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The group said a formal agreement has now been signed with De Beers.
Firestone said the new mining operation will be developed around its Bonte Koe Mine, which is operated by African Star, and will exploit the Buffels Inland Complex deposits, over which De Beers holds mining rights.
Philip Kenny, CEO of Firestone Diamonds, said: "This agreement provides us with significant assured revenue and cash flow for the duration of the Buffels River project and substantially extends the life of our operations at Bonte Koe.
Kenny added: "In addition, having proven that we have the capability to design, build and operate efficient, cost effective mining operations to the standard required by De Beers, we intend to expand our relationship with De Beers and investigate other known resources in the Namaqualand region that we can jointly exploit with them."
Substantial investment
Firestone said the agreement came about as a result of the substantial investment that it has made in plant and infrastructure at Bonte Koe, which includes a 150 ton per hour gravel processing plant, a 16km power line and a 35km process water supply pipeline.
Under the terms of the agreement, Firestone said it will use the plant and infrastructure at Bonte Koe to process diamondiferous gravel mined by De Beers from the BIC. The BIC comprises two deposits located adjacent to Bonte Koe, and two located further downstream.
Mining operations on the BIC are expected to produce over 600 000 carats from approximately 5.5 million tons of gravel over a six year period.
The group said De Beers will be responsible for overburden stripping and gravel mining and for the delivery of gravel from the BIC to Bonte Koe.
Firestone will be responsible for processing the gravel, producing a DMS concentrate, and disposal and rehabilitation of tailings from the operation. The DMS concentrate will be transported for diamond recovery at De Beers' Kleinzee Mine, which is located at the coast 15km downstream of Bonte Koe.
Covering costs
The company said African Star will be paid approximately R40/ton of gravel processed for the 5.5 million tons projected to be mined and this rate will cover Firestone's capital and operating costs in respect of the project.
The company added that with an agreed minimum gravel delivery rate of 950 000 tonnes per annum, this will provide estimated annual revenues to Firestone of approximately £3.7m and operating profits of approximately £2m over the life of the project.
Firestone said that with estimated maximum plant capacity of 1 250 000 tons per annum, the groups annual revenues could increase substantially if De Beers' mining rate exceeds the current minimum planned level.
Firestone added that the agreement also has a profit sharing provision under which Firestone will have the right to participate in profits generated by the project once De Beers' target return from the project has been reached.
"There is further potential for Firestone's revenues and profits from the project to increase significantly, as it is expected that resource evaluation work currently being carried out by De Beers in the BIC area and continued increases in rough diamond prices will result in substantial additional mineable resources being identified in the BIC area," the group said.
Terms of the agreement
Under the terms of the agreement, Firestone will be required to make a number of modifications to the Bonte Koe plant, including upgrading of the DMS capacity and the crushing circuit.
The group said planning and design work for the modifications were completed in the first quarter of 2006. Site works commenced in March and are now well under way. As these modifications will not require the existing plant to be shut down, Firestone and De Beers plan to process gravel from the BIC through the existing plant as soon as possible, with the objective of commencing treatment in June 2006.
"With the plant at Bonte Koe now being dedicated to processing the significantly larger volume of BIC gravel resources for the expected six year life of the project, Firestone plans to resume exploiting its own gravel resources at Bonte Koe after processing of the BIC gravels has been completed," the group added.
