Stornoway’s much-improved diamond plans for Quebec

Vancouver – Following a December resource update that more than tripled the diamond count at Renard, a new preliminary economic assessment of the northern Quebec kimberlite project has improved the its economics dramatically for joint-venture owners Stornoway Diamond Corp. (SWY-T) and Soquem, a Quebec government corporation.

“A little over a year ago we put out the first mineral resource statement and the first economic assessment for this project,” said Matt Manson, CEO of Stornoway, in a conference call. “The project was pretty skinny….we had positive economics, but the positive economics were pretty marginal.”

“We had a choice to make and what did we do?” continued Manson, “We chose to soldier on and drill, make the deposit bigger…and we had some spectacular success.”

The company made a more-than threefold increase in its indicated and inferred resources after an $8-million drill program last year. The Renard project now has a total indicated mineral resource of 26.5 million tonnes grading 87 carats per hundred tons (cpht) and an inferred resource of 17.81 million tonnes grading 75 cpht. The resources are contained within four kimberlite pipes, known as Renard 2, 3, 4, and 9, and two dikes, called Lynx and Hibou.

With the improved resource the company has been able to envision a much bigger project with better economics.

“We’ve been able to now expand the mine in both size and in scope,” said Manson.

Stornoway expects to process 3,500 tonnes per day for the first three years, as with the last plan. It would then, however, increase throughput to 5,000 tonnes daily and stay at that level for the life of the mine, which has increased from 7 years to 25.

The mine should produce 1.1 million carats in the first year, increasing to a peak of 1.6 million carats by year six. By the end of its 25-year lifespan the operation will have produced almost 30 million carats.

Stornoway plans to use both open pit and underground methods at a Renard mine, with an initial production split of 2,000 tonnes from open pits and 1,500 tonnes from underground operations. Three of the project’s four kimberlite pipe deposits – Renard 2, 3, and 4 – will support open pits that reach roughly 100 metres depth and require an average strip ratio of 1.5 to 1. As underground operations ramp up the mill be expanded to process 5,000 tonnes of ore daily. Stornoway would then phase out open pit operations in year six and its underground operations would provide all mill feed.

The underground mines tapping into the Renard 2 and 4 kimberlites would utilize block caving, which is a common method used to mine Kimberlite pipes in Africa because of its low costs and high throughputs. The Renard 3 and Renard 9 kimberlite pipes will be extracted using blasthole open stoping due to their geometries and sizes.

A single shaft reaching 800 metres below surface will provide access to the Renard 2, 4, and 9 underground workings. Stornoway plans to develop the shaft in a manner that makes extension easy, should the company identify additional resources at depth. A ramp from the bottom of the Renard 3 pit would provide access to that underground operation.

Increasing the scale of the proposed project reduced its estimated operating costs by as much as 22% – the new study predicted life-of-mine operating costs at $39.45 per tonne, compared to $50.35 in the old study.

The bigger operation will, however, cost more to build. The preliminary assessment pegged pre-production capital costs at $450 million, including $101 million for a processing plant and a contingency of $65 million, compared to $308 million in the last plan. The company has estimated a payback period of 5 years.

The new, improved Renard project generated a pre-tax net present value (NPV) of $885 million, using an 8% discount rate, compared with a previous NPV estimate of just $56 million. The pre-tax internal rate of return (IRR) came in at 24.8%, using a diamond valuation of US$117 per carat and a U.S. exchange of $1.11, which is a significant improvement from the 14.2% IRR previously estimated.

Permitting, in particular the social and environmental impact assessment, will be the biggest delay going forth, according to Manson. The company has filed a notice of intent to begin the process, which is expected to take 18 to 24 months. Manson added that Quebec has some of the most reliable timelines for assessments.

“We recognize that the investment climate within Quebec for building this kind of project is second to none in the world,” said Manson.

The company is also waiting on an impact assessment and feasibility study for an all-season, multi-service road known as Route 167 Extension that will provide access to the site. The Quebec Ministry of Transportation has committed $130 million of capital funding for the project, though a final funding arrangement has not yet been settled. Stornoway has estimated $39.4 million would be required for the company to build its own winter road if the government road was not ready.

The company plans to conduct a minimal exploration program this year at the property, but expects to proceed with a feasibility study with the data already compiled.

“If you’re trying to actually build a diamond deposit, and going to a project financing stage, the first job is to have a strong project and I think we’ve now checked that box,” said Manson.

Stornoway’s stock price moved up 27¢ the day after the assessment was released to close at 77¢, a new 52-week high. The company’s 52-week low is 11¢; it has 288.4 million shares outstanding. Renard is a 50-50 joint venture between Stornoway and Soquem.