Moving his stance to ‘buy’ from ‘hold’, analyst Charlie Long reckons the stock is worth 2.1p – which is around 62% above the current share price.
Long in a note to investors said the discussion with Stellar management focused on the upcoming ‘cash flow positive’ trial mining at the Baoulé deposit in Guinea and the progress being made at Tongo, in Sierra Leone.
“At this stage it is not clear which project is the flagship, since they both have potential to be highly profitable for shareholders,” the analyst said.
Earlier this month Stellar revealed the grade from the Tongo kimberlite increased to 155 carats per hundred tonnes from 120 cpht previously.
A total of 843 carats have now been recovered through processing material from the bulk sampling programme.
The mine developer said the diamonds are high quality, with a modelled value of US$248 per carat, or US$384 per tonne on in-situ ore.
The company says it is anticipated the project’s resource size, currently estimated at 1.1mln carats, will be increased.
Baoule, meanwhile, is a large diamondiferous pipe in the Aredor region of Guinea, a renowned diamond district.
There is a wealth of information on the alluvial diamonds from the area, which, at US$400 a carat, are of the very highest quality.
The suspicion is that the Baoulé kimberlite may be one of the sources for these stones.
The project was explored in the early to mid noughties by Rio Tinto (LON:RIO) and bulk sampling was carried out by the Trivalence Mining Corp, which means there is plenty of historic data, which Stellar has access to.
Stellar is targeting an initial 22mln-tonne resource that could be mined as an open pit down to 300 metres.
The estimated grade is 13-40 carats per hundred tonnes though even at that lower figure, this gives a resource of 3mln carats.
The value of the stones is put very conservatively at US$200 a carat, although the quality of the alluvial diamonds found in the area suggests this number might rise.
The group will earn 75% of Baoule by spending US$5mln, which will be a combination of cash and assets moved into the joint-venture company.
The plan would be to move equipment currently at the company’s Droujba project 60 kilometres away, which would allow Stellar to begin bulk sampling.
This and the planned 10,000 metre drill programme would allow the group to compile a maiden resource for Baoulé by the year-end targeting 3mln carats.
Long told investors: “Stellar has two very interesting diamond projects and although Guinea and Sierra Leone are not the easiest countries in which to operate, the potential value of these projects is more than sufficient to offset these issues.
“Cash flows this year will differentiate Stellar from most of its junior mining peers and should represent a catalyst for the stock and we therefore upgrade our recommendation.”