The gem miner, which operates the Liqhobong mine in Lesotho, has attributed the decision to a weak diamond market and electricity generation issues, which impacted production in October of last year.
Shares of Firestone Diamonds (LSE:FDI) tumbled more than 69 percent following word that the company plans to delist from the London Stock Exchange (LSE) and reduce its board size.
The gem miner, which operates the Liqhobong mine in Lesotho, attributed the decision to a weak diamond market and electricity issues that forced the company to curtail production and treatment at its project for much of October 2019.
Firestone was able to source generators from South Africa to mitigate losses from the electricity outage. However, its treatment capacity was reduced by as much as 90 percent between October 27 and December 1, when the grid was restored.
“The unexpected power disruption had a devastating impact on production and revenue generation,” said Paul Bosma, CEO of Firestone. “As a result of the power disruption, we have reduced our guidance for the year in respect of diamond recoveries and ore tonnes treated.”
2020 guidance for Liqhobong was initially set at 820,000 to 870,000 carats, but has since been reduced by roughly 100,000 carats to between 720,000 and 750,000 carats.
Production fell to 138,000 carats in the affected quarter, down from 201,091 carats in the previous period. This drop carried over to sales, which sank 21 percent quarter-on-quarter to 132,885 carats.
The issues plaguing Firestone are not limited to electricity. The diamond market has been in a state of flux for 12 to 18 months, with oversupply in the small- to mid-size categories making it particularly hard for miners producing those types of stones.
“Due to the production setback and continued lacklustre market conditions, the board has decided that it is imperative that it does all it can to reduce costs in order to survive the prolonged downturn,” added Bosma in Tuesday’s (February 25) announcement.
The decision to delist from the LSE is part of a widespread effort by Firestone to reduce costs while awaiting a diamond market recovery.
“The board still believes that the diamond market has the potential to improve but that it will take longer than had been previously anticipated and therefore everything possible needs to be done to ensure that the company can survive the current downturn using its existing cash resources,” states the release.
Seventy-five percent of Firestone’s shareholders will need to agree to the stock market removal in order for it to be passed. A restructuring of the company’s board will occur following its delisting. The goal is to have four directors and one independent chair.
Despite the current challenges, Firestone made some significant recoveries in 2019, including a 70 carat white gem-quality diamond in February, as well as a 72 carat yellow diamond and another 54 carat fancy yellow diamond in July.
Firestone will hold its general meeting on March 13, at which time shareholders will be able vote on the LSE delisting. Its shares were down 58 percent on Wednesday (February 26), trading at GBX 0.30.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.