Renard flashes with brilliance

One of the most pleasant surprises of the eleventh trading week came out of Canada’s beleaguered junior diamond subsector, as equal joint-venture partners Stornoway Diamond and Soquem transformed their Renard diamond project in Quebec’s Otish Mountains from a geological curiosity into a potential mine with a substantial resource base and robust preliminary economics.

• Stornoway unveiled a dramatically improved preliminary assessment of the Renard project that is built upon the partners’ gutsy and wildly successful $8-million drilling campaign in 2009 that was carried out at the depth of the recession-induced collapse in diamond prices. (Rough diamond prices have since recovered sharply owing to renewed global economic growth and deep production cuts by the diamond majors.)

In December 2009 at Renard, total indicated resources shot up 228% to 23 million tonnes while inferred resources rose 195% to 13.3 million tonnes. Contained carats jumped 228% in the indicated category to 22.96 million carats, and 195% in the inferred category to 13.3 million carats.

By far, the best of the four kimberlite bodies in the preliminary mine plan remains Renard 2, which hosts 17.5 million indicated tonnes grading 1.03 carats per tonne and another 5.4 million inferred tonnes at 1.20 carats per tonne. Renard 2 is still open at depth, so further deep drilling by the partners this year is likely to upgrade and add tonnage, which would force a change in the preliminary mine plan so that Renard 2 is exploited for longer and possibly at higher rates.

For now, the broad plan is to spend a half-billion dollars to build a mine that would exploit four kimberlite pipes — Renards 2, 3, 4 and 9 — first from shallow open pits and then from underground using a single shaft to access the four closely spaced bodies.

With 2009’s work essentially tripling Renard 2’s size, the changes are quite dramatic in the key preliminary assessment numbers on the Renard project (on a 100% basis) from December 2008 to March 2010: pre-tax net present value (NPV) up 1,481%, from $56 million to $884 million; after-tax NPV improving 1,484%, from $34 million to $538 million; after-tax internal rate of return up 69% to 20.5%; indicated-resource carats rising 229% from 7.0 million to 23 million; indicated-resource grade shooting up 45% to 0.87 carat per tonne from 0.60 carat; tonnes of “ore” processed in mine plan rising 468%, from 7.5 million tonnes to 42.6 million tonnes; minimum mine life extended to 25 years from 7; operating costs reduced 22% to $39.45 per tonne thanks to more block-caving; and the base-case diamond price estimate reduced by $6 to $117 per carat, using conservative, recession-depressed numbers from September 2009.

For their recent studies, the partners made use of consultants Scott Wilson Roscoe Postle Associates, AMEC Americas, Golder Associates and WWW International Diamond Consultants. As Stornoway’s largest shareholder, Agnico-Eagle Mines was also able to chip in advice.

Stornoway hopes to complete a full feasibility study by the end of next year, so that Renard could conceivably start production in 2014. As a bonus, the provincial government will likely build a multipurpose road into the remote area in coming years, which would mean any winter-road construction and use would only need to occur at Renard for several more years.

In short, Stornoway’s long-held assertion that it had its hands on “one of the world’s best undeveloped diamond deposits” now has the numbers to back it up, and the project still has significant upside at depth.

• As predicted by many market watchers earlier in the year, the pace of mergers and acquisitions activity is stepping up as miners who pared down their costs last year are now being hit by a wall of cash thanks to the strong recovery in commodity prices this year.

Barrick Gold completed its initial public offering of a 25% stake in its African assets, raising a net US$834 million by selling 404 million ordinary shares of a new subsidiary named African Barrick Gold, which will soon be listed on the London Stock Exchange using the ticker ABG. Parent Barrick Gold owns 75% of African Barrick Gold, which starts its life with US$280 million in cash.

In Canada, there were two deals amongst the juniors: Osisko Mining tabled a friendly all-share takeover bid for Brett Resources and its large-tonnage, low-grade Hammond Reef gold deposit near Thunder Bay, Ont.; and Sudbury-focused nickel-copper miner FNX Mining is bunking up with copper miner Quadra in a friendly merger of equals to be named Quadra FNX Mining.