Stellar Diamonds, the London listed diamond development company focused on West Africa, has agreed a proposed transaction with Octea Mining to combine Stellar’s Tongo kimberlite diamond project with Octea’s adjacent kimberlite diamond project, Tonguma, and to bring both assets into production under the same production infrastructure in Sierra Leone. The Potential Transaction, if completed, would be classified as a Reverse Takeover under the AIM Rules for Companies and would require the publication of an admission document and also be subject to shareholder approval. Accordingly, trading in the company’s shares on AIM will remain suspended until either an admission document is published or the company announces its or Octea’s withdrawal from the Potential Transaction. Highlights:Combined inferred JORC diamond resource of 5 Mct brought into a single mining operationDiamond grades up to 290 ct/100 tAverage diamond value of $193 and $270/ct for Tonguma and Tongo respectivelyExploration target of up to 8 MctOpportunity presents enhanced production levels and operational margins, when compared with a stand-alone Tongo mining operationNo cash acquisition costs to Stellar who will fund and operate the enlarged mine developmentStellar to preferentially recoup repayment of development capital prior to paying a royalty and net profit interest to Octea.Stellar’s Chief Executive Karl Smithson: “The Proposed Transaction, if completed, will be transformational for Stellar. Once in production the combined diamond mining operations will be the second largest in West Africa with an estimated maximum output at full production of approximately 250,000 ct/y of high value diamonds. 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. 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.”Octea’s General Manager Christo Swanepoel: “We are very excited to be combining Octea’s Tonguma project with Stellar’s Tongo project and bring the enlarged project into production under Stellar’s operational management. Stellar has long-standing expertise in Sierra Leone and the Tongo region in particular, which we believe will be of great benefit to the project. In addition, the enlarged project should significantly increase local skilled employment for many years to come which in turn will support the local economy as well as generate significant funds for the Sierra Leonean Government.”Stellar has conducted extensive technical due diligence on the Tonguma project and has subsequently entered into detailed, exclusive non-binding terms with Octea to acquire the Tonguma asset. The Potential Transaction remains subject to a number of conditions including further due diligence by the company; Stellar raising a minimum of $25 million (through a combination of equity, debt and other hybrid products) to fund the combined project into production and entering into final and binding transaction documentation with Octea. Both Stellar and Octea have had detailed discussions with the relevant regulatory authorities in Sierra Leone, and the parties will also seek to obtain support from the Ministry of Mines in Sierra Leone for the Potential Transaction. Accordingly, there is no guarantee that the Potential Transaction will ultimately occur or that it will complete on the terms set out in this announcement.Stellar has engaged London based Mirabaud Securities as Financial Adviser for the Proposed Transaction. Mirabaud has a successful track record of raising funds in the resources capital markets.Stellar’s Tongo project has a JORC inferred resource of 1.45 Mct at a grade of 165 ct/100 t. The current mine plan for Tongo assumes a conservative lower grade of 120 ct/100 t with an average diamond value of $270 per carat. A further three high-grade kimberlites are present in the licence area though these have not yet been drilled into resource.The Tonguma project comprises a 25 year mining licence (granted to Octea in 2012) covering an area of 124 km2 in the Lower Bambara Chiefdom, Kenema District, in the Eastern Province of Sierra Leone. The Tonguma project is adjacent to and contains the on-strike continuation of the diamondiferous kimberlite dykes which are being explored by Stellar within its Tongo project. A mining licence at Tongo is in the application process with the Ministry of Mines. The two licences together cover the whole of the renowned Tongo diamond fields, which includes a number of high grade and high diamond value kimberlite dykes.Octea has undertaken extensive exploration activities at Tonguma including over 58,000 m of diamond drilling as well as bulk sampling which has produced approximately 7,250 ct of which over 3,500 ct has been used for diamond valuation. An independent JORC inferred resource of 3.45 Mct has been estimated at grades of up to 290 ct/100 t and average diamond values of $193/ct, to a maximum depth of 200 m which has led to a total inferred carat resource of approximately 5 Mct being estimated for both projects.The combination of very high grade and diamond value at Tongo and Tonguma yields potential in-situ ore values of up to $560/t.Independent consultants have also estimated a significant further exploration target on the Tonguma licence, which, based on the mid-range grade and tonnage estimates, results in a potential exploration target of a further 8 Mct. It is the intention to bring the “exploration target” into the JORC resource category in due course, however, these estimates remain conceptual in nature and it is uncertain if further exploration will result in estimation of a mineral resource.A full independent competent person’s report on the Tonguma Project and existing Stellar projects including Tongo is being prepared by Toronto based MPH Consulting and will be included in any admission document, which is published in connection with the Potential Transaction.Given the close proximity of the two projects, the Potential Transaction, if completed, should allow Stellar to undertake both surface and underground mining across both licences. It is envisaged that processing would be undertaken centrally, utilising the existing 50 t/h production plant which will be relocated to the project area from Octea’s Koidu mine, approximately 60 km north of Tonguma. Through mining two separate resources and centrally processing ore, the company expects to be able to operate more efficiently thereby realising a number of cost savings, and generating significantly increased production rates. This should also have a meaningful impact on Stellar’s future revenues and margins.The initial capital outlay for Tongo as a stand-alone project has previously been reported by Stellar at an estimated $25 million. Independent consultants Paradigm Project Management (PPM), who together with SRK Consulting, are preparing the combined Tongo/Tonguma mine plan, estimate the initial capital requirements at approximately $40 million (excluding working capital) to establish production for the combined project. The enlarged project would, however, also lead to significantly higher production levels and revenues than just the Tongo mine alone. The final Tongo/Tonguma mine plan by PPM/SRK will be received in the near future and will provide significantly more detail on the production rates, revenues and capital/operational costs.