Stellar Diamonds Regulatory News (STEL)

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24 August 2015

AIM: STEL

Stellar Diamonds plc

("Stellar" or the "Company")

Positive PEA on Tongo Project and Mining Licence Application, Sierra Leone

Stellar Diamonds plc, the London listed (AIM: STEL) diamond development company focused on West Africa, announces the results of the preliminary economic assessment ("PEA") from its Tongo kimberlite diamond project in Sierra Leone ("Tongo" or "the Project").

Independent consulting company Paradigm Project Management ("PPM") was retained by the Company to conduct the PEA over the 1.45 million carat inferred resource of the Tongo Dyke-1 kimberlite, one of four kimberlite dykes at the Project. The objective was to define updated project economics for both surface and underground mining of the diamond resource in support of the mining licence application. This independent PEA report can be found on the Company's website.

Tongo Dyke-1 PEA Highlights:

· 18 year life of mine from both surface and underground mining yielding 955,930 carats

· Surface mining in years 1-4 targeting a yield of 117,806 carats providing early cash flow

· Modelled diamond resource grade of 120cpht and diamond value of US$270 per carat

· Low cost capex requirement of US$24.2 million to establish surface and underground mine

· Gross mine revenues of US$386.7 million

· Pre-tax NPV10 of US$53.2 million and IRR of 31%

· Significant potential to increase mine life and revenues with resource open at depth

· Mining licence application to be submitted

Chief Executive Karl Smithson commented:

"The Tongo PEA has delivered robust economics which support the development of an open pit and subsequent underground mine. Early cash flow is expected to be generated from the initial surface mining but the mine also represents a long-term and sustainable operation which has the potential to generate solid cash flows from the sale of its very high quality, high grade diamonds over many years. Stellar considers that the Tongo mine can be further improved and extended with the development of additional diamond resources from nearby high-grade kimberlites that we have previously identified and tested.

"Importantly for Sierra Leone, this mine will contribute significant employment and community development opportunities in an area that has been adversely affected by the Ebola crisis, which has now thankfully been eradicated from the area of operation for over six months. As such we will work closely with all stakeholders to ensure the successful development of this mine for all concerned. We expect to formally submit our application for the mining licence in the near future, once our environmental impact assessment study has been completed and our environmental licence granted.

"I look forward to updating shareholders over the coming months as we continue towards the development of the Tongo mine to complement our Baoulé Kimberlite Pipe Project in Guinea where Trial Mining has already generated revenues from diamond sales."

Outcome of Independent Preliminary Economic Assessment

Independent consultants Paradigm Project Management ("PPM") were commissioned to conduct the PEA of the Tongo Dyke-1 kimberlite.

The PEA focussed on the base case grade and resource model of 120cpht and 1.1 million carats to a depth of between 300m and 400m from surface over an initial 18 year life of mine. A detailed mine plan has been established that will allow for surface bench stope mining from years one to four. During the surface mining phase the first underground shaft and infrastructure will be established such that underground ore production can commence in year three, and therefore allow for a seamless transition from surface to underground operations.

The capital requirement to establish production is estimated to be US$24.2 million (years 1-3) which will enable both surface and underground mine infrastructure to be developed. With the sustaining capital included total capital cost for the 18 year life of mine is US$35.0 million. The previous capital figure reported in the Conceptual Economic Scoping study of 2013 was US$16 million for just the underground mine (US$21 million with sustaining capital), on a non-inflated basis. The increase in capital cost is a consequence of including surface mining in the model, the impact of inflation on capital costs sourced in South Africa, the assumption that all capital items are purchased brand new and applying annual inflation of 4.5% to the costs in the model.

Nominal life of mine operating cost before inflation is US$73 per tonne, which includes mining costs of US$34 per tonne for surface mining and US$38 per tonne for underground mining. The escalated average operating cost over the life of the mine is estimated to be approximately US$108 per tonne treated, taking into account inflation.

Production from the three years surface mining is forecast to yield approximately 117,800 carats with revenues of approximately US$28.5 million. Production from underground mining from years four to 18 is forecast to yield 838,124 carats and revenues of US$358.2 million. PPM has estimated that the aggregate life of mine gross revenues from the Tongo Dyke-1 mine will be US$387 million and a net present value (assuming a discount rate of 10 percent) of US$53.2 million. The 18 year life of mine model undertaken by PPM was inflated for both costs and diamond prices at a nominal rate of 4.5% per annum.

A summary of the PPM economic model:

The NPV estimate is based on a more conservative model than previously assumed, with fewer carats targeted for mining over a slightly longer term life of mine and the higher capital and operating costs due to factors mentioned above. The Directors, however, believe this model and NPV of $53 million to be very robust with numerous opportunities to enhance the valuation as set out below.

PPM indicate that the overall accuracy of the PEA is to +/- 25%, however the scope and costing of the processing plant is to +/- 10% which would be consistent with a full feasibility level study. As is consistent with a PEA report PPM were requested to highlight key risk areas in its report. These primarily relate to potential positive or negative impacts due to currency fluctuation, the inferred diamond resource status, using benchmark costs to similar operations in South Africa, lack of ore dressing studies to date and the availability of sufficiently skilled staff in Sierra Leone.

Potential to further improve mine economics

The current life of mine plan is based solely on the Tongo Dyke-1 resource to a depth of between 300m and 400m. Opportunities exist to extend the life of mine and enhance revenues and project economics as follows:

- Deeper mining of Dyke-1 to levels similar to fissure mines in South Africa which have operated to (+700m depth)

- Drilling and resource definition of other kimberlites dykes namely Dykes 2, 3 and 4 on the Tongo licence, all of which have indicated grades similar to (or higher than) Dyke-1

- Dyke-1 may have a higher actual recovered diamond grade to that used in the PEA

Any or all of the above scenarios would provide material opportunities to increase the resource base of the Tongo mine project.

Exploration Licence Renewal and Mining Licence Application

Following completion of the Tongo PEA, the Directors have decided to pursue the development of the Tongo project and continue with the mining licence application process. As part of this process an Environmental and Social Impact Study ("ESIA") must be completed and submitted to the Environmental Protection Agency ("EPA") in order to be awarded an environmental licence. This process is well advanced with independent group TerraNova-EcoSys Limited compiling the ESIA.

The mining licence application will then be submitted for consideration via the National Minerals Agency and Minerals Advisory Board, which will make the final recommendation to the Minister of Mines for its approval. Subject to the mining licence being approved, which is allowed for in the Mines Act (2009), a negotiation process will follow between the Company and its advisors and a specialized Governmental body whereby the fiscal terms of the future mine will be agreed.

Since the exploration licence was due to expire in August 2015, before the Mining Licence was likely to be granted, Stellar applied for a two year extension of the exploration licence so that there will be no gap in the licence tenure. This extension was granted on 22 July 2015.

Baoulé Update

The trial mining evaluation of the Baoulé kimberlite pipe in Guinea is currently on seasonal break. With the onset of the rainy season in early July, trial production activity declined and ceased in August during the height of the rains. Prior to the seasonal closure bulk sampling and processing of the east and west lobe had to date totalled 47,773 tonnes and yielded 6,421 carats at a +1.25mm grade of 13.4 cpht. Included in the most recent production runs are high quality gem diamonds one of which comprised a perfect 9.23ct clear gem. Some 1,141 carats are in stock and when production resumes post the rainy season in October the diamonds recovered will be added to the diamonds already in stock and a further parcel prepared for export and sale. The last sale in May recorded an average price of US$156 per carat and realised US$505,000 in revenues. The Company will provide further updates on this process in due course.

Ebola Update

Stellar is pleased to state that the whole of Sierra Leone has shown no new Ebola cases for the past two weeks, whereas Guinea has reported only two recent cases. The areas where the Tongo and Baoulé projects are located have been Ebola free for eight and ten months respectively. The Company remains vigilant and continues to take necessary screening and preventative measures at its sites in both Sierra Leone and Guinea.

Competent person

This announcement has been reviewed by Karl Smithson, Chief Executive of Stellar, a qualified geologist and Fellow of the Institute of Materials, Metals, Mining, with 26 years' experience.

About Stellar Diamonds plc

Stellar is an AIM quoted (AIM: STEL) West African focused diamond development company which is continuing trial mine evaluation of its Baoulé kimberlite in Guinea, and is progressing the 1.45 million carat Tongo Dyke-1 resource through the mining licence application process. In addition, Stellar holds the 3 million carat Droujba project in Guinea and continues to pursue channels to ensure the proper reinstatement of its Kono licences in Sierra Leone.

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