Newfield Resources (NWF) has signed an agreement to acquire the entire issued and to-be-issued share capital of Stellar Diamonds for a sum of £7.74m.

NWF owns gold projects in Western Australia along with an advanced diamond project in Sierra Leone, comprising four exploration licences spread over an area of 780.9km².

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Stellar owns the Tongo-Tonguma kimberlite development, which is situated to the north-east of NWF’s Allotropes diamond project.

Each Stellar shareholder will receive 0.7622 of a new NWF share for each share currently held under the terms of the planned combination.

“The enlarged company will have the financial and technical capacity to deliver the project, which we believe can offer long-term and sustainable cash flows to all shareholders.”

Stellar Diamonds CEO Karl Smithson said: “The board of Stellar is delighted to recommend to our shareholders the proposed merger and combination of business interests with Newfield.

“Not only does this come at a significant premium for Stellar shareholders, but it also secures the funding at a premium for the development of the Tongo-Tonguma project.

“Furthermore, the enlarged company will have the financial and technical capacity to deliver the project, which we believe can offer long-term and sustainable cash flows to all shareholders.”

The NWF management noted that the acquisition complements its existing operations in Sierra Leone.

In addition, the deal is expected to offer the potential for substantial near and long term cash flows.

NWF has also announced an underwritten rights issue to raise around A$30m ($23.6m) via the placement of more than 200 million shares.

The proceeds from the rights issue will fund the advancement of the Tongo-Tonguma mine into the production phase.

Stellar will be able to use the funds to complete the Front-End Engineering Design (FEED) study and mine plan drilling before commencing the development of the Tongo-Tonguma mine.

Smithson will be invited to join the NWF board as an executive director upon completion of the acquisition.