Firestone Diamonds plc

Preliminary announcement of results for the year ended 30 June 2011

LONDON: 14 November, 2011

The Board of Firestone Diamonds plc, ("Firestone" or "the Company"), the AIM-quoted Diamond mining and exploration company (ticker: AIM:FDI), announces preliminary audited results for the year ended 30 June, 2011.

HIGHLIGHTS

Liqhobong Mine, Lesotho

BK11 Mine, Botswana

Botswana Evaluation Projects

Rough Diamond market and Diamond sales

Financial & Board

Outlook

Tim Wilkes, CEO of Firestone Diamonds, commented: "The past year has seen Firestone move into a select group as one of the few listed kimberlite producers worldwide.  We expect to see significant increases in production from the Liqhobong Mine in Lesotho and the BK11 Mine in Botswana in the current year.  Firestone's prospects are now better than at any time in its history and the Company is well positioned to reach its target of producing 1 million carats per annum by 2014."

Analyst conference call, Monday 14 November 2011 - 11:00am (GMT)

Firestone Diamonds plc will be hosting a conference call today at 11:00am (GMT) for interested parties.

To access the conference call, please dial: +44 (0) 20 3140 0668 and enter the PIN number: 180383#.

To access the live webcast presentation, go to: https://www..anywhereconference.com/; webcast login: 113380830; PIN code; 180383.

A webcast of the presentation will be available on the Company's website from 4pm today.

For further information, visit the Company's web site at www.firestonediamonds.com or contact:

Dear Shareholder,

The past year has been a transformational one for Firestone and the most significant in the Company's history. The commencement in July 2010 of mining operations at the BK11 Mine in Botswana resulted in Firestone becoming one of only three junior listed kimberlite producers worldwide.. In September 2010 Firestone completed the acquisition of Kopane Diamond Developments plc ("Kopane"). This acquisition gave Firestone control of the Liqhobong Mine in Lesotho, which we consider to be a world class asset and one of the most attractive undeveloped kimberlites in the world.

Liqhobong Mine, Lesotho

A resource of 91 million tonnes ("mt") has been identified at the Main Pipe at Liqhobong at an average grade of 34 carats per hundred tonnes ("cpht") and containing 31 million carats. With a contained value of approximately $3.4 billion, Liqhobong is considered by the Company to be one of the most attractive undeveloped kimberlites in the world. The Company owns a 75% interest in Liqhobong.

Plant 1 Production

Excellent progress has been made at Liqhobong since its acquisition in September 2010.  Production commenced at Liqhobong in Q3 FY 2011 and Plant 1 reached its operating capacity of 0.4 million tonnes per annum "mtpa" on schedule in Q4 FY 2011. Construction work on the first phase of the planned Plant 1 expansion was completed during Q1 FY 2012, and, following a two month commissioning period, the target production capacity of 0.65 mtpa was reached in October 2011. The modifications made to the plant allow the processing for the first time of significant amounts of material from the higher grade K5 and K6 kimberlite units. Production grades have been in line with expectations, with current production grades averaging 37 cpht, which is 8% higher than the average resource grade of 34 cpht.

A summary of quarterly production data is provided below.

In Q1 FY 2012 the Company retained Dowding Reynard and Associates ("DRA") to review the current Plant 1 design with the objective of optimising its throughput and efficiency and increasing production capacity. This work is now at an advanced stage and production is expected to increase each quarter until Plant 1 reaches its target capacity in Q4 FY 2012, at which point it is expected to generate revenue of approximately $45 million per annum.

The Company has awarded a contract to operate the production plant at Liqhobong to Minopex (Pty) Limited. Minopex is one of the leading specialists in the operation of mineral processing facilities in the coal, platinum and Diamond industries in Southern Africa, and operates the processing plants at Gem Diamonds' Letseng Mine, and Namakwa Diamonds' Kao Mine in Lesotho.

Diamond Sales

Diamond values from the Main Pipe increased significantly during the year. The table below provides results from the first three sales from December 2010 onwards.

A further Diamond tender was held in August 2011, but rough Diamond prices were very volatile at the time due to uncertainty in global financial markets. Reserve prices for most of the smaller diamonds were not achieved at the tender and they were withdrawn.

Mining Operations

In Q3 FY 2011 Matekane Mining Investment Company (Pty) Limited, ("Matekane") was awarded a contract to undertake all mining and earth moving operations at Liqhobong. Matekane is one of the largest earthmoving and mining contractors in Lesotho, and is currently responsible for mining operations at Gem Diamonds' Letseng Mine.

Mining operations at the Main Pipe during the year were primarily focused on the lower grade K2 and K4 kimberlite units, which have an average grade of 28 cpht. Since the end of the financial year mining operations have been focused on the higher grade K5 unit, which will be the primary focus for mining operations for the next two years. 

Plant 2 Development Plans

The Company has signed a letter of intent with DRA under which DRA will complete a Definitive Feasibility Study ("DFS") and commence detailed engineering studies for the planned 4.2 mtpa Plant 2 at Liqhobong. Work on the specifications and design for Plant 2 is progressing well. Plant 2 is expected to commence operation in 2013 and to generate revenue of $135 million per annum at full production.   

Mine Infrastructure

Substantial work was carried out in Q1 FY 2012 to expand the current tailings dam capacity. The extensions to the tailings dam have been designed to be able to accommodate further capacity expansions to handle tailings from Plant 2 when it commences operation. A de-grit plant has also been erected and has resulted in significant improvements in management of tailings and water recovery from the tailings dam. Approximately 200,000 tonnes of kimberlite was mined during the year from the Satellite Pipe, which is now mined out and being used as a raw water storage dam to supply Plant 1. Significant work was undertaken during the year on the access road to Liqhobong. The road is greatly improved, and provides access for the large trucks that are required to transport equipment for the Plant 1 expansion to site.

BK11 Mine, Botswana

A mining licence for BK11 was granted in July 2010. Under the current BK11 mine plan approximately 11.5 mt of kimberlite is expected to be mined at an average grade of 8.5 cpht, giving total production of approximately 1 million carats over a 10 year mine life. The Company owns a 90% interest in BK11.

Mining Operations

Mining operations during Q1 and Q2 FY 2011 were primarily focused on pre-stripping of overburden and low grade kimberlite. Pre-stripping was completed in December 2010, following which the first kimberlite ore was available for processing. Mining operations have progressed well since then and the floor of the pit has now been deepened to bench 5 at a depth of 50 metres. 

Production

Commissioning of the production plant was carried out using low grade kimberlite from the pre-stripping that was carried out up to December 2010.  Results from processing of the first ore that was available in Q3 FY 2011 indicated that the crushing and scrubbing circuits were providing insufficient Diamond liberation, with up to 70% of head feed reporting to the oversize stockpile and only 30% reporting to the DMS. A secondary crushing circuit based on mobile crushers was designed to address these problems and testing of this circuit commenced in July 2011. Significant increases in Diamond liberation and grade have been achieved with this circuit, and it is now planned to place the secondary crushing circuit in line with the current scrubbing and DMS circuits. This work will be completed in November 2011.

While recovered grades have been low due to the crushing and Diamond liberation problems, based on the percentage of head feed reporting to the oversize stockpile the average grade of the ore that has been processed is estimated to be 8 cpht. This estimate has been confirmed by the processing of large samples of ore through the BK11 bulk sampling plant, which has an in line secondary crushing circuit. The results from the bulk sampling plant indicate grades of 8-10 cpht, which is in line with the resource grade of 8.5 cpht.

A summary of production data since processing of ore commenced in January 2011 is provided below.

Note: 1. Estimated ore grade is calculated based on 70% of head feed reporting to the oversize stockpile and 30% reporting to the DMS

The production plant is currently operating at a capacity of 1 mtpa and following completion of the final work on the secondary crushing circuit is expected to reach its full operating capacity of 1.5 mtpa in Q4 FY 2012.

Diamond Sales

Diamond values from BK11 increased significantly during the year. The table below provides results from the first three sales from December 2010 onwards.

Reserve prices for smaller, lower quality diamonds from BK11 were also not achieved at the August 2011 tender and they were withdrawn.

Mine Infrastructure

The connection to the new power line being constructed by Botswana Power Corporation is expected to be completed in Q2 FY 2012. This is expected to result in both lower costs and improved production plant availability.

Botswana Evaluation Projects

Since the end of the financial year the Company has been granted prospecting licences over the Kokong kimberlite field in Botswana. Firestone now holds prospecting licences containing a total of 174 kimberlites in Botswana - 22 in the Orapa field, 84 in the Tsabong field and 68 in the Kokong field - of which 43 have been proven to be diamondiferous. The Company considers the results from exploration and evaluation work carried out by it and other companies in these areas to be very encouraging, and that the potential for economic kimberlites to be identified is very good. 

While the primary focus in the short term will continue to be on completing the expansion projects and reaching target production levels at Liqhobong and BK11, the Company intends to use cash flow from its mining operations to evaluate these kimberlites with the objective of identifying additional resources that can be developed and brought into production. This work is expected to commence in 2012.

Diamond Sales

During the year a Diamond sorting and sales facility was constructed at the Diamond Technology Park in Gaborone, Botswana. Diamonds from Liqhobong and BK11 are sold by competitive tender at this facility. The first tender was held in December 2010, and a total of four tenders have been held to date.

Rough Diamond prices increased strongly during the year, rising approximately 40% in the six months to June 2011, driven largely by significant growth in demand from China and India. The uncertainty in global financial markets since August 2011 has resulted in significant volatility in the rough Diamond market, and prices have dropped by about 30% from their highs in July 2011. The Company's last tender, which commenced in August 2011, was affected by this volatility, and the majority of the diamonds offered for sale did not achieve reserve prices and were withdrawn.

Prices now appear to have stabilised and it is expected that De Beers and Alrosa, who are the two largest Diamond producers in the world, will limit their volume of sales in the short term in order to promote a stable pricing environment. The Company remains positive about the fundamentals of the Diamond market, as long term demand is expected to continue to outstrip supply.

The schedule for and frequency of Diamond sales in 2012 has not yet been finalised, but will be determined by both market conditions in the rough Diamond market and production levels at Liqhobong and BK11. Results of Diamond sales will in future be announced on a quarterly basis after the end of each quarter.

Financial

The acquisition of Kopane was the most significant event during the year. The acquisition was implemented by way of the issuance of 0.4657 Firestone shares for every Kopane share, which resulted in Kopane shareholders being issued with shares equivalent to 52% of the Company's enlarged share capital at the time. The financial accounts for the year reflect the consolidation of the Kopane accounts from the acquisition date of 29 September 2010. Revenue generated during the year was from both Liqhobong and BK11.

In December 2010 the Company raised ?13 million to finance the recommencement of production at Liqhobong. In August 2011 the Company raised a further ?13.5 million, primarily to support and accelerate the expansion of production capacity at Liqhobong. During the year the Company agreed terms with Standard Chartered Bank of Botswana for a $6 million, three year, 6.5% fixed rate credit facility. This facility was drawn down in June 2011. Discussions have also commenced with a number of banks in respect of a debt facility to finance the construction of Plant 2 at Liqhobong.

The Company intends to take a cautious approach to further capital commitments until it is clear that sufficient stability has returned to both international financial markets and the rough Diamond market. In the meantime, the Company's financial position remains secure, with $15 million in cash and Diamond stocks with an estimated value of $3 million as of October 2011.

Board

A significant number of changes were made to the Company's Board of Directors during the year, with three new directors being appointed and two resigning. Philip Kenny, who had been Chief Executive Officer of the Company since it was admitted to AIM in 1998, was appointed as Executive Chairman, and Tim Wilkes, who had been Chief Operating Officer of the Company since 2005, was appointed to the Board as Chief Executive Officer. Angus Ogilvie was appointed as Finance Director and Paul Sobie was appointed as a Non-executive Director. A further Non-executive Director appointment is also currently being considered. The Board has been significantly strengthened by these changes and is now well positioned to provide the guidance needed as the Company makes the transition to becoming a significant mid-tier Diamond producer.

Outlook

With a world class asset at the Liqhobong Mine and a portfolio of exciting kimberlite projects in Botswana, significant increases in production expected at both Liqhobong and BK11 during the coming year, and a very favourable long term outlook for Diamond prices, we believe that Firestone's prospects are better than at any time in its history and that the Company is well positioned to reach its target of producing 1 million carats per annum by 2014.

Philip Kenny

Executive Chairman

11 November 2011

Consolidated statement of comprehensive income

Consolidated statement of financial position