Trace the desired fireplace shape on the piece of blue foam insulation.
Cut out the fireplace using a sharp knife and/or miter saw. Make additional adjustments as necessary, such as shaping the fireplace or trimming away the chimney, until you are satisfied with the contours of the miniature fireplace.
Roll flat a large enough piece of clay to cover the entire foam fireplace. Roll the clay flat to roughly 1/8 inch thick.
Cover the foam fireplace with universal adhesive or glue. Place the piece of clay over the foam, smoothing it out to remove any air bubbles. Cut away the excess clay and wrap the clay around the foam. Fill in any holes with excess clay, if necessary. Dip your fingers in water to help smooth out the clay and prevent it from drying, if necessary.
Etch bricks or stones into the clay to create the desired look of your fireplace, using a toothpick. Use a brush to give the bricks or stones texture, if you like.
Allow the clay to dry overnight. Optionally, you can now paint the fireplace the desired color to make it look more realistic.