In its interim results, Stellar Diamonds (LON:STEL) was upbeat on its progress after a transformational six-months in which it joined the AIM market through the reverse takeover of West African Diamonds. “With an improving diamond sector I feel that the future outlook for Stellar is good as we ramp up production and position the company to become one of the largest diamond producers in West Africa and on AIM”, Stellar Chairman Lord Daresbury stated.
The ramping-up production profile and improved project economics were key features of the results for the 6-months ended 31st March 2010. Furthermore planned improvements are expected to up production further to 16,000 carats per month.
The West African Diamonds reverse takeover was completed in February, alongside a successful £5m fund raising.
The merger consolidated two producing diamond mines in Guinea, Bomboko and Mandala, with a combined resource base of over 1.5 million carats, three joint ventures in Sierra Leone, as well as 100% interests in two high grade kimberlite projects: Droujba in Guinea and Tongo in Sierra Leone.
"The past six months have seen Stellar evolve from a privately held, primarily exploration focussed company, to a quoted diamond production and development company ... we have created an enlarged company that is financially robust and is in the process of increasing its current production profile and revenues in the short-term, which will enable the Company to develop our key high-grade kimberlites in the medium-term”, Stellar Chief Executive Karl Smithson said.
In the first half, the Mandala mine produced 34,409 carats at a grade of 36 carats per hundred tonnes (cpht), which takes the mines total production, since inception in April 2009, to 78,491 carats at a grade of 39cpht. Stellar highlighted that at 39cpht Mandala is achieving grades which are “well in excess” of the 25cpht modelled grade.
In the six month period, diamond sales - both gem & industrial - realised $1.19m at an average of over $24 per carat. To date, sales from Mandala total 74,793 carats, at an average price of $30.71 per carat, realising $2.3m in revenues.
“The average sales prices in 2010 are significantly higher than those achieved in 2009 as the rough diamond market continues to improve. The most recent sales have realised prices ranging from $38 to $42 per carat”, Stellar stated.
Bomboko’s trial mining operation continued, producing over 2,411 carats at an average grade of around 4cpht in the six month period. The mines total production has now yielded 4,157 carats at a grade of 5cpht. Stellar emphasised that the lower grades, relative to Mandala, are compensated by higher average diamond values at Bomboko, where average prices of $120 per carat have realised $417,000 in revenue.
Stellar Diamonds production profile is expected to ramp-up further with the introduction of additional earth moving machinery at Mandala and a second plant at Bomboko. According to Stellar, production at both these projects should be significantly increased, from the end of the second quarter of 2010.
Mandala’s monthly carat production is expected to be over 12,000 carats, whereas at Bomboko will have the capacity to produce up to 4,000 carats per month, once the second plant is installed and operational. “[The] resulting increase in revenue will provide Stellar with the necessary funds to implement its kimberlite exploration and development programme going forward”.
Stellar said its medium term strategy and key driver for growth is the development of its high-grade kimberlite projects at Kono and Tongo in Sierra Leone and the Bouro and Droujba projects in Guinea. “These projects offer significant opportunities to strengthen Stellar's production pipeline in the mid-term and as such fast tracking their development through to production is a core priority”.
Subsequently, in the current period, the company successfully gained full-control of the Kono project, through a share-based deal with JV partner Petra Diamonds. The Kono project remained on care and maintenance during 6 month period, and Stellar intends to resume trial mining once the expected increased revenues from Mandala and Bomboko are realised.
The company highlighted that previous trial mining has produced over 4,200 carats to date, at average in-situ grades of around 65cpht for the Pol-K kimberlite, and up to 140cpht from the Bardu kimberlite.
During the rest of 2010, Stellar intends to bulk sample the Tongo and Bouro kimberlites, in order to determine the diamond grade and value with more confidence. Additionally, a 5 tonne per hour DMS plant has been purchased and it will be re-located to the Tongo project in June to process a 1,000 to 2,000 tonne sample.
Elsewhere, at the Droujba kimberlite pipe an aggressive drill programme is planned for the end of 2010, the program will enable a geological resource model to be defined, in advance of surface bulk sampling in 2011.
Stellar concluded by stating that its immediate focus is to increase production and revenue from the two existing mines, which will provide a strong financial platform to deliver growth through development of core kimberlite projects.
Disclosure: The author holds no positions in the company