Firestone Diamonds Offer For Kopane Diamond -7-

21st Jul 2010 11:55

Africa, producing a loss for the year of GBP11.0 million. For the six month period ended 31 December 2009 Firestone generated no revenue and made a loss of GBP1.4 million. Following the successful completion of the final phase of evaluation work on BK11 in December 2009 a decision was made to proceed with the development of commercial mining operations at BK11, and Firestone's activities since then have been primarily focused on BK11. In April 2010 Firestone raised GBP9.45 million, of which approximately GBP4.5 million was to cover the final costs to bring BK11 into full production. Commercial production commenced at BK11 in July 2010. Firestone has also continued to develop its toll treatment business. In March 2010 Firestone announced that it had been selected by Namdeb as the preferred supplier and operator for the FTP project at Namdeb's diamond mining operations on the south west coast of Namibia. In June 2010, Firestone announced that a decision had been made by Debswana to proceed with the MTTP at the Jwaneng Mine, with Firestone being responsible for supplying, constructing and operating the MTTP. As at 30 June 2010 Firestone's cash balances stood at approximately GBP5.4 million. Kopane For the year ended 30 June 2009, Kopane generated revenue of GBP1.9 million, and made a loss for the period of GBP4.5 million. For the six month period ended 31 December 2009 Kopane generated no revenue and made a loss for the period of GBP1.2 million. Production at Liqhobong was suspended in early 2008 in response to the sharp fall in rough diamond prices at that time. Since 31 December 2009, Kopane has been focused on completion of the DFS on the Main Pipe, planning for the funding and engineering of the construction of electrical power to Liqhobong and planning for resumption of production using the Satellite Plant in 2011. As at 30 June 2010 Kopane's cash balances stood at GBP2.1 million. Kopane is also entitled to receive further payments from Lanstead Capital LP, pursuant to the share placing arrangements agreed with Lanstead at the end of 2009 and the beginning of 2010. As at the date of this Announcement, Kopane expects to receive a further 18 monthly payments which at a Kopane share price of 17p per Kopane Share (being the price agreed pursuant to the Acquisition for each Kopane Share), will amount to approximately GBP295,000 for 14 months and GBP120,000 for a further 4 months. The funds receivable by Kopane pursuant to these arrangements vary depending on Kopane's share price from time to time. The monthly payments are currently suspended as a result of the Acquisition, but are expected to resume 30 days following the date of this Announcement and, after the Effective Date, will be calculated by reference to the price of a Firestone Share on a basis consistent with the current swap arrangements. 10. Prospects for the Enlarged Group The Firestone Directors and the Kopane Directors believe that their respective projects complement each other and that the Enlarged Group's diversified portfolio of production, development and exploration stage projects will provide significant benefits to both Firestone Shareholders and Kopane Shareholders and enhance the prospects of the Enlarged Group. The Enlarged Group is expected to generate cash flow from BK11, which is expected to reach full production capacity by the end of 2010, and, subject to the successful completion of discussions with Debswana, from the Jwaneng Tailings Project in 2012. Firestone intends to use the cash flow from these projects to accelerate the evaluation and development of the Enlarged Group's expanded portfolio of kimberlites. The primary focus of these efforts will initially be on Liqhobong and the other kimberlites controlled by Firestone in the Orapa kimberlite field. With revenue of $29/t and Firestone's estimated operating costs of $12/t for a kimberlite mining operation in Lesotho (based on Gem Diamonds' costs at Letseng), the economic potential at Liqhobong is significant. Firestone intends to exploit this potential through the construction of a 4Mt per annum plant following completion of the DFS which, assuming a successful design and build process, would be expected to be commissioned in approximately three years' time The Enlarged Group will benefit from having a larger market capitalisation, which the Firestone Directors and the Kopane Directors believe is likely to result in more liquidity in the trading of Firestone's Shares, an improved rating and greater access to capital to fund the Enlarged Group's growth plans. In the medium to long term, the Firestone Directors and the Kopane Directors believe that the combination of BK11, the substantial Mineral Resource at Liqhobong, 21 other kimberlites in the Orapa kimberlite field, 84 kimberlites in the Tsabong kimberlite field, and the potential for developing a significant toll treatment business with Debswana and Namdeb, will enable the Enlarged Group to become one of the leading mid-tier diamond producers, with a target production level of 1 million carats by 2014. 11. Strategy Firestone's objective is for the Enlarged Group to become one of the leading mid-tier diamond producers, and its strategy for doing so is comprised of three key elements: The first is to build a diversified portfolio comprising both kimberlite exploration, evaluation and production projects and toll treatment projects. In the short term, cash flow from the production and toll treatment projects will be used to fund large scale exploration and evaluation projects with the potential to yield significant economic discoveries, and in the mid to long term it will be used to pay dividends to shareholders. The second is to focus on projects in Southern Africa, which is a comparatively stable region politically and economically, and has relatively low capital and operating costs compared to other regions where diamond mining and exploration are carried out. Botswana, where most of Firestone's current projects are located, benefits from being among the most political and economically stable countries in Africa, and enjoys a high exploration success rate, with 8 per cent. of kimberlites proving to be economically viable, compared to 1 per cent. worldwide. The third is to focus exploration and evaluation activities on projects in proven economic or diamondiferous kimberlite fields, where the probability of economic discoveries is significantly higher than for grass roots and early stage exploration projects. The Firestone Directors believe that the Acquisition fits well with this strategy. 12. Kopane Options The Scheme will extend to any Kopane Shares that are unconditionally allotted or issued pursuant to the exercise of options or vesting of awards under the Kopane Share Option Scheme, in each case on or prior to the Reduction Record Time. Appropriate proposals will be made to participants in the Kopane Share Option Scheme at the same time as the Scheme Document is posted to Scheme Shareholders or as soon as possible thereafter. Details of these proposals will be set out in the Scheme Document and in separate letters to be sent to participants in the Kopane Share Option Scheme. 13. Kopane Warrants finnCap, the holder of the Kopane Warrants, has agreed with Kopane and Firestone that upon the Scheme becoming effective, the Kopane Warrants shall lapse, and accordingly no proposals are intended to be made to finnCap in respect of the Kopane Warrants. 14. Implementation Agreement Firestone and Kopane have entered into the Implementation Agreement, which contains certain obligations on both parties in relation to the implementation of the Scheme and the conduct of both Kopane's operations and Firestone's operations prior to the Effective Date or termination of such agreement. Under the Implementation Agreement, Kopane has agreed with Firestone to pay an inducement fee of approximately GBP400,000 million (inclusive of VAT). The inducement fee shall be payable by Kopane if, in summary: (i) a Competing Proposal in relation to Kopane (or any amendment, variation or revision of such proposal) is announced pursuant to Rule 2.5 of the Code prior to the Acquisition lapsing or being withdrawn and such Competing Proposal subsequently becomes or is declared wholly unconditional or is otherwise completed; or (ii) the Kopane Directors either (i) fail to recommend or (ii) withdraw or adversely modify or qualify their recommendation to Kopane Shareholders to vote in favour of the Scheme and the Kopane Resolution respectively at the Court Meeting and/or the Kopane GM or (as the case may be) accept a Takeover Offer or withdraw or adversely modify or qualify their recommendation of the Acquisition generally in any statement contained in an announcement issued by Kopane through a Regulatory Information Service after the date of the Kopane Shareholder Meetings, and subsequently the Acquisition lapses or is withdrawn, provided that an inducement fee will not be payable by Kopane in these circumstances if, prior to the Kopane Directors failing to recommend or withdrawing or adversely modifying, or qualifying, such recommendation: (a) the Firestone Directors have failed to recommend or have withdrawn or adversely modified or qualified their recommendation to Firestone Shareholders to vote in favour of the Firestone Resolutions at the Firestone General Meeting or have withdrawn or adversely modified or qualified their recommendation of the Acquisition generally in any statement contained in an announcement issued by Firestone through a Regulatory Information Service after the date of the Firestone General Meeting; (MORE TO FOLLOW) Dow Jones Newswires July 21, 2010 06:55 ET (10:55 GMT)