Stellar Diamonds Regulatory News (STEL)

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17 October 2011

AIM: STEL

Stellar Diamonds plc

("Stellar" or the "Company")

FINAL RESULTS FOR THE YEAR ENDED 30 JUNE 2011

Stellar Diamonds plc, the London listed (AIM: STEL) diamond mining and exploration company focused on West Africa, announces its audited results for the year ended 30 June 2011.

Operational Highlights:

·; 12,000m drill programme at the Droujba kimberlite pipe project in southeastern Guinea well under way, with 6,425m drilled as at 13 September 2011

o Droujba drill programme and geological modelling has confirmed a significantly larger kimberlite than initially anticipated with potential for 15 million tonnes to 350m depth

o Bulk sampling expected to commence in December 2011 with maiden resource estimate expected in Q1 2012

·; Bulk sampling at Tongo continues to provide encouraging results with grades in excess of 100cpht

o 6,000m drill programme has commenced with two rigs on site

o Valuation of 946 carats in Antwerp for an average value of US$185/ct suggesting a potential value of US$200/t for kimberlite ore at Tongo

·; Strategic portfolio review to redirect cash and operational resources to focus on high priority kimberlite projects

o Trial mining at Bomboko ceased and equipment and personnel relocated to Droujba to help accelerate development programme

Financial Highlights:

·; US$9.9m (£6.2m) placement in March 2011 to establish maiden resource estimate for both Tongo and Droujba kimberlite projects as well as undertake further bulk sampling at Kono and Bouro projects

·; Strong cash position at 30 June 2011 of US$6.5m (30 June 2010: US$0.69m)

·; Net assets at 30 June 2011 of US$21.1m (30 June 2010: US$23.1m)

·; Operating loss before interest, tax and impairments of US$6.25m (30 June 2010: US$5.4m)

Karl Smithson, CEO, commented:

"We are extremely pleased with the progress made during the financial period and the subsequent months. The decision to refocus our resources on our core kimberlite projects has proved to be successful, with strong results achieved at both our Droujba and Tongo projects as we have sought to considerably accelerate the pace of work at both these projects. Drilling at both projects has revealed very encouraging results and we are confident in our ability to create further value and momentum from these projects. Although the current market environment is characterised by volatility and risk aversion, Stellar is well capitalised to progress with our work programmes. We are expecting a maiden resource for both projects in the first quarter of 2012, and this will be a major milestone for Stellar as we look to create significant value from our portfolio of diamond projects."

About Stellar Diamonds plc

Stellar is a London (AIM: STEL) listed diamond mining and exploration company focussed on West Africa where programmes aimed at generating maiden resource estimates at Droujba in Guinea and Tongo in Sierra Leone are ongoing. Bulk sampling of the Lion-5 dyke at Kono (Sierra Leone) is due to commence shortly and at Bouro (Guinea) a previous bulk sample realized a grade of 243cpht. Mining at Mandala is currently on a seasonal break.

For further information please contact the following or visit the Company's website at www.stellar-diamonds.com.

Stellar Diamonds plc

Karl Smithson,Chief Executive Tel: +44 (0) 20 7257 2930

Northland Capital Partners Limited

Gavin Burnell, Edward Hutton

Charles Vaughan (Sales) Tel: +44 (0) 20 7796 8800

Daniel Stewart & Company plc

Martin Lampshire, Oliver Rigby Tel: +44 (0) 20 7776 6550

Pelham Bell Pottinger

James MacFarlane / Joanna Boon Tel: +44 (0) 20 7861 3232

Chairman's statement for the year ending 30 June 2011

The past year has been a successful one for your company in that we have moved closer to our stated objective of declaring significant diamond resources on our kimberlite assets. Considerable work has been completed and we are on track to deliver maiden resource estimates on Droujba and Tongo during the first quarter of 2012.

Drilling at Droujba has rewarded us with a larger kimberlite than originally envisaged and independent geological modelling of the pipe has demonstrated that a multi-million tonne resource is evident. Considering that historical mining of the pipe in the 1960's yielded high grades of over 100cpht, this is particularly encouraging and reinforces our belief that in Droujba we potentially have an economic resource on our hands.

At Tongo we have continued to report exciting bulk sampling grades comfortably in excess of 100cpht with high diamond values evident. Drilling is now continuing to define the resource in the ground, which we hope to be sufficient for a positive economic scoping study once the resource has been confirmed.

Although we have continued to produce diamonds at Mandala, we took the strategic decision to cease trial mining at Bomboko as the grades were insufficient to prove sustainably economic. This enabled us to relocate the many physical assets and experienced personnel to Droujba where we are now in the process of establishing a fully functional DMS processing plant to undertake bulk sampling of the Droujba pipe over the coming months.

In March this year Stellar completed a $9.9 million (£6.2 million) equity financing, which at the time was heavily oversubscribed. These funds have given Stellar the necessary financial means of achieving its objective in delivering the maiden resource estimates for Tongo and Droujba as well as progressing our other high interest kimberlite projects at Kono and Bouro.

For the year ended 30 June 2011, the Group incurred an operating loss before interest and tax of $6.25m (2010: $5.40m) before an impairment charge of $8.6 million (2010: nil). The operating loss is in line with the Board's expectations given the Group's stage of development. The impairment charge is an accounting item resulting from the Board's decision to cease mining at Bomboko and the reduced estimate of commercially minable resource at Mandala. At the balance sheet date, the Group had net assets of $21.1 million, including cash and cash equivalents of $6.5 million, and no debt.

The diamond market has been very strong for most of the year with many companies reporting record prices for rough diamonds. Whilst the longer term pricing outlook remains very bullish, the recent economic volatility and worries about sovereign and bank debt have resulted in a weakening of rough and polished diamond prices from these record highs. However, there is still very strong diamond demand in India and China which are the main growth areas and we expect this to continue. Therefore, we still believe that although there will be periods of price weakness, as currently being experienced, the longer term trend for diamond prices will be upwards driven by strong consumer demand and lack of new production.

Your Company continues to strive to deliver on its strategic objectives and the management and team on the ground have achieved considerable success. I would personally like to thank everyone in the Stellar team for their dedication and hard work this past twelve months. With the continued support of the Board and the shareholders I am certain that they will realise further success and that we will be able to announce positive resource statements in early 2012.

Finally I would like once again to thank shareholders for their continued support. In a market environment such as this we realise that your support can be challenged when there is so much volatility and a loss of value. However, we believe that the quality of our diamond portfolio will ultimately unlock significant value and I can confirm that we are well on the way to achieving that.

The current year will therefore be pivotal for Stellar as we announce what we hope to be significant resources on Droujba and Tongo and then take these projects to the next level of development and hopefully into future production.

Lord Daresbury

Non-Executive Chairman

Company registration number: 5424214

1. Basis of presentation

Stellar Diamonds plc (the "Company" or on a consolidated basis the "Group") is presenting audited financial statements as of and for the year ended 30 June 2011. The comparative period presented is audited financial statements as of and for the nine months ended 30 June 2010 of Stellar Diamonds plc and therefore is not entirely comparable with the current year.

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs"). The financial statements have also been prepared in accordance with IFRSs as adopted by the European Union. They also have been prepared in accordance with the Companies Act, 2006. The consolidated financial statements have been prepared on an historical cost basis, as adjusted for certain financial instruments carried at fair value.

1.1 Going concern

The Company's business activities, together with the factors likely to affect its future development, and performance are set out in the Chairman's Statement. As discussed in the Chairman's Statement the Company is focusing on advancing its kimberlite projects towards production. In March 2011 the Company raised $9.9m (£6.2m) from an equity placing and at the balance sheet date had cash of $6.5m. Given the positive results being produced at both Tongo and Droujba and the stage of development of both projects, the directors believe that the Company will continue to have the ability to access sufficient levels of finance to continue the Group's projects for the foreseeable future. On that basis the directors continue to adopt the going concern basis in preparing these financial statements.

2. Segments

The Company is engaged in the acquisition, exploration, development and production of diamond properties in the West African countries of Sierra Leone and Guinea. Information presented to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance is focused on the individual projects in geographical locations. The reportable segments under IFRS 8 are therefore as follows:

·; Mandala (Guinea);

·; Bomboko (Guinea);

·; Kono (Sierra Leone);

·; Droujba (Guinea);

·; Tongo (Sierra Leone);

·; Other exploration;

·; Corporate activities in the United Kingdom.

Following is an analysis of the Group's revenue, results, assets and liabilities by reportable segment for the year ended 30 June 2011:

During the year ended 30 June 2011 sales made to three customers accounted for 99% of total revenues (nine months ended 30 June 2010: 95% to two customers).

Following is an analysis of the Group's revenue and results by reportable segment for the nine months ended 30 June 2010:

3. Loss per share

Basic and diluted loss per share are the same as the effect of the outstanding share options and warrants is anti-dilutive and is therefore excluded. Outstanding warrants and share options are detailed in notes 6 and 7.

4. Intangible assets

Included in additions during the previous period are shares to the value of $1,302,562 issued to Petra Diamonds Limited to acquire the remaining share of the Kono project and shares issued to the value of $33,466 to acquire the remaining share in Friendship Diamonds Guinee SA.

At 30 June 2011, the Group did not have any contractual commitments for the acquisition of intangible assets.

The realisation of intangible assets of $7,168,005 is dependent on the discovery and successful development of economic mineral reserves including the group's ability to raise sufficient finance to develop the projects and other factors, as discussed in note 1.1.

5. Property, plant and equipment

Included within mining assets is the rehabilitation provision for Mandala and Bomboko of $104,369 (30 June 2010: $54,369).

In accordance with the accounting policies, the Group tests property, plant and equipment for impairment when an indication of impairment exists. The recoverable amount of cash generating units is determined based on value-in-use calculations, which require the use of estimates. The estimated cash flows from the mining assets and the adjacent exploration projects produced net present values well in excess of their carrying values and are based on the following assumptions:

- Economically recoverable reserves and resources are based on management's expectations based on availability of reserves at mine sites and technical studies undertaken internally and by a Competent Person, where available;

- Diamond prices for the remainder of 2011 are based on the average realised prices from January to June 2011 and an annual increase of 7% thereafter;

- Discount rate of 8%;

- Inflation rate of 2.2%; and

- The remaining useful life.

Bomboko ceased production in the year and plant and equipment was transferred to other group projects. The remaining Mining Assets being previously capitalised exploration costs have been fully impaired during the year, resulting in an impairment charge of $3,387,333 being charged to the statement of comprehensive income.

An additional impairment charge of $5,255,868 was charged to the statement of comprehensive income in relation to previously capitalised exploration costs at Mandala, following a reveiew of commercially minable reserves at 30 June 2011.

The Group did not have any further contractually committed costs for the acquisition of property, plant and equipment at 30 June 2022.

The realisation of tangible assets of $7,150,956 is dependent on the discovery and successful development of economic mineral reserves including the Group's ability to raise sufficient finance to develop the projects and other factors, as discussed in note 1.1.

6. Share capital, share premium and warrant reserve

Share capital

As part of the reverse acquisition in the previous period, Stellar Diamonds plc, the legal parent, performed a 5 for 1 share consolidation. The number of shares stated above has been restated for the 5 for 1 share consolidation.

Prior to the completion of the reverse acquisition, convertible loans and accrued interest of $546,241, unpaid directors' fees from 1 January 2009 of $208,676 and African Aura Mining Inc.'s management fee charge for 2009 to Stellar Diamonds Limited of $150,000 were converted into new Stellar Diamond Limited shares.

The equity structure appearing in the consolidated financial statements reflects the equity structure of the legal parent, including the equity instruments issued under the share for share exchange to effect the transaction. The effect of using the equity structure of the legal parent gives rise to an adjustment to the Group's issued equity capital in the form of a reverse acquisition reserve.

On 23 February 2010, a total of 112,500 ordinary shares of 5p each ("bonus shares") were allotted and issued to Karl Smithson, Chief Executive Officer, and Angus Ogilvie, Finance Director. These allotments were in satisfaction of half of their respective listing bonuses of £30,000 and £15,000 following the successful admission of the Company on AIM (as set out in the Company's Admission Document).

On 24 May 2010, the Company announced the completion of the shares purchase agreement with Petra Diamonds Limited in respect of the acquisition of the remaining 51% of the Kono kimberlite project in Sierra Leone in exchange for the issuance of 4,500,000 new ordinary shares to Petra Diamonds Limited as consideration for the agreed purchase price of £900,000, at a price of 20 pence per share.

On 12 October 2010 a total of 38,000,000 ordinary shares of 5p each were allotted and issued for gross proceeds of $3,078,603. Transaction costs of $164,009 were netted against proceeds.

On 29 March 2011 a total of 77,500,000 ordinary shares of 5p each were allotted and issued for gross proceeds of $9,922,891. Transaction costs of $375,748 were netted against proceeds.

Share warrants

The warrants reserve represents the value of the warrants issued by the Company to subscribe for shares in the Company.

On 12 October 2010 23,064,383 warrants to subscribe to 23,064,383 ordinary shares of 5p each for a price of 12p per share warrant were issued in relation to the placing of 38,000,000 ordinary shares in the Company. The warrants issued had a grant date fair value of $155,235 using the Black-Scholes option pricing model and the following assumptions: nil dividend yield, a weighted average expected volatility of the Company's share price of 50%, a weighted annual risk free rate of 1.73% and life of one and a half years.

In the previous period, the Company granted 1,190,125 warrants to the Company's broker for the Placing to subscribe for up to 1,190,125 ordinary shares of 5p each in the Company exercisable for a price of 20p per share warrant. The warrants issued had a grant date value of $143,024 using the Black-Scholes option pricing model and the following assumptions: nil dividend yield, a weighted average expected volatility of the Company's share price of 67%, a weighted average annual risk free rate of 2.76% and a life of two years.

7. Share options

The share option reserve represents the value of the share options issued to the Group's directors and employees under the Group's share option scheme.

On 10 August 2010 the Company issued a total of 2,950,000 share options at an exercise price of 11p. The options issued have resulted in a charge of $148,275 based on the Black-Scholes option pricing model and the following assumptions: nil dividend yield, a weighted average expected volatility of the Company's share price of 34%, a weighted average annual risk free rate of 2.17% and an expected life of five years.

On 31 May 2011 the Company issued a total of 8,150,000 share options at an exercise price of 8p. The options issued have resulted in a charge of $418,540 based on the Black-Scholes option pricing model and the following assumptions: nil dividend yield, a weighted average expected volatility of the Company's share price of 67%, a weighted average annual risk free rate of 2.25% and an expected life of five years.

On 22 February 2010, 3,992,000 Stellar Diamonds limited options were surrendered in exchange for the issuance of 4,012,000 new options of the Company. The number of replacement options issued was determined by the exchange ratio of 1.005 used in the acquisition. The exercise price of 3,482,325 replacement options was modified from £0.225 to £0.20 per share. The terms and conditions of 530,138 replacement options were unchanged. 

The following is a summary of the share options outstanding and exercisable as at 30 June 2011 and 30 June 2010 and changes during the year:

As at 30 June 2011 the following stock options were outstanding and exercisable:

8. Related parties

The ultimate parent company and controlling party of Stellar Diamonds Limited prior to the reverse acquisition was African Aura Mining Inc. (AAM). Subsequent to the reverse acquisition AAM remained a shareholder of Stellar Diamonds plc. In April 2011 AAM demerged assets, including its investment in Stellar Diamonds plc to Aureus Mining Inc. AAM was renamed Afferro Mining Inc. During the year, the Company and its subsidiaries, in the ordinary course of business, entered into various transactions with Afferro Mining Inc. These transactions occurred under terms and conditions that are no less favourable than those arranged with third parties.

The following table summarises the related party transactions:

The convertible loan and the accrued interest repaid in the year were owed to Altus Resource Capital. Steven Poulton, Non-Executive Director, is a Director of Altus Asset Management, the manager for Altus Resource Capital.

The directors are considered the Company's key management personnel. The remuneration earned in respect of the financial year by each director is as follows:

The directors who held office at 30 June 2011 had the following interests in the ordinary shares of the Company as of 30 June 2011:

The number of directors to whom retirement benefits are accruing is nil (2010: nil). All remuneration related to short term employee benefits.

At the end of the year, the amounts receivable from related parties are as follows:

9. Annual Report and Financial Statements

The Company's Annual Report and audited Financial Statements for the year ended 30 June 2011 have been posted to shareholders and are available for download on the Company's website at www.stellar-diamonds.com.

10. Dividends

No dividends have been paid nor are proposed for the period (2010: nil).

11. Annual General Meeting

The Annual General Meeting will be held on 10 November 2011 at 12 noon at the offices of Northland Capital Partners Limited, 60 Gresham Street, London, EC2V 7BB. The Notice and Form of proxy have been posted to shareholders and are available for download on the Company's website at www.stellar-diamonds.com.