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Newfield Resources in advanced talks to acquire Stellar Diamonds

Newfield Resources Ltd. is in advanced talks to potentially take over Stellar Diamonds Plc, creating a larger company focused on Sierra Leone with better funding access, the companies said Feb. 1.

Under the possible bid, Stellar shareholders will receive a total of 95.5 million common Newfield shares, or 0.76 of a Newfield share for each Stellar share held, which would represent about 16.4% of Newfield's enlarged share capital after certain financings and if the deal materializes.

The all-share offer values Stellar shares at 12.7 pence apiece, based on Newfield's Jan. 31 closing price of 29.00 Australian cents per share. Any offer will be conditional on Newfield securing underwriting for a A$30 million nonrenounceable rights issue at 15 cents per share, the proceeds of which are earmarked for developing Stellar's Tongo-Tonguma diamond project in Sierra Leone.

According to Stellar, Newfield directors believe that the project complements Newfield's existing asset portfolio in Sierra Leone and presents an opportunity for near- and long-term cash flows.

Apart from the rights offering, Newfield also received binding commitments for a A$7 million placement of 35 million shares at 20 cents apiece, and the company plans to advance an interim US$3 million loan to Stellar from this financing. The share placement is due to be settled in the coming days, and Newfield plans to propose a further A$3 million placement of 15 million shares at the same price, subject to shareholder approval.

The US$3 million loan is expected to enable Stellar to become the operator of the combined Tongo-Tonguma project. Stellar owns the Tongo project and is set to have an economic interest in the adjacent Tonguma project through a tribute mining and revenue-sharing agreement with Octea Mining Ltd., which has been extended to the end of February.

The loan will satisfy the remaining terms of Stellar's agreement with Octea and will allow Stellar to proceed with front-end engineering design, mine development drilling and relocation, along with upgrading a 50-tonne-per-hour dense media separation plant at the project.

Both companies said that despite advanced negotiations, there can be no guarantee that Newfield will make any formal and binding offer to Stellar and any deal will remain subject to certain conditions, including shareholder approvals.