Stellar Diamonds teams up with Octea Mining in Sierra Leone

West Africa-focussed diamond exploration and development company Stellar Diamonds announced on Friday that it signed a legally binding conditional tribute mining agreement and revenue share agreement with Octea Mining, in respect of the Tongo-Tonguma kimberlite diamond project in eastern Sierra Leone.

The AIM-traded firm said the deal created the potential for substantial near and long term cash flows for Stellar, with the project hosting “one of the highest value” kimberlite ore bodies in Africa on a dollar per tonne basis, creating the second largest kimberlite diamond mine in West Africa according to the board.

It said the agreements allowed for mining the combined and contiguous Tongo and Tonguma concessions, with “robust” attributable potential post-tax project net present value and internal rate of return of $104m and 31% respectively”.

Stellar claimed there would be “modest” mine development capital expenditure in the first two years, estimated at $32m -including a 15% contingency.

The project carried an estimated 21 year mine life, producing over 4.5 million carats with estimated revenues over $1.5bn.

Once at full production, the project was estimated to generate U45m gross revenue per annum.

Resource statements, a mine plan, financial model and CPR had all been completed by independent consultants, Stellar confirmed.

It said a 10% share of gross revenues - after the deduction of a government royalty - would be payable to Octea on diamond and other minerals recovered and sold, once Stellar had recouped an amount equal to its capex investment and Octea had received an initial revenue share payment of $5m.

The company said it would make a one-off payment of $5.5m to Octea five years after project mine development commenced, and on completion, Stellar would acquire a 50tph kimberlite processing plant from Octea for a nominal amount in order to fast track production.

Stellar had invested $7.2m to date on establishing resources at Tongo, equivalent to approximately 14p per Stellar share.

“We are delighted to have signed these agreements with Octea which, subject to completion, will allow Stellar to build a single mine for the simultaneous commercial production from the contiguous Tongo (Stellar) and Tonguma (Octea) kimberlite deposits,” said chief executive Karl Smithson.

“Stellar has the strong support of all main stakeholder groups in Sierra Leone for this mine development, which would have a very positive impact in terms of employment, local infrastructure development and future taxation revenue for the country.”