Following a suspension of its share trading on Friday, pending news about a potential reverse takeover transaction, Stellar Diamonds announced on Monday a proposed deal with privately-owned mid-tier diamond mining company Koidu Limited subsidiary Octea Mining.
The proposed deal involves combining Stellar Diamonds’ Tongo kimberlite project in Sierra Leone – which has an average diamond value of of US$270 per carat – with Octea Mining’s adjacent Tonguma kimberlite project, which has an average diamond value of US$193 per carat, and to bring both assets into production under the same production infrastructure.
Given the close proximity of the two projects, the 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 tph production plant which will be relocated to the project area from Octea’s Koidu mine, approximately 60 km north of Tonguma.
Through mining two separate resources and centrally processing ore, the Stellar 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 the company’s future revenues and margins.
Stellar Diamonds CEO Karl Smithson says 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.
Together Tongo/Tonguma will have a resource of 5 million carats, with an 8 million carat identified exploration upside.
“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,” says Octea Mining general manager Christo Swanepoel.
“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, ” he says.
Stellar intends to bring the combined Tongo/Tonguma project into production within 12 months of the completion of the transaction using the same infrastructure which will significantly enhance production and operational margins.
Importantly, there is no acquisition cost for Stellar Diamonds, who will fund and operate the enlarged project by raising a minimum of US$25 million, but will recoup this initial investment having agreed a preferential repayment structure with Octea Mining.
Stellar has engaged London-based international banking and financial group Mirabaud Securities as financial adviser for the proposed transaction.