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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Stellar Diamond | LSE:STEL | London | Ordinary Share | GB00BYZ5QT80 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 5.25 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSTEL
RNS Number : 8253Z
Stellar Diamonds PLC
19 December 2017
NOT FOR DISTRIBUTION IN THE UNITED STATES OR FOR DISSEMINATION TO US NEWS WIRE SERVICES.
19 December 2017
AIM: STEL
Stellar Diamonds plc ("Stellar" or the "Company")
Final Results
Stellar Diamonds plc, the London listed (AIM: STEL) diamond development company focused on West Africa, announces its final results for the period ended 30 June 2017.
Operational Highlights:
Tongo Project, Sierra Leone (100% owned):
-- Tribute Mining and Revenue Share Agreement signed with Octea Mining over the combined Tongo and neighbouring Tonguma licences
-- Revised resource statements demonstrate a combined 4.5 million carats (+1.18mm) at recovered mining grades ranging from 100cpht to 260cpht and diamond values of between $209/ct to $310/ct
-- A further 8 million carats identified as future exploration target
-- Revised Preliminary Economic Assessment, mine plan and financial model prepared by independent consultants PPM and SRK Consulting, showing;
o Initial capital requirement of $32 million
o 21 year life of mine
o Production targeted within 12 months of funding
o Target production ramp up to over 200,000 carats per year by end of Year 3 giving annualised cash flows of $45 million per annum
o 49% margin
-- Calculated post-tax/funding real NPV(8) of $109 million and IRR of 31%
-- Environmental Licence issued by Government of Sierra Leone, post period end, with mining licence expected to be issued
-- Stellar engaged market leaders in natural resource funding Exotix Capital to seek project funding
-- Extension of tribute mining agreement longstop date extended to 31 January 2018
Guinea Assets Disposal:
-- Share Purchase Agreements (post period end) signed with BDG Capital for sale of Stellar's Guinea assets, including all three subsidiary companies, for $1.25 million
-- US$250,000 exclusivity fee advance received during the financial year, with a further US$250,000 received post period end
-- The final balance, less certain exit costs including in country taxes and staff retrenchments received upon closing of the transaction post period, of US$366,000 bringing the total cash received to US$866,000 after payment of taxes, retrenchments, certain creditors and other exit related costs
-- Saving of $70,000 per month from the Guinea exit going forwards
Kumgbo Project, Liberia (90% owned):
-- Licences remain on care and maintenance whilst a joint venture partner is sought
-- Historical Stellar results were positive with some high interest indicator mineral anomalies in areas of artisanal diamond digging
-- New diamondiferous kimberlites discovered by another group in neighbouring licence demonstrate prospectivity of the Kumgbo project
Financial Highlights:
-- US$1.2 million cash raised in the financial year through a combination of equity and debt
-- A further $0.25 million received in the year as an advance on the sale of the Group's Guinea assets (as part of the $1.25m Guinea asset disposal)
-- Loss before impairments and discontinued activities reduced from $2.75m to $2.25m
Stellar Diamonds Chief Executive Karl Smithson commented:
"The combined Tongo-Tonguma project has the potential to be an exceptional mine. The current plan demonstrates a 21-year life of mine exploiting the initial 4.5 million carats. Forecast production targets of over 200,000 carats per annum would generate significant estimated annual cash flows of US$45 million. The project has an after tax NPV attributable to Stellar of $109 million. This is far in excess of the Company's current market capitalisation and therefore rightly deserves our exclusive strategic focus.
"Furthermore, Sierra Leone has demonstrated twice this year why it should be the target of diamond miners. Gem quality diamonds of 709 carats and 478 carats have been discovered by third parties and the country has a rich history of yielding world class stones, such at the 970 carat "Star of Sierra Leone".
"During the past year the proposed acquisition of the Tonguma diamond project has been restructured to a tribute mining and revenue share agreement. The terms of the transaction require Stellar to fund the capital development of the combined Tongo-Tonguma mining operation in return for a de-facto 90% revenue share of future project revenues, once Stellar has fully recouped its capital outlay. Stellar and Octea continue to work together to extend the longstop dates to the completion of the Tribute Mining and Revenue Share agreements as required, to allow Stellar the necessary time to complete the required project development funding.
"The capital markets for junior resource companies remain challenging, and although the Company's current financial position is weak we have obtained strong shareholder support in recent open offer financings. Stellar continues to carefully manage its day to day working capital and alongside our loan note holders, who remain fully supportive, we are working on, and remain optimistic of securing, the required project funding to develop the Tongo-Tonguma project. The mine has the potential to be the second largest kimberlite diamond mine in West Africa and transform Stellar from a small cap explorer in to a mid-tier diamond mining company."
Financial statements and going concern
The Financial Statements will be available on the Company's website, www.stellar-diamonds.com, shortly and will be posted to Shareholders (other than those who have elected to receive shareholder information via electronic communication) in due course.
Whilst the Directors remain optimistic of securing future project funding, Shareholders should note the existence of a material uncertainty in respect of the Group's ability to continue as a going concern as set out in the Audit Report contained in the Financial Statements and summarised in Note 1.3 below. The Company's ability to continue as a going concern is dependent on the continued support of its loan note holders, creditors and the ability of the Company to raise further funds in the near term.
For further information contact the following or visit the Company's website at www.stellar-diamonds.com.
Hot Features
Premium
Karl Smithson, Stellar Diamonds plc Tel: +44 (0) 20
CEO 7010 7686
Emma Earl Cairn Financial Advisers Tel: +44 (0) 20
Sandy Jamieson (Nominated Adviser) 7213 0880
Jon Bellis Beaufort Securities Tel: +44 (0) 20
Limited (Joint Broker) 7382 8300
Martin Lampshire Peterhouse Corporate Tel: +44 (0) 20
Finance (Joint Broker) 7469 0930
Rory Scott Mirabaud Securities
(Financial Advisers) Tel: +44 (0) 20
7878 3360
Tim Blythe Blytheweigh Tel: +44 (0) 20
Nick Elwes (Financial PR) 7138 3204
Stellar is an AIM listed (AIM: STEL) diamond development company focused on the 4.5 million carat high-grade and high value Tongo-Tonguma kimberlite diamond project in the world famous diamond fields of eastern Sierra Leone. An independently generated mine plan, based on over 66,000m of drilling that has been completed to date, envisages the production of over 4 million carats, generating gross revenues of more than US$1.2 billion, over a 21 year life of mine. Initial production at Tongo-Tonguma is scheduled to occur in the first year of development, building up to over 200,000 carats per annum, with a weighted average modelled diamond value of $229 per carat. The Tongo-Tonguma mine is estimated to give Stellar an attributable Post-tax NPV(8) of US$109 million and IRR of 31%.
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 identi ed by their use of terms and phrases such as "believe", "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. In particular, there is no guarantee that the Company will be able to complete the Tribute Mining Agreement. Such forward looking statements re ect 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 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, withdrawal of the support of the Company's loan note holders, 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.
Chairman's Statement
Stellar has continued to progress towards combining its high-grade, high-value Tongo Kimberlite diamond project with the adjacent, larger, Tonguma mining concession held by Octea Mining Limited ("Octea") in eastern Sierra Leone. Together, the two licences cover the entire Tongo diamond field which has been exploited by artisanal miners since the 1950's. However, the sources of the alluvial diamonds, the underlying kimberlites, have never been mined commercially and this will be Stellar's primary focus going forward.
In order to focus our resources, the Board took the decision to dispose of the Company's Guinea portfolio of three licences and associated assets. Following due diligence, the final price was agreed at US$1.25 million of which US$0.5m was advanced prior to completion and the balance, net of exit costs paid by the buyer, was received on completion.
Tongo-Tonguma Mine Development (Sierra Leone)
During the first half of the last financial year, Stellar and Octea signed a Tribute Mining and Revenue Share agreement whereby Stellar would acquire the Tonguma licence in return for a future royalty and revenue stream. This was deemed to be a Reverse Take Over under the AIM Rules for Companies ("RTO") and subsequently Stellar's shares were suspended from trading until that transaction was completed. However, towards the end of this suspension period, Octea requested that discussions around acquisition of Tonguma be terminated and instead the Company agreed heads of terms to allow Stellar to mine the Tonguma licence area alongside Stellar's own Tongo project with Stellar becoming operator of the combined mine under a revenue share model. The proposed agreements were deemed not to be an RTO and therefore trading in Stellar's shares resumed in March 2017. Stellar entered into legally binding conditional tribute mining and revenue share agreements with Octea ("Tribute Agreement") at the end of April 2017.
The broad terms of the Tribute Agreement require Stellar to invest 100% of the capital to develop the Tongo-Tonguma mine (estimated at US$32 million excluding working capital and cost overrun facility). Stellar will acquire Octea's in-country 50tph production plant and various other camp and equipment infrastructure at nominal value. Initial cash flow will be used to repay Stellar's capital investment and an initial preferential revenue share of US$5 million to Octea. Following this and once Stellar has recouped its entire investment a 10% gross revenue share arising from diamond sales from the combined mine (after deduction of 6.5% Government royalty) will be paid to Octea. Furthermore, a US$5.5 million bullet payment will be made to Octea after five years from mine development commencing.
The Tribute Agreement resulted in improved economics for Stellar with management estimating a post-tax NPV(8) of US$109 million and IRR of 31% for the estimated 21 year life of the project. This is significantly higher than the current market capitalisation of the Company and demonstrates the significant potential value in the project.
The combined resource for Tongo-Tonguma is established at 4.5 million carats at grades ranging from 100cpht to 260cpht (at a +1.18mm cut off) and diamond values ranging from US$209/ct to US$310/ct. The in-situ dollar per tonne of these kimberlites in resource is some of the highest in the world at up to US$550 per tonne.
Independent Consultants PPM and SRK Consulting undertook a revised Preliminary Economic Assessment ("PEA") and mine plan on the basis of mining both projects simultaneously. For a US$32 million capital outlay, initial production could be achieved within 12 months and build up to over 200,000 carats per annum over a 21 year life of mine. Cash flows at this level of production are significant at over US$45 million at a 49% margin. The PEA indicates significant scope to increase production and life of mine through bringing into resource additional carats from kimberlites already drilled on the Tonguma concession, with independent estimates of a further 8 million carats to be added to the resource base.
Stellar has appointed Exotix Capital, a market leading frontier/development funding group, to seek project debt funding for the mine development. Stellar also continues to engage with various other potential strategic partners to bring the necessary funding for the project development.
Baoulé Project (Guinea)
In the first half of this financial year Stellar signed joint venture agreements with Dubai based Citigate Commodities Trading ("Citigate") over the Baoulé (Guinea) and Kumgbo (Liberia) projects. It was incumbent on Citigate to fully fund the projects over a staged earn-in JV and also pay to Stellar a US$150,000 management fee. Unfortunately, no funding was forthcoming from Citigate. Stellar therefore terminated the joint ventures.
Guinea Disposal
Once the Citigate joint venture arrangements were terminated, Stellar entered into a terms sheet with Hong Kong based group BDG Capital for the sale of Stellar's three diamond projects in Guinea, namely, Baoulé, Mandala and Droujba. BDG undertook a detailed due diligence and a final transaction price of US$1.25 million was agreed, of which US$0.5 million was advanced by BDG to Stellar during the exclusivity and due diligence period, with the balance being paid post period end in December 2017 once the final tax affairs in Guinea had been settled and the transaction completed.
The Board believes that the disposal of the Guinea assets is in the interests of shareholders as it enhances the Company's working capital and allows a strategic focus on the key asset of Tongo-Tonguma.
Kumgbo Project (Liberia)
No work was undertaken on the two high interest exploration licences in the Kumgbo area of western Liberia while the company was in discussion with Citigate. Past exploration by Stellar has identified a number of high priority indicator mineral targets in areas of known artisanal diamond mining. New diamondiferous kimberlite pipe discoveries have been made in the adjacent exploration licences by another group which reaffirms the exploration potential of the Kumgbo licences. Stellar will continue to seek a joint venture partner for this project.
Diamond Market Overview
Global rough diamond supply is estimated to rise to 144 million carats, valued at US$15 billion, in 2017 as three new mines came on stream (5% up on 2016). However, the first half of the year saw the two major producers by volume and value, De Beers and Alrosa, sell down their rough inventory into a market that saw price increases of around 2-5%. The second half of the year is traditionally slower and weaker than the first half and this has again proven to be the case with rough prices softening slightly in recent months.
There remains a short term concern in the mid-stream where certain manufacturers are experiencing tight liquidity and some bankruptcies. This impacts on buyer sentiment and results in softening of prices. Polished prices, as a consequence, have decreased by around 5% this year, which may provide some headwind to rough price in the short term.
However, the USA (being 50% of the diamond market) is showing signs of stable demand while China (being 20% of the market) is showing renewed demand and growth in the luxury-spending category, including jewellery. A strong US economy and stock market could translate to continued demand for diamond goods. Furthermore, increasing wealth creation in China and India will continue to drive rough diamond demand and proposed tax cuts in the USA may also stimulate increased luxury consumer spending in the future.
The long term outlook for rough production remains one of decreasing carats as the older mines approach the end of life. However, one new discovery in Angola by Alrosa (Luaxe) has the potential to be a 10 million carat per year producer after 2020. Nevertheless, this is unlikely to provide an oversupply of rough in the long term and therefore the outlook remains one of positive sentiment for diamonds.
Outlook
Going forward, Stellar's strategic focus is on Tongo-Tonguma as we believe this is where significant value will be realised for the Company. The project is primed and ready to advance to the development phase subject to the necessary funding being achieved. Stellar believe the project can deliver robust and sustainable returns over the long term and as such should prove attractive to investors and shareholders alike. Once in production at the envisaged levels Tongo-Tonguma has the potential to be the second largest kimberlite diamond mine in West Africa.
I would like to once more thank our shareholders for their continued support in very challenging times for the junior resource sector. Furthermore, I would like to thank our management and in-country teams for their hard work and dedication. Philip Knowles, Stellar's CFO, has recently departed to new ventures and the Board thank him for his contribution in the last six years and wish him well. The Board has put in place an interim accounting support solution and will look to appoint a full time CFO once Tongo-Tonguma is funded into development.
Lord Daresbury
Non-Executive Chairman
19 December 2017
Stellar Diamonds plc
Consolidated statement of comprehensive income
For the year ended 30 June 2017
(Stated in U.S. dollars)
Year
ended
Year ended 30 June
Notes 30 June 2017 2016
------------------------------ ------ -------------- --------------
Revenue - 499,725
Cost of sales - (1,545,769)
-------------- --------------
Gross loss - (1,046,044)
Depreciation of plant
and equipment (1,007) (621,629)
Impairment of intangibles 4 - (4,300,528)
Administrative expenses (1,533,675) (1,461,418)
Loss on disposal of
tangible fixed assets - (98,956)
Remeasurement of derivatives 8 12,504 877,993
Finance costs (730,085) (407,418)
------------------------------ ------ -------------- --------------
(2,252,263) (7,058,000)
------------------------------ ------ -------------- --------------
Loss before tax (2,252,263) (7,058,000)
Income tax expense - -
------------------------------ ------ -------------- --------------
Loss from continuing
operations (2,252,263) (7,058,000)
Loss on discontinued
operations 6 (6,928,025) -
------------------------------ ------ -------------- --------------
Loss after tax attributable
to equity holders of
the parent (9,180,288) (7,058,000)
Total comprehensive
income for the year
attributable to equity
holders of the parent (9,180,288) (7,058,000)
------------------------------ ------ -------------- --------------
Basic and diluted loss
per share (0.260) (0.300)
------------------------------ ------ -------------- --------------
Basic and diluted loss
per share on continuing
operations (0.064) (0.300)
------------------------------ ------ -------------- --------------
Stellar Diamonds plc
Consolidated and company statement of financial
position
As at 30 June 2017
(Stated in U.S.
dollars) Consolidated Company
30 June 30 June 30 June 30 June
Notes 2017 2016 2017 2016
-------------------------- --------- ------------- ------------- -------------- -------------
Assets
Non-current assets
Intangible Assets 4 7,583,915 13,139,699 - -
Property, plant
and equipment 5 63,810 1,439,124 - -
Investment in Subsidiary - - 4,157,484 4,157,484
---------------------------- ------- ------------- ------------- -------------- -------------
Total non-current
assets 7,647,725 14,578,823 4,157,484 4,157,484
---------------------------- ------- ------------- ------------- -------------- -------------
Current assets
Inventories - 26,934 - -
Trade and other
receivables 41,062 296,284 3,581,213 10,529,217
Cash and cash equivalents 169,505 268,330 - 447
---------------------------- ------- ------------- ------------- -------------- -------------
210,567 591,548 3,581,213 10,529,664
Assets in Disposal
Groups classified
as held for sale 6 920,911 - - -
---------------------------- ------- ------------- ------------- -------------- -------------
Total current assets 1,131,478 591,548 3,581,213 10,529,664
---------------------------- ------- ------------- ------------- -------------- -------------
Total assets 8,779,203 15,170,371 7,738,697 14,687,148
---------------------------- ------- ------------- ------------- -------------- -------------
Equity and liabilities
Capital and reserves
Share capital 27,023,701 26,887,434 27,023,701 26,887,434
Share premium 31,042,176 30,449,207 31,042,176 30,449,207
Reverse acquisition
reserve 17,073,279 17,073,279 - -
Share option reserve 918,279 918,279 918,279 918,279
Foreign currency
translation reserve - - (773,363) (773,363)
Accumulated loss (71,590,397) (62,410,109) (53,743,755) (44,563,467)
Total equity 4,467,038 12,918,090 4,467,038 12,918,090
---------------------------- ------- ------------- ------------- -------------- -------------
Non-current liabilities
Convertible loan 8 - 953,625 - 953,625
Derivative financial
liabilities 8 - 12,504 - 12,504
Provision - 104,369 - -
Total non-current
liabilities - 1,070,498 - 966,129
---------------------------- ------- ------------- ------------- -------------- -------------
Current liabilities
Trade and other
payables 7 1,367,072 413,840 426,556 134,976
Loans 7 99,990 767,943 - 667,953
Convertible loans 7 2,845,103 - 2,845,103 -
Total current liabilities 4,312,165 1,181,783 3,271,659 802,929
---------------------------- ------- ------------- ------------- -------------- -------------
Total liabilities 4,312,165 2,252,281 3,271,659 1,769,058
---------------------------- ------- ------------- ------------- -------------- -------------
Total equity and
liabilities 8,779,203 15,170,371 7,738,697 14,687,148
---------------------------- ------- ------------- ------------- -------------- -------------
Stellar Diamonds plc
Consolidated statement of changes in equity
For the year ended 30 June 2017
(Stated in U.S. dollars)
Reverse
Share Share Share acquisition Accumulated
option
capital premium reserve reserve loss Total
(note (note (note equity
15) 15) 16)
Balance at 30 June
2015 26,655,961 29,000,173 4,286,666 17,073,279 (58,720,496) 18,295,583
Total comprehensive
loss for the year - - - - (7,058,000) (7,058,000)
Issue of placing shares
(note 15) 231,473 1,575,358 - - - 1,806,831
Share issue costs (note
15) - (126,324) - - - (126,324)
Share options expired
(note 16) - - (3,368,387) - 3,368,387 -
Balance as at 30 June
2016 26,887,434 30,449,207 918,279 17,073,279 (62,410,109) 12,918,090
Total comprehensive
loss for the year - - - - (9,180,288) (9,180,288)
Issue of placing shares
(note 15) 136,267 613,202 - - - 749,469
Share issue costs (note
15) - (20,233) - - - (20,233)
Balance as at 30 June
2017 27,023,701 31,042,176 918,279 17,073,279 (71,590,397) 4,467,038
-------------------------- ----------- ----------- ------------ ------------- -------------- ------------
Stellar Diamonds plc
Consolidated and company statement of cash flows
For the year ended 30 June 2017
(Stated in U.S. dollars)
Consolidated Company
June June June June
2017 2016 2017 2016
----------------------------------------------- ------------- ------------ ------------ ------------
Cash flows from operating
activities:
Net loss for the year (9,180,288) (7,058,000) (9,180,288) (7,058,000)
Adjustments for:
Depreciation of property,
plant and equipment 1,007 621,629 - -
Impairment of intangibles - 4,300,528 - 1,302,561
Impairment on classification
as disposal group 6,905,703 - - -
Reversal of rehabilitation
provisions (104,369) - -
Loss on disposal of fixed
assets - 98,956 - -
Remeasurement of derivatives (12,504) (877,993) (12,504) (877,993)
Shares issued to Directors
and officers in lieu of
fees 90,332 192,343 - -
Net foreign exchange (gain) (102,461) (226,447) (77,496) (11,983)
Interest payable 730,085 407,418 730,085 378,341
Change in working capital
items:
Decrease/(Increase) in
receivables 255,222 (129,534) 6,753,148 2,906,806
Decrease/(Increase) in
inventories 26,934 127,236 -
Increase/(Decrease) in
trade and other payables 703,240 (93,677) 518,173 29,347
Advance on disposal of
Guinea Assets (note 6) 250,000 - - -
----------------------------------------------- ------------- ------------ ------------ ------------
Net cash used in operations (437,099) (2,637,541) (1,268,882) (3,330,921)
----------------------------------------------- ------------- ------------ ------------ ------------
Cash flows from investing
activities
Payments to acquire intangible
assets (896,522) (706,801) - -
----------------------------------------------- ------------- ------------ ------------ ------------
Net cash used in investing
activities (896,522) (706,801) - -
----------------------------------------------- ------------- ------------ ------------ ------------
Cash flows from financing
activities
Proceeds of Convertible
Loan 600,000 1,551,407 600,000 1,551,407
Proceeds of other loans - 662,397 - 662,397
Repayment of other loans - (337,500) - (337,500)
Interest Paid (47,965) (72,867) (47,965) (45,625)
Proceeds from issue of
share capital, net of costs 638,904 1,488,164 638,904 1,488,164
-------------
Net cash generated by financing
activities 1,190,939 3,291,601 1,190,939 3,318,843
----------------------------------------------- ------------- ------------ ------------ ------------
Net (decrease) in cash
and cash equivalents (142,682) (52,741) (77,943) (12,078)
Cash and cash equivalents,
beginning of year 268,330 94,624 447 542
Effect of foreign exchange
rate changes 43,857 226,447 77,496 11,983
------------- ------------ ------------ ------------
Cash and cash equivalents,
end of year 169,505 268,330 - 447
----------------------------------------------- ------------- ------------ ------------ ------------
1. Basis of preparation
1.1 Basis of accounting
Stellar Diamonds plc is presenting audited financial statements as of and for the year ended 30 June 2017. The comparative period presented is audited financial statements as of and for the year ended 30 June 2016.
The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as published by the IASB. The financial statements have also been prepared in accordance with IFRSs as adopted by the European Union and in accordance with the Companies Act, 2006. The consolidated financial statements have been prepared on an historical cost basis, as adjusted for certain financial instruments carried at fair value.
1.2 Going concern
The Group incurred a loss of $9,180,288 during the year ended 30 June 2017 (2016: $7,058,000), and at that date had net current liabilities of $3,180,687 (2016: net current liabilities of $590,235) which included cash and cash equivalents of $169,505 (2016: $268,330) and stock of diamonds of nil (2016: $26,934).
During the year the Group raised $0.75m through placings and entered into a convertible loan note for $1.24m, replacing an existing $0.66m loan. Subsequent to the Balance Sheet date the Group extended the $1.24m convertible loan by $0.1m to $1.34m and raised a further $0.8m through an equity placing and open offer details of which can be found in the notes to the financial statements. At the date of this report the Group is working to finalise the $45m financing of the Tongo-Tonguma project through a combination of debt and equity. The Group has entered into a mandate with Exotix Partners LLP, and experienced funding group in the frontier and emerging markets, to raise the required debt and equity for the Tongo-Tonguma project which, if completed would provide the Group with sufficient funds to undertake the planned 2 year mine construction exercise. Furthermore, Stellar continues engagement with various potential strategic investors which, if successful would provide the Group with potential funding for the Tongo-Tonguma mine development. Should the funding not take place as planned the Group will require additional working capital funding to continue as a going concern. The Group has continued to undertake cost reduction initiatives both at a Corporate and Project level, including the completion of the disposal of the Group's Guinea assets for gross consideration of $1.25m, resulting in significantly reduced cash overheads.
Given the positive evaluation studies concluded on the Tongo project to date, the stage of development of the project, the issuing of the necessary Environment Licence for the Tongo project and the positive progress in obtaining the Mining Licence required to take the project into production which is presently being drafted by the Government of Sierra Leone, and the completion, subject to certain funding requirements, of the transformational Tonguma acquisition transaction the Directors believe that the Company will have the ability to access sufficient levels of finance to fund the capital expenditure requirements at Tongo-Tonguma, and to meet essential administrative expenses for the foreseeable future. The directors have reviewed the projected cash flows for the Group and on the basis of the projected cash flow information and, the prospects for raising additional equity as required, and the continued support of the Convertible Loan Note holders and Octea on extending certain terms of the loans and transaction they consider it appropriate to prepare the financial statements on a going concern basis.
The going concern of the Group is dependent on obtaining additional finance in order to meet its working capital needs for a period of not less than twelve months from the date of approval of the financial statements and to continue to fund development of exploration projects. This indicates the existence of material uncertainties which may cast significant doubt on the ability of the Company and the Group to continue as a going concern, and hence may be unable to realise its assets and discharge its liabilities in the normal course of business.
The Directors are confident that they can fulfil the funding requirements of the Group through attracting funding through diamond sales, joint ventures, sale of assets, reducing overheads, obtaining debt funding for Tongo or the issue of further shares by way of private placement. On this basis, the Directors are satisfied that it is appropriate to prepare the financial statements of the Group on a going concern basis. The financial statements do not include any adjustment to the carrying amount or classification of assets and liabilities that would occur if the Company was unable to continue as a going concern.
1.3 Audit Report
Deloitte, the Group's auditors, have not qualified their audit opinion, however they have drawn attention to Note 1.2 to the financial statements concerning the Group's ability to continue as a going concern, noting that:
"The Group incurred a net loss for the year of $9,180,288 and, as of that date, the Group's current liabilities exceeded its current assets by $3,180,687. This condition indicates the existence of a material uncertainty in respect of the Group's ability to continue as a going concern. The going concern assumption of the Group is dependent on the Group obtaining additional finance to meet its working capital needs for a period of not less than twelve months from the date of approval of the financial statements. The directors have prepared the financial statements of the Group on the basis that the Group is a going concern. The financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern. Our opinion is not modified in respect of this matter."
In addition to the matter described in the Material Uncertainty Related to Going Concern section, the auditors have set out a number of key audit matters in their audit report including Recoverability of Intangible assets (Group), Recoverability of Investment in Subsidiary (Company) and Recoverability of Intercompany Receivables (Company), the Capitalisation of Intangible Assets and Valuation of Convertible Loans.
1.4 Non-current assets (or disposal groups) held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the statement of profit or loss.
2. Segments
During the period the Company is engaged in the acquisition, exploration, development and production of diamond properties in the West African countries of Sierra Leone and Guinea. Information presented to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance is focused on the individual projects in geographical locations. In the case of the Guinea based projects, following the decision during the year to dispose of all Guinea based assets through a single disposal, these assets have been classified as being a disposal group and as such have been classified as a single segment for reporting purposes. The comparative information has been adjusted to reflect this single Guinea segment. The reportable segments under IFRS 8 are therefore as follows:
-- Tongo (Sierra Leone); -- Kono (Sierra Leone); -- Guinea Disposal Group (Guinea); -- Corporate and other activities.
Following is an analysis of the Group's revenue, results, assets and liabilities by reportable segment for the year ended 30 June 2017:
Guinea Corporate Total
Disposal and
Group Kono Tongo other
$ $ $ $ $
Revenue -
sale of diamonds - - - - -
------------ --------- ---------- ------------ ------------
Segment result - (38,943) 19,278* (1,515,018) (1,534,683)
------------ --------- ---------- ------------ ------------
Finance costs (730,085)
Remeasurement
of derivatives 12,504
------------ --------- ---------- ------------ ------------
Loss before
tax (2,252,264)
Income tax
expense -
------------ --------- ---------- ------------ ------------
Loss after
tax (2,252,264)
Loss on discontinued
operations (6,928,024) - - - (6,928,024)
Loss after
tax and discontinued
operations (6,928,024) (38,943) 19,278* (1,515,018) (9,180,288)
Segment assets 920,911 2,146 7,641,649 214,497 8,779,203
Segment liabilities - (5,726) (54,099) (4,252,340) (4,312,165)
Carrying value
of intangible
assets - - 7,538,355 45,560 7,583,915
Net book value
of property,
plant and
equipment - 1,973 50,867 10,970 63,810
Assets in
Disposal Groups
classified
as held for
sale 920,911 - - - 920,911
Capital additions
- intangible
assets 926,161 - 409,597 - 1,335,758
Depreciation
of property,
plant and
equipment 405,783 846 21,711 161 428,501
*The profit shown for Tongo relates entirely to foreign currency gains recognised on transfers of US Dollars in Sierra Leonian Leones in the year.
Following is an analysis of the Group's revenue, results, assets and liabilities by reportable segment for the year ended 30 June 2016:
Guinea Corporate Total
Disposal and
Group Kono Tongo other
$ $ $ $ $
Revenue -
sale of diamonds 499,725 - - - 499,725
------------ ------------ ---------- ------------ ------------
Segment result (1,181,546) (4,364,833) 121,090* (2,103,286) (7,528,575)
------------ ------------ ---------- ------------ ------------
Finance costs (407,418)
Remeasurement
of derivatives 877,993
------------ ------------ ---------- ------------ ------------
Loss before
tax (7,058,000)
Income tax
expense -
------------ ------------ ---------- ------------ ------------
Loss after
tax (7,058,000)
------------ ------------ ---------- ------------ ------------
Segment assets 7,370,269 3,012 7,231,945 565,145 15,170,371
Segment liabilities (107,053) - (36,920) (2,108,308 (2,252,281)
Carrying value
of intangible
assets 5,965,382 - 7,128,759 45,558 13,139,699
Net book value
of property,
plant and
equipment 1,352,537 2,819 72,637 11,131 1,439,124
Capital additions
- intangible
assets 18,293 - 721,518 - 739,811
Depreciation
of property,
plant and
equipment 621,021 1,208 32,180 230 654,639
Impairment
of intangibles - 4,300,528 - - 4,300,528
*The profit shown for Tongo relates entirely to foreign currency gains recognised on transfers of US Dollars in Sierra Leonian Leones in the year.
3. Loss for the year
Loss for the year has been arrived at after charging/(crediting):
Year
Year ended ended
30 June 30 June
2017 2016
$ $
Fees payable to the company's
auditors for the
audit of the group's accounts:
- audit services 49,825 30,718
- non-audit services - -
Net foreign exchange (gain) (102,461) (226,447)
Depreciation of property,
plant and equipment 1,007 621,629
Impairment of Intangibles - 4,300,528
$427,554 of depreciation charges were capitalised as exploration and evaluation expenditure during the year and consequently are not included in the Statement of Comprehensive Income (2016: $33,010).
4. Intangible assets
Consolidated Company
30 June 30 June 30 June 30 June
2017 2016 2017 2016
$ $ $ $
Exploration and
evaluation expenditure:
Cost
Opening balance 35,729,205 34,989,394 4,408,327 4,408,327
Additions 1,335,759 739,811 - -
Transfers to Disposal
Group (8,891,543) - - -
------------ ----------- ---------- ----------
Closing balance 28,173,421 35,729,205 4,408,327 4,408,327
------------ ----------- ---------- ----------
Impairment
Opening balance 22,589,506 18,288,978 4,408,327 3,105,766
Charge for the
year - 4,300,528 - 1,302,561
Transfers to Disposal
Group (2,000,000) - - -
------------ ----------- ---------- ----------
Closing balance 20,589,506 22,589,506 4,408,327 4,408,327
------------
Carrying value 7,583,915 13,139,699 - -
------------ ----------- ---------- ----------
At 30 June 2017, the Group did not have any contractual commitments for the acquisition of intangible assets.
The impairment charge of $4,300,528 in the previous year related to the impairment of the carrying value of the Kono intangible assets as detailed below.
The realisation of the net carrying value of intangible assets of $7,583,915 is dependent on the discovery and successful development of economic mineral reserves including the Group's ability to raise sufficient finance to develop the exploration and evaluation projects and other factors, as discussed in the notes to the Financial Statements.
In the year ended 30 June 2012 a dispute emerged in relation to the two exploration licenses held for the Kono project. The group received a letter from the Ministry of Mines of Sierra Leone ("The Ministry") which asserts that the Ministry ought not to have granted the renewals of the Company's licences in 2010 under the Mines and Minerals Act of 2009 and that as a result the Company no longer has mineral rights over the licences. The Company disputed the assertions and has continued to pursue the available political, diplomatic and legal routes available. During the previous year no further progress was made in relation to the reinstatement of the Kono licence and the Company took the decision to focus its efforts in Sierra Leone on the completion of the Tonguma transaction and subsequent development of the Tongo-Tonguma commercial mine. The Directors therefore believed that the reinstatement of the Kono licence was unlikely and took the decision to impair the value of the intangible assets relating to that licence which at the time of the impairment had a carrying value of $4,300,528 in the Consolidated Statement of Financial Position and a carrying value of $1,302,561 in the Company Statement of Financial Position.
During the year the Company entered into an agreement to dispose of its Guinea assets. As a result the Droujba, Mandala and Baoulé projects and assets have been classified as a Disposal Group and accounted for accordingly. For details of the Assets in Disposal Groups classified as held for sale refer to note 6.
The Directors have considered the potential impairment of the other intangible assets carried in the books at the year end, being those relating to the Tongo project and the Directors have considered various factors including the stage of development of the assets in question and the planned future work to be carried out on them and any discounted cash flow models or other valuations of the assets produced. The Directors have concluded that no impairment is required on those assets at the balance sheet date. Cash flows were estimated based on the following assumptions:
-- economically recoverable reserves and resources are based on management's expectations based on availability of reserves at mine sites and technical studies undertaken internally and by a Competent Person, where available;
-- diamond prices are based on independent valuations and models and a real annual increase of 3% thereafter;
-- discount rate of 8%;
-- the remaining useful life.
5. Property, plant and equipment
Mining Machinery
assets and equipment Total
$ $ $
Cost:
At 30 June 2015 11,079,305 10,491,367 21,570,672
Disposals - (898,032) (898,032)
At 30 June 2016 11,079,305 9,593,335 20,672,640
Disposals (125,607) (125,607)
Transfer to Disposal
Group (11,079,305) (8,965,065) (20,044,370)
At 30 June 2017 - 502,663 502,663
Depreciation:
At 30 June 2015 11,079,305 8,298,648 19,377,953
Charge for the
year - 654,639 654,639
Depreciation on
disposals - (799,076) (799,076)
At 30 June 2016 11,079,305 8,154,211 19,233,516
Charge for the
year - 428,560 428,560
Depreciation on
disposals - (113,923) (113,923)
Transfer to Disposal
Group (11,079,305) (8,029,995) (19,109,300)
At 30 June 2017 - 438,853 438,853
------------- --------------- -------------
Carrying value:
At 30 June 2017 - 63,810 63,810
------------- --------------- -------------
At 30 June 2016 - 1,439,124 1,439,124
------------- --------------- -------------
In accordance with the accounting policy stated in the notes to the Financial Statements, the Group tests property, plant and equipment for impairment when an indication of impairment exists. The recoverable amount of cash generating units is determined based on value-in-use calculations, which require the use of estimates. The estimated cash flows from the exploration projects produced net present values well in excess of their carrying values and are based on the following assumptions:
-- economically recoverable reserves and resources are based on management's expectations based on availability of reserves at mine sites and technical studies undertaken internally and by a Competent Person, where available;
-- diamond prices are based on independent valuations and models and a real annual increase of 3% thereafter;
-- discount rate of 8%; -- the remaining useful life.
The Group did not have any further contractually committed costs for the acquisition of property, plant and equipment at 30 June 2017.
The realisation of the full value of property, plant and equipment of $63,810 may be dependent on the discovery and successful development of economic mineral reserves including the group's ability to raise sufficient finance to develop the exploration projects and other factors, as discussed in the notes to the Financial Statements.
During the year the Company entered into an agreement to dispose of its Guinea assets. As a result the Droujba, Mandala and Baoulé projects and assets have been classified as a Disposal Group and accounted for accordingly. For details of the Assets in Disposal Groups classified as held for sale refer to note 6.
6. Assets in Disposal Groups classified as held for sale
Consolidated
30 June 30 June
2017 2016
$ $
Assets related to Guinea
Disposal Group 920,911 -
-------- --------
920,911 -
-------- --------
During the year the Company entered into an agreement to dispose of its Guinea assets in order to focus its efforts on the near term production of the Tongo-Tonguma mine. As a result the Droujba, Mandala and Baoulé projects and assets have been classified as a Disposal Group and accounted for accordingly. The sale was completed in December 2017 with gross proceeds of $1.25 million. $0.25 million of the gross proceeds was received in June 2017 and is included in trade and other payables at the year end. A further $0.25 million advance was received by the Company in August 2017 (refer to note 9). The Company incurred disposal costs of $0.33 million, resulting in net disposal proceeds of $0.92 million. As the aggregate carrying value of assets related to the sale is higher than the estimated net disposal proceeds an impairment on classification as a Disposal Group has been recognised within the income statement and classified as a loss on discontinued operations.
The major classes of assets of the Guinea Disposal Group are as follows:
Prior to
classification Write Classified
as Disposal off on as Disposal
Group classification Group
$ $
Exploration and
evaluation expenditure 6,891,543 (6,080,656) 810,887
Machinery and equipment 935,071 (825,047) 110,024
---------------- ---------------- -------------
7,826,614 (6,905,703) 920,911
---------------- ---------------- -------------
In addition to the $6,905,703 write off on classification as a Disposal Group, the Company recognised losses in the year of $22,322 in relation to the Guinea Disposal Group that have been classified within Loss on discontinued operations in the Income Statement.
Loss for the year on discontinued operations:
Year ended
30 June
2017
$
Revenue 26,934
Expenses (49,255)
------------
Loss before tax (22,321)
Loss on disposal of operations (6,905,703)
------------
Loss for the year on discontinued
operations (6,928,024)
------------
7. Trade and other payables
Consolidated Company
30 June 30 June 30 June 30 June
2017 2016 2017 2016
$ $ $ $
Amounts due within
one year:
Trade payables and
accruals 1,117,072 413,840 426,556 134,976
Advance on Disposals 250,000 - - -
Loans 99,990 767,943 - 667,953
Convertible loans
(Note 8) 2,845,103 - 2,845,103 -
4,312,165 1,181,783 3,271,659 802,929
-------------- ---------- ---------- --------
Amounts due after
one year:
Convertible loans
(Note 8) - 953,625 - 953,625
Derivative financial
liabilities (Note
8) - 12,504 - 12,504
- 966,129 - 966,129
-------------- ---------- ---------- --------
The carrying amount of trade and other payables is approximately equal to their fair value.
During the previous year the Company entered into a short term loan agreement for $667,953 (GBP465,000). The loan was entered into on 13 June 2016 and had a six month term. The loan carried interest of 20% p.a. payable on repayment. The loan was provided by Altus Strategies Ltd and Deutsche Balaton AG, both related parties by virtue of Directors in common and by being shareholders in Stellar Diamonds Plc. This loan was repaid in full during the current year.
8. Convertible loans
$1,650,000 Convertible Loan
On 19 November 2015 the company issued a secured convertible loan note (CLN) of $1,650,000, split into 5 equal amounts of $330,000, net of corporate finance and legal issuance costs of $98,599, to Deutsche Balaton. The CLN has a 2 year term and is repayable by 19 November 2017 and carries interest at 6% p.a. payable on the 12, 18 and 24 month anniversary of the issue date. The CLN is secured on the shares of Sierra Diamonds Limited, a wholly owned subsidiary of the Group which holds the Tongo exploration licence and related assets. The CLN is convertible into 3,747,368 ordinary 1p shares of the Company and can also be converted into shares in subsidiaries of the Company based on a set formula. The Company also granted warrants over 5,995,789 shares to Deutsche Balaton with an aggregate subscription value of $1,650,000. The warrants can only be exercised following conversion or repayment of the corresponding proportion of the CLN and have an expiry date of 21 November 2017.
The conversion feature of the CLN and the related warrants represents an embedded derivative for accounting purposes and is separated from the host contract at fair value on the date of issue and presented as a Derivative Financial Instrument liability. This is revalued at each balance sheet date with the movement recorded through the income statement.
In order to determine the fair value of the embedded derivate the Directors have considered a number of applicable valuation techniques. As the warrants and conversion feature can be exercised or converted at either the Stellar Diamonds Plc or at individual subsidiary level a Monte-Carlo simulation method would usually be used. The Directors have considered the requirements of such a valuation and do not believe that it would be possible to accurately derive a fair value in this way due to the lack of accurate available cash flow projections for certain assets and the difficulty in assigning probabilities to potential outcomes around the potential subsidiary level conversion. As a result the Directors consider that the most appropriate valuation method is to use a Black-Scholes option pricing model using the value of the ability to convert and exercise at the Stellar Diamonds plc level as a proxy. The Directors have considered the potential effect of using this technique, which is simplistic, and are of the opinion that it would not have a material effect on the valuations produced. The warrants cannot be exercised until the underlying CLN has been converted and therefore they have been valued and treated using the same inputs. The table below outlines the fair value inputs used in the embedded derivative valuation:
30 June 30 June 19 November
2017 2016 2015
Expected life 0.39 1.39 years 2 years
years
Expected Dividend Yield 0% 0% 0%
Risk Free Interest Rate 0.635% 0.396% 0.856%
Share Price Volatility 69.17% 69.17% 89.36%
Share Price at Time of
Valuation 6.25p 5.75p 17.5p
Exchange rate $1.2990/GBP $1.3390/GBP $1.5273/GBP
As a result of the above fair value methodology and the underlying terms of the loan and warrants the following movements were recorded in the period for the convertible loan and the derivative financial liability.
30 June 30 June
2017 2016
Convertible loan: $ $
Balance brought forward at 1 July 953,625 -
Proceeds from issuance - 1,650,000
Issuance costs - (98,599)
Embedded derivate element relating
to conversion option - (331,824)
Embedded derivate element relating
to warrant - (530,919)
Effective interest charged in the
period 532,353 264,967
---------- ----------
Presented as loans and borrowings 1,485,978 953,625
---------- ----------
Embedded derivatives:
Balance brought forward at 1 July 12,504 -
Fair value of derivate financial
instrument at inception of convertible
loan - 862,744
Gain recognised on revaluation at
30 June (12,504) (850,240)
---------- ----------
Presented as Derivative Financial
Liability - 12,504
---------- ----------
The decrease in value of the derivative since inception is as a result in the fall in the share price of Stellar Diamonds Plc between the date of the issue of the CLN and the balance sheet date. This fall in share price has resulted in a fall in the value of the underlying derivative as calculated using the Black-Scholes Model and the inputs detailed above, and is recognised as a gain in the Statement of Comprehensive Income.
As a result of the accounting treatment of the convertible loan and the movement on share price between the inception of the loan and the balance sheet date, the Company recognised a significant gain on revaluation of derivatives in the previous financial year of $850,240. The accounting treatment also results in a significant finance cost relating to the loan element which is charged to the income statement over the term of the loan, being 24 months from inception and 5 months from the balance sheet date.
On 5 October 2016 the Company entered into an agreement to amend certain terms of the existing $1,650,000 CLN with Deutsche Balaton. Under the terms of the amendment the Company agreed to issue Deutsche Balaton with $1 million of new ordinary shares at the date of completion of the then proposed Tonguma Transaction at the subscription price for equity issued on the Transaction in return for Deutsche Balaton waiving its rights to convert the loan or exercise the attached warrants into subsidiaries of Stellar. Additionally the conversion price and warrant exercise price will be amended to the Transaction equity subscription price and an additional $0.83 million of warrants will be issued to Deutsche Balaton. Deutsche Balaton will also waive any interest payable on the loan. All of these amendments are subject to the successful completion of the Transaction. Further to this, in February 2017, the following additional amendments were made to the convertible loan agreement:
- The definition of "Transaction", (as previously defined as "Potential Transaction"), was amended to take into account the Tribute Mining Agreement and the definition of "Completion" was amended to be the date on which the Company has raised a minimum initial funding of US$10 million having entered into the Tribute Mining Agreement
- A change in the definition of Issue Price, as previously defined, to be the weighted average price of the first US$10 million raised from 1 February 2017 onwards
- Extension of the Long Stop date by which the Transaction must be completed to 30 April 2017 - Extension of the maturity date of the warrants attached to the first CLN to 30 June 2019
On 5 May the Long Stop date by which the Transaction must be completed was extended by a further two months to 30 June 2017.
Subsequent to the year end the Long Stop date by which the Transaction must be completed was extended to 30 November 2017 and further extended to 31 January 2018.
As with the amendments agreed in October 2016, all amendments are subject to the successful completion of the proposed transaction.
As the amendments to the terms of the $1,650,000 CLN only come into force should the definition of the 'Transaction' be met within the agreed Long Stop dates, of which there can be no certainty, the CLN has continued to be accounted for under its original and existing terms during the year and at the balance sheet date.
The convertible loan and embedded derivatives have been classified as a Level 3 financial instrument under the fair value hierarchy as described in the notes to the financial statements.
Sensitivity Analysis
The Directors have undertaken a sensitivity analysis on the key inputs to the Black-Scholes model used to value the convertible loan and embedded derivatives. The table below details the sensitivities of changes in the share price and annualised volatility inputs used in the model for the valuation at 30 June 2017. A positive number represents a potential increase in the gain on revaluation of derivatives and a negative number represents a potential decrease in the gain on revaluation of derivatives. The Directors consider the sensitivity levels used for each input to be suitable.
Value Lower Effect Upper Effect
used sensitivity on Remeasurement sensitivity on Remeasurement
at 30 level gain level gain
June
2017
$ $
Share 3.125p 9.375p
price 6.25p (-50%) - (+50%) (1,513)
Annualised
volatility 69.17% 49.17% - 89.17% (946)
------- ------------- ------------------ ------------- ------------------
$1,242,183 Convertible Loan
On 5 October 2016 the Company entered into a $1,242,183 convertible loan agreement ("$1.24m CLN"). Under this agreement the existing $0.66 million loan outstanding at 30 June 2016 was repaid in full. The new convertible loan carries a coupon of 18% for 10 months and 24% for the remainder of the term. Interest is payable monthly and the loan has a term of 20 months. The outstanding principal can be converted into ordinary shares of the Company at any time after the completion of the proposed acquisition of the Tonguma project or after confirmation that the Transaction is no longer expected to complete. The conversion price will be 70% of the subscription price for equity raised to complete the Transaction. In the event that the Potential Transaction does not complete, the conversion price will be based on 70 percent of historical Volume Weighted Average Price ("VWAP") of Stellar Diamonds Plc shares for a fixed period prior to notice of exercise.
In conjunction with the convertible loan and subject to obtaining shareholder authorities in relation to the Company's ability to issue new Ordinary Shares at a general meeting, the Company shall issue the Noteholders with warrants which are equivalent to three times the principal amount of the $1.24m CLN (i.e. warrants with a total subscription price of US$3.72 million) exercisable at a premium of 5 percent to the Issue Price (per Ordinary Share) in the event of Completion occurring. The premium will increase at a rate of 1 percentage point per month from Completion up to a maximum premium of 17 percent to the Issue Price. In the event that the Transaction does not complete, the exercise price in respect of the convertible loan Warrants will be based on historical VWAP. The warrants are exercisable for a period of 18 months following completion of the Transaction or announcement that the Transaction will not occur, or 31 March 2017 if earlier. Should the warrants be exercised then the resulting Ordinary Shares issued to the warrant holder shall be subject to a lock-in period of six months from the date of exercise.
Further to this, in February 2017, the following amendments were made to the $1.24m CLN:
- The definition of "Transaction", (as previously defined in the CLN), was amended to take into account the Tribute Mining Agreement and the definition of "Completion" of the Transaction was amended to be the date on which Stellar has raised a minimum initial funding of US$10 million having entered into the Tribute Mining Agreement
- The Subscription Price (as previously defined in the CLN) was amended to 70% of the weighted average price of the first US$10 million raised between 1 February 2017 and 30 May 2017
- Extension of the Long Stop date by which the Potential Transaction must be completed to 30 May 2017, after which the Subscription Price becomes the Alternative Subscription Price (as described in the CLN)
- The Warrants to be issued to the Noteholders, conditional on the Company obtaining shareholder authorities, will be exercisable for 24 months commencing from the later of the date of the fundraise undertaken by the Company with which no less than US$10 million is raised in total, and the date of obtaining the required corporate authorisation pursuant to the Company's Articles of Association and applicable law to issue shares in relation to the exercise of the warrant.
- The exercise price of the Warrants amended to be 6 pence for the first 12 months, thereafter rising to 7 pence for the next twelve months ("Exercise Price").
- The exercise price of the Warrants in the event that the Potential Transaction is not completed, be amended to the lower of 6 pence or the 3 day or 45 day VWAP prior to the notice of exercise ("Default Exercise Price").
On 5 May the Long Stop date by which the Transaction must be completed was extended by a further two months to 31 July 2017.
Subsequent to the year end the $1.24m CLN was repaid and replaced with a new $1.34m CLN as detailed in note 9.
All amendments are subject to the successful completion of the proposed transaction. Given the significant uncertainty of pricing of the convertible element of the loan and the attached warrants, the $1.24m CLN has been treated as a loan with no derivative element for the purposes of these financial statements. The uncertainty lies around a number of elements that would ordinarily be used to value the derivative elements of the loan, in particular:
-- The exercise and conversion prices of the warrants and convertible elements of the loan, these being dependent on the pricing of equity issued in relation to the Transaction or, in the event of the Transaction not completing, VWAPs of the share price over a variable period of time and at an unknown future date.
-- The timing of completion of the Transaction or announcement that the Transaction will not complete.
-- The likelihood of the Transaction completing.
-- The likelihood of the Loan Note Holders agreeing extensions to the longstop dates contained in the CLN.
-- The likelihood of Octea agreeing extensions to the transaction longstop dates contained in the Tribute Mining Agreements.
Following careful consideration of the above uncertainties, the Directors have concluded that the value of the derivative elements is nil. The valuation will be reassessed at each future reporting date taking into account changes in the likelihood and level of uncertainty related to these inputs. A change in the assessment of the various inputs could have a material effect on the valuation of the derivative elements of the loan.
9. Subsequent events
On 17 August 2017 the Company received a second $250,000 advance on the sale of its Guinea assets as disclosed in note 6.
On 8 December the Company completed the disposal of its Guinea assets as disclosed in note 6.
On 27 July 2017 the Company repaid in full the $1.24m convertible loan note disclosed in note 8 and replaced it with a $1.34m convertible loan note with the same parties, with Steven Poulton and Creditforce each adding $50,000 to their original loan amounts. The key terms of the $1.34m convertible loan mirrored the $1.24m convertible loan with the following changes:
-- Change in the definition of the "Transaction" (or "Potential Transaction") for the purposes of the $1.34 million CLN to the completion of the Tribute Mining Agreement with Octea Mining Limited over the Tonguma kimberlite project in Sierra Leone and the raising of at least US$35,000,000 in debt or equity finance;
-- Change in the conversion period for the $1.34 million CLN to the period commencing on the later of i) the earlier of the date on which the Transaction completes (or the date on which the Company makes an announcement that the Transaction will not proceed) and ii) the date of obtaining the necessary shareholder authorisations which are needed to enable the Company to issue new Ordinary Shares pursuant to conversion of the CLN and ending on 5 June 2018 (the Maturity Date);
-- Change in the definition of "Transaction Default" to being upon the occurrence of the earlier of the Transaction failing to complete or upon the Company announcing the termination of the Transaction on or before 31 December 2017;
-- Change in the definition of "Subscription Price" of the CLN Warrants (as such warrants are defined in the 6 October 2016 announcement) to the lower of: 5 pence or the Transaction Price (as defined below).
-- The Transaction Price is defined as the lower of:
a) the VWAP of the next US$2 million in equity raised; or
b) the VWAP of the first US$10 million in equity raised after 1 February 2017; or
c) the VWAP of equity raisings from the date of this agreement until at least US$35 million in debt financing has been raised for the Tongo-Tonguma Project;
-- Change in the definition of the "Default Subscription Price" (or "Alternative Subscription Price") (being the conversion price and subscription price in respect of the $1.24 million CLN and CLN Warrants respectively in the event of Transaction Default) to the lower of 70% of: 5 pence or the 3 or 45 day VWAP prior to notice of exercise of the warrants.
-- Amendment of Subscription Price of the Repayment Warrants (as such warrants are defined in the announcement dated 6 October 2016) to 70 percent of the Transaction Price or, in the event that a Transaction Default has occurred the Default Subscription Price.
In December 2017 the Company and $1.34 million CLN Noteholders agreed a change in the definition of "Transaction Default" to being upon the occurrence of the earlier of the Transaction failing to complete or upon the Company announcing the termination of the Transaction on or before 30 April 2018.
Also in December 2017 the Company and $1.65 million CLN Noteholders agreed a change in the definition of "Transaction Default" to being upon the occurrence of the earlier of the Transaction failing to complete or upon the Company announcing the termination of the Transaction on or before 31 March 2018. Additionally it was agreed that the definition of "Placement Price" be amended to:
a) 5 pence; or
b) the VWAP of the next US$2 million in equity raised; or
c) the VWAP of the first US$10 million in equity raised after 1 February 2017; or
d) the VWAP of equity raisings from the date of this agreement until at least US$35 million in debt financing has been raised for the Tongo-Tonguma Project.
On 14 September 2017 the Company completed a placing to raise GBP330,000 ($440,529) before expenses through the issue of 10,153,847 ordinary shares of 1 pence each at a price of 3.25 pence. In addition a further 1,978,437 ordinary shares of 1 pence each were issued at a price of 3.25 pence to Directors and employees of the Company in lieu of accrued fees, salaries and expenses.
On 3 October 2017 the Company completed an open offer to raise GBP200,000 ($353,625) before expenses through the issue of 6,153,846 ordinary shares of 1 pence each at a price of 3.25 pence.
On 28 November 2017 the Company issued 1,000,000 ordinary shares of 1 pence each at a price of 3.25 pence in settlement of certain advisory fees.
10. Related parties
Year ended Year
30 June ended
2017 30 June
2016
Directors: $ $
- shares issued in lieu of
accrued Directors' fees 90,332 192,343
- amounts owed to Directors
at 30 June 92,383 105,378
The Directors are considered the Company's key management personnel. The remuneration earned in respect of the financial year by each Director is as follows:
Year Year
ended ended
30 June 30 June
2017 2016
$ $
Lord Daresbury 73,647 85,149
N. Karl Smithson 241,932* 287,011
Luis da Silva 10,117 23,091
Steven Poulton 31,744 36,080
Dr Markus Elsasser - 16,721
Liviu Meran - 16,721
Hansjörg Plaggemars 20,316 13,871
377,756 478,644
------------ ------------
* Includes $25,014 salary in lieu of contractual pension contribution and $25,976 in lieu of untaken holiday entitlement. The net amount (converted to GBP) of GBP21,441 was taken in Stellar shares at a price of 5.5p per share.
The Directors who held office at 30 June 2017 had the following interests in the ordinary shares of the Company as of 30 June 2017:
30 June 2017 30 June 2016
Ordinary Share Ordinary
shares options shares Share options
Lord Daresbury 1,268,294 102,000 538,936 102,000
N. Karl Smithson 1,117,012 220,000 625,019 220,000
Steven J.
Poulton 1,456,745 90,000 317,342 90,000
Hansjörg
Plaggemars - - - -
3,842,051 412,000 1,481,297 412,000
---------- --------- ---------- --------------
The number of Directors to whom retirement benefits are accruing is Nil (2016: Nil).
All remuneration in the current year related to short term employee benefits.
During the year an employee of the Company, Rowan Carr, provided certain loans to the Company on an interest free basis. The amounts advanced during the year amounted to $109,500. At the year end, $109,500 remained outstanding.
In March 2016 a Director of the Company, Hansjörg Plaggemars, purchased a diamond from Stellar through its sales agent. The diamond was purchased on commercial, arms-length terms following an independent assessment of its value by the sales agent. The diamond was purchased for $8,473. There were no such transactions in the current financial year.
During the previous year in June 2016, Steven Poulton (a related party through being a Director of the Company) and Deutsche Balaton (a related party through its shareholding in the Company) entered into a GBP465,000 ($667,953) loan to the Company. The loan carried interest at 20% p.a. and had a 6 month term. During the year in October 2016 this loan was repaid through the issue of the $1.24m convertible loan disclosed in note 8. For full details of this loan refer to note 8.
In November 2015 the Company entered into a convertible loan with Deutsche Balaton. Full details of this loan are disclosed in note 8.
11. Dividends
No dividends have been paid nor are proposed for the period (2016: nil).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FFFFLUFWSELE
(END) Dow Jones Newswires
December 19, 2017 09:45 ET (14:45 GMT)
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