------------ --------
Net book value at 30 June 2019 49 814 1 260 683 51 757
-------------------------------------------------- -------- --------- ------------ --------
11 Deferred tax
The deferred tax included in the balance sheet is as
follows:
Group
----------------
2019 2018
Deferred tax (liability)/asset US$'000 US$'000
------------------------------------------------------- ------- -------
Opening balance 6 501 3 761
Movement in temporary differences recognised in income (6 265) 3 406
Exchange difference (236) (666)
At 30 June - 6 501
------------------------------------------------------- ------- -------
The deferred tax (liability)/asset comprises:
Group
------------------
2019 2018
US$'000 US$'000
-------------------------------------------------------------- -------- --------
Accelerated capital allowances (10 123) (21 585)
Provisions 745 708
Borrowings (887) (1 375)
Losses available for offsetting against future taxable income 10 265 31 645
Temporary difference arising on acquisition of subsidiary - (2 892)
-------------------------------------------------------------- -------- --------
- 6 501
-------------------------------------------------------------- -------- --------
In the previous financial year, a deferred tax asset of US$9.4
million was recognised in respect of the tax loss at Liqhobong as
there was compelling evidence at that time to suggest that the
value would be realised over the forecast three-year term. However,
since then, changes to certain key forecast assumptions have been
made in light of continued operations and the continued weaker
diamond market, as disclosed in note 7. The Directors, having
considered these key assumptions amongst others, and the forecast
financial performance of Liqhobong, have determined that there is
no longer compelling evidence to suggest that tax losses will be
utilised over the forecast three-year period. As a result, the
deferred tax asset is derecognised. The position is reassessed at
least annually, and there is a possibility that losses, which do
not expire, may be used in the future.
Deferred tax assets and deferred tax liabilities relating to the
same tax authorities have been disclosed on a net basis.
The Group has unrecognised tax losses of approximately US$259.7
million (2018: US$191.8 million), of which US$245.5 million relates
to the Liqhobong Mine (2018: US$164.7 million), US$ nil to the BK11
Mine (2018: US$18.3 million) and US$14.2 million to the Group's
corporate entities in the UK and South Africa (2018: US$8.8
million).
12 Inventory
Group
----------------
2019 2018
US$'000 US$'000
----------------------- ------- -------
Diamond inventory 4 237 2 898
Spares and consumables 3 216 2 983
----------------------- ------- -------
7 453 5 881
----------------------- ------- -------
13 Cash and cash equivalents
Group
----------------
2019 2018
US$'000 US$'000
-------------------------- ------- -------
Cash and cash equivalents 26 325 18 421
---------------------------- ------- -------
Net cash and cash equivalents are represented by the following
major currencies:
Group
----------------
2019 2018
US$'000 US$'000
-------------------------- ------- -------
US Dollars 16 046 8 188
Pounds Sterling 104 3 798
Lesotho Maloti 10 108 6 226
Botswana Pula 27 162
South African Rand 40 47
---------------------------- ------- -------
Cash and cash equivalents 26 325 18 421
---------------------------- ------- -------
As at 30 June 2019, the Group had restricted cash deposits of
US$8.8 million (2018: US$8.7 million) which comprised US$6.3
million (2018: US$6.5 million) in the ABSA debt service reserve
account, US$1.8 million (2018: US$1.8 million) in favour of several
key contractors as payment guarantees and US$0.7 million (2018:
US$0.4 million) in the rehabilitation reserve account.
There is no significant difference between the fair value of the
cash and cash equivalents and the values stated above.
14 Share capital
The Company's share capital consists of one class of ordinary
shares and two classes of deferred shares. As at 30 June 2019, the
ordinary share capital of the Company was 565 471 782 ordinary
shares of 1 pence each (2018: 515 677 580).
During the year, the Company issued a further 49 794 202 new
ordinary shares of 1 pence each in respect of the quarterly
interest due on the Series A Eurobonds for the June 2018, September
2018, December 2018 and March 2019 quarters. A further 32 783 046
(2018: 8 260 268) shares in respect of interest due on the Series A
Eurobonds at 30 June 2019 were issued after the year end and are
not reflected in the table below.
Number of shares Nominal value of shares
------------------------ -------------------------
2019 2018
2019 2018 US$'000 US$'000
----------------------------------- ----------- ----------- ------------ -----------
Allotted, called up and fully paid
Opening balance 515 677 580 317 471 892 6 272 3 590
Issued during the year 49 794 202 198 205 688 649 2 682
----------------------------------- ----------- ----------- ------------ -----------
Closing balance 565 471 782 515 677 580 6 921 6 272
----------------------------------- ----------- ----------- ------------ -----------
Deferred type A shares
7 079 649 7 079 649
Closing balance 109 109 113 345 113 345
----------------------------------- ----------- ----------- ------------ -----------
Deferred type B shares
Closing balance 308 992 814 308 992 814 46 622 46 622
----------------------------------- ----------- ----------- ------------ -----------
7 954 113 7 904 319
Total 705 503 166 888 166 239
----------------------------------- ----------- ----------- ------------ -----------
Firestone Diamonds Limited, a subsidiary company, has advanced
funds to the Group's Employee Share Trust of US$181 329. The
Employee Share Trust holds 30 853 ordinary shares in Firestone
Diamonds plc. These shares have not been allocated to any
employees.
15 Borrowings
2019
------------------------------------------------------
Series A Series B ABSA Other Group
Eurobonds Eurobonds debt facility loans total
Borrowings US$'000 US$'000 US$'000 US$'000 US$'000
---------------------------- --------- --------- ------------- ------- --------
Capital amount
Opening balance 30 000 7 528 67 790 1 216 106 534
Finance cost capitalised - 568 - 87 655
Foreign exchange adjustment - - - (27) (27)
Capital repayments - - (1 870) (65) (1 935)
---------------------------- --------- --------- ------------- ------- --------
At 30 June 30 000 8 096 65 920 1 211 105 227
---------------------------- --------- --------- ------------- ------- --------
Finance cost to be amortised over the life of the facility
Opening balance (5 299) (198) (4 669) - (10 166)
Finance cost capitalised - - (855) - (855)
Additions - - (447) - (447)
Finance cost 1 284 100 2 425 - 3 809
---------------------------- --------- --------- ------------- ------- --------
At 30 June (4 015) (98) (3 546) - (7 659)
---------------------------- --------- --------- ------------- ------- --------
Total at amortised cost
Non-current liabilities 25 985 7 998 52 181 912 87 076
Current liabilities - - 10 193 299 10 492
---------------------------- --------- --------- ------------- ------- --------
Total 25 985 7 998 62 374 1 211 97 568
---------------------------- --------- --------- ------------- ------- --------
2019
-----------------------------------------------------
Series A Series B ABSA Other Group
Eurobonds Eurobonds debt facility loans total
Finance cost US$'000 US$'000 US$'000 US$'000 US$'000
--------------------------- --------- --------- ------------- ------- -------
Finance charges - paid - - 3 534 43 3 577
Amortised finance charges 1 284 100 2 425 - 3 809
Interest settled in shares 1 827 - - - 1 827
Accrued interest 606 - - - 606
Interest capitalised - 568 - 87 655
Total 3 717 668 5 959 130 10 474
--------------------------- --------- --------- ------------- ------- -------
Refer to note 6, Finance income and costs, for the total finance
cost for the year recognised in profit and loss.
2018
------------------------------------------------------
Series A Series B ABSA Other Group
Eurobonds Eurobonds debt facility loans total
Borrowings US$'000 US$'000 US$'000 US$'000 US$'000
---------------------------- --------- --------- ------------- ------- --------
Capital amount
Opening balance 30 000 5 000 81 007 1 551 117 558
Additions - 2 000 - - 2 000
Finance cost capitalised - 528 - - 528
Foreign exchange adjustment - - - (76) (76)
Capital repayments - - (13 217) (259) (13 476)
---------------------------- --------- --------- ------------- ------- --------
At 30 June 30 000 7 528 67 790 1 216 106 534
---------------------------- --------- --------- ------------- ------- --------
Finance cost to be amortised over the life of the facility
Opening balance (6 583) (300) (7 884) - (14 767)
Finance cost capitalised - - 855 - 855
Additions - - (617) - (617)
Finance cost 1 284 102 2 977 - 4 363
---------------------------- --------- --------- ------------- ------- --------
At 30 June (5 299) (198) (4 669) - (10 166)
---------------------------- --------- --------- ------------- ------- --------
Total at amortised cost
Non-current liabilities 24 701 7 330 61 251 943 94 225
Current liabilities - - 1 870 273 2 143
---------------------------- --------- --------- ------------- ------- --------
Total 24 701 7 330 63 121 1 216 96 368
---------------------------- --------- --------- ------------- ------- --------
2018
-----------------------------------------------------------------
Series A Series B ABSA Other Group
Eurobonds Eurobonds debt facility loans total
Finance cost US$'000 US$'000 US$'000 US$'000 US$'000
--------------------------- --------- --------------------- ------------- ------- -------
Finance charges - paid - - 3 235 186 3 421
Amortised finance charges 1 284 102 2 977 - 4 363
Interest settled in shares 2 425 - - - 2 425
Interest capitalised - 528 - - 528
Total 3 709 630 6 212 186 10 737
--------------------------- --------- --------------------- ------------- ------- -------
Refer to note 6, Finance income and costs, for the total finance
cost for the year recognised in profit and loss.
The borrowing instruments have the following terms:
ABSA debt facility
Interest on the ABSA facility is calculated at three-month US$
LIBOR plus the following margin:
Original loan
-- Tranche A (85% of the loan balance) - 1.8%; and
-- Tranche B (15% of the loan balance) - 7.5% post-financial completion.
Deferred loan
-- Tranche A (85% of the loan balance) - 1.8% plus staggered
margin increase disclosed below; and
-- Tranche B (15% of the loan balance) - 7.5% post-financial completion.
Staggered increase in the margin rates payable on the deferred loan Effective Percentage
from
-------------------------------------------------------------------- ---------- ----------
1 January
Deferred loan margin increase 2019 1.25
1 January
2020 1.75
1 January
2021 2.25
1 January
2022 2.25
1 January
2023 2.75
------------------------------------------------------------------------------- ----------
The effective interest rate is, in aggregate, 9.56% (2018:
9.29%). Under revised terms, the facility is repayable in 19
quarterly instalments which commenced on 30 June 2019.
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.
ABSA debt facility covenants
In accordance with the revised ABSA debt facility agreement, the
first maintenance covenant measurement date occurred on 30 June
2019. Certain of these covenants are forward looking and require
forecast assumptions to be made. In light of the current diamond
pricing climate, lower average diamond values were used in these
covenant calculations, which adversely affected the covenant
measurement and gave rise to the need for waivers in respect of two
of the six covenants. The Group received a waiver from ABSA Bank
Limited on 28 June 2019 for the covenant breaches as measured at 30
June 2019.
The following table provides further details of the performance
covenants which need to be met in respect of the ABSA debt
facility:
Covenant Calculation Maintenance criteria
------------------------ ------------------------------------------ --------------------
Forecast debt service Forecast operational cash flow divided
cover ratio by debt service costs for a twelve-month
period. >=1.2 times
Historic debt service Historic operational cash flow divided
cover ratio by debt service costs for a twelve-month
period. >=1.2 times
Loan life cover ratio Operational cash flow during the loan
period discounted by the average interest
rate, divided by the capital loan balance
outstanding. >=1.4 times
Project life cover ratio Operational cash flow over the life
of the Project discounted by the average
interest rate, divided by the capital
loan balance outstanding. >=1.7 times
Debt/equity ratio The ratio of the capital loan balance
outstanding to total equity and loans
provided to Liqhobong by the Group. <=60:40
Reserve tail ratio Remaining diamond reserves as a ratio
of the total original diamond reserve
of 36.4 million tonnes. >=25%
------------------------ ------------------------------------------ --------------------
Series A Eurobonds
The Series A Eurobonds have a coupon rate of 8.00% per annum
payable quarterly. The effective interest rate is, in aggregate,
12.02% (2018: 12.02%). 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:US$
exchange rate for the 20 days preceding the interest calculation
date.
The Series A Eurobonds are repayable in two tranches, the first
tranche of US$20 million on 4 August 2022 and the second tranche of
US$10 million on 3 January 2023.
Series B Eurobonds
The Series B Eurobonds have a coupon rate of 8.00% per annum
which is capitalised quarterly and is payable at maturity, and an
effective interest rate, in aggregate, of 10.18% (2018:
10.18%).
Warrants were issued upon exercise of the Series B Eurobonds
which entitled the bondholder to receive shares in lieu of cash in
respect of the outstanding balance of the bonds. The exercise price
was calculated based on the lower of a) an amount equal to a 10%
premium to the VWAP of an ordinary share over a 30-day period
immediately prior to the issue of the bonds and b) 37.5 pence,
using an average GBP:US$ exchange rate over a 20-day period
immediately prior to the issue.
The Group did not exercise any further Series B Eurobonds (2018:
US$2.0 million). The Series B bonds are repayable in two tranches,
the first tranche of US$5 million plus capitalised interest on 22
June 2022 and the second tranche of US$2 million plus capitalised
interest on 10 November 2022.
The Directors are of the opinion that the carrying value of
borrowings approximates their fair value based on similar loan
terms in the market.
-ends-
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FFWFWUFUSEDE
(END) Dow Jones Newswires
December 20, 2019 02:00 ET (07:00 GMT)
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