JOHANNESBURG (miningweekly.com) – The dense media separation (DMS) plant at Aim-listed Stellar Diamonds’ Baoulé kimberlite pipe project, in Guinea, has reached its target processing capacity of 50 t/h, the company said in an interim results statement for the six months ended December 31, on Friday.

This comes after the diamond group announced earlier this week that it had raised $417 122 through the sale of the first batch of diamonds from its Baoulé mine in Guinea, offloading 4 414 ct at an auction in Antwerp, Belgium.

“We have already recovered some impressive gem-quality diamonds and we remain optimistic about the potential of the Baoulé pipe to yield large, high-value stones.

“The pipe is located in the world-renowned Aredor district of Guinea, where diamonds of up to 283 ct have been recovered from alluvial mining in the past and we believe Baoulé has the potential to be a ‘company-maker’ for Stellar,” chairperson Peter Daresbury outlined.

During recent mining, however, Stellar revealed that the grade recovered from the project had decreased slightly from the average of 15 carats per hundred tons (cpht), as it encountered a lower-grade breccia area towards the margin of the pipe and sought to extend the pit to maximise access to the higher-grade kimberlite.

“We continue to target processing of at least 100 000 t of kimberlite, which, at an average target grade of 15 cpht, would be expected to yield at least 15 000 ct for grade and value determination,” he noted.

Daresbury added that the objective of trial mining at Baoulé was not only to create near-term cash flow but also to generate a sufficiently large diamond resource to justify a full-scale commercial mining operation.

In-house modelling of previous drilling over the pipe suggested a target of over 22-million tons to a depth of 300 m.

“At an average target grade of 15 cpht, this would suggest a diamond resource of 3.3-million carats,” he speculated.

TONGO DYKE-1
Bulk sampling of Stellar’s high-grade Tongo Dyke-1 project, in Sierra Leone, was meanwhile completed over the reporting period and generated a diamond parcel of 1 182 ct, of which a large portion was categorised as gem quality, including a 6.7 ct stone.

A revised resource statement was subsequently commissioned and resulted in a 35% increase in the inferred resource to 1.45-million carats and a 37% increase in the average diamond grade to 165 cpht.

Diamond value modelling was also undertaken with two models being presented, one with a grade of 120 cpht and diamond value of $270/ct and another with a grade of 165 cpht and diamond value of $145/ct.

Daresbury believed further resource potential existed from the remaining three kimberlite dykes at Tongo, including Dyke-4, which had previously been bulk sampled by the company, generating a diamond grade of 110 cpht at an average diamond value of $140/ct.

Dykes 2 and 3 had not yet been bulk sampled but microdiamond analysis indicated grades of 140 cpht and 185 cpht respectively for these kimberlites.

“In line with delivering value for our shareholders, just as we found a route to early cash-flow at Baoulé, we intend to follow suit with a similar solution for Tongo,” he said.

An independent surface mining study at the project had revealed that Stellar could target accelerated cash flow by mining Dyke-1 from surface concurrently with underground mine development, to generate cash flow earlier than a standalone underground mine would.

“The surface mining is modelled to last for three years and potentially generate 120 000 ct, assuming that average production rates and indicative grades achieved to date continue, after which underground mining is expected to start to provide a seamless transition of production from surface to underground.

“The underground mining is modelled to continue to year 16 and generate almost one-million carats over that time,” Daresbury outlined.

The inclusion of surface mining should, he added, significantly enhance Tongo’s potential economics by bringing forward cash flows when compared with an underground mining operation only.

To bring Dyke-1 into production, the initial capital expenditure cost for the first three years had been independently estimated at $16-million for both surface and underground mining.

However, as part of the project development process, the company would now re-engage with independent consultants to provide a single and updated preliminary economic assessment document as an alternative to a definitive feasibility study.

STALLED PROJECTS
Stellar’s two additional projects in Guinea, meanwhile, remained on care and maintenance while the group focused on delivering value at Baoulé and Tongo.

“That said, they should not be forgotten, as the high-grade Droujba project adds 3.1-million carats to our resource inventory and it is estimated that 200 000 ct remain within the resource at the Mandala alluvial mine, where we have previously yielded 128 000 ct from mining,” said the chairperson.

The process of reinstating the group’s “incorrectly expropriated” Kono licences was ongoing.

SOLID FUNDING STREAM
Stellar said it continued to scrutinise its cost base to ensure that the maximum amount of funding remained available for the projects on the ground and noted that it had achieved continued reduction in corporate and administrative spending during the period.

The group was able to secure bridge financing of $500 000 in December to provide working capital for the Baoulé project as it approached the first export of diamonds.

In January, it raised further working capital of $1.55-million through the issue of 88-million ordinary shares of 1p at a price of 1.16p a share to allow flexibility in the timing of its diamond tender in the first quarter of the year and to strengthen the company’s balance sheet.

PRICE SOFTENING
Commenting on the diamond market, Daresbury observed that the rough diamond market had weakened in the latter half of 2014 and had further weakened in the first quarter of this year, pushing price declines of as much as 20%.

“We believe this decline was a direct result of a lack of liquidity in the financing of diamond buying and a build-up of polished inventory. This will take some time to work out of the market but some stability seems to have reached the rough market prices and, although not guaranteed, the second half of this year may see pricing improvements,” he said.

Importantly, the longer-term fundamental outlook remained positive for the diamond market, as the declining supply would fail to meet the projected increasing demand, Daresbury asserted.

CLEAR PRODUCTION PATH
Having created a defined path to trial mining with cash flow being realised from diamond sales at Baoulé and with a “compelling” route to mine development, which should achieve early cash flow identified at Tongo, he added that it was an “exciting” time for Stellar.

Looking ahead, the group remained committed to ensuring further cash flow from diamond exports and sales from Baoulé this year.

At Tongo, it intended to start the process of applying for a mining licence with the authorities in Sierra Leone.

“This process will include conducting an environmental-impact assessment and the updating and combining of existing technical and mining reports to support the mine lease application.

“Naturally, further funding will be required with the objective of raising up to $20-million in aggregate to fund both the mining licence application and the Tongo mine development,” he outlined, adding that Stellar’s focus would remain on securing funding through nondilutive project debt structures.