Stellar Diamonds Regulatory News (STEL)

NOT FOR DISTRIBUTION IN THE UNITED STATES OR FOR DISSEMINATION TO US NEWS WIRE SERVICES.

27 March 2015

AIM: STEL

Stellar Diamonds plc

("Stellar" or the "Company")

Interim Results for the six months to 31 December 2014

Stellar Diamonds plc, the AIM listed (AIM: STEL) diamond development company focused on West Africa, announces its unaudited interim results for the six months to 31 December 2014.

Operational Highlights

· Baoulé Kimberlite Pipe Project, Guinea ("Baoulé"):

o Trial mining commenced on schedule and on budget in October 2014

o Trial mining has reached target capacity of 50 tonnes per hour processed

o Gem quality diamonds up to 9 carats in size recovered and first exports achieved

o Maiden sales and gross revenues totalling US$417,122 from 4,414 carats post-period (including goods from other Stellar projects)

o Further diamond exports and sales expected in 2015

· Tongo Kimberlite Dyke-1 Project, Sierra Leone ("Tongo"):

o Bulk sampling programme completed generating a diamond parcel of 1,182 carats

o 35% increase in inferred diamond resource to 1.45 million carats

o 37% increase in average diamond grade to 165cpht, based on bulk sampling data

o 42% increase in the scoping study NPV10 to US$75m for surface and underground mine

· Financial Highlights:

o US$0.9m invested to build and commission the Baoulé trial mining operation

o Administrative costs reduced significantly to US$0.9m during the 6 month period (H2-13: US$1.5m)

o Cash and diamonds held for sale of US$0.5m at period end

o US$1.05m of funding in the period through the issue of equity and credit

o Further US$1.55m raised post period through the issue of equity in January 2015

Stellar Diamonds Chief Executive Karl Smithson commented, "Stellar has made significant progress at both Baoulé in Guinea and Tongo in Sierra Leone during the report period. Bringing Baoulé into trial mining production during the Ebola crisis was a remarkable achievement and it is pleasing to see our first export and sales cycle being successfully completed. Processing to date has yielded over 4,100 carats at a grade of over 13cpht. We expect to continue the trial mining with an objective of at least 100,000 tonnes being processed in aggregate to establish the grade and value of the pipe with confidence, but importantly to recover some large, high value diamonds that the Aredor area of Guinea is world renowned for.

"At Tongo we also successfully completed our bulk sampling programme despite the Ebola outbreak. As a result the inferred diamond resource for Dyke-1 was increased to 1.45 million carats with increasing grade and diamond values. A surface mining study has also been completed, which identified a technique that is expected to allow us to mine from surface for three years whilst underground mine development is completed. This positively impacts on expected project economics and we intend to conduct an updated preliminary economic assessment which should justify the decision to apply for a mine lease for the project during 2015."

Chairman's Statement

Excellent progress has been made across our two core diamond projects in Guinea and Sierra Leone over the period. This has resulted in our maiden diamond sale and first revenues from Baoulé in Guinea, and an improved inferred resource, grade, and expected faster route to production at Tongo in Sierra Leone. These significant advances take us ever closer to our strategy of early production and targeting a future aggregate resource base of approximately 8 million carats across our diamond portfolio.

Baoulé Project, Guinea

Despite the backdrop of the Ebola virus and rainy season our team on the ground successfully established the trial mining operation at the 5 hectare Baoulé kimberlite pipe. Construction and commissioning of the 100tph Dense Media Separation ("DMS") plant was achieved on time and on budget in September 2014 with the first trial mining diamonds being recovered in October 2014. 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 carats have been recovered from alluvial mining in the past and we believe Baoulé has the potential to be a "company-maker" for Stellar.

The DMS plant has reached its target capacity of processing approximately 50 tonnes of kimberlite per hour on average. At the time of writing trial mining has yielded over 4,100 carats at an average grade of 13.4cpht at a 1.25mm cut off. During recent mining the grade decreased slightly from the average of 15cpht as we encountered a lower grade breccia area towards the margin of the pipe mining and sought to extend the pit area in order to maximize access to the higher grade kimberlite which comprises the bulk of the pipe. We continue to target processing of at least 100,000 tonnes of kimberlite, which at an average target grade of 15cpht would be expected to yield at least 15,000 carats for grade and value determination.

Two diamond exports to Antwerp have been made to date; the first parcel delivered in December 2014 contained 941 carats and a second containing 1,250 carats was added to it in January 2015. The Baoulé diamonds were combined with 3,700 carats recovered from bulk sampling at our other projects and collectively tendered for sale in Antwerp in March 2015. This tender generated maiden diamond sales of 4,414 carats, making gross revenues of US$417,122. This is a major milestone for Stellar, bringing us our first cash flows of 2015. Notably, one of the five carat stones sold achieved a value of US$5,000 per carat, which the Directors believe underpins the quality of the diamonds in the Baoulé pipe which, if realised in still larger sizes, will enhance the diamond value and revenues of future sales.

The objective of trial mining at Baoulé is 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 suggests a target of over 22 million tonnes to a depth of 300m. At an average target grade of 15cpht, this would suggest a diamond resource of 3.3 million carats. This is not a resource estimate or in accordance with the JORC Code.  

Tongo Dyke-1 Project, Sierra Leone

Bulk sampling of the high-grade Dyke-1 was completed in the reporting period and generated a diamond parcel of 1,182 carats of which a large portion was categorised as gem quality, including a 6.7 carat stone. A revised resource statement was subsequently commissioned and this has resulted in a 35% increase in the JORC compliant inferred resource to 1.45 million carats and a 37% increase in the average diamond grade to 165cpht, using the higher grade established by the Company based on the results of bulk sampling. Diamond value modelling was also undertaken with two models being presented, one with a grade of 120cpht and diamond value of US$270 per carat and another with a grade of 165cpht and US$145 per carat. We conservatively use the lower grade model for all our financial modelling.

Further resource potential exists from the remaining three kimberlite dykes at Tongo. This includes Dyke-4 which has previously been bulk sampled by the Company, generating a diamond grade of 110cpht at an average diamond value of US$140 per carat. Dykes 2 and 3 have not been bulk sampled but microdiamond analysis indicates grades of 140cpht and 185cpht 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. An independent surface mining study was carried out which has revealed that we can target accelerated cash-flow by mining Dyke-1 from surface concurrently with underground mine development, to generate cash-flow earlier than a stand-alone underground mine would. The surface mining is modelled to last for three years and potentially generate 120,000 carats, (assuming that average production rates and indicative grades achieved to date continue) after which underground mining is expected to commence to provide a seamless transition of production from surface to underground. The underground mining is modelled to continue to year 16 and generate almost 1 million carats over that time.

The inclusion of surface mining should significantly enhance Tongo's potential economics by bringing forward cash flows when compared to just an underground mining operation. The previously modelled NPV10 was re-calculated on this basis and shows an increase of 42% to US$75 million with a pre-tax IRR of 55%, using a diamond grade of 120cpht and value of US$270 per carat.

To bring Dyke-1 into production, the initial capex cost for the first three years has been independently estimated at US$16 million for both the surface and underground mining. However, as part of the project development process the Company will now re-engage with independent consultants to provide a single and updated preliminary economic assessment document as an alternative to a more expensive and time consuming definitive feasibility study which can be utilised for a future mine lease application with the Government of Sierra Leone.

Other Projects

As per my year-end statement, our two additional projects in Guinea remain on care and maintenance whilst we focus 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 carats remain within the resource at the Mandala alluvial mine, where we have previously yielded 128,000 carats from mining at a grade of 33cpht with gems of up to 37 carats in size.

The process of reinstating our wrongly expropriated Kono licences is ongoing. It is hoped that a positive outcome will be achieved in the near future.

Corporate

In order to enhance the mining fleet on the newly operating Baoulé trial mining project we purchased a number of earth moving vehicles from our major shareholder, Foradex, on an arms-length basis, in return for the issue of 25,560,016 ordinary shares at a price of 1.55p and 12,780,008 warrants exercisable at the same price, thus conserving the Company's cash. We intend to ship these machines to Guinea and transport them to Baoulé in the near future.

In December 2014 we were also able to secure bridge financing of US$0.5m to provide working capital for the Baoulé project as we approached the first export of diamonds. Post-period, in January 2015, we raised further working capital of US$1.55m through the issue of 88,362,066 ordinary shares of 1p at a price of 1.16p per share to allow flexibility in the timing of our diamond tender in the first quarter of 2015 and to strengthen the Company's balance sheet. The placing was undertaken through existing and new institutional shareholders and shows continued strong support from our board and shareholder base.

We have continued to scrutinise our cost base to ensure that the maximum amount of funding is available for the projects on the ground and we are pleased to note the continued reduction on corporate and administrative spending during the period.

Diamond Market

The rough diamond market weakened during the latter part of 2014 and further weakened in the first quarter of 2015, meaning prices declined in some categories by as much as 15-20% compared to the summer of 2014. 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 2015 may see pricing improvements. Importantly, the longer term fundamental outlook remains positive for the diamond market as the declining supply will fail to meet the projected increasing demand.

Outlook

We are making great strides in advancing our key diamond projects which have multi-million carat potential towards production. 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, this is an exciting time for Stellar.

Looking ahead, we remain committed to ensuring further cash flow from diamond exports and sales from Baoulé in 2015. At Tongo we intend to commence 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 in order to support the mine lease application. Naturally for this process further funding will be required with the objective of raising up to US$20 million in aggregate to fund both the mining licence application and the Tongo mine development (with the majority of such fundraise expected to be subject to receipt of a mining licence). We will be considering the optimum ways of achieving this with the focus being on securing funding via non-dilutive project debt structures and we will report on the process we are to follow in due course.

I would like to take this opportunity to thank my fellow Board members and team on the ground for their outstanding commitment and efforts in continuing to deliver on the tremendous value Stellar has to offer. In addition, I am hugely grateful for our highly supportive shareholder base and I look forward to the year ahead as we aim to further unlock the value of our West African portfolio on our route to commercial diamond production.

Lord Daresbury

Non-Executive Chairman

** ENDS **

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

Condensed consolidated statement of comprehensive loss (unaudited)

for the six months ended 31 December 2014

(Stated in U.S. dollars)

Condensed consolidated statement of financial position (unaudited)

as at 31 December 2014

(Stated in U.S. dollars)

Company registration number: 5424214

Condensed consolidated statement of cash flows (unaudited)

For the six months ended 31 December 2014

(Stated in U.S. dollars)

Notes to the consolidated financial statements (unaudited)

for the six months ended 31 December 2014

(Stated in U.S. dollars)

1. Basis of presentation

Stellar Diamonds plc (the "Company" or on a consolidated basis the "Group") is presenting unaudited financial statements as of and for the six months ended 31 December 2014. The comparative periods presented are the audited financial statements as of and for the year ended 30 June 2014 and the unaudited financial statements as of and for the six months ended 31 December 2013.

The information for the six months ended 31 December 2014 does not constitute statutory accounts for Stellar Diamonds plc as defined in section 434 of the Companies Act 2006. A copy of the most recent statutory accounts for the year ended 30 June 2014 has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified but drew attention to the Company's ability to continue as a going concern and the valuation of intangible assets by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting", as adopted by the European Union.

1.1 Going concern

The Company's business activities, together with the factors likely to affect its future development, its key risks and performance are set out in the Chairman's Statement.

As discussed in the Chairman's Statement, the Company is focusing on the ongoing trial mining production and resource building at its Baoulé Joint Venture project in Guinea, and advancing its Tongo kimberlite project in Sierra Leone. In January 2015 the company raised $1.55m before costs through the issue of shares, and in March 2015 the company made its first sale of diamonds from the Baoulé project, alongside the sale of other diamonds held in stock from the Tongo and Droujba projects resulting in gross revenues of $415,000. The Company expects to make further sales from Baoulé during the remainder of 2015 however there can be no guarantee as to the timing or amount of any such expected sales. Given the ongoing trial mining productions at Baoulé and the potential of the Tongo project for near term development, 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.

1.2 Changes in accounting policy

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in Stellar Diamonds plc's latest audited financial statements as of and for the year ended 30 June 2014.

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 focussed on the individual projects in geographical locations. The reportable segments under IFRS 8 are therefore as follows:

· Mandala (Guinea);

· Bomboko (Guinea);

· Kono (Sierra Leone);

· Tongo (Sierra Leone);

· Droujba (Guinea);

· Baoulé (Guinea);

· 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 six months ended 31 December 2014:

Following is an analysis of the Group's revenue and results by reportable segment for the year ended 30 June 2014:

3. Intangible assets

4. Property, plant and equipment

Included within mining assets is the rehabilitation provision for Mandala and Bomboko of $104,369 (30 June 2014: $104,369).

5. Post Balance Sheet Events

In January 2015, the company issued 88,362,066 ordinary shares of 1p at a price of 1.16p per share, for gross proceeds of $1,550,000.

In March 2015, the Company undertook its first sale of diamonds from its Baoulé project alongside diamonds held in inventories from Tongo and Droujba for gross sales proceeds of $415,000.

6. The Company's unaudited six month results to 31 December 2014 will be available to download from the Company's website at www.stellar-diamonds.com.