Stellar Diamonds has signed a legally binding conditional tribute mining agreement and revenue share agreement with Octea Mining in connection with the Tongo-Tonguma kimberlite project in eastern Sierra Leone.
The deal is expected to create near and long term cash-flows for Stellar.
The companies have agreed to mine the combined and contiguous Tongo and Tonguma concessions.
This project hosts high-value kimberlite ore body in Africa on a dollar per tonne basis and would create the second largest kimberlite diamond mine in West Africa. The robust attributable potential post-tax project NPV(8) and IRR are $104m and 31%, respectively.
In the first two years, modest mine development CAPEX is estimated at $32m (including 15% contingency).
During the estimated 21-year mine life, the project is expected to produce more than 4.5 million carats with estimated revenues exceeding $1.5bn.
The project at full production is estimated to generate $45m gross revenue per annum. Resource statements, mine plan, financial model, CPR, have all been completed by independent consultants.
A total of 10% share of gross revenues (after deduction of government royalty) is payable to Octea on diamond and other minerals recovered and sold, once Stellar has recovered an amount equal to its CAPEX investment and Octea has received an initial revenue share payment of $5m.
Stellar has to make a one-off payment of $5.5m to Octea five years after the project mine development commences.
On completion, Stellar will buy a 50t/h kimberlite processing plant from Octea for a nominal amount to accelerate production.
Stellar has invested $7.2m on establishing resources at Tongo, which is equivalent to approximately £0.14 per Stellar share.
Stellar chief executive Karl Smithson said: “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 and Tonguma kimberlite deposits.
“The combined project has an initial 4.5 million carat resource which, due to the high grade and high-quality diamonds, is considered to be one of the highest value kimberlite ore bodies in Africa on a dollar per tonne basis.
“The 21-year mine plan with a consistent output of over 200,000 carats per year at full production would quantify this development as the second largest kimberlite diamond mine in West Africa.
"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.”
Completion of the agreements is subject to certain conditions to be fulfilled by 30 June.
Image: Diamond crystal in matrix. Photo: courtesy of Unknown USGS employee via Wikipedia.