Stellar Diamonds shares surge after upbeat full-year results

Shares in Stellar Diamonds (LON:STEL) surged today after the West African-focused miner said it was “extremely pleased” with the progress made during the full year to end June 2011 and that it is on track to produce a maiden JORC-compliant independent resource estimate for the Droujba and Tongo kimberlites in the first quarter of 2012.

Shares in the firm were up 13.1 per cent at 4.1 pence by 11:52am today.

Stellar said that although the current market environment is characterised by volatility and risk aversion, it is well capitalised to progress with work programmes, with cash of US$6.5 million as at June 30 2011, and no debt.  

Programmes aimed at generating maiden resource estimates at Droujba in Guinea and Tongo in Sierra Leone are ongoing. Bulk sampling of the Lion-5 dyke at Kono in Sierra Leone is due to commence shortly and at Bouro in Guinea a previous bulk sample realized a grade of 243 carats per hundred tonnes.  Mining at Mandala in Guinea is currently on a seasonal break.

Revenues were US$1.5 million for the year to the end of June, compared with US$2 million in the previous year. The firm incurred a full-year operating loss of US$6.25 million before an impairment charge of US$8.6 million (2010: US$5.4 million). The operating loss is in line with expectations given the stage of Stellar’s development, said the firm.  

The impairment charge is an accounting item resulting from the board’s decision to cease mining at Bomboko and the reduced estimate of commercially minable resource at Mandala.

Chief executive Karl Smithson said: “We are extremely pleased with the progress made during the financial period and the subsequent months. The decision to refocus our resources on our core kimberlite projects has proved to be successful, with strong results achieved at both our Droujba and Tongo projects as we have sought to considerably accelerate the pace of work at both these projects.”

Smithson added that drilling at both projects has revealed “very encouraging” results and that the firm is confident in its ability to create further value and momentum from these projects. “We are expecting a maiden resource for both projects in the first quarter of 2012, and this will be a major milestone for Stellar as we look to create significant value from our portfolio of diamond projects,” he said.

The diamond market has been very strong for most of the year under review with many companies reporting record prices for rough diamonds, the company said. 

The firm also noted that while the longer term pricing outlook remains bullish, the recent economic volatility and worries about sovereign and bank debt have resulted in a weakening of rough and polished diamond prices from these record highs.  

However, there is still very strong diamond demand in India and China which are the main growth areas and Stellar expects this to continue. Because of this, the firm believes that although there will be periods of price weakness “the longer term trend for diamond prices will be upwards driven by strong consumer demand and lack of new production”.

House broker Northland Capital Partners, which has a ‘buy’ rating for Stellar, commented: “Whilst there has historically... been some volatility in results due to alluvial production, this now seems well under control. Mandala is a useful operation both in maintaining a production presence in the region and in providing a backbone for Bouro exploration. Alluvials are of much lesser import going forward and the group has substantial resources to progress its two key projects this year which [have] not been reflected in the valuation which is discounting little or no success.”