Twelve months ago Stellar Diamonds’ (LON:STEL) Baoulé mine was tipped to transform the company’s fortunes.
Back then, the firm was still building roads and lugging equipment to its 75% owned site, located in the heart of the Aredor diamond district in Guinea.
A year on, and after fast-tracking trial mining at the West African operation, Baoulé is generating substantial carats and cash flow for the business.
“We’ve become more of a development company than an exploration company,” Stellar’s chief executive Karl Smithson told Proactive. “That’s been a key change for us.”
To date, diamond production from initial trial mining at Baoule has recovered 34,958 diamonds, weighing 5,087 carats.
Sales of up to 4,439 carats will take place in Dubai and Antwerp this month and will include gem quality stones up to 12.6 carats in size.
It follows an earlier sale of 733 gem quality carats from Baoulé at an average value of US$266 per carat.
One diamond sold for more than US$25,000.
Stellar’s plan is to produce and sell a total of 15,000 carats from the site this year, raising between US$2-3mln.
All of which is being used to establish the overall diamond grade, value and presence of large stones in the kimberlite pipe.
“Essentially it’s a self-funded evaluation exercise,” explains Smithson.
“We’ll be recycling all the funds back into the project. That way, Baoule becomes a lot more tangible from an investment perspective.”
Still, the firm would need to raise between US$50mln and US$100mln to move to full commercial-scale mining.
That requires a track record of production and a definitive resource study.
Hence why Stellar’s trial mining is an important early indicator of the mine’s future potential.
“In the long run, if we can prove Baoule’s economically viable, potentially, we could be mining 2mln tonnes of deposit annually,” said Smithson.
“At current grades, that could produce 300,000 carats with potential revenues of US$40-50mln each year.”
Clearly, that’s a major operational step up, but the early work could count for a lot.
In a recent note, broker Daniel Stewart said Stellar is already establishing itself as a supplier of regular, high-quality diamonds to the markets of the world from the mine in Guinea.
Another broker, Sanlam Securities, has a 'speculative buy' rating on Stellar’s shares, targeting 1.86p with current prices at 0.9p.
Sanlam is just as keen on the firm’s second project in Tongo, which has an inferred resource of 1.45mln carats.
Bulk sampling has been completed at the project in Sierra Leone, despite the Ebola crisis.
In April, Stellar lodged its application for a mining licence at the site as part of its new fast-track plan.
All of the data compiled so far on the deposit is being pulled together for a preliminary economic assessment.
This will be used instead of a previously planned definitive feasibility study and will cut costs.
Smithson says moving the site to the mining licence application stage is a major milestone for the project.
Meanwhile, there is a clear will to support efforts to build the mine – which can offer a positive contribution to the post-Ebola social and economic reconstruction of the area.
Like most companies in the region, Stellar had to adjust its operations last year to address the threat of the Ebola outbreak.
Guinea has been the least affected of the West African countries, so work Baoulé hasn’t been impacted.
But in Tongo, one of the worst affected areas in Sierra Leone, Steller had to temporarily lock down its site.
An analyst at Daniel Stewart reckons the Ebola concerns have taken 50% off Stellar’s the share price since May last year.
However, now reckons the shares are undervalued and is currently considering his target price.
Smithson, meanwhile, reckons it’s only a matter of time before Stellar’s value picks up.
“There’s no high-risk exploration left,” he said.
“We’ve reached the development end of the curve and have a better understanding of grades, value, levels of production.
“As we progress, people will sit up and realise this is a different company altogether.”