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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, has announced the results of the preliminary economic assessment from its Tongo kimberlite diamond project in Sierra Leone.
Independent consulting company Paradigm Project Management 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.”
Independent consultants Paradigm Project Management 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.
