TIDMSTEL
RNS Number : 7551L
Stellar Diamonds PLC
05 October 2016
NOT FOR DISTRIBUTION IN THE UNITED STATES OR FOR DISSEMINATION
TO US NEWS WIRE SERVICES.
5 October 2016
AIM: STEL
Stellar Diamonds plc
("Stellar" or the "Company")
Preliminary Economic Assessment for the proposed Tongo-Tonguma
Mine
Further to the announcement on 22 August 2016 on the proposed
transaction ("the Transaction") (the "Transaction Announcement")
between Stellar Diamonds plc ("Stellar" or "the Company") and Octea
Mining ("Octea") to combine their adjacent Tongo and Tonguma
diamondiferous kimberlite dyke properties in eastern Sierra Leone,
Stellar announces the results of an independent Preliminary
Economic Assessment ("PEA") for the combined mining project ("the
Project").
The PEA demonstrates a financially robust and high margin 21
year life of mine over an initial resource of 4.5 million carats.
The PEA also recognises considerable upside exists from additional
high-grade kimberlite dykes on the properties which are not yet
categorized into resource.
Highlights:
-- Estimated pre-tax Project NPV(10) and IRR of $172 million and 49% respectively
-- Projected life of mine Project revenues of $1,518m with operating costs of $847 million
-- Estimated operating margin of 50% over the life of mine
-- First production expected within 12 months, ramping up to
over 200,000 carats p.a. in 4th year
-- Expected Capex of $31.8 million in first two years (including 15% contingency)
-- Estimated 3.96 million carats recoverable from the initial
4.5 million carats resource at a +1.18mm cut-off
-- Recoverable diamond grades and values for first three kimberlites to be mined of:
o Kundu: 260cpht and $209 per carat ($543 per tonne)
o Lando: 220cpht and $209 per carat ($440 per tonne)
o Tongo: 100cpht and $310 per carat ($310 per tonne)
-- Exploration target of up to 8 million carats in addition to existing resource
Chief Executive Karl Smithson commented:
"The PEA of the combined Tongo-Tonguma mine demonstrates robust
financial returns for a modest capital requirement and supports the
Board's decision to pursue this strategic acquisition. Three
kimberlite dykes, Kundu, Lando and Tongo are contained within the
mine plan and have compellingly high diamond grades and values and
together support a long life of mine. We are further encouraged by
the potential which exists to significantly increase the resource
base by bringing a number of additional high grade kimberlites that
have been discovered to date on both licences into the long term
resource base.
"We continue to make good progress with the legal and other due
diligence processes that are required to complete the Transaction
and will provide further updates in due course."
Resource Statements
Independent industry consultants Paradigm Project Management
("PPM") and SRK Consulting ("SRK"), based in South Africa ("the
Consultants"), prepared the PEA on the basis of an underground
mining scenario only. The consultants utilised independent resource
statements prepared for Stellar by CAE Mining, in respect of Tongo
Dyke-1, and Mineral Services Canada, in respect of Tonguma. Only 3
kimberlites dykes of a total of 11 on the properties (4 at Tongo
and 7 at Tonguma) have been categorized as resource to date, being
Tongo Dyke-1, Kundu and Lando for a total of 2.2 million tonnes and
4.50 million carats at a +1.18mm cut off.
Inferred Resources (by Mineral
Services Canada and CAE Mining)
----------------------------------------------------------- ------- ------- --------
Tonnes Grade Carats
Dyke Classification cut-off Depth (m) (mT) (cpt) (mcts)
--------- -------- ---------------- -------- ---------- ------- ------- --------
Tonguma Kundu inferred +1.18mm 20 - 200 0.5 2.9 1.5
--------- -------- ---------------- -------- ---------- ------- ------- --------
Tonguma Lando inferred +1.18mm 20 - 200 0.8 2.5 2.1
--------- -------- ---------------- -------- ---------- ------- ------- --------
Tongo Dyke-1 inferred +1.18mm 0 - 300 0.9 1.0 0.9
--------- -------- ---------------- -------- ---------- ------- ------- --------
Total inferred 2.2 4.50
------------------- --------------- -------- ---------- ------- ------- --------
A further four dykes have been drilled out at Tonguma and along
with certain sections of Lando and Kundu are classified by Mineral
Services Canada as "exploration target" which offers a mid-range
total of 5.6 million tonnes and potential for a further 7.96
million carats for the Project. Although it can't be guaranteed
that further exploration will result in this exploration target
becoming a mineral resource, the Directors consider that this
target demonstrates significant upside to the overall resource base
of the Project and it is the intention to bring the "exploration
target" into the JORC resource category in due course through
further drilling and sampling.
Exploration Target at Tonguma (by Mineral Services Canada)
Mid
Tonnes Grade Mid range range
Depth Range range tonnage Grade Carats
Dyke Cut-off (m) (mT) (cpt) (mT) (cpt) (mcts)
---------- -------- ----------- ------- --------- ---------- ------- --------
200 -
500,
and 3
segements
20 - 0.8 - 1.7 -
Kundu +1.18mm 200m 1.5 4.0 1.15 2.9 3.28
---------- -------- ----------- ------- --------- ---------- ------- --------
200 -
500,
and 3
segements
20 - 0.6 - 1.5 -
Lando +1.18mm 200m 1.1 3.5 0.85 2.5 2.13
---------- -------- ----------- ------- --------- ---------- ------- --------
0.2 - 0.9 -
Kpandebu +1.18mm 0 - 500m 0.4 2.1 0.3 1.5 0.45
---------- -------- ----------- ------- --------- ---------- ------- --------
1.0 - 0.9 -
Panguma +1.18mm 0 - 500m 1.9 2.0 1.45 1.5 2.10
---------- -------- ----------- ------- --------- ---------- ------- --------
0.9 -
Tongo 0 - 500 1.9 no info. 1.4
---------- -------- ----------- ------- --------- ---------- ------- --------
0.3 -
Seleima 0 - 500 0.5 no info. 0.4
---------- -------- ----------- ------- --------- ---------- ------- --------
5.55 7.96
---------- -------- ----------- ------- --------- ---------- ------- --------
Recoverable Resources
In preparing the mine plan and financial model for the PEA the
Consultants used the total diamond resource of 5mcts and applied a
standard +1.18mm plant cut off across all three dykes and also
applied a recovery factor which could be expected during the mining
and processing of the kimberlite ore. This resulted in an estimate
of 3.96 million carats of recoverable resource during the life of
mine from the total Project resource of 4.5 million carats. Diamond
values range from $209/ct for Kundu and Lando to $310/ct for Tongo
Dyke-1.
Recoverable Resources (by PPM/SRK
PEA)
------------------------------------------------------- ------- ------- -------- --------
Diamond
Depth Tonnes Grade Carats Value
Dyke Classification cut-off (m) (mT) (cpt) (mcts) $/ct
--------- -------- ---------------- -------- ------ ------- ------- -------- --------
20 -
Tonguma Kundu inferred +1.18mm 200 0.5 2.6 1.30 209
--------- -------- ---------------- -------- ------ ------- ------- -------- --------
20 -
Tonguma Lando inferred +1.18mm 200 0.8 2.2 1.76 209
--------- -------- ---------------- -------- ------ ------- ------- -------- --------
20 -
Tongo Dyke-1 inferred +1.18mm 300 0.9 1.0 0.90 310
--------- -------- ---------------- -------- ------ ------- ------- -------- --------
Total inferred 2.2 3.96
------------------- --------------- -------- ------ ------- ------- -------- --------
Underground Mining
The underground mine plan is currently configured as a series of
declines from surface at Kundu, Lando and Tongo. The declines will
be 4m x 4m in cross section and will be developed at an angle of
8-degrees. Mining levels will be interspaced at 35m depth with the
first levels being developed at 40m below surface. Based on the
current resource models, Tongo will have a planned 11 levels, Lando
10 levels and Kundu 5 levels during the 21 year life of mine. The
ore bodies will be accessed by 2m x 2m drives and cross-cuts into
stopes that are mined by traditional overhand shrinkage stoping
mining methods, with the ore being drawn from access points and
transported on underground locos and tipped into bins on an ore
pass system. These ore bins will feed haulage trucks that will
transport the ore to surface and onto the processing plant. The
existing 50tph processing plant at Octea's Koidu Mine is to be
relocated to Tonguma and be further upgraded to serve as the
processing plant for the new mine. This will save considerable time
in getting the Project to production.
Financial Model
The financial model prepared by PPM for the underground mining
study is based on mining the 3.90mcts of the 3.96mcts recoverable
resource at Tongo, Kundu and Lando and does not include any of the
7.96mcts "exploration target" carats which may be brought into a
future resource estimation.
The initial two year capital requirement to bring the mine into
production is estimated to be $31.8 million (including a 15%
contingency) and $90 million over the 21 year life of mine. Based
on the life of mine project costs ($847 million) and revenues
($1,518 million) the financial model demonstrates an NPV(10) of
$172 million and IRR of 49% on a pre-tax basis. Based on the
un-escalated operating costs and carat recovery over the life of
mine, the cost per carat at the present time is estimated at $115.3
per carat against the un-escalated average diamond price (across
all three kimberlites) of $228.6 per carat, giving an operating
margin of 49.6%.
Sensitivity Analysis
Sensitivity analyses were conducted by flexing by +25% to -25%
the three key parameters of revenue, capital expenditure and
operating costs around the base case $172m pre-tax NPV. This
analysis confirms that the Project is financially robust. A graph
of the sensitivity analysis can be seen at the following link;
http://stellar-diamonds.com/wp-content/uploads/2016/10/sensitivity_analysis.png
A summary of the financial model as prepared by PPM and SRK are
given in the table below:
Tongo Dyke-1 Pre-Tax Model
Tonguma Kundu Dyke
Tonguma Lando Dyke
--------------------------- --------------
Life of mine (years) 21
--------------------------- --------------
Total tonnes mined 6,062,613
--------------------------- --------------
Carats recovered 3,905,490
--------------------------- --------------
Average recovered/diluted
grade (cpht) 64.4
--------------------------- --------------
Years 1-2 capital
cost (US$m) 31.8
--------------------------- --------------
Cost per carat (US$) 115.3
--------------------------- --------------
Revenue per carat
(US$) average 228.6
--------------------------- --------------
Operating margin % 49.6
--------------------------- --------------
Life of mine gross
revenues (US$m) 1,518
--------------------------- --------------
Life of mine working
costs (US$m) 847.1
--------------------------- --------------
Life of mine net cash
inflows (US$m) after
capex 580.3
--------------------------- --------------
Net Present Value
(at 10% discount rate)
(US$m) 172
--------------------------- --------------
IRR 49%
--------------------------- --------------
The Tongo-Tonguma PEA report will be available for download from
the Company's website www.stellar-diamonds.com
Transaction Update
Work on the Transaction continues with ongoing legal and due
diligence work. The Competent Persons Report on the Project will be
announced in due course and marketing to new investors and existing
shareholders will then commence. By virtue of the Transaction being
classified as a reverse takeover under the AIM Rules for companies,
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 Transaction.
The Transaction, if completed, would result in Stellar having a
75% economic interest in the Project following, inter alia,
preferential repayment of the initial investment made by Stellar
and payment of certain revenue royalty payments as outlined in the
Transaction Announcement. Shareholders should note that the
Transaction remains subject to a number of conditions, including
inter alia, publication of an admission document and shareholder
approval.
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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