Renard glitters for Stornoway

Vancouver – A positive preliminary economic assessment for its Renard diamond project has boosted Stornoway Diamond‘s (SWY-T) confidence that it will soon develop Quebec’s first diamond mine.

Renard is part of the large Foxtrot property in north-central Quebec. The property is a joint venture between Stornoway and the Quebec government agency Soquem.

The study estimated Renard hosts 11.6 million indicated tonnes grading 60 carats per hundred tonnes for 7 million carats plus 7.2 million inferred tonnes grading 63 carats per hundred tonnes for 4.5 million carats. The resource is found in four kimberlite pipes, known as Renard 2, 3, 4, and 9, and two kimberlite dikes, called Lynx and Hibou.

In establishing a conceptual mine plan for Renard the study considered a base case resource of 5.8 million carats taken from three of the project’s five kimberlite bodies. The financial model used US$123 per carat as the diamond price for stones from Renard 2 and Renard 3; Renard 4 stones were valued at US$80 per carat.

The mine would combine an open pit operation with open-stope underground mining to achieve a production rate of 3.500 tonnes per day or 1.3 million tonnes annually. The mill design allows for easy expansion to 1.8 million tonnes.

The pit is expected to have a stripping ratio of 2.15 to 1. Underground, stope heights are dictated by geology and vary from 40 to 100 metres. The first stopes in the sequence for each pipe will be backfilled with waste rock and cemented waste rock.

Capital costs are estimated at $308 million, of which $73 million is for the diamond processing plant. Operating costs are expected to be $50.39 per tonne, calculated as an average of open pit and underground costs.

The mine life in the base case scenario of 5.8 million carats is 6 years. The project carries a pretax internal rate of return of 13.9% (11.8% after tax) and is expected to produce life-of-mine revenue of $867 million. The pretax net present value is $52 million, at an 8% discount rate.

The study assumed that the proposed all-season road connecting Renard with the communities of Mistissini and Chibougamau will be built. The road, known as Route Monts Otish, is a Transport Quebec project with a target completion date of early 2009. If the provincial government does not, for some reason, build the road and the joint venture partners have to foot the bill, capital expenses increase by $39.4 million. Annual maintenance and associated charges would increase the project operating costs by $4.49 per tonne.

With the preliminary economic assessment complete Stornoway is preparing a two-year work program design to allow for a production decision. The company plans to conduct additional drilling and sampling to upgrade and expand resources, complete a social and environmental impact assessment, achieve the necessary permits, and conduct a full mine feasibility study.

The potential for expanding resources looks good. In addition to its indicated and inferred resources, the study determined Renard has the potential to host another 14 to 32 million tonnes grading anywhere from 31 to 164 carats per hundred tonnes, which if proven would add between 9 and 21 million carats to the Renard resource.

The potential resource was estimated based on kimberlite drill intersections in areas with insufficient data to establish a grade and using implied depths of up to 700 metres for kimberlite pipes.

Stornoway share remained halted after news of the economic assessment. The company has a 52-week trading range of 10 to 90 (and is currently at the bottom of that range) and has 227 million shares issued.