April 28, 2017

Tribute Mining Agreement Signed over Tongo-Tonguma, Sierra Leone

28 April 2017

AIM: STEL

Stellar Diamonds plc

(“Stellar” or the “Company”)

Tribute Mining Agreement Signed over Tongo-Tonguma, Sierra Leone

Stellar Diamonds plc, the London quoted diamond exploration and development company focused on West Africa, announces that it has signed a legally binding conditional Tribute Mining Agreement and Revenue Share Agreement (“the Agreements”) with Octea Mining Limited (“Octea”) in respect of the Tongo-Tonguma kimberlite diamond project (“Project”) in eastern Sierra Leone.

Background and Highlights of the Agreements and the Project:

  • Deal creates the potential for substantial near and long term cash flows for Stellar
  • Project hosts one of the highest value kimberlite ore bodies in Africa on a dollar per tonne basis and would create the second largest kimberlite diamond mine in West Africa
  • Agreements allow for mining the combined and contiguous Tongo and Tonguma concessions
  • Robust attributable potential post-tax Project NPV(8) and IRR of US$104 million and 31% respectively1
  • Modest mine development CAPEX in first two years estimated at US$32 million (including 15% contingency)
  • Estimated 21 year mine life, producing over 4.5 million carats with estimated revenues over US$1.5 billion1
  • Project at full production estimated to generate US$45 million gross revenue per annum2
  • Resource statements, mine plan, financial model, CPR, all completed by independent consultants
  • 10% share of gross revenues (after deduction of Government royalty) payable to Octea on diamond and other minerals recovered and sold, once Stellar has recouped an amount equal to its CAPEX investment and Octea has received an initial revenue share payment of US$5 million
  • Stellar to make a one-off payment of US$5.5 million to Octea five years after Project mine development commences
  • On completion, Stellar will acquire a 50tph kimberlite processing plant from Octea for a nominal amount in order to fast track production
  • Stellar’s has invested US$7.2 million to date on establishing resources at Tongo, equivalent to approx. £0.14 per Stellar share

1 Company estimates based on the preliminary economic assessment. Assumes the Agreements remain in place for the estimated lift of the mine.

2 200,000 carats per annum at a weighted average value of US$229 per carat, with full production estimated approximately three years after development commences

Chief Executive Karl Smithson commented:

“We are delighted to have signed these agreements with Octea which, subject to completion, will allow Stellar to build a single mine for the simultaneous commercial production from the contiguous Tongo (Stellar) and Tonguma (Octea) kimberlite deposits. The combined project has an initial 4.5 million carat resource which, due to the high grade (100cpht to 260cpht at +1.18mm) and high quality diamonds (US$209/ct to US$310/ct), is considered to be one of the highest value kimberlite ore bodies in Africa on a dollar per tonne basis. The 21 year mine plan with a consistent output of over 200,000 carats per year at full production would quantify this development as the second largest kimberlite diamond mine in West Africa. The project also has a very modest two year capital requirement of just under US$32 million to get into full scale commercial production. Stellar has the strong support of all main stakeholder groups in Sierra Leone for this mine development, which would have a very positive impact in terms of employment, local infrastructure development and future taxation revenue for the country.”

The technical information in relation to the proposed combined Tongo-Tonguma mine plan previously reported in announcements dated 5 October 2016, in respect of the preliminary economic assessment (“PEA”) and mine plan, and 31 October 2016, in respect of the Competent Persons Reports (“CPR”), remains unchanged.

Tribute Mining and Revenue Share Agreements

The Company signed the binding Tribute Mining Agreement and Revenue Share Agreement with Octea on 27 April 2017. The terms of the Agreements are materially the same as those in the Heads of Terms, as announced on 20 February 2017. Completion of the Agreements remain subject to inter alia, valid licence opinions being obtained for the Tongo and Tonguma licences, any encumbrance over the Tonguma company or assets being lifted; the parties (each acting reasonably) being satisfied that Stellar shall receive sufficient monies to finance the Front End Engineering Design (FEED) stage of the Mine Plan (“Initial Financing Condition”) (together “Completion”). If the conditions have not been satisfied or waived by 30 June 2017 (or such later date as may be agreed by both parties) the Agreements may be terminated. The first elements of mine development are planned and pursuant to the Agreements, are required to commence within three months of Completion. In the event that Completion does not occur and the Initial Financing Condition has not been met, Stellar will be obliged to pay certain costs to Octea which, if incurred, are expected to be in the region of approximately US$150,000.

Following Completion, Octea will continue to hold the Tonguma mining licence through its subsidiary company Tonguma Ltd (the legal holder of the Tonguma licence) and Stellar will continue to wholly own its adjacent Tongo licence and subsidiary company Sierra Diamonds Limited. Stellar will also own certain infrastructure and capital items procured and utilised for the mine development on both licences.

Octea has agreed that for so long as the Tribute Mining Agreement is in place, it will not sell Tonguma Ltd or the Tonguma licence to a third party. The Tribute Mining Agreement however includes termination clauses whereby the agreement can be terminated by either party for breach of the agreement. Shareholders should note that in the event of termination, Stellar would have no rights over Tonguma Ltd or the Tonguma licence save for any contractual rights accrued and, depending on the circumstances, may be obligated to pay certain costs to Octea, which in the event of a breach of the Tribute Mining Agreement by Stellar, may include, inter alia, the transfer back to Octea of the Tonguma processing plant.

Once Stellar has recouped its development capital, Octea has a right of a put option (“Put”) for Stellar to purchase its revenue share, such value to be agreed upon by independent experts if Octea and Stellar cannot agree on the Put valuation.

Having taken local tax advice in Sierra Leone, and following Completion, Stellar and Octea intend to create an unincorporated joint venture between Tonguma Ltd and Sierra Diamonds Ltd to account for their respective share of costs and revenues to comply with local tax law. This is not expected to change the contractual rights and responsibilities of each party pursuant to the Agreements. Diamonds, however, will be exported and sold on the international market by Stellar and using reputable third party diamond marketing groups.

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.

Caution regarding forward looking statements

Certain statements in this announcement, are, or may be deemed to be, forward looking statements. Forward looking statements are identified by their use of terms and phrases such as ”believe”, “expect”, ”could”, “should” ”envisage”, ”estimate”, ”intend”, ”may”, ”plan”, ”potentially”, ”will” or the negative of those, variations or comparable expressions, including references to assumptions. These forward looking statements are not based on historical facts but rather on the Directors’ current expectations and assumptions regarding the Company’s future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Such forward looking statements reflect the Directors’ current beliefs and assumptions and are based on information currently available to the Directors.

A number of factors could cause actual results to differ materially from the results discussed in the forward looking statements including, but not limited to, Completion not occurring, the Tribute Mining Agreements being terminated before the end of the Project mine life, recoverability of diamonds not being as expected, risks associated with vulnerability to general economic and business conditions, competition, environmental and other regulatory changes, actions by governmental authorities, the availability of capital markets, reliance on key personnel, uninsured and underinsured losses and other factors, many of which are beyond the control of the Company. Although any forward looking statements contained in this announcement are based upon what the Directors believe to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with such forward looking statements. Accordingly, readers are cautioned not to place undue reliance on forward looking statements. Subject to any continuing obligations under applicable law or any relevant AIM Rule requirements, in providing this information the Company does not undertake any obligation to publicly update or revise any of the forward looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based.

About Stellar Diamonds plc

Stellar is an AIM listed (AIM: STEL) West African focused diamond company with projects at the trial mining and mine development stages in Guinea and Sierra Leone.

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

** ENDS **

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