An Aim-listed diamond explorer is planning a “transformation deal” that will create Sierra Leone’s second-biggest diamond mine from two “high-grade” deposits.
Stellar Diamonds will acquire the Tonguma project from Octea Mining and combine it with its own neighbouring Tongo deposit to build a mine with a resource of five million carats underground.
There will be no upfront cost for Tonguma, with Stellar instead paying Octea royalties from the mine when it begins producing diamonds. It hopes to raise $25m (£19m) from various sources – including existing investors, private equity and offtake agreements – to pay for the development of the mine, which it says could be up and running in just nine months.
Because the deal involves the creation of a new company, it constitutes a reverse takeover under Aim rules, and Stellar’s shares were suspended on Friday accordingly.
“It’s absolutely transformational for Stellar and it will be good for the country too,” said Karl Smithson, chief executive. “It’s the first mine to be developed in Sierra Leone since the Ebola virus outbreak and it’s a sign that the country’s open for business.”
Sierra Leone’s GDP plummeted by 20pc in 2015, according to the World Bank, as it reeled from the effects of the 2013 Ebola outbreak. Diamond exports, which had powered its GDP growth, fell 30pc to $154m.
The Tongo-Tonguma project, which will create up to 1,000 jobs and have an 18-year life, will be the second-biggest diamond mine not just in Sierra Leone but the whole of West Africa; the largest is run by Octea and supplies Tiffany & Co jewellers. Octea is wholly owned by BSG Resources, the mining company of Israeli businessman Beny Steinmetz.
Octea has been accused of owing Sierra Leone tax revenue, although Mr Smithson said the row was a “red herring” and the company was “compliant in terms of tax required by law”. However he said that there would be “no business influence from the Octea shareholder group” on the new company.
Octea shareholders will be issued non-voting B-shares in the new firm, which will entitle them to financial benefits such as dividends.
The outlook for diamonds was “pretty good”, Mr Smithson said, as they had not suffered the same downturn in prices as bulk commodities.
Stellar Diamonds has another small mine in Guinea, which is now being operated as a joint venture with Dubai-based group Citigate so that it can focus on its Sierra Leone project. The takeover deal will be put to shareholders for approval.
