An independent study of Stellar Diamonds’ (LON:STEL) Tongo kimberlite project in Sierra Leone support its potential to generate significant cash flow from a modest initial investment.
The eagerly-anticipated preliminary economic assessment (PEA) of the deposit, carried out by Paradigm Project Management (PPM), reckons there is the potential to excavate stones totalling 955,930 carats, generating US$387mln over 18 years.
The plan is work on surface for years one to four – a process that will a yield of 117,806 carats and bring early cash flow, according to Stellar’s consultants.
The capital investment required to get the project up and running is put at US$24.2mln, which is modest in an industry where development costs routinely run into hundreds of millions if not billions of dollars.
PPM has ascribed a net present value to Tongo of US$53.2mln and calculates it will internal rate of return of 31%.
Its economic model was developed using a grade of 120 carats per hundred tonnes and a diamond value of US$270 per carat.
The study also pointed to the “significant potential to increase mine life and revenues with resource open at depth”.
The company expects to formally submit its application for a mining licence in the “near future”.
Chief executive Karl Smithson told investors: "The Tongo PEA has delivered robust economics which support the development of an open pit and subsequent underground mine.
“Early cash flow is expected to be generated from the initial surface mining but the mine also represents a long-term and sustainable operation which has the potential to generate solid cash flows from the sale of its very high quality, high grade diamonds over many years.
“Stellar considers that the Tongo mine can be further improved and extended with the development of additional diamond resources from nearby high-grade kimberlites that we have previously identified and tested.”
The company is already generating revenues – from the trial mining of Baoulé kimberlite in Guinea.