Stellar Diamonds fundraising and prospects ‘encouraging’ – Northland Capital

Stellar Diamonds’ (LON:STEL) news this morning that it is raising £6.2 million from investors which will be used to develop the company’s kimberlite portfolio and for general working capital has received a positive response from Northland Capital.

In its ‘Morning Report’, the UK broker said the successful completion of this financing provides Stellar with the means to fast track its highly promising kimberlite assets.

A total of 77.5 million shares, the equivalent of 38.5 percent of the company’s enlarged equity base, is being placed at a price of 8 pence a share.

Stellar chief executive Karl Smithson said: “We are delighted at the very strong demand for this placing, which has attracted significant new institutional investors to our share register.  The diamond market and the outlook for the diamond sector as a whole continue to improve and our strategy remains for Stellar to become a leading diamond producer in Africa."

Around £2 million of the proceeds will be used for resource definition drilling and bulk sampling at the Droujba kimberlite pipe in Guinea.  This will include assessing the wider licence area for additional kimberlite ore bodies.
At the same time Stellar will spend £1.5 million evaluating the high grade Dyke 1 kimberlite at Tongo Dykes in Sierra Leone.

The current 2,000 tonne bulk sample will be completed and will be followed by a larger scale underground bulk sampling programme to include 3,000m surface drilling to delineate the lateral and depth extent of Dyke 1.
At the Bouro and Kono kimberlite dyke projects in Guinea and Sierra Leone respectively, the exploration and evaluation programmes will continue.

According to Northland, apart from financing these operations, the cash also provides some much needed breathing space for working capital which should see the company through at least 12 months of exploration and development, in which time there is the potential for significant rerating of the shares should results continue to encourage.

“We are encouraged by the potential of the two key kimberlite projects and the decisive stance on the alluvial operations. If Tongo results continue as begun this could offer potentially world class economics. Droujba, which should be an easier resource to drill, offers a further significant catalyst later in the year,” it said.

Northland said that the initial Tongo sample was too small to be representative but, should, as expected, bulk sample results continue to build confidence, the project could rank high in the top tier of kimberlite operations globally, on a value per tonne basis.

If ongoing microdiamond results at Droujba are as positive as those initially reported in February, this could be also be a potentially significant share price catalyst.

It also noted that alluvial operations have been disappointing of late. “However, if operations do not improve in the next few months they will be put on care and maintenance with plant equipment redeployed to progress the kimberlite projects,” the broker added.