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06 Jan | Purchase – Stellar Diamonds

Diamonds are a boy’s best friend. Well, maybe not best friend but with a 43% gain since we purchased a bunch in mid December 2010, Stellar Diamonds have at least made my Christmas card list.

After selling up some Hutchison China Meditech and and all of our Workspace Group on 17th December 2010 we turned around and plonked the proceedings into Stellar Diamonds (STEL.L).

We purchased 12,233 shares at 8.195 pence for a total outlay of £1,002.49. In the handful of days of Christmas trading since then, Stellar has packed on another 4 pence and currently trades at 12.2 pence as I type.

Why Stellar Diamonds? From a purely technical point of view, I liked the entry point. The one year chart below (courtesy of SharePrice.co.uk) shows we’ve turned the corner on a marked increase in volume. The three month chart (not shown but available at SharePrice.co.uk) highlights this trend reversal with even greater clarity.

Highs of 20 pence early in 2010 show the market is happy with the share trading on multiples of where it is at now. So from where I am sitting, there is a potential massive upside.

And on the five year chart above, the lows marking the reversal (short-lived as it is up until now) are five year lows. Great for those looking to jump in on what is hopefully the ground floor. And there’s the crux of your investment decision right there. Is it the low point or is this a suckers rally and we’ll test lower again soon? Unfortunately I don’t have the definitive answer but I like what I see.

But technicals alone don’t make for sound homework. For me they’re great for whittling down that list of potentials but there has to be more behind my reasoning before I buy. What’s going to drive that share price up?

In the case of Stellar Diamonds, mid December saw some excellent full year (to 30 June 2010) results posted which included the following operational highlights:

  • Increased production and revenue at Mandala (48,052 carats vs 34,990 carats and US$1.8m vs US$0.5m)
  • Increased production and revenue at Bomboko (3,920 carats vs 620 carats and US$356k vs US$50k)
  • Bulk sampling at Tongo kimberlite project in progress in eastern Sierra Leone
  • 3,000m drilling programme at Droujba kimberlite commenced in southeastern Guinea

And this from Karl Smithson, Chief Executive Officer of Stellar Diamonds:

“In a further challenging year for the diamond sector, Stellar has successfully evolved from a privately owned exploration and development company to a quoted diamond producer which is delivering cash flow while advancing a portfolio of high grade kimberlites at various stages of development in Guinea and Sierra Leone.”

The full RNS can be read here at Interactive Investor and here’s a nice little summary from Diamonds.net.

All in all, Stellar ticked all the boxes for us and we’re super happy with the direction it’s heading already.

Always do a ton of your own homework and never invest money you’re not prepared to lose. With Stellar Diamonds, their web site is a good place to start.

Thanks again for dropping by.