Stellar Diamonds (AIM: STEL) has reached agreement with Petra Diamonds Limited (AIM: PDL) to gain full control of the Kono kimberlite project in Sierra Leone, with an equity-based deal, worth £900,000, for Petra's 51% interest in the project. Kono has been on care and maintenance since May 2009, and Stellar now believes the project is well positioned as diamond prices are recovering.
"This deal is excellent for Stellar shareholders as we gain full control of the Kono asset, which we consider has the potential to become a long-term mine for the company ... with the strong recovery in rough diamond prices, the Kono Project is an exceptionally well positioned development asset for Stellar to hold in its portfolio, offering growth to our future production pipeline”, Stellar chief executive Karl Smithson commented.
"The Kono Project is among the most advanced in our portfolio with over US$17 million spent to date on the establishment of underground shaft and tunnel infrastructure, a 75 tonne per hour processing plant, earth moving machinery and on general exploration.”
Stellar will issue 4.5 million shares to Petra, representing a £900,000 consideration. Subsequently, Petra will become a significant shareholder in the company – holding 4.45% of the enlarged share capital. Also as part of the transaction, the former JV partners have entered into a co-operation agreement.
Subsequently, Stellar will discuss ‘first options’ with Petra to joint venture any project in the Stellar portfolio, in which it seeks a development partner. “The cooperation agreement that Stellar and Petra have agreed offers optionality to both parties, and we look forward to discussing partnerships on other Stellar projects in West Africa with Petra as and when appropriate opportunities arise", Smithson added.
In a note to investors, Astaire Securities highlighted that with complete ownership of high-grade kimberlite dykes, in a world class diamond region, the Kono Diamond Project should be very profitable for Stellar. The broker also noted that the deal "confirms the close relationship between Stellar and Petra".
The Kono project is an underground trial mining operation targeting diamond bearing kimberlite dykes within two Exclusive Prospecting Licences covering an area of 206 square kilometers, located in the Kono diamond district of eastern Sierra Leone.
Whilst under joint venture, the partners mapped approximately 17km of kimberlite dykes in the project area, and a number of shafts were sunk, with the underground development focusing on two kimberlite dykes, designated Pol-K and Bardu.
During the development work, over 4,200 carats of diamonds were produced by the partners before Kono was put on ‘care-and-maintenance’.
At Pol-K, trial stope mining was conducted at depths between 35-65m. According to Stellar, in-situ grades of around 65cpht (carats per hundred tonnes) have been consistently generated, with an average diluted run-of-mine grade of 38cpht. The company highlighted that at Bardu, lateral development drives have generated average in-situ grades of 66cpht and that the grade increased to 140cpht in the western most end of the development drive.
Stellar completed a reverse takeover of West African Diamonds in February. Last month, The company said it has been harnessing operational and corporate synergies resulting from the merger, and also noted that it has benefited from a strong recovery in the rough diamond market.
Stellar is currently undertaking a programme to expand its producing mines and said it is very pleased with the accelerated progress being made as a newly quoted diamond producing company.
Post-takeover, the company has two producing Diamond operations in Guinea, Mandala and Bomboko. The Mandala mine began production mid-2009 and has produced more than 64,000 carats to date, realising sales in excess of US$1.7m. At Mandala, January and February’s production reached 16,400 carats at an average grade of 38.5 carats per hundred tonnes (cpht).