TIDMSTEL
RNS Number : 7299H
Stellar Diamonds PLC
22 August 2016
NOT FOR DISTRIBUTION IN THE UNITED STATES OR FOR DISSEMINATION
TO US NEWS WIRE SERVICES
22 August 2016
AIM: STEL
Stellar Diamonds plc
("Stellar" or the "Company")
Update on Potential Transaction
Stellar Diamonds plc, the London listed diamond development
company focused on West Africa, is pleased to announce further
details in respect of the potential transaction which was announced
on 19 August 2016. Stellar has agreed a proposed transaction with
Octea Mining Limited ("Octea") to combine Stellar's Tongo
kimberlite diamond project with Octea's adjacent kimberlite diamond
project, Tonguma, and to bring both assets into production under
the same production infrastructure (the "Potential Transaction") in
Sierra Leone. The Potential Transaction, if completed, would be
classified as a Reverse Takeover under the AIM Rules for Companies
and would require the publication of an admission document and also
be subject to shareholder approval. Accordingly, trading in the
Company's shares on AIM will remain suspended until either an
admission document is published or the Company announces its or
Octea's withdrawal from the Potential Transaction.
Highlights
-- Combined inferred JORC diamond resource of 5 million carats
brought into a single mining operation
-- Diamond grades up to 290 carats per hundred tonne ("cpht")
-- Average diamond value of US$193 and US$270 per carat for Tonguma and Tongo respectively
-- Exploration target of up to 8 million carats
-- Opportunity presents enhanced production levels and
operational margins, when compared with a stand-alone Tongo mining
operation
-- No cash acquisition costs to Stellar who will fund and
operate the enlarged mine development
-- Stellar to preferentially recoup repayment of development
capital prior to paying a royalty and net profit interest to
Octea
Stellar's Chief Executive Karl Smithson commented:
"The Proposed Transaction, if completed, will be
transformational for Stellar and its shareholders. Once in
production the combined diamond mining operations will be the
second largest in West Africa with an estimated maximum output at
full production of approximately 250,000 carats per year of high
value diamonds. The high grade and high value nature of the
kimberlites to be mined are compelling and the combination of
operations should provide meaningful cost synergies that will
enhance Stellar's projected operational margins. Using the
available infrastructure at Tongo and Tonguma, we expect diamond
mining operations to commence within the first 12 months post
completion of the Proposed Transaction."
Octea's General Manager Christo Swanepoel commented:
"We are very excited to be combining Octea's Tonguma project
with Stellar's Tongo project and bring the enlarged project into
production under Stellar's operational management. Stellar has
long-standing expertise in Sierra Leone and the Tongo region in
particular, which we believe will be of great benefit to the
project. In addition, the enlarged project should significantly
increase local skilled employment for many years to come which in
turn will support the local economy as well as generate significant
funds for the Sierra Leonean Government."
Further Information
Stellar has conducted extensive technical due diligence on the
Tonguma project and has subsequently entered into detailed,
exclusive non-binding terms with Octea to acquire the Tonguma asset
(the "Agreement"). The Potential Transaction remains subject to a
number of conditions including further due diligence by the
Company; Stellar raising a minimum of US$25 million (through a
combination of equity, debt and other hybrid products) to fund the
combined project into production (the "Fundraise") and entering
into final and binding transaction documentation with Octea. Both
Stellar and Octea have had detailed discussions with the relevant
regulatory authorities in Sierra Leone, and the parties will also
seek to obtain support from the Ministry of Mines in Sierra Leone
for the Potential Transaction. Accordingly, there is no guarantee
that the Potential Transaction will ultimately occur or that it
will complete on the terms set out in this announcement.
Stellar has engaged London based Mirabaud Securities
("Mirabaud") as Financial Adviser for the Proposed Transaction.
Mirabaud has a successful track record of raising funds in the
resources capital markets.
Proposed Transaction Structure
Under the terms of the Potential Transaction as detailed in the
Agreement, Stellar Diamonds Ltd, a wholly owned subsidiary of the
Company, will transfer the shares of its subsidiary Sierra Diamonds
Limited into a newly incorporated company ("NewCo") which will then
acquire the shares of Octea Mining Limited's subsidiary Tonguma
Limited. Stellar would be issued with 100% of the voting 'A' shares
in NewCo while Octea would be issued with 100% of the non-voting
'B' shares in NewCo. Stellar's 'A' shares will give the Company
full legal and management control of NewCo and the mining
operation. Octea's non-voting 'B' shares in NewCo will entitle
Octea to receive royalty payments of between 5% to 10% of the
combined revenues of Tonguma and Tongo (the "Enlarged Project") and
a 25% economic interest in the net cash flows of the Enlarged
Project. Furthermore, Stellar and Octea have agreed a preferential
repayment structure for the initial investment amounts of both
parties. Under this structure Stellar will recoup its initial
investment of at least US$25 million while Octea will pro rata
recoup a maximum of US$5 million during the same period, in return
for Octea contributing a 50 tonne per hour production processing
plant to the Enlarged Project. Any royalty payments and net profit
share due to Octea under the Agreement will only commence once the
total initial investment amount of both parties has been fully
repaid by NewCo. There is therefore no upfront acquisition cost to
Stellar in terms of the Potential Transaction.
Background
Stellar's Tongo project has a JORC inferred resource of 1.45
million carats at a grade of 165cpht. The current mine plan for
Tongo assumes a conservative lower grade of 120cpht with an average
diamond value of US$270 per carat. A further three high-grade
kimberlites are present in the licence area though these have not
yet been drilled into resource.
The Tonguma project comprises a 25 year mining licence (granted
to Octea in 2012) covering an area of 124 square kilometres in the
Lower Bambara Chiefdom, Kenema District, in the Eastern Province of
Sierra Leone. The Tonguma project is adjacent to and contains the
on-strike continuation of the diamondiferous kimberlite dykes which
are being explored by Stellar within its Tongo project. A mining
licence at Tongo is in the application process with the Ministry of
Mines. The two licences together cover the whole of the renowned
Tongo diamond fields, which includes a number of high grade and
high diamond value kimberlite dykes.
Octea has undertaken extensive exploration activities at Tonguma
including over 58,000 metres of diamond drilling as well as bulk
sampling which has produced approximately 7,250 carats of which
over 3,500 carats has been used for diamond valuation. An
independent JORC inferred resource of 3.45 million carats has been
estimated at grades of up to 290cpht and average diamond values of
US$193 per carat, to a maximum depth of 200 metres which has led to
a total inferred carat resource of approximately 5 million carats
being estimated for both projects.
The combination of very high grade and diamond value at Tongo
and Tonguma yields potential in-situ ore values of up to US$560 per
tonne.
Independent consultants have also estimated a significant
further exploration target on the Tonguma licence, which, based on
the mid-range grade and tonnage estimates, results in a potential
exploration target of a further 8 million carats. It is the
intention to bring the "exploration target" into the JORC resource
category in due course, however, these estimates remain conceptual
in nature and it is uncertain if further exploration will result in
estimation of a mineral resource.
A full independent competent person's report on the Tonguma
Project and existing Stellar projects including Tongo is being
prepared by Toronto based MPH Consulting and will be included in
any admission document, which is published in connection with the
Potential Transaction.
Future Mining Strategy
Given the close proximity of the two projects, the Potential
Transaction, if completed, should allow Stellar to undertake both
surface and underground mining across both licences. It is
envisaged that processing would be undertaken centrally, utilising
the existing 50 tonnes per hour production plant which will be
relocated to the project area from Octea's Koidu mine,
approximately 60 kilometres North of Tonguma. Through mining two
separate resources and centrally processing ore, the Company
expects to be able to operate more efficiently thereby realising a
number of cost savings, and generating significantly increased
production rates. This should also have a meaningful impact on
Stellar's future revenues and margins.
The initial capital outlay for Tongo as a stand-alone project
has previously been reported by Stellar at an estimated US$25
million. Independent consultants Paradigm Project Management
("PPM"), who together with SRK Consulting ("SRK"), are preparing
the combined Tongo/Tonguma mine plan, estimate the initial capital
requirements at approximately US$40 million (excluding working
capital) to establish production for the combined project. The
Enlarged Project would, however, also lead to significantly higher
production levels and revenues than just the Tongo mine alone. The
final Tongo/Tonguma mine plan by PPM/SRK will be received in the
near future and will provide significantly more detail on the
production rates, revenues and capital/operational costs.
The Company will make further announcements in due course as and
when appropriate.
Review by competent person
This announcement has been reviewed by Karl Smithson, Chief
Executive of Stellar, a qualified geologist and Fellow of the
Institute of Materials, Metals, Mining, with 27 years'
experience.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Caution regarding forward looking statements
Certain statements in this announcement, are, or may be deemed
to be, forward looking statements. Forward looking statements are
identi ed by their use of terms and phrases such as "believe",
"could", "should" "envisage", "estimate", "intend", "may", "plan",
"potentially", "will" or the negative of those, variations or
comparable expressions, including references to assumptions. These
forward looking statements are not based on historical facts but
rather on the Directors' current expectations and assumptions
regarding the Company's future growth, results of operations,
performance, future capital and other expenditures (including the
amount, nature and sources of funding thereof), competitive
advantages, business prospects and opportunities. Such forward
looking statements re ect the Directors' current beliefs and
assumptions and are based on information currently available to the
Directors.
A number of factors could cause actual results to differ
materially from the results discussed in the forward looking
statements including risks associated with vulnerability to general
economic and business conditions, competition, environmental and
other regulatory changes, actions by governmental authorities, the
availability of capital markets, reliance on key personnel,
uninsured and underinsured losses and other factors, many of which
are beyond the control of the Company. Although any forward looking
statements contained in this announcement are based upon what the
Directors believe to be reasonable assumptions, the Company cannot
assure investors that actual results will be consistent with such
forward looking statements. Accordingly, readers are cautioned not
to place undue reliance on forward looking statements. Subject to
any continuing obligations under applicable law or any relevant AIM
Rule requirements, in providing this information the Company does
not undertake any obligation to publicly update or revise any of
the forward looking statements or to advise of any change in
events, conditions or circumstances on which any such statement is
based.
About Stellar Diamonds plc
Stellar is an AIM listed (AIM: STEL) West African focused
diamond company with projects at the trial mining and mine
development stages in Guinea and Sierra Leone.
** ENDS **
For further information contact the following or visit the
Company's website at www.stellar-diamonds.com.
Karl Smithson, Stellar Diamonds plc Tel: +44 (0) 20
CEO Stellar Diamonds plc 7010 7686
Philip Knowles, Tel: +44 (0) 20
CFO 7010 7686
Jon Bellis Beaufort Securities Tel: +44 (0) 20
Limited (Joint Broker) 7382 8300
Rory Scott Mirabaud Securities Tel: +44 (0) 20
(Financial Advisers) 7878 3360
Emma Earl Cairn Financial Advisers Tel: +44 (0) 20
Sandy Jamieson (Nominated Adviser) 7148 7900
Lottie Brocklehurst St Brides Partners Tel: +44 (0) 20
Hugo de Salis Ltd 7236 1177
This information is provided by RNS
The company news service from the London Stock Exchange
END
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