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BIG PICTURE - Stellar Diamonds keeps up the pace of progress

Progress in the year to date for Stellar Diamonds has been quietly impressive as the latest results from the Tongo Project in Sierra Leone attest. 
BIG PICTURE - Stellar Diamonds keeps up the pace of progress

Progress in the year to date for Stellar Diamonds (LON:STEL) has been quietly impressive as the latest results from the Tongo Project in Sierra Leone attest.

Earlier today the group revealed a second successive rise in the diamond grade of the kimberlite, which is now almost 50% ahead of initial estimates. This, Stellar says, will almost certainly lead to a rise in the resource.

The share price rose almost 7% to 1.5p and has motored around 40% higher in the year to date. So far so good.

However, there is an argument that the current valuation, which capitalises Stellar at just under £10mln, barely recognises the explorer and developer’s potential.

Daniel Stewart, the company’s broker, reckons the stock is worth 5p. 

Of course DS is a paid cheerleader, but it is not unreasonable that if Stellar continues to deliver, then there will have to be a more significant and sustained re-rating than the one we’ve seen to so far.

The plan set out at the start of the year was simple: produce a definitive feasibility study (DFS) for the Tongo Project in Sierra Leone, while compiling a maiden resource for Baoule in Guinea.

In doing this it hopes to boost its resource base to 7.5mln carats, which at current diamond prices adds up to a contained value of just over US$1bn. 

Recent updates reveal Stellar is making good progress towards unlocking the potential of Baoule. 

The relocation of plant and equipment from other Stellar projects in Guinea is ahead of schedule and first ore should be processed next month.

This fast-track trial mining promises early cash flow but will also be crucial in determining whether Baoule possesses the diamond grade to be commercial.

This large diamondiferous pipe is located in the Aredor region of Guinea, a renowned diamond district.

There is a wealth of information on the alluvial diamonds from the area, which, at US$400 a carat, are of the very highest quality.

The suspicion is that the Baoulé kimberlite may be one of the sources for these stones.

The project was explored in the early to mid-noughties by Rio Tinto (LON:RIO) and bulk sampling was carried out by the Trivalence Mining Corp, which means there is plenty of historic data, which Stellar has access to.

Stellar is targeting an initial 22mln-tonne resource that could be mined as an open pit down to 300 metres. 

The estimated grade is 13-40 carats per hundred tonnes, though even at that lower figure this gives a resource of 3mln carats. 

The value of the stones is put very conservatively at US$200 a carat, although the quality of the alluvial diamonds found in the area suggests this number might rise.

The group will earn 75% of Baoule by spending US$5mln, which will be a combination of cash and assets moved into the joint-venture company.

Grade doesn’t appear to be an issue at Tongo with Tuesday’s update revealing the Sierra Leone kimberlite project in Sierra continues to return excellent results.

In this latest update, the AIM listed group said 1,182 carats had been recovered, taking the average grade to a better than anticipated 178.7 carats per hundred tonnes (cpht).

This is 49% higher than the 120 cpht applied in the resource estimate and represents a decent advance on the 155 cpht logged in July.

Stellar said 53 diamonds were larger than one carat, including stones of 6.7 and 4.6 carats as it revealed they were of “excellent shape, colour and clarity”.

The group now has enough diamonds to support a DFS.

Having completed the bulk sampling and with the onset of the rainy season the group has taken the precaution of pausing work on Tongo and reducing staff numbers as worries over the Ebola outbreak mount.  

Chief executive Karl Smithson said: "Tongo continues to generate excellent results, further underpinning the economic potential of this kimberlite diamond project.

“We have achieved our objective of collecting a further 1,000 carat parcel for the diamond grade and valuation modelling of Tongo Dyke 1, as part of the ongoing feasibility work.

“It is highly encouraging to note the substantial increase in grade to 179cpht which has resulted from reprocessing the tailing material.”

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