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Firestone Diamonds: Broker bullish on prospects for Lesotho project

Last updated: 05:12 29 Nov 2013 EST, First published: 06:12 29 Nov 2013 EST

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The City broker Charles Stanley has repeated its ‘buy’ advice and 7p a share price target on Firestone Diamonds (LON:FDI) following its successful US$82mln fund-raising earlier this week.

The debt financing package, provided by the South Africa's Absa, will help bankroll the development of the Liqhobong project in Lesotho.

Analyst Kieron Hodgson believes there is “considerable interest” within the diamond industry, providing Firestone with an off-taker or strategic investor that might fund remaining capital costs.

His punchy price target – which provides more than 100% upside if met – is “predicated upon diamond values at the Liqhobong operation exceeding initial market expectations, construction beginning next year and production commencing in 2016”.

At 11am, the shares were changing hands for 3.05p, down just over 2% on the day.

On Monday it was announced Absa had agreed to provide a debt finance facility of up to US$82.4mln to the Liqhobong Mining Development Company (LMDC), which is 75% owned by Firestone and 25% by Lesotho's government.

Initial infrastructure and capital costs for the diamond project are estimated at US$185.4mln. The funds from Absa will be used to build Liqhobong's main treatment plant.

The facility will have a total term of six-and-a-half years, with an 18-month draw down period for construction and with the repayment of capital occurring in the final four-and-a-half years of the loan term, Firestone said.

Conditions of the facility include approval of both commercial and political risk insurance by an Export Credit Agency and the company raising the balance of capital required to complete the project.

Stuart Brown, Firestone’s newly appointed chief executive, said: "Receipt of Absa Committee approval to provide LMDC with the Facility for the development of the MTP at Liqhobong, is a major step forward on our journey.

"In addition, it marks an independent endorsement of Firestone and our project, in what we believe has been one of the most challenging periods that mine funding has encountered in recent years.

“The board confirms that it is evaluating a range of options to fund the balance of capital required to complete the project, which it expects to conclude in the near future."

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