TIDMSTEL
RNS Number : 5416S
Stellar Diamonds PLC
22 December 2016
NOT FOR DISTRIBUTION IN THE UNITED STATES OR FOR DISSEMINATION
TO US NEWS WIRE SERVICES.
22 December 2016
AIM: STEL
Stellar Diamonds plc ("Stellar" or the "Company")
Final Results
Stellar Diamonds plc, the London listed (AIM: STEL) diamond
development company focused on West Africa, announces its final
results for the period ended 30 June 2016.
Operational Highlights:
Tongo 1.45 million carat ("Mcts") Kimberlite Dyke-1 Project,
Sierra Leone:
-- Mining licence application submitted and pending approval subject to environmental licence
-- Environmental impact assessment submitted and approved
-- Potential acquisition of adjacent 3.45Mcts Tonguma mining licence in process
-- Preliminary economic assessment delivered for the proposed
combined Tongo-Tonguma project shows robust returns with pre-tax
NPV (10) of US$172 million and IRR of 49%
Baoulé Project, Guinea:
-- Trial mining has yielded a total of 11,564 carats to date
-- Diamond sale revenues from trial mining have totalled US$1.1 million
-- Largest stone of 55cts (low quality) with high value gems up to 12cts in size
-- Target resource remains 3.3Mcts based on historical drilling and current grades
-- Joint venture signed with Citigate Commodities Trading (post year-end)
Liberia Licences:
-- Two exploration licences granted which cover historical
positive exploration results in a known kimberlite and diamond
province of west Liberia
-- Joint venture signed with Citigate Commodities Trading (post year-end)
Financial Highlights:
-- US$3.6 million cash raised in the financial year through a
combination of equity and debt funding to complete the Baoulé trial
mining exercise and advance the Tongo project and proposed Tonguma
acquisition
-- New significant shareholder, Deutsche Balaton, brought in
through a combination of equity and convertible loan
-- Cost savings made in previous years maintained with Group
administrative costs static at approximately US$1.4 million for the
year
Stellar Diamonds Chief Executive Karl Smithson commented:
"During the past year we have pursued the key strategy of
consolidating our Tongo kimberlite dyke licence with the adjacent
Tonguma kimberlite dyke mining licence in order to create an
enlarged hard rock mining operation that can offer long-term and
sustainable production and revenues. In the event of completion of
the acquisition of Tonguma, the combined mine would have an initial
inferred +1.18mm diamond resource of 4.5 million carats, with
diamond values ranging from US$209/ct to US$310/ct, from just three
(of eight) kimberlite dykes in the licence areas, all of high grade
and high diamond values. The PEA demonstrates a life of mine of 20
years with production estimated to be over 200,000 carats per year
for the most part.
"The acquisition process is ongoing and remains the focus of
Stellar (albeit there is no guarantee that it will be completed).
In order to focus on the acquisition we undertook to joint venture
our Baoulé kimberlite pipe project in Guinea and our Liberian
licences to Citigate whilst retaining a free-carried interest in
these projects. The earn-in allows for Citigate to fully fund both
projects but Stellar's existing teams on the ground will manage the
projects for the first phase of work and will also receive a
management fee for doing so.
"We look forward to the next year with considerable excitement
as we pursue a transformational acquisition whilst at the same time
maintain exposure to our quality portfolio of diamond assets in
West Africa."
For further information contact the following or visit the
Company's website at www.stellar-diamonds.com.
Karl Smithson, Stellar Diamonds plc Tel: +44 (0)
CEO Stellar Diamonds plc 20 7010 7686
Philip Knowles, Tel: +44 (0)
CFO 20 7010 7686
Jon Belliss Beaufort Securities Tel: +44 (0)
Limited (Joint Broker) 20 7382 8300
Emma Earl Cairn Financial Advisers Tel: +44 (0)
Sandy Jamieson (Nominated Advisor) 20 7213 0880
Lottie Brocklehurst St Brides Partners Tel: +44 (0)
Charlotte Ltd 20 7236 1177
Page
About Stellar Diamonds plc
Stellar is an AIM quoted (AIM: STEL) West African focused
diamond company with projects at the trial mining and mine
development stages in Guinea and Sierra Leone.
Chairman's Statement
Although the past year has yet again been very challenging for
junior resource companies, it could prove to be a year of
inflection for Stellar Diamonds.
Stellar Diamonds is on the point of advancing from its
exploration and development stage to the commercial mining stage
through its proposed acquisition of the Tonguma diamond mining
licence and project currently held by Octea Mining Limited
("Octea"), which is adjacent to Stellar's Tongo licence in eastern
Sierra Leone, as announced in August 2016.
Tongo Project
During the year Paradigm Project Management ("PPM") completed an
independent Preliminary Economic Assessment ("PEA") for the
development of the JORC compliant 1.45 million carat Dyke-1
resource at Tongo (at a +1.0mm cut-off). This indicated positive
economics and on the basis of this an application for a mining
licence was submitted and is currently being progressed by the
Ministry of Mines in Sierra Leone. The Environmental Impact
Assessment has been completed and approved, and the Company is now
negotiating the fee for an Environmental Licence.
Tonguma Acquisition
Although only announced after the year end, during the financial
year Stellar has been negotiating with Octea for the acquisition of
the Tonguma mine lease, which neighbours our Tongo exploration
licence. Tonguma holds a JORC compliant 3.45 million carat inferred
kimberlite dyke resource (+1.18mm Cut off), which when combined
with the Tongo kimberlite dyke resource, would offer the potential
of an enlarged inferred diamond resource of 4.5 million carats (all
at a +1.18mm cut-off).
Terms have been largely agreed and the acquisition, if
completed, would constitute a reverse takeover under the AIM Rules.
The acquisition remains subject to completion of inter alia, due
diligence, finalisation of agreements, completion of a substantial
fundraise, publication of an AIM admission document and shareholder
approval. There is no up-front acquisition cost associated with the
proposed acquisition but there would be a requirement for Stellar
to commit a minimum of US$25 million for the development of the
Tongo-Tonguma combined project. As part of the proposed acquisition
Stellar would also acquire Octea's 50tph production plant which is
located approximately 60km north of Tongo-Tonguma, at Octea's Koidu
project. The plant, once relocated, is expected to materially
reduce the time required to get Tongo-Tonguma into commercial
production. From the first positive cash flows Stellar would recoup
its mine development costs and thereafter Octea would recoup an
amount of US$5 million for the production plant. Stellar would then
pay Octea a 10% revenue royalty for 10 years and 5% thereafter. Any
free cash flow from the project would be split 75% to Stellar and
25% to Octea. Stellar would however have full legal ownership of
the Tongo-Tonguma asset and operational, management and voting
control of the new mine.
As part of the proposed transaction, PPM and SRK Consulting have
completed an independent PEA on the combined Tongo-Tonguma project.
This study estimated the capital requirement in years 1 and 2 to be
US$31 million, with first production expected to commence within 12
months of completion of the transaction, ramping up to 200,000
carats per year for an initial 21 year mine life. A total of 3.9
million carats are forecast to be recovered at grades ranging from
100cpht to 260cpht and diamond values of US$209/ct to US$310/ct
(all at a +1.18m cut-off).
The PEA for both licences shows a pre-tax NPV (10) of US$172
million and an IRR of 49%. Furthermore, there is strong evidence of
an additional 8 million carats in "geological potential" which can
be converted into resource and can offer material upside to the
economics of the project and provide for a significantly longer
mine life. A full competent person's report has also been produced
on the Tongo-Tonguma project which independently reports on the
findings from the PEA and the viability of the project and includes
an outline of the key risks associated with the project.
Stellar have appointed Mirabaud Securities to lead the
fundraising for the proposed acquisition and development of the
Tongo-Tonguma project into commercial production.
Baoulé Project
During the year, Stellar completed a 101,263 tonne bulk sample
of the 5 hectare diamondiferous Baoulé kimberlite pipe, as planned.
It yielded 11,564 carats, with the largest stone of 55 carats (low
quality), but also many high value gems up to 12 carats were
recovered. The highest value was a 10.04 carat fancy yellow high
quality stone, which sold for an impressive US$6,788 per carat.
Diamond sales from the trial mining exercise were over US$1.1
million.
In order that Stellar can focus its management and financial
resources on the exciting project at Tongo-Tonguma, the Company has
agreed terms, subsequent to the year end, to joint venture the
Baoulé project with Citigate Commodities Trading ("Citigate"), a
Dubai based group. This earn-in agreement was entered into in
November 2016. Citigate is expected to invest US$1.5 million during
the first phase of bulk sampling work in order to earn a 25%
interest in the project. Stellar will receive a 56% revenue share
of any diamond sales during this phase. Citigate has the right to
earn a further 25% interest in the Baoulé Project by completing a
resource statement during Phase-2 for US$2 million expenditure and
a further 25% interest in the project by completing a
pre-feasibility study. During the earn-in period Citigate will be
granted offtake rights to any diamonds produced.
Liberia
In 2014 Stellar applied for two exploration licences in the west
of Liberia that cover an area of high interest, which Stellar
partly explored in 2008/9 before the financial crisis led to
Stellar ceasing operations in Liberia. These licences were granted
to Stellar in February 2016. Since the focus of the company is now
on the Tongo-Tonguma transaction and mine development it was
decided to also joint venture these two Liberia licences to
Citigate. Citigate is required to invest a total of US$6.25 million
over three phases of work to earn an 85% interest in the licences
and during this earn-in has offtake rights for any diamonds
produced. Stellar will not be required to contribute any funds to
the project during the Citigate earn-in period. This transaction
was completed in November 2016.
Corporate and other activities
In November 2015 Stellar brought in a new significant strategic
investor in Deutsche Balaton, through a combination of an equity
investment and a convertible loan. Deutsche Balaton have also
provided additional interim funding since the year end, alongside
one of our Directors, Steven Poulton and Creditforce Limited, and
this is a strong signal of support of Stellar's strategy to enter
into production through the completion of the proposed Tonguma
acquisition. As a result of the announcement of the potential
Tonguma acquisition in August 2016 the Company's shares were
suspended from trading on AIM as is required following the
announcement of a transaction, which is classed as a Reverse Take
Over under AIM rules pending publication of an AIM Admission
Document.
With the Company now focussed on completing the Tonguma
acquisition and the subsequent mine construction planned for 2017,
subject to the completion of the transaction and raising the
estimated US$45 million to bring the combined project into
production, the Directors have again reviewed the carrying value of
the Kono project in the accounts. Given the focus on Tongo-Tonguma
and the passage of time with no additional progress being made on
the reinstatement of the Kono licence, the Directors consider that
the carrying value of project should be fully impaired at this time
and accordingly an impairment charge of US$4.3 million was made
during the year.
Finally, the Directors have considered the disconnect between
the value of the Group's equity of US$13 million and the market
capitalisation of the Company at the time of the shares being
suspended of approximately US$3 million. The Directors do not
consider the market capitalisation of the Company to be a true
reflection of its value and also note that the share price at
suspension does not take into account the value of the potential
transformational transaction being contemplated, and it is the
Directors' view that the undervalued market capitalisation does not
represent an indication of impairment of the assets of the Group
but a reflection of the poor market that junior resource companies
currently operate in.
Diamond Market
Rough diamond prices declined by around 25% in 2015 however,
prices rebound strongly in the first half of 2016. Demand in the
second half of 2016 has remained quite robust thus supporting
prices. Polished prices, however, remain sluggish or slightly down
on the year so this could restrain rough price growth in the short
term. The outlook for rough supply and demand can best be
summarised by the 2015 Bain Report, which concludes:
-- "The world rough-diamond demand in the next 15 years is
forecasted to grow at an average annual rate of about 3% to 4%, and
the supply is projected to decline by 1% to 2%, causing the gap
between supply and demand to widen starting in 2019. The forecast
reflects fundamental supply and demand factors rather than
short-term fluctuations or unforeseeable long-term macroeconomic
shifts".
-- "Our forecast of the rough-diamond supply is based on the
analysis of existing mines, publicly announced plans and
anticipated production at every expected new mine. We foresee the
global supply of rough declining on average by 1% to 2% per year
from 2015 to 2030 because of the aging and depletion of existing
mines and relatively little new supply coming online."
It is also noteworthy that Rio Tinto plc has recently indicated
their intention to materially grow their diamond business due to
the looming supply and demand deficit, as identified by the 2015
Bain Report.
Outlook
All the hard work during 2016 should ensure that 2017 is a very
exciting year for the Company. Subject to completion occurring,
Tongo-Tonguma has the necessary characteristics to transform
Stellar into a mid-tier diamond mining company.
I would like to thank our shareholders for their continued
support during very difficult market conditions and I would
particularly like to thank Deutsche Balaton and Altus. Their recent
support has enabled our excellent team to move our key projects
forward and negotiate a transformational transaction which gives
Stellar Diamonds a bright outlook.
Lord Daresbury
Non-Executive Chairman
21 December 2016
Stellar Diamonds plc
Consolidated statement of comprehensive income
For the year ended 30 June 2016
(Stated in U.S. dollars)
Year
ended
Year ended 30 June
Notes 30 June 2016 2015
------------------------------ ------ -------------- --------------
Revenue 2 499,725 614,228
Cost of sales (1,545,769) (1,047,608)
-------------- --------------
Gross loss (1,046,044) (433,380)
Depreciation of plant
and equipment 5 (621,629) (499,807)
Impairment of intangibles 4 (4,300,528) (605,728)
Administrative expenses (1,461,418) (1,437,838)
Loss on disposal of (98,956) -
tangible fixed assets
Remeasurement of derivatives 6 877,993 36,173
Finance costs (407,418) (75,102)
------------------------------ ------ -------------- --------------
(7,058,000) (3,015,682)
------------------------------ ------ -------------- --------------
Loss before tax (7,058,000) (3,015,682)
Income tax expense - -
------------------------------ ------ -------------- --------------
Loss after tax attributable
to equity holders of
the parent (7,058,000) (3,015,682)
------------------------------ ------ -------------- --------------
Total comprehensive
expense for the year
attributable to equity
holders of the parent (7,058,000) (3,015,682)
------------------------------ ------ -------------- --------------
Basic and diluted loss
per share (0.300) (0.200)
------------------------------ ------ -------------- --------------
Stellar Diamonds plc
Consolidated and company statement of financial
position
As at 30 June 2016
(Stated in U.S.
dollars) Consolidated Company
30 June 30 June 30 June 30 June
Notes 2016 2015 2016 2015
-------------------------- ------------ ------------- ------------- ----------------- -------------
Assets
Non-current assets
Intangible Assets 4 13,139,699 16,700,417 - 1,302,561
Property, plant
and equipment 5 1,439,124 2,192,719 - -
Investment in Subsidiary - - 4,157,484 4,157,484
---------------------------- ---------- ------------- ------------- ----------------- -------------
Total non-current
assets 14,578,823 18,893,136 4,157,484 5,460,045
---------------------------- ---------- ------------- ------------- ----------------- -------------
Current assets
Inventories 26,934 154,170 - -
Trade and other
receivables 296,284 166,750 10,529,217 13,241,868
Cash and cash equivalents 268,330 94,624 447 524
---------------------------- ---------- ------------- ------------- ----------------- -------------
Total current assets 591,548 415,544 10,529,664 13,242,392
---------------------------- ---------- ------------- ------------- ----------------- -------------
Total assets 15,170,371 19,308,680 14,687,148 18,702,437
---------------------------- ---------- ------------- ------------- ----------------- -------------
Equity and liabilities
Capital and reserves
Share capital 26,887,434 26,655,961 26,887,434 26,655,961
Share premium 30,449,207 29,000,173 30,449,207 29,000,173
Reverse acquisition
reserve 17,073,279 17,073,279 - -
Share option reserve 918,279 4,286,666 918,279 1,952,748
Foreign currency
translation reserve - - (773,363) (773,363)
Accumulated loss (62,410,109) (58,720,496) (44,563,467) (38,539,936)
Total equity 12,918,090 18,295,583 12,918,090 18,295,583
---------------------------- ---------- ------------- ------------- ----------------- -------------
Non-current liabilities
Convertible loan 6 953,625 - 953,625 -
Derivative financial
liabilities 6 12,504 - 12,504 -
Provision 104,369 104,369 - -
Total non-current
liabilities 1,070,498 104,369 966,129 -
---------------------------- ---------- ------------- ------------- ----------------- -------------
Current liabilities
Trade and other
payables 413,840 780,974 134,976 379,100
Loans 767,943 100,000 667,953 -
Derivative financial
liabilities 6 - 27,754 - 27,754
Total current liabilities 1,181,783 908,728 802,929 406,854
---------------------------- ---------- ------------- ------------- ----------------- -------------
Total liabilities 2,252,281 1,013,097 1,769,058 406,854
---------------------------- ---------- ------------- ------------- ----------------- -------------
Total equity and
liabilities 15,170,371 19,308,680 14,687,148 18,702,437
---------------------------- ---------- ------------- ------------- ----------------- -------------
Stellar Diamonds plc
Consolidated statement of changes in equity
For the year ended 30 June 2016
(Stated in U.S.
dollars)
Reverse
Share Share Warrant Share acquisition
option
capital premium reserve reserve reserve Accumulated Total
loss equity
Balance at 30
June
2014 24,906,611 28,609,454 27,643 5,008,756 17,073,279 (56,491,193) 19,134,550
Total
comprehensive
loss for the
year - - - - - (3,015,682) (3,015,682)
Issue of placing
shares 1,749,350 440,607 - - - - 2,189,957
Share issue costs - (13,242) - - - - (13,242)
Warrants issued - (36,646) 36,646 - - - -
Transfer to
accumulated
loss - - (64,289) - - 64,289 -
Share options
expired - - - (722,090) - 722,090 -
Balance at 30
June
2015 26,655,961 29,000,173 - 4,286,666 17,073,279 (58,720,496) 18,295,583
Total
comprehensive
loss for the
year - - - - - (7,058,000) (7,058,000)
Issue of placing
shares 231,473 1,575,358 - - - - 1,806,831
Share issue costs (126,324) - - - - (126,324)
Share options
expired - - - (3,368,387) - 3,368,387 -
Balance as at 30
June
2016 26,887,434 30,449,207 - 918,279 17,073,279 (62,410,109) 12,918,090
------------------ ----------- ----------- ---------- ------------ ------------- ------------- ------------
Stellar Diamonds plc
Consolidated and company statement of cash flows
For the year ended 30 June 2016
(Stated in U.S. dollars)
Consolidated Company
June June June June
2016 2015 2016 2015
---------------------------------------------- ------------- ------------ ------------ -------------
Cash flows from operating
activities:
Net loss for the year (7,058,000) (3,015,682) (7,058,000) (3,015,682)
Adjustments for:
Depreciation of property,
plant and equipment 621,629 499,807 - -
Impairment of intangibles 4,300,528 605,728 1,302,561 -
Loss on disposal of fixed
assets 98,956 - - -
Remeasurement of derivatives (877,993) (36,173) (877,993) (36,173)
Shares issued to Directors
and officers in lieu of
fees 192,343 55,115 - -
Net foreign exchange (gain) (226,447) (31,770) (11,983) (5,198)
Interest payable 407,418 - 378,341
Change in working capital
items:
Decrease/(Increase) in
receivables (129,534) 1,012 2,906,806 514,478
Decrease/(Increase) in
inventories 127,236 (154,170) - -
(Decrease)/Increase in
trade and other payables (93,677) 578,954 29,347 393,492
---------------------------------------------- ------------- ------------ ------------ -------------
Net cash used in operations (2,637,541) (1,497,179) (3,330,921) (2,149,083)
---------------------------------------------- ------------- ------------ ------------ -------------
Cash flows from investing
activities
Purchases of property,
plant and equipment - (713,028) - -
Payments to acquire intangible
assets (706,801) (1,207,209) - -
---------------------------------------------- ------------- ------------ ------------ -------------
Net cash used in investing
activities (706,801) (1,920,237) - -
---------------------------------------------- ------------- ------------ ------------ -------------
Cash flows from financing
activities
Proceeds of Convertible
Loan 1,551,407 - 1,551,407 -
Proceeds of other loans 662,397 - 662,397 -
Repayment of other loans (337,500) - (337,500) -
Interest Paid (72,867) - (45,625) -
Proceeds from issue of
share capital, net of costs 1,488,164 2,121,599 1,488,164 2,121,599
-------------
Net cash generated by financing
activities 3,291,601 2,121,599 3,318,843 2,121,599
---------------------------------------------- ------------- ------------ ------------ -------------
Net (decrease) in cash
and cash equivalents (52,741) (1,295,817) (12,078) (27,484)
Cash and cash equivalents,
beginning of year 94,624 1,358,671 542 22,810
Effect of foreign exchange
rate changes 226,447 31,770 11,983 5,198
------------- ------------ ------------ -------------
Cash and cash equivalents,
end of year 268,330 94,624 447 524
---------------------------------------------- ------------- ------------ ------------ -------------
1. Basis of preparation
1.1 Basis of accounting
Stellar Diamonds plc is presenting audited financial statements
as of and for the year ended 30 June 2016. The comparative period
presented is audited financial statements as of and for the year
ended 30 June 2015.
The financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRSs") as published
by the IASB. The financial statements have also been prepared in
accordance with IFRSs as adopted by the European Union and 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.
1.2 Going concern
The Group incurred a loss of $7,058,000 during the year ended 30
June 2016 (2015: $3,015,682), and at that date had net current
liabilities of $590,235 (2015: net current liabilities of $493,184)
which included cash and cash equivalents of $268,330 (2015:
$94,624) and stock of diamonds of $26,934 (2015: $154,170).
During the year the Group raised $1.8m through placings and
entered into a convertible loan note for $1.65m with an additional
$1.65m warrant attached and also entered into a $0.66m 6 month loan
agreement. Subsequent to the Balance Sheet date the Group replaced
the $0.66 million short term loan with a $1.2 million convertible
loan, details of which can be found in note 21. At the date of this
report the Group is in the process of acquiring the Tonguma project
and as part of this process is looking to raise approximately $45
million through a combination of debt and equity to develop the
Tongo/Tonguma combined project and subject to actual capital and
ongoing costs not being significantly greater than expected, should
provide working capital to the Group until commercial scale
production is reached. The acquisition of Tonguma and the funding
for the Tongo/Tonguma project remains subject to inter alia,
completion of due diligence, entering into final binding legal
agreements, publication of an admission document, shareholder
approval and re-admission of Stellar to trading on AIM. Should the
acquisition and funding not take place as planned the Group will
require additional working capital funding to continue as a going
concern. The Group has continued to undertake cost reduction
initiatives both at a Corporate and Project level.
Given the positive evaluation studies concluded on the Tongo
project to date, the stage of development of the project, the
positive progress in obtaining the relevant Mining and
Environmental Licences required to take the project into
production, and the advanced nature of the transformational Tonguma
acquisition the Directors believe that the Company will have the
ability to access sufficient levels of finance to fund the capital
expenditure requirements at Tongo, and to meet essential
administrative expenses and continue the Group's other projects for
the foreseeable future. The directors have reviewed the projected
cash flows for the Group and on the basis of the projected cash
flow information and the prospects for raising additional equity as
required, they consider it appropriate to prepare the financial
statements on a going concern basis.
The going concern of the Group is dependent on obtaining
additional finance in order to meet its working capital needs for a
period of not less than twelve months from the date of approval of
the financial statements and to continue to fund development of
exploration projects. This indicates the existence of material
uncertainties which may cast significant doubt on the ability of
the Company and the Group to continue as a going concern, and hence
may be unable to realise its assets and discharge its liabilities
in the normal course of business.
The Directors are confident that they can fulfil the funding
requirements of the Group through attracting funding through
diamond sales, joint ventures, sale of assets, reducing overheads,
obtaining debt funding for Tongo or the issue of further shares by
way of private placement. On this basis, the Directors are
satisfied that it is appropriate to prepare the financial
statements of the Group on a going concern basis. The financial
statements do not include any adjustment to the carrying amount or
classification of assets and liabilities that would occur if the
Company was unable to continue as a going concern.
1.3 Audit Report
Deloitte & Touche, the Group's auditors, have not qualified
their audit opinion, however they have included an emphasis of
matter in relation to the realisation of intangible assets,
property, plant and equipment, and the recoverability of
investments in and amounts due from subsidiaries, all of which are
dependent on the discovery and successful development of economic
mineral reserves, the group's ability to raise sufficient finance
to develop the mineral exploration projects and on the future
profitable production or proceeds from the resource properties. The
emphasis of matter also includes reference to the group's ability
to continue as a going concern.
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/Bomboko (Guinea);
-- Kono (Sierra Leone);
-- Tongo (Sierra Leone);
-- Droujba (Guinea);
-- Baoulé (Guinea);
-- Corporate and other activities.
Following is an analysis of the Group's revenue, results, assets
and liabilities by reportable segment for the year ended 30 June
2016:
Corporate Total
Mandala/ and
Bomboko Baoulé Kono Tongo Droujba other
$ $ $ $ $ $ $
Revenue -
sale of diamonds - 499,725 - - - - 499,725
---------- ------------ ------------ ---------- ---------- ------------ ------------
Segment result (132,890) (1,046,044) (4,364,833) 121,090* (2,612) (2,103,286) (7,528,575)
---------- ------------ ------------ ---------- ---------- ------------ ------------
Finance costs (407,418)
Remeasurement
of derivatives 877,993
---------- ------------ ------------ ---------- ---------- ------------ ------------
Loss before
tax (7,058,000)
Income tax
expense -
---------- ------------ ------------ ---------- ---------- ------------ ------------
Loss after
tax (7,058,000)
---------- ------------ ------------ ---------- ---------- ------------ ------------
Segment assets 25,415 3,087,944 3,012 7,231,945 4,256,910 565,145 15,170,371
Segment liabilities (104,369) - - (36,920) (2,684) (2,108,308 (2,252,281)
Carrying value
of intangible
assets - 1,708,472 - 7,128,759 4,256,910 45,558 13,139,699
Net book value
of property,
plant and
equipment - 1,352,537 2,819 72,637 - 11,131 1,439,124
Capital additions
- intangible
assets - - - 721,518 18,293 - 739,811
Depreciation
of property,
plant and
equipment - 621,021 1,208 32,180 - 230 654,639
Impairment
of intangibles - - 4,300,528 - - - 4,300,528
*The profit shown for Tongo relates entirely to foreign currency
gains recognised on transfers of US Dollars in Sierra Leonian
Leones in the year.
Following is an analysis of the Group's revenue, results, assets
and liabilities by reportable segment for the year ended 30 June
2015:
Corporate Total
Mandala/ and
Bomboko Baoulé Kono Tongo Droujba other
$ $ $ $ $ $ $
Revenue - sale
of diamonds - 614,228 - - - - 614,228
---------- ------------ ---------- ---------- ---------- ------------ ------------
Segment result (178,302) (930,814) (129,678) - - (1,701,786) (2,940,580)
---------- ------------ ---------- ---------- ---------- ------------ ------------
Finance costs - - - - - - (75,102)
---------- ------------ ---------- ---------- ---------- ------------ ------------
Loss before
tax - - - - - - (3,015,682)
Income tax
expense - - - - - - -
---------- ------------ ---------- ---------- ---------- ------------ ------------
Loss after
tax - - - - - - (3,015,682)
---------- ------------ ---------- ---------- ---------- ------------ ------------
Segment assets 23,054 3,954,171 4,304,755 6,540,190 4,238,618 293,608 19,354,396
Segment liabilities (150,086) - - (76,458) (2,684) (829,592) (1,058,820)
Carrying value
of intangible
assets - 1,708,472 4,300,528 6,407,240 4,238,618 45,558 16,700,416
Net book value
of property,
plant and equipment - 2,069,997 4,027 107,334 - 11,361 2,192,719
Capital additions
- property,
plant and equipment - 713,028 - - - - 713,028
- intangible
assets - 1,024,764 - 562,932 (36,346) - 1,551,350
Depreciation
of property,
plant and equipment - 795,894 1,726 46,000 - 329 843,949
Impairment
of intangibles - - - - - 605,728 605,728
3. Loss for the year
Loss for the year has been arrived at after
charging/(crediting):
Year
Year ended ended
30 June 30 June
2016 2015
$ $
Fees payable to the company's
auditors for the
audit of the group's accounts:
- audit services 30,718 29,874
- non-audit services - -
Net foreign exchange (gain) (226,447) (31,770)
Depreciation of property,
plant and equipment 621,629 499,807
Impairment of Intangibles 4,300,528 605,728
$33,010 of depreciation charges were capitalised as exploration
and evaluation expenditure during the year and consequently are not
included in the Statement of Comprehensive Income (2015:
$344,142).
4. Intangible assets
Consolidated Company
30 June 30 June 30 June 30 June
2016 2015 2016 2015
$ $ $ $
Exploration and
evaluation expenditure:
Cost
Opening balance 34,989,394 33,438,044 4,408,327 4,408,327
Additions 739,811 1,551,350 - -
----------- ----------- ---------- ----------
Closing balance 35,729,205 34,989,394 4,408,327 4,408,327
----------- ----------- ---------- ----------
Impairment
Opening balance 18,288,978 17,683,250 3,105,766 3,105,766
Charge for the
year 4,300,528 605,728 1,302,561 -
----------- ----------- ---------- ----------
Closing balance 22,589,506 18,288,978 4,408,327 3,105,766
-----------
Carrying value 13,139,699 16,700,416 - 1,302,561
----------- ----------- ---------- ----------
At 30 June 2016, the Group did not have any contractual
commitments for the acquisition of intangible assets.
The impairment charge of $4,300,528 in the year related to the
impairment of the carrying value of the Kono intangible assets as
detailed below. The impairment charge of $605,728 in the previous
year relates to other exploration projects that are no longer being
pursued.
The realisation of the net carrying value of intangible assets
of $13,139,699 is dependent on the discovery and successful
development of economic mineral reserves including the Group's
ability to raise sufficient finance to develop the exploration and
evaluation projects and other factors, as discussed in note
2.14.
In the year ended 30 June 2012 a dispute emerged in relation to
the two exploration licenses held for the Kono project. The group
received a letter from the Ministry of Mines of Sierra Leone ("The
Ministry") which asserts that the Ministry ought not to have
granted the renewals of the Company's licences in 2010 under the
Mines and Minerals Act of 2009 and that as a result the Company no
longer has mineral rights over the licences. The Company disputes
the assertions and has continued to pursue the available political,
diplomatic and legal routes available. During the year no further
progress was made in relation to the reinstatement of the Kono
licence and the Company has taken the decision to focus its efforts
in Sierra Leone on the completion of the Tonguma acquisition and
subsequent development of the Tongo-Tonguma commercial mine. The
Directors therefore believe that the reinstatement of the Kono
licence is unlikely in the foreseeable future and have taken the
decision to impair the value of the intangible assets relating to
that licence which at the time of the impairment had a carrying
value of $4,300,528 in the Consolidated Statement of Financial
Position and a carrying value of $1,302,561 in the Company
Statement of Financial Position.
The Directors have considered the potential impairment of the
other intangible assets carried in the books at the year end, being
those relating to the Tongo, Droujba and Baoulé licences and the
Directors have considered various factors including the stage of
development of the assets in question and the planned future work
to be carried out on them and any discounted cash flow models or
other valuations of the assets produced. The Directors have
concluded that no impairment is required on those assets at the
balance sheet date. Cash flows were estimated 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 are based on independent valuations and models
and an annual increase of 4.5% thereafter;
-- discount rate of 10%;
-- inflation rate of 4.5%;and
-- the remaining useful life.
5. Property, plant and equipment
Mining Machinery
assets and equipment Total
$ $ $
Cost:
At 30 June 2014 11,079,305 9,778,339 20,857,644
Additions - 713,028 713,028
At 30 June 2015 11,079,305 10,491,367 21,570,672
Disposals - (898,032) (898,032)
At 30 June 2016 11,079,305 9,593,335 20,672,640
Depreciation:
At 30 June 2014 11,079,305 7,454,699 18,534,004
Charge for the
year - 843,949 843,949
At 30 June 2015 11,079,305 8,298,648 19,377,953
Charge for the
year - 654,639 654,639
Depreciation on
disposals - (799,076) (799,076)
At 30 June 2016 11,079,305 8,154,211 19,233,516
----------- --------------- -----------
Carrying value:
At 30 June 2016 - 1,439,124 1,439,124
----------- --------------- -----------
At 30 June 2015 - 2,192,719 2,192,719
----------- --------------- -----------
In accordance with the accounting policy stated in note 2.5, 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 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 are based on independent valuations and models
and an annual increase of 4.5% thereafter;
-- discount rate of 10%;
-- inflation rate of 4.5%;and
-- the remaining useful life.
The Group did not have any further contractually committed costs
for the acquisition of property, plant and equipment at 30 June
2016.
The realisation of the property, plant and equipment of
$1,439,124 is dependent on the discovery and successful development
of economic mineral reserves including the group's ability to raise
sufficient finance to develop the exploration projects and other
factors, as discussed in the notes.
6. Convertible loan
On 19 November 2015 the company issued a secured convertible
loan note (CLN) of $1,650,000, split into 5 equal amounts of
$330,000, net of corporate finance and legal issuance costs of
$98,599, to Deutsche Balaton. The CLN has a 2 year term and is
repayable by 19 November 2017 and carries interest at 6% p.a.
payable on the 12, 18 and 24 month anniversary of the issue date.
The CLN is secured on the shares of Sierra Diamonds Limited, a
wholly owned subsidiary of the Group which holds the Tongo
exploration licence and related assets. The CLN is convertible into
3,747,368 ordinary 1p shares of the Company and can also be
converted into shares in subsidiaries of the Company based on a set
formula. The Company also granted warrants over 5,995,789 shares to
Deutsche Balaton with an aggregate subscription value of
$1,650,000. The warrants can only be exercised following conversion
or repayment of the corresponding proportion of the CLN and have an
expiry date of 21 November 2017.
The conversion feature of the CLN and the related warrants
represents an embedded derivative for accounting purposes and is
separated from the host contract at fair value on the date of issue
and presented as a Derivative Financial Instrument liability. This
is revalued at each balance sheet date with the movement recorded
through the income statement.
In order to determine the fair value of the embedded derivate
the Directors have considered a number of applicable valuation
techniques. As the warrants and conversion feature can be exercised
or converted at either the Stellar Diamonds Plc or at individual
subsidiary level a Monte-Carlo simulation method would usually be
used. The Directors have considered the requirements of such a
valuation and do not believe that it would be possible to
accurately derive a fair value in this way due to the lack of
accurate available cash flow projections for certain assets and the
difficulty in assigning probabilities to potential outcomes around
the potential subsidiary level conversion. As a result the
Directors consider that the most appropriate valuation method is to
use a Black-Scholes option pricing model using the value of the
ability to convert and exercise at the Stellar Diamonds plc level
as a proxy. The Directors have considered the potential effect of
using this technique, which is simplistic, and are of the opinion
that it would not have a material effect on the valuations
produced. The warrants cannot be exercised until the underlying CLN
has been converted and therefore they have been valued and treated
using the same inputs. The table below outlines the fair value
inputs used in the embedded derivative valuation:
30 June 19 November
2016 2015
Expected life 1.39 years 2 years
Expected Dividend Yield 0% 0%
Risk Free Interest Rate 0.396% 0.856%
Share Price Volatility 69.17% 89.36%
Share Price at Time of Valuation 5.75p 17.5p
Exchange rate $1.3390/GBP $1.5273/GBP
As a result of the above fair value methodology and the
underlying terms of the loan and warrants the following movements
were recorded in the period for the convertible loan and the
derivative financial liability.
30 June
2016
Convertible loan: $
Proceeds from issuance 1,650,000
Issuance costs (98,599)
Embedded derivate element relating
to conversion option (331,824)
Embedded derivate element relating
to warrant (530,919)
Effective interest charged in the
period 264,967
----------
Presented as non-current loans and
borrowings 953,625
----------
Embedded derivatives:
Fair value of derivate financial
instrument at inception of convertible
loan 862,743
Gain recognised on revaluation at
30 June 2016 (850,240)
----------
Presented as non-current Derivative
Financial Liability 12,504
----------
The decrease in value of the derivative since inception is as a
result in the fall in the share price of Stellar Diamonds Plc
between the date of the issue of the CLN and the balance sheet
date. This fall in share price has resulted in a fall in the value
of the underlying derivative as calculated using the Black-Scholes
Model and the inputs detailed above, and is recognised as a gain in
the Statement of Comprehensive Income.
As a result of the accounting treatment of the convertible loan
and the movement on share price between the inception of the loan
and the balance sheet date, the Company has recognised a
significant gain on revaluation of derivatives in the financial
year of $850,240. The accounting treatment also results in a
significant finance cost relating to the loan element which will be
charged to the income statement over the term of the loan, being 24
months from inception and 17 months from the balance sheet
date.
In addition to the gain of $850,240 recognised in relation to
the convertible loan above during the financial year, an additional
$27,754 was written off to the income statement relating to
derivatives on the balance sheet at 30 June 2015.
The convertible loan and embedded derivatives have been
classified as a Level 3 financial instrument under the fair value
hierarchy as described in the notes.
Sensitivity Analysis
The Directors have undertaken a sensitivity analysis on the key
inputs to the Black-Scholes model used to value the convertible
loan and embedded derivatives. The table below details the
sensitivities of changes in the share price and annualised
volatility inputs used in the model for the valuation at 30 June
2016. A positive number represents a potential increase in the gain
on revaluation of derivatives and a negative number represents a
potential decrease in the gain on revaluation of derivatives. The
Directors consider the sensitivity levels used for each input to be
suitable.
Value Lower Effect Upper Effect
used sensitivity on Remeasurement sensitivity on Remeasurement
at 30 level gain level gain
June
2016
$ $
Share 2.875p 8.625p
price 5.75p (-50%) 4,542 (+50%) (15,055)
Annualised
volatility 69.17% 49.17% 4,470 89.17% (12,662)
------- ------------- ------------------ ------------- ------------------
7. Subsequent events
On 5 October 2016 the Company entered into a $1.24 million
convertible loan agreement. Under this agreement the existing $0.66
million loan outstanding at 30 June 2016 was repaid in full (refer
to note 17 for details of this loan). The new convertible loan
carries a coupon of 18% for 10 months and 24% for the remainder of
the term. Interest is payable monthly and the loan has a term of 20
months. The outstanding principal can be converted into ordinary
shares of the Company at any time after the completion of the
proposed acquisition of the Tonguma project ("The Transaction") or
after confirmation that the Transaction is no longer expected to
complete. The conversion price will be 70% of the subscription
price for equity raised to complete the Transaction. In the event
that the Potential Transaction does not complete, the conversion
price will be based on 70 percent of historical Volume Weighted
Average Price ("VWAP") of Stellar Diamonds Plc shares for a fixed
period prior to notice of exercise.
In conjunction with the convertible loan and subject to
obtaining shareholder authorities in relation to the Company's
ability to issue new Ordinary Shares at a general meeting, the
Company shall issue the Noteholders with warrants which are
equivalent to three times the principal amount of the CLN (i.e.
warrants with a total subscription price of US$3.72 million)
exercisable at a premium of 5 percent to the Issue Price (per
Ordinary Share) in the event of Completion occurring. The premium
will increase at a rate of 1 percentage point per month from
Completion up to a maximum premium of 17 percent to the Issue
Price. In the event that the Transaction does not complete, the
exercise price in respect of the convertible loan Warrants will be
based on historical VWAP. The warrants are exercisable for a period
of 18 months following completion of the Transaction or
announcement that the Transaction will not occur, or 31 March 2017
if earlier. Should the warrants be exercised then the resulting
Ordinary Shares issued to the warrant holder shall be subject to a
lock-in period of six months from the date of exercise.
Also on 5 October 2016 the Company entered into an agreement to
amend certain terms of the existing $1.65 million convertible loan
with Deutsche Balaton. Under the terms of the amendment the Company
has agreed to issue Deutsche Balaton with $1 million of new
ordinary shares at the date of completion of the Tonguma
Transaction at the subscription price for equity issued on the
Transaction in return for Deutsche Balaton waiving its rights to
convert the loan or exercise the attached warrants into
subsidiaries of Stellar. Additionally the conversion price and
warrant exercise price will be amended to the Transaction equity
subscription price and an additional $0.83 million of warrants will
be issued to Deutsche Balaton. Deutsche Balaton will also waive any
interest payable on the loan. All of these amendments are subject
to the successful completion of the Transaction.
In October 2016 the Company entered into Joint Venture
Agreements over its Liberia and Baoulé (Guinea) projects with
Citigate Commodities Trading ("Citigate"). Under the terms of
Baoulé agreement Citigate will invest $1.5 million in return for
25% of the shares of Ressource Tassiliman Baoulé SA, a further $2
million for a further 25% shareholding and will complete a
Pre-Feasibility Study on the project for an additional 25%
shareholding. Under the terms of the Liberia agreement Citigate
will invest $0.25 million in return for 25% of the shares of
Stellar Diamonds (Liberia) Incorporated, a further $2 million for a
further 25% shareholding and a final $4 million for a further 35%
shareholding. Stellar will receive a management fee of $25,000
relating to the Liberia joint venture and $150,000 in relation to
the Baoulé joint venture agreement for the first year of the joint
ventures.
On 19 August 2016 the Company announced that it was in
discussions to acquire the Tonguma kimberlite dyke project in
Sierra Leone from Octea Mining Limited. The Tonguma licence is
located adjacent to the Company's Tongo licence and, if successful
in its acquisition and raising approximately $45 million to fund
the development of the combined project, the Company plans to bring
the project into production in 2017. As the transaction is
considered to be a Reverse Take Over under AIM rules, following the
announcement of the proposed transaction the Company's shares were
suspended from trading on AIM. The shares will remain suspended
until the completion of the transaction or confirmation by the
Company that the transaction is no longer being pursued. The
Company has 6 months from the date of suspension to complete the
transaction, after which the Company will be delisted from AIM.
8. Related parties
Year ended Year
30 June ended
2016 30 June
2015
Directors: $ $
- shares issued in lieu of
accrued Directors' fees 192,343 55,155
- amounts owed to Directors
at 30 June 105,378 45,638
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:
Year Year
Salary Bonus Bonus ended ended
or paid paid 30 June 30 June
fees in cash in shares 2016 2015
$ $ $ $ $
Lord Daresbury 85,149 - - 85,149 91,934
N. Karl Smithson 220,394 - 66,617* 287,011 234,355
Luis da Silva 23,091 - - 23,091 24,931
Steven Poulton 36,080 - - 36,080 38,955
Dr Markus
Elsasser 16,721 - - 16,721 24,931
Liviu Meran 16,721 - - 16,721 18,435
Hansjörg
Plaggemars 13,871 - - 13,871 -
412,027 - 66,617 478,644 433,541
------------ ---------- ------------ ------------ ---------
*Bonus relates to the 12 months to 31 December 2014 and reflects
the Group ongoing operations in Guinea and Sierra Leone during the
Ebola crisis.
The Directors who held office at 30 June 2016 had the following
interests in the ordinary shares of the Company as of 30 June
2016:
30 June 2016* 30 June 2015
Ordinary Share Ordinary
shares options shares Share options
Lord Daresbury 538,936 102,000 10,432,824 6,802,000
N. Karl Smithson 625,019 220,000 7,267,371 15,006,500
Luis da Silva 161,598 74,000 3,265,674 5,053,000
Steven J.
Poulton 317,342 90,000 7,470,145 5,952,000
Hansjörg
Plaggemars - - - -
1,642,895 486,000 28,436,014 32,813,500
---------- --------- ----------- --------------
* Figures at 30 June 2016 are following the 50:1 share
consolidation as detailed in the notes.
The number of Directors to whom retirement benefits are accruing
is Nil (2015: Nil).
All remuneration in the current year related to short term
employee benefits.
On 11 March 2016 a Director of the Company, Hansjörg Plaggemars,
purchased a diamond from Stellar through its sales agent. The
diamond was purchased on commercial, arms-length terms following an
independent assessment of its value by the sales agent. The diamond
was purchased in cash for $8,473, being the value calculated
independently by Stellar's sales agent ("Diamond Acquisition").
There were no such transactions in the previous year. The Diamond
Acquisition constituted a related party transaction pursuant to AIM
Rule 13. The Directors who are independent of the transaction,
consider, having consulted with the Company's nominated adviser,
that the terms of the transaction are fair and reasonable insofar
as the Company's shareholders are concerned.
9. Dividends
No dividends have been paid nor are proposed for the period
(2015: nil).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FEDFWFFMSELE
(END) Dow Jones Newswires
December 22, 2016 02:00 ET (07:00 GMT)
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