Stellar Diamonds' (LON:STEL) shares tumbled today after a claim by Sierra Leone’s Ministry of Mines that its two licences in the Kono district should not have been renewed.
Stellar disputes the assertion and said it is seeking clarification of the position with the Ministry.
"The letter from the ministry asserts that the ministry ought not to have granted the renewals of the company's licences in 2010 under the Mines and Minerals Act of 2009 and that as a result the company no longer has mineral rights over the licences," Stellar said today.
The company added it had operated over the licences since they were initially granted in 2005 in accordance with the law, including the most recent annual renewal dated on May 25 last year and it submitted renewals for 2012 last November.
The company added it had has not received any similar correspondence on the Tongo exploration licence, which was also renewed in November 2011 on the same basis as the Kono licences.
Chief executive Karl Smithson said today: "Whilst this uncertainty is frustrating and unfortunate we strongly believe that our legal tenure over the Kono licences is intact and will be engaging with the Ministry of Mines to clarify and then satisfactorily resolve this issue.
"Over the past 12 months we have been conducting exploration and bulk sampling over the Lion kimberlite dyke project which is strategically located in the Kono diamond district.
"The company has recently announced independent resource estimates from our key projects of Droujba and Tongo where we have established an initial resource base of 2.5 million carats and 0.66 million carats respectively."
Speaking to Proactive Investors, Smithson pointed out that the firm really had to get more clarity on the issue since the company had fully obliged by all terms of its licences including execution of work programmes, fulfilling expenditure requirements and statuatory reporting.
"The government says that the rights they gave us in the first place were not actually quite correct, so therefore we don't have any rights, which is an absurd position for the government to be coming from so we can’t accept that," he said.
In his opinion, he said, the market had overreacted to the announcement, pointing out that over the last 12 months the firm's focus had been on Droujba and Tongo, where the firm had delivered on the resources - in fact exceeded expectations.
"Kono has played a very minor part in the portfolio up until this point," he told Proactive.
Whilst to receive a letter like this was "bad", he said, the real value drivers over the last 12 months have been the Droujba and Tongo projects, and not the Kono licences.
Meanwhile, in a separate statement today, the company revealed final results from bulk sampling at Lion-5 kimberlite project on the 87 sq km Kono licence, which showed the diamond ore body is both high grade and high quality.
It said 346 dry tonnes of kimberlite had been processed which yielded 312 carats for in-situ grade of 90 carats per hundred tonnes (cpht).
Diamonds of 4.45 carats, 3.70 carats 3.22 carats, 3.07 carats and 3.0 carats were recovered from bulk sampling. A diamond value based on $220 per carat showed an in-situ value of $198 per tonne, the company said.
Smithson said: "Based on these results, the company is, subject to resolution of the licence issue, planning a resource definition drilling campaign over Lion-5, as well as the nearby Pol-K kimberlite, in order to establish a significant maiden resource for the Kono project.
"Over $19m has been invested to date on the Kono licences by Stellar and our former joint venture partners. This has resulted in the systematic exploration of the dyke swarm, including a high resolution geophysical survey and a number of test shafts being sunk to up to 85m depth for bulk sampling."
The firm’s shares closed 30.61 per cent down at 4.13 pence.