Instead, diamond development company Stellar Diamonds and Octea Mining intend to enter into a tribute mining agreement, which would allow Stellar Diamonds to mine the Tonguma licence area in eastern Sierra Leone alongside Stellar’s own Tongo project and process and sell any diamonds mined from these concessions while paying a proportion of the sale proceeds to Octea Mining.
Whilst the proposals remain subject to a legally binding agreement being entered into, Stellar Diamonds and Octea Mining have agreed exclusive heads of terms, pursuant to which key terms of the proposed tribute agreement have been agreed.
The tribute agreement would be a sub-contract arrangement between Octea Mining and Stellar Diamonds, entered into in the ordinary course of business and would allow Stellar Diamonds to simultaneously mine both its wholly owned Tongo project and the adjacent Tonguma project, with Stellar Diamonds being the operator of the combined mine.
The technical information in relation to the proposed combined Tongo-Tonguma mine plan previously reported, remains unchanged.
To date, Stellar Diamonds has invested in excess of $7.2 million at Tongo alone, representing approximately 18 pence per existing ordinary share in issue.
“Although Stellar Diamonds no longer intends to acquire the Tonguma licence, both Stellar and Octea continue to work towards finalisation of an agreement that will bring together, for commercial production, their combined diamond properties that cover the whole of the high value Tongo diamond fields,” says Stellar Diamonds chief executive Karl Smithson.
“The structure of the agreement would allow Stellar to be operator and marketer of diamonds produced, with a simplified revenue share arrangement payable to Octea in return.
The final tribute agreement is expected to include a timeframe within which implementation of the mine plan will be expected, however this timeframe has yet to be negotiated.
“The directors believe the economics of the proposed tribute agreement are very attractive to Stellar. Subject to the terms of the tribute agreement remaining in force over the life of the mine, Stellar has estimated its post-tax NPV arising from the Tongo-Tonguma mine could be approximately $104 million. Furthermore, there remains considerable potential upside beyond the 4.5 million carats resource (across Tongo and Tonguma) through bringing into resource and the future mine plan additional high grade kimberlites on both properties.
“We hope to be able to bring the formal agreement and due diligence process to a conclusion in the near future and will continue to engage with potential strategic investors. We will update shareholders as we progress towards completion of this agreement.”
While entering into the tribute agreement is not deemed to constitute a reverse takeover under the AIM rules, however trading in Stellar Diamonds’ shares on AIM currently remains suspended pending completion of a fundraiser.