RAPAPORT… Stellar Diamonds and Octea Mining agreed to combine their Sierra Leone projects to create the second largest diamond-mining operation in West Africa.

Under the proposed deal, Stellar plans to amalgamate its Tongo kimberlite project with Octea’s adjacent Tonguma asset.

Under the rules of London’s Alternative Investment Market (AIM), the transaction would be classified as a reverse takeover and therefore require shareholder approval. Trading in Stellar’s shares on AIM has been suspended until an admission document outlining details of the deal is published.

The combined project would enable production of up to 250,000 carats per year of “high-value” diamonds, with mining grades of up to 290 carats per hundred tonnes of ore. The average value of rough will be $193 per carat for Tonguma and $270 per carat for Tongo, Stellar said.

“The high-grade and high-value nature of the kimberlites compelling and the combination of operations should provide meaningful cost synergies that will enhance Stellar’s projected operational margins,” said Karl Smithson, Stellar’s chief executive officer. “Using the available infrastructure at Tongo and Tonguma, we expect diamond mining operations to commence within the first 12 months post completion of the proposed transaction.”

The structure of the deal would see Stellar transfer shares of its subsidiary Sierra Diamonds Ltd into a newly incorporated company which will then acquire the shares of Octea Mining Ltd’s unit Tonguma Ltd. Stellar would get all of the voting ‘A’ shares in the new company, while Octea would receive all of the non-voting ‘B’ shares. Stellar will have full legal and management control of the company and the mining operation, while Octea will receive royalty payments of 5 percent to 10 percent of the combined revenues from Tonguma and Tongo.

The announcement follows Stellar’s decision to reduce its holdings in its Guinea and Liberia projects and increase focus on the Tongo operations.

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