The Tongo licence in eastern Sierra Leone is located in the heart of the well known Tongo Diamond fields. Since 2007 Stellar has carried out systematic and extensive exploration programmes which have culminated in the establishment of a JORC compliant diamond resource of just over 1.45 million carats for the Tongo Dyke 1 kimberlite dyke project.
In February 2017, Stellar announced that instead of acquiring Octea Mining’s adjacent Tonguma kimberlite dyke property, the company now intends to enter into a tribute mining agreement with Octea which would allow the company to mine the Tonguma kimberlite dykes alongside Stellar’s own Dyke 1 at Tongo. An exclusive Heads of Terms with the key terms of the proposed Tribute Agreement has been signed. Through the Tribute Agreement, the company will simultaneously mine under the same production infrastructure, process and sell any diamonds mined from these concessions whilst paying a proportion of the sales proceeds to Octea under a sub-contract arrangement between Octea and Stellar.
To support the transaction a number of technical documents were required under the AIM Rules such as a new Preliminary Economic Assessment and an updated combined resource statement for the two projects.
In October 2016, Stellar announced the results of an independently generated Preliminary Economic Assessment (PEA) for the combined mining project which demonstrates a financially robust and high margin 21 year life of mine over an initial resource of 4.5 million carats comprising initially the Tongo (Dyke 1) and Tonguma (Landu & Kundu dykes). Significant upside opportunity in terms of both life of mine and project economics is recognised through either deeper mining and potentially bringing in additional high-grade kimberlite dykes on both the Tongo (Dykes 2, 3 and 4) & Tonguma (Kpandebu, Panguma, Tongo and Seleima dykes) properties into the mine life.
MINERAL ECOMONICS AND RESOURCE STATEMENTS
Within Stellar’s licence area are four dykes designated Dykes 1 to 4. A resource statement (JORC compliant) has been declared for the 2km long Dyke 1 kimberlite at 1,450,000 carats at a grade of 165 cpht. If a lower grade model of 120cpht is assumed the average diamond value is modelled at $270 per carat giving an in-situ value of $324 / tonne.
The PEA was undertaken on Dyke-1 only and defined a 18 year life of mine from both surface (years 1-4) and underground (years 3-18) which yields a total of over 955,000 carats generating gross revenues of US$387 million. A pre-tax NPV(10) of $53.2 million is established.
COMBINED TONGUMA – TONGO PEA
Independent industry consultants Paradigm Project Management (“PPM”) and SRK Consulting (“SRK”), based in South Africa (“the Consultants”), have prepared the PEA on the basis of an underground mining scenario only. The consultants utilised independent resource statements prepared for Stellar by CAE Mining, in respect of Tongo Dyke-1, and Mineral Services Canada, in respect of Tonguma. Only 3 kimberlites dykes of a total of 11 on the properties (4 at Tongo and 7 at Tonguma) have been categorized as resource to date, being Tongo Dyke-1, Kundu and Lando for a total of 2.2 million tonnes and 4.50 million carats at a +1.18mm cut off. As is typical for kimberlite dyke resources, the statement is to the inferred category.
|Inferred Resources (by Mineral Services Canada & CAE Mining)|
|Dyke||Classification||cut-off||Depth (m)||Tonnes (mT)||Grade (cpt)||Carats (mcts)|
|Tonguma||Kundu||inferred||+1.18mm||20 – 200||0.5||2.9||1.5|
|Tonguma||Lando||inferred||+1.18mm||20 – 200||0.8||2.5||2.1|
|Tongo||Dyke-1||inferred||+1.18mm||0 – 300||0.9||1.0||0.9|
A further four dykes have been drilled out at Tonguma and along with certain sections of Lando and Kundu are classified by Mineral Services Canada as “exploration target” which offers a mid-range total of 5.6 million tonnes and potential for a further 7.96 million carats for the Project.
In preparing the mine plan and financial model for the PEA, PPM used the total diamond resource of 5mcts and applied a standard +1.18mm plant cut off across all three dykes and also applied a recovery factor which could be expected during the mining and processing of the kimberlite ore. This resulted in an estimate of 3.96 million carats of recoverable resource during the life of mine from the total Project resource of 4.5 million carats. Diamond values range from $209/ct for Kundu and Lando to $310/ct for Tongo Dyke-1 – as tabulated below:
|Recoverable Resources (by PPM/SRK PEA)|
|Dyke||Classification||cut-off||Depth (m)||Tonnes (mT)||Grade (cpt)||Carats (mcts)||Diamond Value $/ct|
|Tonguma||Kundu||inferred||+1.18mm||20 – 200||0.5||2.6||1.30||209|
|Tonguma||Lando||inferred||+1.18mm||20 – 200||0.8||2.2||1.76||209|
|Tongo||Dyke-1||inferred||+1.18mm||20 – 300||0.9||1.0||0.90||310|
The underground mine plan is currently configured as a series of declines from surface at Kundu, Lando and Tongo. Mining levels will be interspaced at 35m depth with the first levels being developed at 40m below surface. Based on the current resource models, Tongo will have a planned 11 levels, Lando 10 levels and Kundu 5 levels during the 21 year life of mine. The ore bodies will be accessed by 2m x 2m drives and cross-cuts into stopes that are mined by traditional overhand shrinkage stoping mining methods, with the ore being drawn from access points and transported on underground locos and tipped into bins on an ore pass system. These ore bins will feed haulage trucks that will transport the ore to surface and onto the processing plant. The existing 50tph processing plant at Octea’s Koidu Mine is to be relocated to Tonguma and be further upgraded to serve as the processing plant for the new mine. This will save considerable time in getting the Project to production.
Stellar has prepared an internal financial model based on the mine plan produced by Paradigm Project Management and SRK Consulting and is adjusted it to reflect the proposed revenue share arrangements. This financial model, for the underground mining study, is based on mining 3.90mcts of the 3.96mcts recoverable resource at Tongo, Kundu and Lando 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 mine into production is estimated to be $31.8 million (including a 15% contingency) and $90 million over the 21 year life of mine. Based on the life of mine project costs ($847 million) and revenues ($1,518 million) the financial model demonstrates an NPV(10) of $172 million and IRR of 49% on a pre-tax basis. Based on the un-escalated operating costs and carat recovery over the life of mine, the cost per carat at the present time is estimated at $115.3 per carat against the un-escalated average diamond price (across all three kimberlites) of $228.6 per carat, giving an operating margin of 49.6%.
A summary of Stellar’s internal financial model is shown below:
Tonguma Kundu Dyke
Tonguma Lando Dyke
|Life of mine (years)||21|
|Total tonnes mined||6,062,613|
|Average recovered/diluted grade (cpht)||64.4|
|Years 1-2 capital cost (US$m)||31.8|
|Cost per carat (US$)||115.3|
|Revenue per carat (US$) average||228.6|
|Operating margin %||49.6|
|Life of mine gross revenues (US$m)||1,518|
|Life of mine working costs (US$m)||847.1|
|Life of mine net cash inflows (US$m) after capex||580.3|
|Net Present Value (at 10% discount rate) (US$m)||172|
The image below is of typical Tongo diamonds recovered by Stellar during their bulk sampling programme:
Location map of the combined Tonguma – Tongo project with summarised resource information