February 27, 2017

Completion of Placing, Restoration of Trading, Open Offer to raise up to £250,000, Subscription and Issue of Shares to Directors, Notice of Annual General Meeting

27 February 2017

AIM: STEL

Stellar Diamonds plc

(“Stellar” or the “Company”)

Completion of Placing

Restoration of Trading

Open Offer to raise up to £250,000

Subscription and Issue of Shares to Directors

Notice of Annual General Meeting

Further to the announcement dated 23 February 2017, Stellar Diamonds plc, the London listed diamond development company focused on West Africa, is pleased to announce completion of the Placing to raise gross proceeds of £324,500 through the issue of 5,900,000 new Ordinary Shares of the Company at an issue price of 5.5 pence per share. Following completion of the Placing, the suspension of trading of the Company’s Ordinary Shares on AIM is expected to be lifted at 7.30 a.m. today. The Company also provides further details of the Open Offer to raise up to an additional £250,000 through the issue of up to 4,545,455 New Ordinary Shares and a Director subscription to raise £20,000 through the issue of 363,636 new Ordinary Shares, both at an issue price of 5.5 pence per share. Additionally the Company announces the issue of 1,314,969 new Ordinary Shares to Directors in settlement of outstanding fees owed.

Completion of the Open Offer, the Subscription and the issue of the Director Fee Shares is subject to, inter alia, Shareholder approval, which will be sought at the Company’s Annual General Meeting to be held at 10.00 a.m. on 24 March 2017.

A circular (the “Circular”) setting out full details of the proposed Open Offer and incorporating notice of the Annual General Meeting, including resolutions to approve the proposals set out in this announcement, will be sent to Shareholders tomorrow (other than to those who have elected to receive Shareholder communications via electronic communication) and will be available on the Company’s website www.stellar-diamonds.com. Further information is also set out below.

Definitions of capitalised terms are set out below and shall have the same meaning as in the Circular unless the context requires otherwise.

Highlights

  • Restoration of trading on AIM
  • Completion of Placing to raise gross proceeds of £324,500 at a price of 5.5 p per Placing Share
  • Up to 4,545,455 New Ordinary Shares will be issued through the Open Offer and the Conditional Placing to raise gross proceeds of up to £250,000 at a price of 5.5 p per Open Offer Share
  • Open Offer Entitlement for Qualifying Shareholders on the basis of 1 Open Offer Share for every 8.295 Existing Ordinary Shares
  • Director Subscription to raise £20,000 and issue of new Ordinary Shares to Directors in lieu of fees, both subject to approval at the Annual General Meeting
  • Pursuant to the Conditional Placing, 1,381,818 of the Open Offer Shares have been conditionally placed by the Company’s joint broker, Peterhouse Corporate Finance Limited, subject to clawback to satisfy valid applications under the Open Offer in order to ensure that a minimum of £76,000 is raised i.e. if the Open Offer Shares are subscribed for in full by the Qualifying Shareholders, the Conditional Placing Shares will be clawed back in full and the Conditional Placing will not proceed
  • Placing and Open Offer funds to go towards the completion of the proposed Tribute Agreement over the high-grade and high value 4.5 million carat resource of the Tongo-Tonguma mine project (see below for further details), pay existing creditors of the business and for general working capital
  • Stellar estimates that the Tongo-Tonguma Project has the potential for an estimated after tax NPV(8) of approximately US$104 million and IRR of 31% attributable to Stellar

Completion of the Placing, total voting rights and significant shareholding

Following the issue of 5,900,000 Placing Shares, the Company’s issued share capital comprises 37,702,082 Ordinary Shares of 1 pence each. This figure may be used by Shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the Financial Conduct Authority’s Disclosure and Transparency Rules.

Following the Placing, the Company has been notified that William Samuel Clive Richards is interested in a total of 1,232,005 Ordinary Shares of the Company, representing 3.27 percent. of the Company’s issued share capital.

Proposed issue of new Ordinary shares to Directors and Subscription

Further to the Company’s announcement on 23 February 2017, in order to preserve cash, the Directors of Stellar have agreed to convert a net total of £72,323 in accrued director fees, salary and benefits up to the 31 March 2017 into 1,314,969 new Ordinary Shares of the Company at the Issue Price of 5.5 pence per Ordinary Share. In addition, Steven Poulton, a non-executive director of the Company, has conditionally subscribed for 363,636 new Ordinary Shares at 5.5 pence pursuant to a subscription agreement to raise gross proceeds of £20,000 for the Company. Both the issue of the Director Fee Shares and the Subscription Shares are conditional on the required authorities being approved by Shareholders at the Annual General Meeting.

Application will be made for admission of the Director Fee Shares and the Subscription Shares to trading on AIM, which, subject to the passing of the Resolutions at the Annual General Meeting, is expected to occur on or around 27 March 2017. The allocation of Director Fee Shares and Subscription Shares to the relevant Directors is set out below. Details of percentage holdings will be announced following the Annual General Meeting and completion of the Open Offer.

Director Number of Director Fee Shares Number of Subscription Shares Total beneficial holding after the issue of the Director Fee Shares and Subscription Shares1
Peter Daresbury 639,358 1,178,294
Karl Smithson 389,844 1,014,863
Steven Poulton 285,767 363,636 966,745
Total 1,314,969 363,636 3,159,902

1 Conditional on the passing of certain resolutions at the Annual General Meeting and excluding any Open Offer Shares which may be subscribed for by Shareholders under the Open Offer.

The issue of the Director Fee Shares and the Subscription Shares to Directors are related party transactions as defined by AIM Rules for Companies. The Independent Director, being Hansjörg Plaggemars, having consulted with the Company’s nominated adviser Cairn Financial Advisers LLP, considers that the terms of the proposed issue of the Director Fee Shares and the Subscription Shares are fair and reasonable insofar as the Company’s Shareholders are concerned.

Notice of Annual General Meeting

The Circular contains the Company’s notice of the Annual General Meeting, to be held at 10.00 a.m. on 24 March 2017 at the offices of Peterhouse Corporate Finance Limited, New Liverpool House, 15 Eldon Street, London, EC2M 7LD.

Copies of the Circular and Forms of Proxy for the Annual General Meeting will be sent to Shareholders (other than those who have elected to receive shareholder information via electronic communication). Copies of these documents will also be available on the Company’s website www.stellar-diamonds.com.

Tribute Heads of Terms and proposed Tribute Agreement

The proposed tribute mining agreement (the “Tribute Agreement”) as detailed in the announcement of 20 February 2017, if finalised, would allow Stellar to simultaneously mine both its wholly owned Tongo Project and, as sub-contractor of Octea, the adjacent Tonguma Project, with Stellar being the operator of the combined mine. The technical information in relation to the proposed combined Tongo-Tonguma mine plan (the “Tongo-Tonguma Project”) (previously reported in the announcement dated 5 October 2016 in respect of the PEA and in the announcement dated 31 October 2016 in respect of the independent CPR), remains unchanged and the proposed economic terms of the Tribute Agreement are set out below.

The Directors believe that given the potential scale of the Tongo-Tonguma Project in comparison to Tongo as a stand alone project, the proposed Tongo-Tonguma Project represents an attractive investment proposition. As reported in the CPR by MPH, diamond quality from the overall Tongo area has long been known as very high by international standards and the mineral resource work by Stellar at Tongo, and by Octéa at Tonguma has confirmed that the source kimberlite dykes produce high-quality diamond assortments. Both licences have been extensively explored and initial underground productions sites have been identified. Resource work carried out by Stellar, Octéa and their respective independent consultants has confirmed substantial high grade resources in three kimberlite dyke ore bodies across the Tongo-Tonguma Projects to inferred confidence levels. These resources are the basis for the PEA completed by PPM and SRK which suggests compelling economic potential for developing the mine from three separate underground declines at the combined Tongo–Tonguma Project as further detailed in the CPR. MPH has reported that they consider the combined Tongo-Tonguma Project to be the best undeveloped diamond project in West Africa.[1]

The initial capital outlay to develop Tongo as a stand-alone mining project has previously been estimated by PPM and SRK to be approximately US$24 million. In comparison, the estimated initial capital outlay of the combined Tongo-Tonguma Project is currently estimated to be US$31.85 million, being a 33 percent increase in the expected capital costs compared to developing the Tongo Project alone. The inferred JORC resource for the Tongo-Tonguma Project is however more than 3 times that for Tongo alone which the Directors believe provides a compelling basis for entering into the Tribute Agreement as the enlarged mine not only results in higher production levels but also lower average unit operating costs through scales of economy.

Key economic terms of the proposed Tribute Agreement

  • Stellar will fund and operate the enlarged Tongo-Tonguma mine development
  • Stellar will be responsible for processing and marketing all diamonds recovered
  • 10% share of gross revenues of the Tongo-Tonguma mine (after deduction of any Government royalty) is payable to Octea on diamond and other minerals recovered and sold, but only after Stellar has recouped an amount equal to its development capital and Octea has received an initial revenue share payment of US$5 million
  • Stellar to make a one-off payment to Octea of US$5 million five years after mine development commences
  • Agreed economics to include reimbursement to Octea of certain costs (including an amount equal to the annual Tonguma mining licence fee)
  • Certain assets of Tonguma, including the 50tph processing plant located at Octea’s Koidu Mine, will be acquired by Stellar for a nominal amount. Stellar intends to relocate and upgrade the plant which will then become the processing facility for the Tong-Tonguma mine
  • The final Tribute Agreement is expected to include a timeframe within which implementation of the mine plan will be expected

Tongo-Tonguma proposed mine plan and project economics

The mine plan detailed in the Tongo-Tonguma PEA demonstrates a financially robust and high margin 21 year life of mine over an initial inferred diamond resource (across Tongo and Tonguma) of 4.5 million carats. Shareholders should however note that the economics of the Tongo-Tonguma mine modelled in the PEA assumes that the Tribute Agreement would remain valid and in place for the forecast life of mine. The PEA and CPR also recognise that there is considerable potential upside from additional high-grade kimberlite dykes on the properties, which have not yet been categorised into a resource.

Estimated (by PPM/SRK) pre-tax Project NPV(10) and IRR of US$172 million and 49% respectively

  • Projected life of mine revenues of the Tongo-Tonguma mine of US$1,518 million with operating costs of US$847 million
  • Estimated operating margin of 50% over the life of mine
  • First production expected within 12 months of funding and development commencing increasing to over 200,000 carats per annum in the 4th year
  • Expected Capex of US$31.8 million in the first two years (including a 15% contingency)
  • Estimated 3.96 million carats recoverable from the initial 4.5 million carats resource at a +1.18mm cut-off
  • Recoverable diamond grades and values for first three kimberlites to be mined of:
    • Kundu: 260cpht and US$209 per carat (US$543 per tonne)
    • Lando: 220cpht and US$209 per carat (US$440 per tonne)
    • Tongo: 100cpht and US$310 per carat (US$310 per tonne)
  • Exploration target of up to 8 million carats in addition to existing resource

Stellar has prepared an internal financial model based on the mine plan produced in respect of the Tongo-Tonguma Project by PPM and SRK and has adjusted it to reflect the proposed revenue share arrangements with Octea pursuant to the expected terms of the Tribute Agreement. The model assumes mining some 3.90mcts of the 3.96mcts recoverable resource at the Tongo, Kundu and Lando dykes and does not include any of the 7.96mcts “exploration target” carats which may be brought into a future resource estimation. The initial two year capital requirement to bring the Tongo-Tonguma mine into production is currently estimated to be approximately US$31.8 million (including a 15% contingency). Based on the projected life of mine project costs (US$847 million), revenues (US$1,518 million) and after revenue-share payments to Octea, Stellar’s financial model demonstrates the potential for an attributable after tax NPV of approximately US$104 million and IRR of 31% to Stellar (using a discount factor of 8 percent).

Only three kimberlites dykes of a total of 11 on the Tongo-Tonguma licence area (four at Tongo and seven at Tonguma) have been categorised as resource to date. A further four dykes have been drilled out at Tonguma resulting in an exploration target, offering a mid-range total of 5.6 Mt and potential for a further 7.96 million carats for the project. Although it can’t be guaranteed that further exploration will result in this exploration target becoming a mineral resource or result in increased recovery of diamonds, the Directors consider that this target demonstrates significant upside to the overall resource base of the Tongo-Tonguma Project and, subject to the Tribute Agreement being and remaining in force, it is the intention to bring the ‘exploration target’ into the JORC resource category in due course through further drilling and sampling.

Review by 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 28 years’ experience.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

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

Karl Smithson, CEO

Philip Knowles, CFO

Stellar Diamonds plc

Stellar Diamonds plc

Tel: +44 (0) 20 7010 7686

Tel: +44 (0) 20 7010 7686

Emma Earl

Sandy Jamieson

Cairn Financial Advisers (Nominated Adviser) Tel: +44 (0) 20 7213 0880
Jon Bellis Beaufort Securities Limited (Joint Broker) Tel: +44 (0) 20 7382 8300
Martin Lampshire

Rory Scott

Peterhouse Corporate Finance (Joint Broker)

Mirabaud Securities (Financial Advisers)

Tel: +44 (0) 20 7469 0930

Tel: +44 (0) 20 7878 3360

Lottie Brocklehurst

Charlotte Page

St Brides Partners Ltd

(Financial PR)

Tel: +44 (0) 20 7236 1177

FURTHER DETAILS OF THE OPEN OFFER

Expected Timetable of Principal Events

Each of the times and dates set out below and mentioned elsewhere in this announcement may be adjusted by the Company, in which event details of the new times and dates will be notified to a Regulatory Information Service. References to a time of day are to London time.

  2017
Record Date and time for entitlements under the Open Offer 5.00 p.m. on 27 February
Announcement of the Open Offer 27 February
Publication of Circular, the Forms of Proxy to Qualifying Shareholders and Application Forms 28 February
Existing Ordinary Shares marked ‘ex’ entitlement by the London Stock Exchange 28 February
Basic Entitlements and Excess Entitlements credited to CREST accounts of Qualifying CREST Shareholders 1 March
Recommended latest time and date for requesting withdrawal of Basic Entitlements and Excess Entitlements from CREST 4.30 p.m. on 16 March
Latest time and date for depositing Basic Entitlements Excess and Entitlements into CREST 3.00 p.m. on 17 March
Latest time and date for splitting Application Forms (to satisfy bona fide market claims only) 3.00 p.m. on 20 March
Latest time and date for receipt of Forms of Proxy for the Annual General Meeting 10.00 a.m. on 22 March
Latest time and date for receipt of completed Application Forms from Qualifying Shareholders and payment in full under the Open Offer or settlement of relevant CREST instructions (as appropriate) 10.00 a.m. on 22 March
Time and Date for the Annual General Meeting 10.00 a.m. on 24 March
Announcement in respect of Annual General Meeting and Open Offer 24 March

Introduction

The Company announced on 23 February 2017 that it raised approximately £324,500, through Peterhouse Corporate Finance Limited, in order to provide the Company with working capital whilst the Company seeks to finalise a proposed tribute mining agreement with Octea in relation to Octea’s kimberlite diamond Tonguma Project, to repay creditors and to allow the suspension of trading of the Existing Ordinary Shares to be lifted and provide general working capital for the Group. The Placing was scaled back so as not to exceed the Company’s existing share authorities. The share suspension was lifted on 27 February 2017. The Tonguma Project is adjacent to Stellar’s Tongo kimberlite diamond project in Sierra Leone. The Company announced the Tribute Heads of Terms that had been entered into with Octea on 20 February 2017 and the Company’s intention to develop the Tonguma Project alongside Stellar’s wholly owned Tongo Project.

To provide Shareholders who have not taken part in the Placing (which was not conditional on the Open Offer) with an opportunity to participate in the proposed issue of new Ordinary Shares, the Company is providing all Qualifying Shareholders with the opportunity to subscribe for an aggregate of up to 4,545,455 Open Offer Shares, to raise up to approximately £250,000 (before costs and expenses), on the basis of 1 Open Offer Share for every 8.295 Existing Ordinary Shares held on the Record Date, at 5.5 pence per share. Investors who participated in the Placing are Qualifying Shareholders for the purpose of the Open Offer. Shareholders subscribing for their full entitlement under the Open Offer may also request additional Open Offer Shares through the Excess Application Facility. Shareholder approval is required to provide the necessary share authorities to enable the Directors to allot the Open Offer Shares.

The Circular provides information on the Company’s current financial and trading position and to explain why the Board considers that the Open Offer, the Subscription and the issue of the Director Fee Shares is in the best interests of Shareholders as a whole. The Company and the Directors do not currently have sufficient share authority to allot the New Ordinary Shares and are therefore, inter alia, seeking Shareholder approval to enable the Directors to allot the New Ordinary Shares. The Company will also be seeking approval to generally allot up to a maximum amount of 87,852,284 Ordinary Shares (being approximately 200 per cent of the Enlarged Ordinary Share Capital and to disapply pre-emption rights over the same amount).

The Directors feel that the level of share authorities being sought, as set out above, is necessary to provide flexibility to enable the Company to raise the initial funding requirement of the Tongo-Tonguma mine development upon entering into the proposed Tribute Agreement. The first stage of the mine development will comprise the detailed Front End Engineering Design (FEED) and advance drilling of the three kimberlite resources to be exploited according to the PPM/SRK generated mine plan. This drilling should significantly reduce the geological risk for the early mining phase and will in essence guide the decline and stope developments on the first two mining levels. Furthermore, during the FEED phase, the Company intends to relocate the 50tph DMS production plant that is expected to be acquired for a nominal fee from Octea and which should enable the Company to have its production facility upgraded and available for processing of ore during the first year of mine development. The Company, with its consultants PPM/SRK, have established that these three key work streams, the FEED, drilling and relocation of the processing plant, will require in the region of US$3 million to complete.

Shareholders should note, that the Company’s working capital position will remain constrained following completion of the Open Offer. As described above, the Company will look to raise further funds to allow implementation of the first stages of the Tongo-Tonguma mine development should the Tribute Agreement be entered into and to provide further working capital for the Group. Whilst the Directors believe that this will be possible, the timing, quantum, structure and pricing of any future fundraises are uncertain and may be dependent on the Company’s ability to enter into the proposed Tribute Agreement on a timely basis. Shareholders should also note that if the Resolutions are not approved at the Annual General Meeting and/or the Company does not receive the management fees due from Citigate under the Company’s joint venture arrangements, the Company may not be able to meet its future working capital requirements.

Background to and reasons for the Placing and Open Offer

The Placing (which completed on 27 February 2017) and Open Offer has been undertaken to provide funding for the Group’s near-term general working capital requirements and in particular to support the Company whilst it seeks to enter into a legally binding agreement with Octea in relation to a tribute mining agreement over the combined Tongo-Tonguma Project.

The Existing Ordinary Shares were suspended from trading in August 2016 following an announcement that the Company intended to acquire Tonguma Ltd, the owner of the Tonguma Project. The acquisition was deemed to be a reverse takeover under the AIM Rules for Companies and accordingly trading in the Company’s shares on AIM was suspended pending the publication of an Admission Document. The Company had made significant progress with the reverse takeover process, the PEA, mine plan and a CPR being announced in late 2016 and the Company incurred significant costs in relation to this proposed transaction. However, in early 2017, at the request of Octea, Stellar began alternative discussions with Octea which no longer involved the acquisition by Stellar of Tonguma Ltd or the Tonguma Licence which resulted in additional unexpected legal and adviser costs being incurred and delays around the ability of the Company to raise the funds to develop a mine until there was certainty over the nature of the alternative discussions relating to Tonguma. Discussions relating to the proposed acquisition of Tonguma Ltd were formally terminated on 19 February 2017 when Stellar and Octea entered into the Tribute Heads of Terms, pursuant to which key terms of the proposed Tribute Agreement have been agreed. Trading in the Company’s Ordinary Shares on AIM resumed on 27 February 2017 following completion of the Placing.

Negotiations and legal drafting with Octea in relation to the Tribute Agreement are at an advanced stage and the Company has entered into a technical due diligence exercise with a potential strategic investor which may result in a significant funding commitment relating to implementation of the proposed Tongo-Tonguma mine plan if the due diligence and discussions conclude favourably. However Shareholders should note that there is no guarantee that the Company will enter into the Tribute Agreement or raise the necessary funds to implement the mine plan in order to discharge Stellar’s obligations under the terms of the Tribute Agreement. Shareholders should consider the Risk Factors set out in the Circular.

Details of the Placing

On 23 February 2017, the Company announced that it had conditionally placed 5,900,000 Placing Shares at the Issue Price to raise £324,500 (before expenses). The Placing completed on 27 February 2017 and the Placing Shares were admitted to trading on AIM.

Details of the Open Offer

The Company is proposing to raise up to £250,000 (before expenses) pursuant to the Open Offer. The proposed issue price of 5.5 pence per Open Offer Share is the same price as the Issue Price at which Placing Shares were issued pursuant to the Placing.

The Directors recognise the importance of pre-emption rights to Shareholders and consequently up to 4,545,455 Open Offer Shares are being offered to existing Shareholders by way of the Open Offer. The Open Offer provides Qualifying Shareholders with an opportunity to participate in the Open Offer by subscribing for their respective Basic Entitlements and Excess Entitlements.

Qualifying Shareholders may subscribe for Open Offer Shares in proportion to their holding of Existing Ordinary Shares held on the Record Date. Shareholders subscribing for their full entitlement under the Open Offer may also request additional Open Offer Shares as an Excess Entitlement, up to the total number of Open Offer Shares available to Qualifying Shareholders under the Open Offer.

The Open Offer is conditional, amongst other things, on the following:

i. the passing of the Resolutions at the Annual General Meeting;

ii. admission of the Open Offer Shares to trading on AIM becoming effective on or before 8.00 a.m. on 27 March 2017 (or such later date and/or time as the Company and Peterhouse may agree, being no later than 7 April 2017).

In the event that the Open Offer does not become unconditional by 8.00 a.m. on 27 March 2017 (or such later time and date as the Company may decide being no later than 8.00 a.m. on 7 April 2017), the Open Offer will lapse and application monies will be returned by post to the Applicant(s) at the Applicant’s risk and without interest, to the address set out in the Application Form, within 14 days thereafter.

The Open Offer Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of Admission.

Basic Entitlement

Subject to the fulfilment of the conditions set out below (and in the Circular), Qualifying Shareholders are being given the opportunity to subscribe for Open Offer Shares under the Open Offer at the Issue Price, payable in full on application and free of all expenses, pro rata to their existing shareholdings on the following basis:

1 Open Offer Share for every 8.295 Existing Ordinary Shares

held by Qualifying Shareholders and registered in their name at the Record Date.

Open Offer Entitlements under the Open Offer will be rounded down to the nearest whole number and any fractional entitlements to Open Offer Shares will not be allocated and will be disregarded. Qualifying Shareholders with holdings of Existing Ordinary Shares in both certificated and uncertificated form will be treated as having separate holdings for the purpose of calculating their Basic Entitlement.

If you have sold or otherwise transferred all of your Existing Ordinary Shares after the ex-entitlement Date, you are not entitled to participate in the Open Offer.

The Open Offer is not a rights issue. Qualifying CREST Shareholders should note that, although the Open Offer Entitlements will be admitted to CREST and be enabled for settlement, applications in respect of entitlements under the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim raised by Euroclear’s Claims Processing Unit. Qualifying Non-CREST Shareholders should note that the Application Form is not a negotiable document and cannot be traded. Qualifying Shareholders should be aware that under the Open Offer, unlike in a rights issue, any Open Offer Shares not applied for will not be sold in the market or placed for the benefit of Qualifying Shareholders who do not apply under the Open Offer.

Whilst neither the Placing or the Open Offer have been underwritten, pursuant to the Conditional Placing, 1,381,818 Open Offer Shares have been conditionally placed with Peterhouse investors at the Issue Price, subject to clawback to satisfy valid applications under the Open Offer i.e. if at least 1,381,818 Open Offer Shares are subscribed for by Qualifying Shareholders, the Conditional Placing Shares will be clawed back in full and the Conditional Placing will not proceed. Like the Open Offer, the Conditional Placing is conditional on the passing of certain resolutions and admission of the Conditional Placing Shares to trading on AIM.

Application has been made for the Open Offer Entitlements of Qualifying CREST Shareholders to be admitted to CREST. It is expected that such Open Offer Entitlements will be admitted to CREST on 1 March 2017. The Open Offer Entitlements will also be enabled for settlement in CREST on 1 March 2017to satisfy bona fide market claims only. Applications through the CREST system may only be made by the Qualifying CREST Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim.

Further details of the Open Offer and the terms and conditions on which it is being made, including the procedure for application and payment, are contained in Part IV of the Circular and for Qualifying Non-CREST Shareholders on the Application Form. To be valid, Application Forms (duly completed) and payment in full for the Open Offer Shares applied for must be received by Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland by no later than 10a.m. on 22 March 2017.

Qualifying Non-CREST Shareholders will receive an Application Form which sets out their maximum entitlement to Open Offer Shares as shown by the number of Basic Entitlements allocated to them.

The Open Offer is restricted to Qualifying Shareholders in order to enable the Company to benefit from exemptions from securities law requirements in certain jurisdictions outside the United Kingdom.

Excess Application Facility

The Excess Application Facility will enable Qualifying Shareholders, provided that they take up their Basic Entitlements in full, to apply for Excess Entitlements to the extent that if a Qualifying Shareholder has taken up its Basic Entitlements in full and applies for and is allocated the maximum Excess Entitlements it will suffer no dilution as a result of the Placing and Open Offer. Qualifying Non-CREST Shareholders who wish to apply to acquire more than their Basic Entitlements should complete the relevant sections on the Application Form. Qualifying CREST Shareholders will have Excess Entitlements credited to their stock account in CREST and should refer to paragraph 3(i)(f) of Part IV of the Circular for information on how to apply for Excess Entitlements pursuant to the Excess Application Facility. Applications for Excess Entitlements will be satisfied only and to the extent that corresponding applications by other Qualifying Shareholders are not made or are made for less than their Basic Entitlements and may be scaled back at the Company’s absolute discretion.

Once subscriptions by Qualifying Shareholders under their Basic Entitlements have been satisfied, the Company shall, in its absolute discretion, determine whether or not to meet any applications for Excess Entitlements in full or in part and no assurance can be given that applications by Qualifying Shareholders under the Excess Application Facility will be met in full, in part or at all. Application will be made for the Basic Entitlements and Excess Entitlements in respect of Qualifying CREST Shareholders to be admitted to CREST. It is expected that New Ordinary Shares issued pursuant to subscriptions by Qualifying Shareholders exercising their Basic Entitlements and Excess Entitlements will be admitted to CREST at 8.00 a.m. on 27 March 2017. Such New Ordinary Shares will also be enabled for settlement in CREST at 8.00 a.m. on 27 March 2017. Applications through the means of the CREST system may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim. Qualifying NonCREST Shareholders will receive an Application Form which sets out their entitlement to Open Offer Shares as shown by the number of Basic Entitlements allocated to them. Qualifying NonCREST Shareholders should note that the Application Form is not a negotiable document and cannot be traded.

Qualifying CREST Shareholders will receive a credit to their appropriate stock accounts in CREST in respect of their Basic Entitlements on 1 March 2017. Qualifying CREST Shareholders should note that although the Basic Entitlements and Excess Entitlements will be admitted to CREST and be enabled for settlement, applications in respect of their Open Offer Entitlements may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim. If applications are made for less than all of the Open Offer Shares available, then the lower number of Open Offer Shares will be issued and any outstanding Basic Entitlements will lapse.

Further information on the Open Offer and the terms and conditions on which it is made, including the procedure for application and payment, are set out in Part IV of the Circular. For Qualifying Non-CREST Shareholders, completed Application Forms, accompanied by full payment, should be returned by post, or by hand (during normal business hours only), Computershare Investor Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland so as to arrive as soon as possible and in any event so as to be received no later than 10.00 a.m. on 22 March 2017. For Qualifying CREST Shareholders the relevant CREST instructions must have been settled as explained in the Circular by no later than 10.00 a.m. on 22 March 2017.

Action to be taken in respect of the Open Offer

If you are a Qualifying Non-CREST Shareholder you will be sent an Application Form which gives details of your Basic Entitlement (i.e. the number of Open Offer Shares available to you). If you wish to apply for Open Offer Shares under the Open Offer, you should complete the Application Form in accordance with the procedure set out at paragraph 3(i) of Part IV of the Circular and on the Application Form itself and post it, or return it by hand (during normal business hours only), together with payment in full in respect of the number of Open Offer Shares applied for to Computershare Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland so as to arrive as soon as possible and in any event so as to be received no later than 10 a.m. on 22 March 2017, having first read carefully Part IV of the Circular and the contents of the Application Form.

If you are a Qualifying CREST Shareholder, no Application Form will be sent to you. As a Qualifying CREST Shareholder you will receive a credit to your appropriate stock account in CREST in respect of your Basic Entitlement. You should refer to the procedure set out at paragraph 2 of Part IV of the Circular.

The latest time for applications to be received under the Open Offer is 10 a.m. on 22 March 2017. The procedure for application and payment depends on whether, at the time at which application and payment is made, you have an Application Form in respect of your Basic Entitlement or your Basic Entitlement has been credited to your stock account in CREST. The procedures for application and payment are set out in Part IV of the Circular. Further details also appear on the Application Form which has been sent to Qualifying Shareholders. Qualifying CREST Shareholders who are CREST sponsored members should refer to their CREST sponsors regarding the action to be taken in connection with the Circular and the Open Offer.

If you are in any doubt as to the procedure for acceptance, please contact Computershare Services on 01 247 5693 from within the UK or +353 01 247 5693 if calling from outside the UK. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. The helpline is open between 9.00 a.m. to 5.30 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Services cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.

If you are in any doubt as to the contents of the Circular and/or the action you should take, you are recommended to seek your own personal financial advice from an independent financial adviser authorised under the Financial Services and Markets Act 2000 (as amended) if you are in the UK or, if you are outside the UK, from an appropriately authorised independent financial adviser, without delay.

Action to be taken

A Form of Proxy for use in connection with the Notice of Annual General Meeting will be sent to Shareholders (where applicable). You are entitled to appoint one or more proxies to attend and vote at the Annual General Meeting on your behalf.

Whether or not you propose to attend the Annual General Meeting in person, you are requested to complete and return the Form of Proxy to the Company’s registrars at Computershare Services (Ireland) Limited, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland as soon as possible and, in any event, so as to be received no later than 10 a.m. on 22 March 2017.

Completion and return of a Form of Proxy will not preclude you from attending the Annual General Meeting and voting in person should you so wish.

Action to be taken in respect of the Open Offer is set out in paragraph 9 of Part I of the Circular and also in Part VI of the Circular. If you are a Qualifying Non-CREST Shareholder, an Application Form will be posted for completion by Qualifying Shareholders who wish to participate in the Open Offer. If you are a Qualifying CREST Shareholder, no Application Form will be sent to you. As a Qualifying CREST Shareholder you will receive a credit to your appropriate stock account in CREST in respect of your Basic Entitlement. You should refer to the procedure set out at paragraph 3(ii) of Part IV of the Circular.

Conditional Placing

Whilst the Open Offer has not been underwritten, 1,381,818 Open Offer Shares have been conditionally placed with Peterhouse investors at the Issue Price subject to clawback to satisfy valid applications under the Open Offer i.e. if at least 1,381,818 Open Offer Shares are subscribed for by Qualifying Shareholders, the Conditional Placing Shares will be clawed back in full and the Conditional Placing will not proceed. Like the Open Offer, the Conditional Placing is conditional on the passing of certain resolutions and admission of the Conditional Placing Shares to trading on AIM.

Use of proceeds

Assuming full take up under the open offer, the proceeds of the Placing, Open Offer and Subscription, net of total anticipated expenses, will be approximately £555,000 (US$694,000), which will be applied principally as follows:

  • US$150,000 for the payment of the Tongo Environmental Licence
  • US$150,000 for working capital purposes in relation to the Tongo-Tonguma Project
  • US$394,000 for general working capital purposes for the Group (including minimal ongoing care and maintenance costs for Stellar’s non-core projects, repayment of creditors, and loan interest payments).

Notice of Annual General Meeting

A notice is set out in Part VI of the Circular convening the Annual General Meeting of the Company to be held at the offices of Peterhouse Corporate Finance Limited, New Liverpool House, 15 Eldon Street, London, EC2M 7LD on 24 March 2017at 10 a.m. at which resolutions will be proposed to:

Ordinary resolution 1: Annual Report 2016

The business of the AGM will begin with a resolution to lay before Shareholders the Company’s annual accounts for the financial year ended 30 June 2016, together with the report of the directors of the Company (the “Directors”) and the auditors’ report on those accounts (the “Annual Accounts”). Shareholders will have the opportunity to put questions on the Annual Accounts to the Directors before the resolution is proposed to the meeting.

Ordinary resolutions 2 and 3: Re-appointment of auditors and authority to determine remuneration

Shareholders will be asked to confirm the re-appointment of Deloitte (Ireland) as the Company’s auditors to hold office until the conclusion of the next AGM and to grant authority to the Directors to determine the auditors’ remuneration.

Ordinary resolution 4: Reappointment of Director

Shareholders are asked to re-elect as a director Lord Peter Gilbert Daresbury who is retiring in accordance with Article 25 of the Company’s Articles of Association and who being eligible is offering himself for re-election.

Ordinary resolution 5: Reappointment of Director

Shareholders are asked to re-elect as a director Nicholas Karl Smithson who is retiring in accordance with Article 25 of the Company’s Articles of Association and who being eligible is offering himself for re-election.

Ordinary resolution 6: Reappointment of Director

Shareholders are asked to re-elect as a director Steven James Poulton who is retiring in accordance with Article 25 of the Company’s Articles of Association and who being eligible is offering himself for re-election.

Ordinary resolution 7: Grant of authority to the Directors to allot the New Ordinary Shares

Resolution 7 will be proposed as an ordinary resolution and authorises the Directors to allot and issue the New Ordinary Shares pursuant to the Open Offer (including the Conditional Placing) and the issue of the Subscription Shares and Director Fee Shares.

Ordinary resolution 8: Grant of authority to the Directors to allot Ordinary Shares

This resolution deals with the Directors’ authority to allot Relevant Securities in accordance with section 551 of the Companies Act 2006 (the “2006 Act”). This resolution will, if passed, authorise the directors to allot Relevant Securities up to a maximum nominal amount of £878,522.84, which represents approximately 200% of the Company’s Enlarged Ordinary Share Capital (excluding treasury shares) following the completion of the Open Offer and allotment of the Director Fee Shares and Subscription Shares.

This authority replaces any unexercised authorities granted by ordinary resolutions passed on 18 December 2015 and will expire on the date which is 18 months after the date on which the resolution is passed or, if earlier, the date of the next AGM of the Company.

Relevant Securities means:

  • Shares in the Company other than shares allotted pursuant to:
    • an employee share scheme (as defined by section 1166 of the 2006 Act);
    • a right to subscribe for shares in the Company where the grant of the right itself constituted a Relevant Security; or
    • a right to convert securities into shares in the Company where the grant of the right itself constituted a Relevant Security.
  • Any right to subscribe for or to convert any security into shares in the Company other than rights to subscribe for or convert any security into shares allotted pursuant to an employee share scheme (as defined by section 1166 of the 2006 Act). References to the allotment of Relevant Securities in the resolution include the grant of such rights.

Special resolution 9: Disapplication of statutory pre-emption rights on allotment of the New Ordinary Shares

Resolution 9 will be proposed as a special resolution (and is conditional on the passing of Resolution 7) and empowers the Directors to allot and issue the New Ordinary Shares pursuant to the authority granted by Resolution 7 free of the pre-emption rights contained in the articles of association of the Company so that the Directors can allot the Subscription Shares and Director Fee Shares on a non pre-emptive basis, and can make arrangements in relation to fractional entitlements on other legal and practical problems arising in connection with the Open Offer.

Special resolution 10: Disapplication of statutory pre-emption rights on allotment of Shares

If the Directors wish to allot unissued shares or other equity securities for cash or sell any shares which the Company may hold in treasury following a purchase of its own shares, the 2006 Act requires that such shares or other equity securities are offered first to existing shareholders in proportion to their existing holdings.

This resolution will, if passed, give the Directors power, pursuant to the authority to allot granted by resolution 8, to allot equity securities (as defined by section 560 of the 2006 Act) or sell treasury shares for cash without first offering them to existing shareholders in proportion to their existing holdings up to a maximum nominal amount of £878,522.84 which represents approximately 200% of the Company’s Enlarged Ordinary Share Capital (excluding treasury shares).

The proposed resolution also disapplies the statutory pre-emption provisions in connection with pre-emptive offers and offers to holders of other equity securities if required by the rights of those securities or as the Directors otherwise consider necessary, so that the Directors, in the case of any such offer, can make arrangements in relation to fractional entitlements or other legal or practical problems which might arise.

This authority replaces a similar authority passed on 18 December 2015 and the power granted by this resolution will expire on the date which is 18 months after the date on which this resolution is passed or, if earlier, the date of the next annual general meeting of the Company.

The Directors feel that the level of share authorities being sought are necessary to provide flexibility to enable the Company to raise the initial funding requirement of the Tongo-Tonguma mine development upon entering into the proposed Tribute Agreement. The first stage of the mine development will comprise the detailed Front End Engineering Design (FEED) and advance drilling of the three kimberlite resources to be exploited according to the PPM/SRK generated mine plan. This drilling should significantly reduce the geological risk for the early mining phase and will in essence guide the decline and stope developments on the first two mining levels. Furthermore, during the FEED phase, the Company intends to relocate the 50tph DMS production plant that is expected to be acquired for a nominal fee from Octea and which should enable the Company to have its production facility upgraded and available for processing of ore during the first year of mine development. The Company, with its consultants PPM/SRK, have established that these three key work streams, the FEED, drilling and relocation of the processing plant, will require in the region of US$3 million to complete.

Recommendation

The Directors are satisfied that the terms of the Open Offer, Subscription and issue of the Director Fee Shares are in the best interests of the Company and Shareholders as a whole and, accordingly, the Directors recommend that all Shareholders vote in favour of the Resolutions to be proposed at the Annual General Meeting, and in particular in relation to the resolutions necessary to allot the New Ordinary Shares, as they intend to do in respect of their own beneficial holdings which amount to, in aggregate, 1,481,297 Ordinary Shares, representing 3.93% per cent. of the Existing Issued Share Capital.

Definitions

   
“Admission” admission of the New Ordinary Shares to trading on AIM becoming effective in accordance with the AIM Rules;
“Applicant” a Qualifying Shareholder or a person entitled by virtue of a bona fide market claim who lodges an Application Form under the Open Offer;
“Application Form” the application form to be used by Qualifying Non-CREST Shareholders in connection with the Open Offer;
“Basic Entitlement(s)” the entitlement to subscribe for Open Offer Shares, allocated to an Qualifying Shareholder pursuant to the Open Offer t;
“certificated” or “in certificated form” not in uncertificated form (that is, not in CREST);
“Company” or “Stellar” Stellar Diamonds plc, a company registered in England and Wales with registered number 5424214;
“Competent Person” or “MPH” MPH Consulting Limited, the competent person for the purpose of the purpose of the AIM Mining, Oil & Gas Companies Note;
“Competent Person’s Report” or “CPR” the competent person’s report primarily relating to the Tongo and Tonguma projects as well as Stellar’s other portfolio diamond projects prepared by MPH and available on the Company’s website;
“Conditional Placing” the placing of the Conditional Placing Shares at the Issue Price with Peterhouse investors and subject to clawback to satisfy valid applications under the Open Offer;
“Conditional Placing Shares” the 1,381,818 Open Offer Shares which have been conditionally placed pursuant to the Conditional Placing, and which number shall reduce commensurate with the number of Open Offer Shares to be issued;
“CREST” the computerised settlement system to facilitate the transfer of title of shares in uncertificated form operated by Euroclear UK & Ireland Limited;
“CREST Manual” the compendium of documents entitled CREST Manual issued by Euroclear from time to time and comprising the CREST Reference Manual, the CREST Central Counterparty Service Manual, the CREST International Manual, CREST Rules, CCSS Operations Manual and the CREST Glossary of Terms;
“CREST Member” a person who has been admitted to Euroclear as a member (as defined in the CREST Order);
“CREST Order” the Companies (Uncertificated Securities) (Jersey) Order 1999 (as amended);
“CREST Participant” a person who is, in relation to CREST, a participant (as defined in the CREST Order);
“CREST Payment” shall have the meaning given in the CREST Manual issued by Euroclear;
“CREST Regulations” the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755), as amended;
“Deutsche Balaton” Deutsche Balaton AG;
“Director Fee Shares” the new Ordinary Shares to be issued to certain directors of the Company, conditional on the passing of certain Resolutions;
“Enlarged Ordinary Share Capital” the 43,926,142 Ordinary Shares of the Company in issue upon Admission following completion of the Placing, Open Offer, and the issue of the Subscription Shares and Director Fee Shares (assuming full take-up of the Open Offer);
“EPA” Environmental Protection Agency;
“Excess Application Facility” the arrangement pursuant to which Qualifying Shareholders may apply for any number of Open Offer Shares in excess of their Open Offer Entitlement provided that they have agreed to take up their Open Offer Entitlement in full
“Existing Ordinary Shares” the 37,702,082 Existing Ordinary Shares of the Company in issue today;
“Financial Conduct Authority” or “FCA” the United Kingdom Financial Conduct Authority;
“Form of Proxy” the form of proxy, for use by Shareholders in connection with the AGM;
“Group” the Company and its existing subsidiaries and subsidiary undertakings;
“ISIN” international security identification number;
“Issue Price” 5.5 pence per New Ordinary Share;
“Mine plan” The mine plan for Tongo-Tonguma developed as part of and reported in the PEA by PPM and SRK Consulting.
“NMA” National Minerals Agency;
“New Ordinary Shares” up to 6,224,060 new Ordinary Shares, comprising the maximum number of Open Offer Shares to be issued pursuant to the Open Offer, including any Conditional Placing Shares, the Subscription Shares and the Director Fee Shares;
“Notice of AGM” or “Notice” the notice of Annual General Meeting;
“Octea” Octea Mining Ltd;
“Open Offer” the offer to Qualifying Shareholders to subscribe for Open Offer Shares at the Issue Price;
“Open Offer Entitlements” the entitlement of Qualifying Shareholders to subscribe for the Open Offer Shares at the Issue Price allocated to Qualifying Shareholders at the Record Date pursuant to the Open Offer;
“Open Offer Shares” 4,545,455 new Ordinary Shares which are being offered to Qualifying Shareholders pursuant to the Open Offer;
“Ordinary Shares” ordinary shares of 1 penny each in the issued share capital of the Company from time to time;
“Overseas Shareholders” Shareholders resident in, or citizens of, jurisdictions outside the United Kingdom;
   
“Peterhouse” Peterhouse Corporate Finance Limited, the Company’s Joint Broker;
“Placees” any persons who have agreed to subscribe for Placing Shares pursuant to the Placing;
“Placing” the placing by Peterhouse, as agent of and on behalf of the Company, of Placing Shares at the Issue Price announced by the Company on 23 February 2017;
“Placing Shares” the 5,900,000 new Ordinary Shares issued pursuant to the Placing and which were admitted to trading on AIM today;
“PEA” the preliminary economic assessment of the Tongo-Tonguma produced by Paradigm Project Management and SRK Consulting as further described in the CPR;
“PPM” Paradigm Project Management;
“Qualifying CREST Shareholders” Qualifying Shareholders whose Existing Ordinary Shares on the register of members of the Company on the Record Date are held in uncertificated form;
“Qualifying Non-CREST Shareholders” Qualifying Shareholders whose Existing Ordinary Shares on the register of members of the Company on the Record Date are held in certificated form;
“Qualifying Shareholders” holders of Existing Ordinary Shares on the Record Date (other than Shareholders resident in or citizens of any Restricted Jurisdiction);
“Record Date” close of business on 27 February 2017;
“Regulation S” Regulation S of the Securities Act;
“Resolutions” the resolutions set out in the Notice;
“Restricted Jurisdiction” any U.S. person (as defined in Regulation S) or any address in the U.S., Canada, Australia, the Republic of South Africa, the Republic of Ireland, Japan or any other country outside of the United Kingdom where a distribution may lead to a breach of any applicable legal or regulatory requirements;
“Shareholders” the persons who are registered as holders of Ordinary Shares;
“SRK” SRK Consulting
“Subscription” the subscription by Steven Poulton for the Subscription Shares at the Issue Price, conditional on the passing of certain Resolutions and admission of the Subscription Shares to trading on AIM;
   
“Subscription Shares” the 363,636 new Ordinary Shares to be issued pursuant to the Subscription;
“Tongo Licence” means the exploration licence, EL48/2012, in respect of the Tongo project;
“Tongo” or the “Tongo Project” the kimberlite project covering approximately 9.98 square kilometres in the Lower Bambara Chiefdom, Kenema District, in the Eastern Province of Sierra Leone and covered by Tongo Licence;
“Tongo-Tonguma Project” or the “Tongo-Tonguma mine” being the Tongo Project and the adjacent Tonguma Project which are proposed to be jointly developed by Stellar pursuant to the terms of the Tribute Heads of Terms;
“Tonguma” Tonguma Limited, a company incorporated in the British Virgin Islands;
“Tonguma Licence” means the mining licence in respect of the Tonguma Project which is owned by Tonguma;
“Tonguma Project” the kimberlite project covering approximately 124 square kilometres in the Lower Bambara Chiefdom, Kenema District, in the Eastern Province of Sierra Leone and covered by mining lease ML01/12;
“Tribute Agreement” the proposed tribute mining agreement expected to be entered into between the Company’s wholly owned subsidiary, Sierra Diamonds Limited and Octea to develop and operate the Tonguma Project;
“Tribute Heads of Terms” the heads of terms dated 19 February 2017 relating to the terms of the proposed Tribute Agreement to be entered by the Company, Octea Limited and Tonguma;
“Uncertificated” or “in

Uncertificated Form”

a share or other security recorded on the relevant register of the relevant company concerned as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST;

[1] CPR: Executive summary, section 1.9