Stellar Diamonds Share News (STEL)

(ShareCast News) - Stellar Diamonds announced that it would combine its operations in Sierra Leone to create the second-largest diamond mining operation in West Africa.The combination of Stellar's Tongo kimberlite diamond project with Octea Mining's adjacent Tonguma project would have an inferred JORC diamond resource of 5m carats.Diamond grades of up to 290 carats per hundred tonne were present, with the average value of the precious stones from Tonguma and Tongo estimated at $193 and $270 per carat, respectively.There would be no cash acquisition costs for Stellar, who was to fund and operate the enlarged mining operation.Stellar would recoup the capital invested in the development of Tonguma on a preferential basis prior to paying a royalty and net profit interest to Octea.The transaction, if finalised, would be considered a reverse take-over under AIM rules, Stellar Diamonds said in a statement.Stellar's Chief Executive Karl Smithson commented: "The high grade and high value nature of the kimberlites to be mined are compelling and the combination of operations should provide meaningful cost synergies that will enhance Stellar's projected operational margins."Using the available infrastructure at Tongo and Tonguma, we expect diamond mining operations to commence within the first 12 months post completion of the Proposed Transaction."Shares of Stellar were suspended from trading on 19 August, when a possible transaction was first announced, pending the publication of the required admission document."The proposed transaction to combine two adjacent diamond resources in Sierra Leone is still subject to a number of conditions including Stellar being able to fund the capital to develop the mine and the approval of the Sierra Leone authorities."The concept of combining the two resources seems eminently sensible but there may be some difficult negotiations ahead if an agreement acceptable to all sides is to be achieved. Meanwhile, the shares remain suspended," analysts at SP Angel said in a research note sent to clients.Analysts at ShoreCap were more skeptical, telling clients: "We were sceptical about Tongo's economic viability as a standalone, and given Octea's lower values, remain unconvinced for the time being that the combined operation will look significantly better."