March 19, 2013

INTERIM UNAUDITED SIX MONTH RESULTS TO 31 DECEMBER 2012

19 March 2013

AIM: STEL

Stellar Diamonds plc

(“Stellar” or the “Company”)

INTERIM UNAUDITED SIX MONTH RESULTS TO 31 DECEMBER 2012

Stellar Diamonds plc, the London listed (AIM:STEL) diamond development company focused on West Africa announces its Interim unaudited six month results to 31st December 2012.

Operational Highlights

  • Tongo JORC compliant resource increased to over 1 million carats through 2,929m of additional drilling
  • Droujba JORC compliant resource increased to 3 million carats through addition of 446,000 carats from adjacent Katcha kimberlite dyke
  • Additional Droujba bulk sampling programme increased overall bulk sample grade to 89 cpht from 70 cpht
  • Katcha dyke resource at Droujba calculated on only 475m of 5,000m strike length to a depth of 150m
  • Conceptual Economic Scoping Studies (“CESS”) for Tongo and Droujba commence in Q1 2013 following successful fundraise
  • Discussions continued with the Government of Sierra Leone on the reinstatement of the Kono licences

Financial Highlights

  • $1.4m invested in increasing defined resources at Tongo and Droujba kimberlite projects
  • Loss per share of $0.01 (2011 $0.01)
  • Net assets of $18.6m ($19.9m at 30 June 2012)
  • $0.5m raised through private placement in October 2012 with a further $1.6m raised (post-balance sheet) in February 2013 to fund CESS during H1 2013

Karl Smithson, Chief Executive Officer, commented:

“During the past six months we have successfully increased the JORC compliant inferred resources for the Tongo and Droujba projects to 1.07 million and 2.92 million carats respectively, giving Stellar a global resource base of 4 million carats to date.

“The first half of 2013 will now be dedicated to completion of the conceptual economic scoping studies to better define the project economics at Tongo and Droujba. We have appointed experienced independent contractors Paradigm Project Management to conduct these studies, which are well under way and on track to be delivered within the designated time frame. A decision will then be made on whether to advance Tongo and Droujba to the pre-feasibility stage in the second half of 2013″.

“I look forward to updating shareholders as we progress these key projects”.

In accordance with the AIM rules for Companies the information in this announcement has been reviewed by Karl Smithson, Chief Executive of Stellar, a qualified geologist with 24 years’ experience.

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

Stellar Diamonds plc

Karl Smithson,Chief ExecutiveTel: +44 (0) 20 7010 7686

Charles Stanley Securities

(Nominated Advisor and Joint Broker)

Mark Taylor, Marc Milmo, Carl Holmes Tel: +44 (0) 20 7149 6000

Daniel Stewart & Company plc

(Co-Broker)

Martin Lampshire, Antony Legge Tel: +44 (0) 20 7776 6550

About Stellar Diamonds plc

Stellar is a London (AIM: STEL) listed West African focussed diamond mining and exploration company which is advancing the Droujba and Tongo kimberlite projects in Guinea Sierra Leone respectively. These projects have a combined JORC compliant, inferred diamond resource of approximately 4 million carats. In April 2012 the Company announced a dispute with the Ministry of Mines in Sierra Leone over its two Kono licences and remains in discussions with the Government of Sierra Leone regarding the proper reinstatement of these licences.

 

Chairman’s Statement

Operational Review

Stellar has continued to make excellent progress and our teams on the ground have met every key milestone in the establishment of our maiden resource statements, which were announced in March and April of 2012. At that time we declared JORC compliant inferred resources of 660,000 carats at the Tongo project and 2,474,000 carats at the Droujba project. We decided to increase these resource bases through further drilling and by the end of 2012 had increased the resources to over 1 million carats at Tongo and 3 million carats at Droujba, for a combined total of 4 million carats in resource for the Company.

The focus has now shifted towards completing conceptual economic scoping studies at both Tongo and Droujba which will essentially define project economics to within a 35% accuracy. This essentially is the onset of Pre-Feasibility studies but will give Stellar a low cost, preliminary analysis of many aspects such as mine and plant design, capital budget, operating costs and financial modelling. Depending on these results we will then advance the projects to the Pre-Feasibility stage where more accurate figures will be attained as the resources are moved to the indicated status.

Droujba Project

The Droujba project comprises the 3ha Droujba pipe and the adjacent 5,000m long Katcha kimberlite dyke, where a combined resource of 3 million carats is currently established.

Resource drilling of the Droujba pipe was completed in the previous period where 8,867m were drilled. The deepest kimberlite intersection was 414m below surface and the pipe remains open at depth. Bulk sampling of the Droujba pipe continued with higher grades achieved (100cpht) than previously reported (71cpht), possibly due to better processing techniques. The bulk sampling has therefore yielded a total of 2,147 carats (+1mm) from 2,421 dry tonnes, for a grade of 89 cpht. However the resource grade has remained at 70 cpht due to the use of microdiamonds for grade determination at depth. The Company believes that since the surface grade is considerably higher there is potential for a higher grade to also be present at depth since there is continuity of geology. This will have to be tested by large diameter drilling should the project advance to the pre-feasibility stage and could result in a considerable increase in the contained resource should the higher surface grade be confirmed at depth.

The diamond product at Droujba is mainly of industrial quality. Two separate valuations were carried out on the phase-1 and phase-2 bulk sampling goods, with average modelled diamond prices of $60/ct (March-12) and $38/ct (October-12) respectively being achieved. This lower value is a function of both a weaker rough diamond market at the time of valuation and the paucity of larger gem stones in the overall parcel.

The on-going CESS will focus on the top 150m of the pipe that could potentially be mined as an open pit operation over a short time frame (5 years or so) in order to generate cash flow to the Company. These results should be available before the end of June 2013.

At Katcha the 5km long dyke was drilled over a short 470m section of the dyke closest to the Droujba kimberlite pipe, but only to a maximum depth of 150m. Bulk sampling generated a 477 carat parcel of diamonds for a +1mm grade of 161cpht. A resource of 446,000 carats was modelled at a grade of 140cpht for the section of drilled dyke, which only represents 10% of the whole potential resource. However, this would need to be confirmed through further drilling along the strike of the Katcha dyke. The Katcha dyke diamond value was modelled at an average of $48/ct in the weak rough diamond market of October 2012.

Tongo

The Tongo project comprises a 9km2 licence area that hosts four diamondiferous kimberlites, designated Dykes 1 to 4. Only Dyke-1 has been advanced to the resource stage at this point in time, though there is clearly potential to add to this from the nearby Dykes-2, 3, and 4. Dyke-2 has a modelled diamond grade of 140cpht, whereas Dyke-4 was bulk sampled in early 2012 and gave a grade of 110cpht and diamond value of $100 per carat. Both these kimberlites require drilling to enable them to be included in a resource statement.

Drilling and bulk sampling at Dyke-1 over the past 12 to 18 months have delivered an inferred resource of 1,074,000 carats at a grade of 120 cpht and an average modelled diamond value of $248 per carat. At this grade and value, the in-situ kimberlite rock value is calculated to be $297 per tonne, which is considered to be a very high value for a kimberlite.

The Tongo resource has been established over a strike length of 1.9km of the dyke to a depth of 300m. Although the resource remains open at depth it was decided to conduct the CESS on the already established 1 million carat resource, with the scenario of mining this resource over ten years. Should the preliminary economics look encouraging then infill drilling will be undertaken to increase the geological confidence of the resource as part of the pre-feasibility study.

Kono

It was announced in late March 2012 that the Company had received a letter from the Ministry of Mineral Resources terminating the Kono licence. The Company strongly believes this to be an illegal revocation by the Ministry and has been in discussions at various levels of the Sierra Leone Government to have the licence properly reinstated. These discussions are on-going.

Market Outlook

The rough diamond market showed weakness in the second half of 2012 as global economic uncertainty continued. Bank lending to fund diamond buying also slowed and a sluggish polished diamond market contributed to a slowdown in rough diamond buying which negatively impacted prices. Some major producers reported slightly improved prices at the end of 2012 and into early 2013 and there is cautious optimism that the worst has passed and that 2013 should see a consolidation of prices and possibly single digit growth. Stellar remains bullish on the rough diamond market in the medium to long term as there have been no significant changes to the supply-demand imbalance forecasts. Rough diamond consumption remains robust in China and India and growth is slowly returning to the United States market, which should underpin the growing demand forecasts. Supply is flat-lining and will decrease unless there are significant new sources of output, hence the forecast supply deficit remains a reality at this point in time.

With the ongoing support of shareholders, Stellar has managed to meet its key targets and milestones over this period. The Board has taken a view that to advance the current projects through CESS and pre-feasibility study is the best way forward for the Company to realise and create value for shareholders.

I would like to take this opportunity to thank all shareholders for their continued support and I look forward to 2013 being a successful year for us all.

Lord Daresbury

Non-Executive Chairman

 

Stellar Diamonds plc

Condensed consolidated statement of comprehensive loss (unaudited)

for the six months ended 31 December 2012

(Stated in U.S. dollars)

Notes Six months ended

31 December 2012

(unaudited)

Six months ended

31 December 2011 (unaudited)

Year ended 30 June 2012 (audited)
Revenue 2 370,099
Mining and processing costs (586,881) (1,274,256)
Gross loss (586,881) (904,157)
Administrative expenses
– Impairment of tangible assets 4 (1,367,495)
– Administrative expenses (1,547,247) (1,360,118) (3,124,975)
(1,547,247) (1,360,118) (4,492,470)
Finance costs
Loss before tax (1,547,247) (1,946,999) (5,396,627)
Income tax expense
Loss after tax attributable to equity holders of the parent (1,547,247) (1,946,999) (5,396,627)
Total comprehensive loss for the period attributable to equity holders of the parent (1,547,247) (1,946,999) (5,396,627)
Weighted average number of shares 224,100,028 216,766,659 224,100,028
Basic and diluted loss per share (0.01) (0.01) (0.02)

Stellar Diamonds plc

Condensed consolidated statement of financial position (unaudited)

as at 31 December 2012

(Stated in U.S. dollars)

Notes 31 December 2012

(unaudited)

31 December 2011 (unaudited) 30 June 2012 (audited)
Assets
Non-current assets
Intangible assets 3 14,365,082 10,731,862 12,586,069
Property, plant and equipment 4 3,956,073 7,288,836 4,599,881
Total non-current assets 18,321,155 18,020,698 17,185,950
Current assets
Inventories 593,797
Trade and other receivables 35,593 199,729 501,861
Cash and cash equivalents 205,370 1,064,509 1,537,211
Total current assets 240,963 1,858,035 2,039,072
Total assets 18,562,118 19,878,733 19,225,022
Equity and liabilities
Capital and reserves
Share capital 18,393,507 17,161,566 18,220,394
Share premium 27,397,626 25,055,393 27,018,776
Reverse acquisition reserve 17,073,279 17,073,279 17,073,279
Warrant reserve 155,235
Share option reserve 4,486,205 4,177,000 4,177,000
Accumulated loss (49,292,037) (44,450,396) (47,744,789)
Total equity 18,058,580 19,172,077 18,744,660
Non-current liabilities
Provision 104,369 104,369 104,369
Total non-current liabilities 104,369 104,369 104,369
Current liabilities
Trade and other payables 399,174 602,287 375,993
Total current liabilities 399,174 602,287 375,993
Total liabilities 503,543 706,656 480,362
Total equity and liabilities 18,562,123 19,878,733 19,225,022

Company registration number: 5424214

Share Share Warrant Share option Reverse acquisition Accumulated Total
capital premium reserve reserve reserve loss equity
Balance at 1 July 2011 17,161,566 25,055,393 155,235 4,177,000 17,073,279 (42,503,397) 21,119,076
Total comprehensive loss for the period (5,396,627) (5,396,627)
Issue of placing shares 1,058,828 2,117,655 3,176,483
Share warrants issued
Share issue costs (154,272) (154,272)
Warrants expired (155,235) 155,235
Other shares issued
Share options issued
Balance at 30 June 2012 18,220,394 27,018,776 4,177,000 17,073,279 (47,744,789) 18,744,660
Total comprehensive loss for the period (1,547,247) (1,547,247)
Issue of placing shares 173,113 378,851 551,964
Share options issued 309,206 309,206
Balance at 31 December 2012 18,393,507 27,397,626 4,486,205 17,073,279 (49,292,037) 18,058,580

Stellar Diamonds plc

Condensed consolidated statement of changes in equity (unaudited)

as at 31 December 2012

(Stated in U.S. dollars)

Stellar Diamonds plc

Condensed consolidated statement of cash flows (unaudited)

For the six months ended 31 December 2012

(Stated in U.S. dollars)

Six months ended Six months ended Year ended
31 December 2012 (unaudited) 31 December 2011 (unaudited) 30 June 2012 (audited)
Cash flows from operating activities:
Net loss for the period (1,547,247) (1,946,999) (5,396,627)
Items not involving cash:
Depreciation of property, plant and equipment 688,393 464,255 1,099,137
Impairment of property, plant and equipment 1,367,495
Share-based payment expense 309,206
Shares issued to directors in lieu of fees 186,252
Interest expense
Net foreign exchange (gain)/loss (4,547) (2,503) 49,751
Change in working capital items:
Decrease/(Increase) in receivables 66,269 (5,242) (307,374)
(Increase)/Decrease in stock (86,555) 507,242
Increase/(Decrease) in trade and other payables 23,181 286,402 60,108
Net cash used in operations (464,745) (1,290,642) (2,434,016)
Cash flows from investing activities
Purchases of property, plant and equipment (44,585) (602,135) (707,047)
Payments to acquire intangible assets (1,379,013) (3,563,857) (4,626,576)
Net cash used in investing activities (1,423,598) (4,165,992) (5,333,623)
Cash flows from financing activities
Repayment of convertible loans
Proceeds from issue of share capital, net of costs 551,964 2,835,958
Interest paid
Net cash generated by financing activities 551,964 2,835,958
Net (decrease)/increase in cash and cash equivalents (1,336,379) (5,456,634) (4,931,681)
Cash and cash equivalents, beginning of period 1,537,211 6,518,640 6,518,640
Effect of foreign exchange rate changes 4,538 2,503 (49,748)
Cash and cash equivalents, end of period 205,370 1,064,509 1,537,211

 

Stellar Diamonds plc

Notes to the consolidated financial statements (unaudited)

for the six months ended 31 December 2012

(Stated in U.S. dollars)

1. Basis of presentation

Stellar Diamonds plc (the “Company” or on a consolidated basis the “Group”) is presenting unaudited financial statements as of and for the six months ended 31 December 2012. The comparative periods presented are the audited financial statements as of and for the year ended 30 June 2012 and the unaudited financial statements as of and for the six months ended 31 December 2011.

The information for the six months ended 31 December 2012 does not constitute statutory accounts for Stellar Diamonds plc as defined in section 434 of the Companies Act 2006. A copy of the most recent statutory accounts for the year ended 30 June 2012 has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified but drew attention to the Company’s ability to continue as a going concern by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”). The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting”, as adopted by the European Union.

1.1 Going concern

The Company’s business activities, together with the factors likely to affect its future development, its key risks and performance are set out in the Chairman’s Statement.

As discussed in the Chairman’s Statement, the Company is focusing on advancing its kimberlite projects through economic scoping studies and thereafter pre-feasibility studies. At 31 December 2012, the Company had $0.2m in cash and in February 2013 raised an additional $1.6m. These funds were raised to produce Conceptual Economic Scoping Studies on the Droujba and Tongo projects following the positive resource definition programmes completed in 2012. Given the positive results produced at both Tongo and Droujba, the directors believe that the Company will continue to have the ability to access sufficient levels of finance to continue the Group’s projects for the foreseeable future. On that basis, the directors continue to adopt the going concern basis in preparing these financial statements.

1.2 Changes in accounting policy

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in Stellar Diamonds plc’s latest audited financial statements as of and for the year ended 30 June 2012.

Stellar Diamonds plc

Notes to the consolidated financial statements (unaudited)

for the six months ended 31 December 2012

(Stated in U.S. dollars)

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 focussed on the individual projects in geographical locations. The reportable segments under IFRS 8 are therefore as follows:

· Mandala (Guinea);

· Bomboko (Guinea);

· Kono (Sierra Leone);

· Tongo (Sierra Leone);

· Droujba (Guinea);

· Other exploration;

· Corporate activities in the United Kingdom.

Following is an analysis of the Group’s revenue, results, assets and liabilities by reportable segment for the six months ended 31 December 2012:

Mandala Bomboko Kono Tongo Droujba Other exploration Corporate Total
$ $ $ $ $ $ $ $
Revenue – sale of diamonds
Segment result (563,687) (983,560) (1,547,247)
Finance costs
Loss before tax (1,547,247)
Income tax expense
Loss after tax (1,547,247)
Segment assets 2,045,302 1,095,436 4,510,518 4,605,686 5,446,067 203,887 655,223 18,562,118
Segment liabilities (74,369) (30,000) (399,174) (503,543)
Net book value of intangible assets 4,497,305 4,335,787 4,926,262 191,119 414,610 14,365,083
Net book value of property, plant and equipment 2,039,904 9,978 264,674 1,630,302 10,847 368 3,956,073
Capital additions

– property, plant and equipment

– intangible assets

124,730

982,800

44,585

671,483

44,585

1,779,013

Depreciation of property, plant and equipment 359,983 1,761 46,707 279,877 65 688,393

 

Stellar Diamonds plc

Notes to the consolidated financial statements (unaudited)

for the six months ended 31 December 2012

(Stated in U.S. dollars)

2. Segments (continued)

Following is an analysis of the Group’s revenue and results by reportable segment for the year ended 30 June 2012:

Mandala Bomboko Kono Tongo Droujba Other

exploration

Corporate Total
$ $ $ $ $ $ $ $
Revenue – sale of diamonds 370,099 370,099
Segment result (3,688,332) (36,264) (928) (21,621) (725) (1,648,757) (5,396,627)
Finance costs
Loss before tax (5,396,627)
Income tax expense
Loss after tax (5,396,627)
Segment assets 2,441,783 1,288,062 4,393,317 3,679,967 4,819,507 203,887 2,398,499 19,225,022
Segment liabilities (91,289) (30,000) (4,000) (307) (3,959) (350,807) (480,362)
Share based payment expense
Carrying value of intangible assets 4,372,575 3,352,987 4,254,779 191,119 414,609 12,586,069
Net book value of property, plant and equipment 2,399,897 11,739 311,381 1,865,845 10,847 172 4,599,881
Capital additions

– property, plant and equipment

– intangible assets

27,809

1,795

453,526

71,714

1,968,949

605,729

2,995,589

707,047

5,418,064

Depreciation of property, plant and equipment 1,098,951 5,031 133,449 653,008 186 1,890,625
Impairment of property, plant and equipment 1,367,495 1,367,495

3. Intangible assets

Six months ended 31 December 2012 Year ended 30 June 2012
$ $
Exploration and evaluation expenditure
Cost
Opening balance 27,509,319 22,091,255
Additions 1,779,013 5,418,064
Closing balance 29,288,332 27,509,319
Impairment
Opening balance 14,923,250 14,923,250
Charge for the period
Closing balance 14,923,250 14,923,250
Carrying value 14,365,082 12,586,069

Stellar Diamonds plc

Notes to the consolidated financial statements (unaudited)

for the six months ended 31 December 2012

(Stated in U.S. dollars)

4. Property, plant and equipment

Mining assets Machinery and equipment Total
$ $ $
Cost
At 1 July 2011 14,816,878 5,248,652 20,065,530
Additions 707,047 707,047
Transfer to Machinery and

Equipment

(3,737,573) 3,737,573
At 30 June 2012 11,079,305 9,693,272 20,772,577
Additions 44,585 44,585
At 31 December 2012 11,079,305 9,737,857 20,817,162
Depreciation
At 1 July 2011 10,681,411 2,233,165 12,914,576
Charge for the year 1,890,625 1,890,625
Impairment 1,367,495 1,367,495
Transfer to Machinery and

Equipment

(969,601) 969,601
At 30 June 2012 11,079,305 5,093,391 16,172,696
Charge for the period 688,393 688,393
Impairment
At 31 December 2012 11,079,305 5,781,784 16,861,089
Net book value
At 31 December 2012 3,956,073 3,956,073
At 30 June 2012 4,599,881 4,599,881

Included within mining assets is the rehabilitation provision for Mandala and Bomboko of $104,369 (30 June 2012: $104,369).

5. Post Balance Sheet Events

In February 2013, the company issued 41,960,640 ordinary shares of 1p each at a placing price of 2.65p per share raising £1.1m ($1.6m) before expenses.

6. The Company’s unaudited six month results to 31 December 2012 will be available to download from the Company’s website at www.stellar-diamonds.com.