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Firestone Diamonds plc

Mine development to commence at BK11 diamond project in Botswana

LONDON: 10 December, 2009

The Board of Firestone Diamonds plc, ("Firestone" or "the Company"), the AIM-quoted diamond mining and exploration company (ticker: AIM:FDI), is pleased to announce that it intends to commence development of commercial mining operations on its BK11 kimberlite in Botswana. BK11 is situated approximately 20 kilometres south east of Debswana's Orapa Mine and seven kilometres north west of Debswana's Letlhakane Mine.

HIGHLIGHTS

Philip Kenny, CEO of Firestone Diamonds, commented: "Commencing development of a new mine at BK11 is a major milestone for Firestone Diamonds. By the middle of 2010 our company will have become one of only a small number of listed kimberlite producers worldwide. This is a significant achievement in its own right, but even more so as we will have done so in less than two years from the results of our initial evaluation work on the project. The BK11 mine will give us a very solid foundation from which to further develop our exciting portfolio of projects and opportunities in Botswana. With the projected shortfall in rough diamond supply expected to drive diamond prices higher in coming years, we believe that the prospects for Firestone are extremely good."

In July 2009 the Company commenced work on the final phase of evaluation on BK11. The primary objective of this work was to recover a sufficiently large parcel of diamonds in order for a high confidence diamond valuation to be obtained and to allow a mine development decision to be made.

Excellent progress has been made, and grade and diamond quality from material processed from the bulk sampling trench have been in line with expectations. Valuation of approximately 500 carats from the trench has been completed, resulting in an overall modelled value of $137/carat (a 1% increase from June 2009) and a modelled value of $157/carat for the KW area on the west side of BK11 (a 9% increase from June 2009), which is the area initially targeted for mine development. Based on these results, the Company now intends to proceed to mine development on BK11.  

Significant progress has been made on modifying the production plant at the Company's Bonte Koe mine in South Africa for use at BK11, and this work is currently ahead of schedule. The plant will be relocated and commissioned in two phases, with production to commence ahead of schedule in Q2 2010 with a plant capacity of approximately 650,000 tonnes per annum, increasing to full production capacity of 1,500,000 tonnes per annum in Q3 2010.  

With revenue estimates of $16 per tonne and with low operating costs in the Orapa area of approximately $6.50 per tonne, mining of the KW area at BK11 is expected to produce annual revenues of approximately $24 million per annum at operating margins of 60%. Any further increases in diamond prices, which the Company believes is likely to occur as a result of a projected shortfall in diamond supply in the coming years, would add substantially to the potential profitability of BK11.

The required development costs will be financed from the Company's existing cash resources. Firestone has entered into an agreement with its Botswana partners at BK11 to finance their share of mine development costs, in return for which the Company's interest in the project will be increased from 80% to 90%.  

Diamond valuation increased

The quality of diamonds recovered from the bulk sampling trench has continued to be very good, comprising mostly clear white gemstones and very little boart.  A parcel of approximately 500 carats was valued in December 2009 by Johan Erikson, an independent diamond valuator with 28 years' experience in diamond valuation, resulting in a raw value of $131 per carat.  

Zstar Mineral Resource Consultants has used the valuation data to carry out a modelling exercise on the BK11 diamond population. This produced an overall modelled value for BK11 diamonds of $137/carat, a 1% increase from June 2009. The KW area, which is the area initially targeted for mine development, has a higher modelled value of $157/carat, which represents a 9% increase from June 2009, with upper and lower confidence limits of $222 and $90 per carat, respectively.  

The BK11 diamond values are considered to be high for kimberlite production. The Company expects that average diamond size will increase as mining progresses into the grain flow deposits that have been identified at depth, and that diamond values will increase accordingly.

Resource increased

The Company has undertaken significant resource delineation work on BK11. This work has resulted in the definition of a resource of 12 million tonnes containing approximately 800,000 carats to a depth of 120 metres. Approximately 6 million tonnes of this resource is in the KW area with an average grade of 10 carats per hundred tonnes, of which approximately 2.3 million tonnes is in the indicated resource category. Additional work will be undertaken to convert the entire KW resource to the indicated category as mining progresses. The Company believes that actual mining grades have the potential to increase significantly due to the use of selective mining and the presence of higher grade zones which are expected at depth.

An additional inferred resource of 6 million tonnes of kimberlite containing approximately 200,000 carats has been identified between 120 and 250 metres. Limited sampling has been carried out on this part of the resource, and further work will be undertaken as mining progresses.

The resource in the KW area is as follows:

Commercial production advanced to Q2 2010

Significant progress has been made on modifying the production plant at the Company's Bonte Koe mine in South Africa for use at BK11, and this work is currently ahead of schedule.  

With the Environmental Impact Assessment already having been approved by the Department of Environmental Affairs, and the mining lease application expected to be ready for submission to the Department of Minerals, Energy and Water Resources shortly, production is now expected to commence ahead of schedule in Q2 2010.

The plant will be relocated and commissioned in two phases, with phase 1 expected to go into operation in Q2 2010 at a capacity of approximately 650,000 tonnes per annum, increasing to 1,500,000 tonnes per annum in Q3 2010.  

A number of changes are also being planned to the plant flow sheet based on ore dressing data obtained from operation of the pilot plant over the past five months. The addition of larger scrubbing circuits is expected to significantly decrease the amount of material reporting to the DMS section, which would result in higher plant capacity being achieved.  

Negotiations are under way with the Botswana Power Corporation for the construction of a 14 km long power line from Orapa to BK11, but the Company has planned sufficient generating capacity available to operate the plant. This will add approximately $1/tonne to operating costs until grid power is available.

For further information, visit the Company's web site or contact:

Background information on Firestone Diamonds:

Firestone Diamonds plc ("FDI.L") is an international diamond mining and exploration company with operations in Botswana and South Africa.  Botswana is the world's largest and lowest cost producer of diamonds, with annual production worth over $2.5 billion, and is considered to be one of the most prospective countries in the world to explore for diamonds.  

Firestone is the largest holder of mineral rights in Botswana's diamondiferous kimberlite fields, controlling over 25,000 square kilometres around the major Orapa and Jwaneng mines and the entire Tsabong kimberlite field. Firestone has 95 kimberlites in its portfolio, of which 24 have been proven to be diamondiferous. Fifteen of Firestone's kimberlites are at the bulk sampling stage. 

Notes:  

1. The information in this statement has been reviewed by Mr. Tim Wilkes, BSc, Pr Sci Nat, who is a qualified person for the purposes of the AIM Guidance Note for Mining, Oil and Gas Companies. Mr. Wilkes is Chief Operating Officer of Firestone Diamonds plc and has over 27 years' experience in diamond exploration, mineral resource management and mining. Mr. Wilkes is a member of the sub-committee for diamonds of the South African Mineral Resource Committee (SAMREC). 

2. All grades and diamond values are based on a bottom cut off of 1mm.

3. The resource estimates in this statement have been compiled in accordance with the SAMREC code.

RNS news service provided by Hemscott Group Limited.