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Stellar Diamonds Prioritizes Tongo Following Scoping Study

Jul 26, 2013 1:48 PM   By Jeff Miller
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RAPAPORT... Stellar Diamonds published the results of its conceptual economic scoping studies on the Tongo and Droujba kimberlite diamond projects in Sierra Leone and Guinea. Paradigm Project Management conducted the studies  with the  objective of defining project viability and thus, helping Stellar prioritize its development stages. Stellar decided to focus on Tongo dyke-1 in Sierra Leone and place the Droujba project in Guinea on temporary hold for the upcoming 12 months.

Drilling and bulk sampling at Tongo's dyke-1 over the past 12 to 18 months delivered an inferred resource of 1,074,000 carats at a grade of 120 carats per hundred tonnes (cpht) and an average modeled diamond value of $248 per carat. At this grade and value, the in-situ kimberlite value was calculated to be $298 per tonne, which is considered to be a very high value for a kimberlite, according to the report.

The resource can be increased with depth and from drilling adjacent diamondiferous kimberlites. Dyke-4 has a grade of 109 cpht and a diamond value of $140 per carat, yielding  an in-situ value of $153 per tonne  while dykes 2 and 3 have modeled grades of 140 cpht and 185 cpht, respectively. The Tongo resource has been established over a strike length of 1.9 kilometers of the dyke to a depth of 300 meters.

Paradigm  estimated that the life-of-the-mine capital requirements at Tongo would be just above $21 million with the life of the mine operating costs estimated at $84 per tonne. Aggregate  gross revenue from Tongo would be about $169 million with  and a net present value attributable to Tongo of $16.2 million, assuming a discount rate of 10 percent. The 13-year life-of-mine model undertaken by Paradigm was not inflated for cost or diamond prices.

Stellar's directors  used Paradigm's base case model to increase the life of mine to 17 years and  achieve mining of approximately 1,051,000 carats of the existing inferred resource, which they  believe is attainable at Tongo. In addition, the directors have applied a 4.5 percent nominal price inflation to operating costs and diamond prices for the 17-year life of mine. This resulted in revenue projections  of about $413 million and a net present value attributable to Tongo of $53 million, assuming a discount rate of 10 percent.

Given this model, the directors prioritized the development of the Tongo project and, subject to funding, plan to move it toward a full feasibility study during the upcoming six to 12 months.

A JORC compliant inferred resource of 2.5 million carats has been defined over the Droujba kimberlite pipe in Guinea.  The surface bulk sample grade has been established at 88 cpht and the modeled diamond value is currently estimated at $45 per carat. The adjacent Katcha kimberlite dyke adds to the potential inferred resource base from this area. Drilling over 470 meters of the 5,000-meter strike length of Katcha has already defined 446,000 carats in the JORC inferred resource to a 150-meter depth at a grade of 140 cpht and a modeled diamond value of $57 per carat.

The company's economic scope study  outlined a three-year life-of-mine open-pit opportunity at a 1:1 stripping ratio to mine over 313,000 carats, utilizing mainly existing plant and mining infrastructure. However, Stellar decided to  reassess the financial opportunity provided by Droujba in about 12 months.

Karl Smithson, the chairman of Stellar, said, ''The economic scope study of Tongo dyke-1 defines a net present value, which is many multiples of the company's current market capitalization, and the board believes this can be increased further through additional drilling to increase the existing 1.1 million carat resource base and potential life of mine. The board has therefore elected to prioritize the development of the Tongo project through the establishment and commencement of a full feasibility study, while Droujba is placed on temporary care and maintenance.

''In parallel, the company continues to work towards the reinstatement of its Kono diamond exploration licenses through a combination of continued diplomacy and legal remedies. I look forward to updating shareholders over the coming months as we continue the development of our priority Tongo project,'' he said.

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Tags: diamonds, Jeff Miller, mining, resources, scoping study, Sierra Leone, stellar, tongo
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