Stellar Diamonds PLC (AIM:STEL) Possible Offer for the Company and proposed Loan

Possible Share Offer by Newfield Resources Limited

US$3 million Loan

Update on Tribute Mining Agreements for Tongo-Tonguma Project


The Board of Stellar announces that it is in advanced negotiations regarding a possible share offer for the entire issued and to be issued share capital of the Company by Newfield Resources Limited (“NWF”) to be implemented by means of a Court-sanctioned scheme of arrangement of Stellar under Part 26 of the Companies Act 2006 (“Scheme”) (“Possible Offer”).

Under the Possible Offer, Stellar shareholders and the holders of rights over Stellar ordinary shares would receive in aggregate 95.5 million shares in NWF (“Consideration Shares”), expected to equate to approximately 16.4% of the enlarged share capital of NWF assuming completion of the NWF Financings (as defined below) and the Possible Offer.  Stellar shareholders would receive approximately 0.76 of a NWF share for each Stellar share held (“Possible Offer Ratio”).

Based on the closing share price of A$29 cents per NWF share (being approximately 16.7 pence at the exchange rate of A$1.74 to £1.00) on 31 January 2018 (being the last business day before the date of announcement), the terms of the Possible Offer imply an offer value of 12.7 pence per Stellar share, representing a premium of:

·      452% to the closing price of Stellar shares of 2.3 pence on 31 January 2018;

·      412% to the volume weighted average closing price of Stellar shares in the 3 months prior to and including 31 January 2018.

Based on the theoretical ex-rights price of NWF shares of A$22.3 cents per share in connection with completion of the NWF Financings, the terms of the Possible Offer imply an offer value of 9.77 pence per Stellar share (“Theoretical Ex-rights Price Offer Value”), representing a premium of:

·      325% to the closing price of Stellar shares on 31 January 2018;

·      294% to the volume weighted average closing price of Stellar shares in the 3 months prior to and including 31 January 2018.


Parties with rights over ordinary shares (including warrants, options and other rights) will be made an appropriate share offer based on the value of such warrants or options taking into account the relevant exercise price of each option or warrant and the Theoretical Ex-rights Price Offer Value per Stellar ordinary share and the Possible Offer Ratio stated above.  For illustrative purposes, out of the 95.5 million NWF offer shares proposed to be issued pursuant to the Possible Offer, approximately 47.3 million NWF offer shares would be issued in respect of the Stellar shares currently in issue.  It is also the intention of NWF to repay (in cash) the Company’s convertible loan notes and associated accrued interest within 30 days of completion of the Possible Offer.

Whilst the negotiations with NWF are very advanced at this stage and this announcement has been made with the approval of NWF, there can be no certainty that any offer will be made for the Company nor as to the final terms of any offer. 

Conditions of the Possible Offer

The making of any offer will be conditional, unless otherwise waived by NWF, on NWF securing underwriting for a A$30 million non-renounceable rights issue, the proceeds of which would mainly be used to advance the Tongo-Tonguma project into production. Further, the completion of any offer will be subject to the receipt of any necessary shareholder approvals from NWF in addition to being subject to approval from Stellar’s shareholders and admission of the Consideration Shares to trading on the ASX.

Background to and reasons for the Possible Offer

NWF Resources Limited is an Australian exploration company listed on the ASX market with focus on a number of diamond exploration licences in Sierra Leone and several gold projects in Western Australia. The Directors of NWF believe that the Tongo-Tonguma kimberlite project complements NWF’s existing portfolio of assets in Sierra Leone as well as offering the potential for substantial near and long-term cash flows and intend to use the proceeds of the NWF Rights Offer to progress the project through to production.

The basis for the Possible Offer is to merge the business interests of NWF and Stellar in Sierra Leone and bring the necessary funding to advance the high-grade and high-value Tongo-Tonguma project, that Stellar holds via its own licences and the Tribute Mining and Revenue Share Agreements with Octea Mining Limited (“Octea”), into production. The Boards of NWF and Stellar both believe that a combination of the two companies would create an enlarged and well-funded diamond development company focussed on Sierra Leone which can generate significant long-term value to the shareholders of both companies through bringing into commercial production the 4.5 million carat Tongo-Tonguma project. 


Irrevocable Undertakings by Stellar Shareholders

NWF has at this time received support for the Possible Offer from Stellar shareholders (including the Directors of Stellar) representing, in aggregate, 29.80% of Stellar’s issued share capital. Details of the irrevocable undertakings are set out in Schedule 1 of this announcement. The Stellar shareholders who have provided irrevocable undertakings also represent the parties interested in the majority of the options, warrants and convertible loan notes in issue. The interests of the convertible loan note holders and their associated warrants are also outlined in Schedule 1 of this announcement. The Directors of Stellar, in respect of their options over ordinary shares, and all of the convertible loan note holders have indicated that they will not seek to convert their loan notes or exercise their options or warrants into Ordinary Shares of the Company whilst the terms of the irrevocable undertakings remain binding.


General and reservations to the Possible Offer

This announcement has been made to ensure the market is fully informed, and that there is no ‘excluded information’ in respect of NWF within the meaning of section 708A(7) of the Australian Corporations Act 2001 (Cth), prior to NWF undertaking the NWF Financings (as defined below) which were announced by NWF today.


This announcement is not an announcement of a firm intention to make an offer under Rule 2.7 of the Code and there can be no certainty that an offer will be made, nor as to the terms on which any offer will be made.


In accordance with Rule 2.6(a) of the Code, an announcement is required, by no later than 5.00 pm on 1 March 2018 to either announce a firm intention to make an offer for Stellar in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Panel in accordance with rule 2.6(c) of the Code.


Further announcements will be made as appropriate and shareholders are strongly advised to take no action for the time being.


NWF reserves the right to make an offer on less favourable terms than those set out in this announcement in the event that:

a)   an agreement or recommendation in respect of such terms is reached with the Board of Stellar; or

b)   an offer or possible offer for Stellar is announced by a third party.

In the event Stellar announces, declares, pays or makes any dividend or distribution to Stellar shareholders at any time, NWF reserves the right to make an equivalent reduction in the terms of the Possible Offer.

In addition, NWF reserves the right to introduce other forms of consideration and/or vary the proposed mix of consideration in any offer.

Proposed NWF Financings

NWF has also today announced that, alongside the Possible Offer, NWF has received binding commitments for a fundraise of A$7 million via a placement through the issue of 35,000,000 new ordinary shares in NWF at a price of A$0.20 per share (“NWF Placement”), and will raise an additional A$3 million through the issue of 15,000,000 new ordinary shares in NWF at A$0.20 per share (“NWF Conditional Placing”) subject to the necessary shareholder approvals being obtained.  As stated in NWF’s announcement, it is intended that the NWF Placement will be settled in the coming days.

In addition, NWF intends to raise A$30 million via a non-renounceable underwritten rights offer through the issue of 200,000,000 new ordinary shares in NWF at a price of A$0.15 per share (“NWF Rights Offer”) (“NWF Rights Offer Shares”). 

Subject to the acquisition of the Company by NWF, NWF intends that the majority of the net proceeds of the NWF Placement, NWF Conditional Placing and NWF Rights Offer (together the “NWF Financings”) will be used as follows:

i.    to develop the high-grade and high value Tongo-Tonguma project in Sierra Leone into production, in accordance with the mine plan developed by the Company and pursuant to the terms of the Tribute Mining Agreement and Revenue Share Agreement entered into by the Company with Octea, further details of which were announced by the Company on 28 April 2017 (the “Tribute Mining Agreements”); 

ii.   to repay Stellar’s outstanding loan notes and accrued interest of approximately US$3.2 million in aggregate and other creditors; and

iii.   to advance a US$3.0 million loan to Stellar, as described below, which funds will be used to complete the Front End Engineering Design (“FEED”), pay the required licence fees for Tongo and Tonguma and general working capital.


Funds from the NWF Placement and NWF Conditional Placing will also be used for the advancement of Newfield’s existing projects, namely, continued exploration work on its Allotropes Diamond Project in Sierra Leone and its gold projects in Kalgoorlie, Western Australia.

The NWF Rights Offer is conditional on, inter alia, the acquisition of Stellar completing, and the admission of the NWF Rights Offer Shares to trading on the ASX.


Proposed Loan and completion of Tribute Mining Agreements

In order to provide the Company with working capital and to satisfy the outstanding completion condition of the Tribute Mining Agreements relating to the requirement for the Company to finance the Front End Engineering Design (“FEED”) stage of the mine plan for the Tongo-Tonguma project (“Mine Plan”), NWF has entered into an agreement with the Company to provide a loan of US$3.0 million to the Company (“Loan”).  The obligation on NWF to advance the Loan is conditional on the NWF Placement of A$7 million completing.

The Loan is unsecured and repayable at the earlier of 8 months or within 3 months of any competing offer for the Company becoming unconditional. Interest on the loan is accrued at a rate of 24% per annum. The Loan is not conditional on the Possible Offer.

Subject to receipt of the Loan, the Company intends to commence work on the FEED and mine plan drilling as soon as practicable. The last remaining conditions precedent to completion of the Tribute Mining Agreements remain the receipt of valid licence opinions for Tongo and Tonguma which are expected to be received in the near future and satisfactory confirmation from Octea that the Tonguma licence is unencumbered and not subject to any security pledge. In view of the Loan, Octea has agreed to extend the long stop date of the Tribute Mining Agreement from 31 January 2018 to 28 February 2018 to allow completion of the last remaining conditions.  A further announcement will be made in due course to update shareholders.


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