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Stellar Diamonds (LON:STEL) has outlined a route to early cash flow from its Tongo Project in Sierra Leone as well as revealing significantly enhanced economics for the operation.
By starting with surface mining it hopes to generate US$36mln in revenues in just three years before then moving on to the more capital intensive underground phase.
Tongo’s planned development mirrors the approach adopted at the firm’s other major property, Baoulé in Guinea.
Here, bulk sampling work continues to unearth gem quality stones that can be sold to fund the business.
Returning to Tongo, an independent study re-assessed the potential returns of the project and calculated its net present value to be US$75mln – 42% up on the previous estimate. The internal rate of return was 55%.
The model assumed Stellar would net US$270 per carat, while the grade would be 120 carats per hundred tonnes.
Factoring in the recently-updated grade of 165 carats per hundred tonnes, the net present value of project would rise to US$146mln.
The report assumed 1mln carats will be mined over the 16-year life of the mine at an estimated cost of US$16mln to put into production.
Chief executive Karl Smithson told investors: "Having recently commenced trial mining at our Baoulé project in Guinea to generate cash-flow before the end of 2014, we are delighted that we believe we have also found a route to early cash flow for Tongo and believe we are demonstrating our ability to deliver optimum value from our projects.
“We look forward to updating shareholders on our results from Baoulé and on the next development steps of the Tongo project."
Broker Cantor Fitzgerald raised its share price target to 2.25p from 1.8p on the back of the new Tongo numbers.
One of the problems with the original Tongo scoping study, the broker adds, was the long wait for cash flow, so a small starter pit that will produce 120,000 carats in year 1-3 is a very positive development.
The Baoule operation is only included in its target at US$5m, but Cantor said its value should increase very significantly once more grade and value data has been produced by the current bulk sampling operation.
Shares rose 2% to 1.2p.