Shares in Stellar Diamonds (LON:STEL) rallied on Monday, after the company announced the board recommended a merger with Newfield Resources.

The deal was proposed last month, and the two groups have since been negotiating terms.

Last month chief Executive Karl Smithson said of the proposed deal:

“The loan will also be used to pay legal and corporate financial advisor costs including those related to the possible offer for the company.

“Working capital will therefore remain constrained as we continue discussions with Newfield Resources regarding the possible offer.” He continued.

Australian firm Newfield will offer shares of 12.5p per Stellar share, valuing the diamond miner at £7.74 million.

The company will also lend Stellar $3 million to cover any urgent short-term cash needs, while undertaking a right issue to raise $30 million to re-finance the enlarged group.

Existing Stellar shareholders will own 8.14 percent of the group following the merger and financing.

As of currently, Stellar holds a portfolio of diamond assets in both Sierra Leone and Guine, with a main emphasis upon Tongo with its Tonguma project.

Earlier this month, CEO Mr Smithson commented on the “extremely difficult” market for capital raising.

Last year, the company reported a $984,928mln loss for 2017, closing the year with just over $50,000 in cash and assets.

As a result, the diamond miner was searching for fund raising alternatives to strengthen its position and facilitate the development of its Tongo-Tonguma project.

“The interim reporting period has primarily been focused on sourcing the necessary funding to bring the Tongo-Tonguma project into production. The capital markets in the UK have proven extremely difficult to raise funds for junior mining companies in recent years,” Smithson said.

As of currently, shares in Stellar Diamonds are up more than 50 percent, trading up 55.69 percent as of 12.50PM (GMT).