Stellar Diamonds’ (LON:STEL) announcement this morning that it plans to fast-track the development of its hard rock kimberlite portfolio rather than its alluvial projects has seen a muted response from the market, but brokers are intrigued by the prospects for this strategic shift.
The group said this morning it made the decision in light of the strong rebound in diamond prices, in particular the record prices from the recent sale of a parcel of diamonds from its Bomboko project in Guinea, while other diamond producers are also reporting strong prices.
The company does have the Mandala alluvial diamond project in Guinea that is producing diamonds, however, performance is not in line with expectations from the current mining area. Stellar will now focus its efforts there on an unmined area. If this does not lead to higher grades then the project will be put on care and maintenance and the plant modified to process bulk samples from the high grade Bouro North kimberlite.
The projects the company wants to fast-track include the Droujba kimberlite pipe in Guinea and the Tongo kimberlite dyke in Sierra Leone. Both have seen strong initial sampling results in the last weeks.
In its ‘Morning View’, broker Fairfax said it was “particularly interested in the results coming from the Droujba kimberlite pipe that has returned some encouraging results from exploration including some commercial stones and evidence that the pipe is open below 120 metres”.
Northland Capital also noted that on the alluvial front, Mandala results have disappointed. In its ‘Morning Report’ it called Bomboko, where bulk sampling recommenced in December 2010 after a prolonged rainy season, slightly more encouraging.
Volumes are still low but diamond size is good. A report will be compiled within two months to delineate resource and determine if commercial scale mining is viable.
Northland said it is “disappointing that efforts to rejuvenate the alluvial activities have failed to deliver the cash flow positive operations envisaged. This will lead us to downgrade our estimates for this year”.
“However, the alluvial activities were never likely to much more than wash their face and the more important potentiality ‘company making’ kimberlite activities continue to look very promising. Whilst the alluvial activities look in the balance, the associated asset base an infrastructure in terms of processing facilities machinery and equipment remains valuable. In balance, we view the alluvial progress as a short term setback but remain optimistic on the higher impact kimberlte activities.”
Chief Executive Karl Smithson said this morning: "Over the last three years Stellar has established an exciting portfolio of key kimberlite diamond projects in Guinea and Sierra Leone, in line with the company's long term strategy.
“With the recovery in global diamond prices, the board of Stellar considers that superior and potentially transformational value may be created for the company's shareholders by focusing on the exploration and development of its hard rock assets, which include potentially some of the highest grade and highest value kimberlites globally.”
Stellar has a portfolio of projects in West Africa. Tongo, Kono, Droujba and Bouro are all potentially high grade kimberlites that are at various stages of development. Stellar is currently focusing on a bulk sampling project at Tongo in Sierra Leone and completing an initial drill project and diamond evaluation of the Droujba kimberlite pipe in Guinea.