Stellar Diamonds says its making accelerated progress post-merger

In an update to investors, Stellar Diamonds (AIM: STEL) said it has moved quickly to restructure its operations and fast track production following the completion of its reverse takeover of West African Diamonds in February. The company said it is harnessing operational and corporate synergies resulting from the merger, and also noted that it has benefited from a strong recovery in the rough diamond market, as reflected in recent sale prices.

The company is currently undertaking a programme to expand its producing mines and Stellar said it is very pleased with the accelerated progress being made as a newly quoted diamond producing company.

"Since the reverse takeover of West African Diamonds was completed in late February 2010 the company has moved quickly to restructure its operations and fast track production”, Stellar chief executive Karl Smithson commented. “We are in the process of boosting the capital at Mandala and Bomboko which will positively impact on our revenue generating capabilities in the near term”.

Post-takeover, the company has two producing Diamond operations in Guinea, Mandala and Bomboko. The Mandala mine began production mid-2009 and has produced more than 64,000 carats to date, realising sales in excess of US$1.7m. At Mandala, January and February’s production reached 16,400 carats at an average grade of 38.5 carats per hundred tonnes (cpht).

A highlight of February’s production was the recovery of a special 37 carat fancy yellow stone, which is the largest diamond produced to date by Stellar at the Mandala mine. The company has subsequently exported the stone to Antwerp for valuation and sale.

The Bomboko project commenced trial mining operations in Q4-2009 and has produced 2,562 carats to date at an average grade of over 4cpht. However in today’s update, Stellar noted that recent production has seen a significant increase in grade of 7-9cpht, following improved mining and grade control measures. At Bomboko, the largest diamond recovered to date is a 16 carat gem quality stone.

Since July 2009, three diamond sales totalling 1,816 carats have been completed from Bomboko, with prices progressively increasing from US$114 per carat to US$126 per carat, reflecting the improving diamond market, Stellar said. The company intends to export over 1,000 carats in late March.

"The continued high grade being recovered at the Mandala mine, as well as the improving grades at Bomboko, is in line with our forecast and we are particularly pleased with the recent recovery of the 37 carat fancy yellow diamond from Mandala”, Smithson added.

As the company realises the post-merger synergies, it plans to expand both the Mandala and Bomboko mines with work programmes currently underway. According to Stellar it is in the process of acquiring additional mining equipment, in order to boost production at both the Mandala and Bomboko diamond mines. It is expected that these initiatives will lead to increased production and processing capacities, as well as enhancing security in the diamond recovery process.

Specifically at Bomboko the company is adding a 16-foot pan plant and a Flow Sort X-Ray machine, which is expected to be installed during Q2-2010.

The company believes that the expansion programme should enable it to meet near term forecasts of 2,000 carats and 12,500 carats per month from Bomboko and Mandala respectively.

In relation to its other projects, Stellar said is assessing the next exploration and development phases at its two kimberlite diamond projects, Tongo in Sierra Leone and Droujba in Guinea. The exploration work may include surface bulk sampling and drilling, in order to define geological models and establish early-stage diamond grades and values. According to Stellar, Tongo’s previous ‘mini-bulk sampling’ yielded grades of approximately 100cpht and there are reported grades of up to 200cpht for the Droujba kimberlite pipe.