Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Shares in West Africa-focused Stellar Diamonds (LON:STEL) were slightly up on Wednesday after the company released results of a preliminary economic assessment (PEA) for its proposed Tongo-Tonguma mine in Sierra Leone, which could become the country’s second largest diamond operation.
The company, which applied for large-scale mining in the West African nation late last year, agreed in August to combine its Tongo project with the Tonguma diamondiferous kimberlite dyke property, owned by junior Octea Mining.
The proposed Tongo-Tonguma mine has a total resource of 5 million carats and would produce about 250,000 carats per year.
The proposed transaction, if completed, will create a new company, and as such will be considered a reverse takeover.
“The high grade and high value nature of the kimberlites to be mined are compelling and the combination of operations should provide meaningful cost synergies that will enhance Stellar’s projected operational margins,” Stellar chief executive Karl Smithson said when announcing the agreement.
“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,” he noted.
According to Smithson, the PEA of the combined project demonstrates robust financial returns for a modest capital requirement and supports the Stellar’s board decision to pursue the business combination.
South Africa-based independent industry consultants Paradigm Project Management and SRK Consulting prepared the PEA on the basis of an underground mining scenario only, Stellars Diamond said.
The company’s shares were up 1.33% to 7.22p in London after the announcement. So far this year, however, the stock is down 24%, a trend seen in most diamond miners, which have been hit by weak demand and falling prices that caused a global supply-glut by 2015.
