Stornoway and Soquem to finish Renard feasibility by late 2011

Stornoway Diamond (SWY-T) and 50-50 joint venture partner Soquem are now officially going ahead with a feasibility study on the Renard diamond project in north-central Quebec with a goal to make a decision whether to build the province’s first diamond mine by the end of 2011.

The feasibility study will cost $28.1 million all together. Work for it actually started last January and about 13% of the total budget has already been spent since then.

If Stornoway and Soquem, a subsidiary of Société générale de financement du Québec (SGF), decide in favour of constructing a mine when the study is complete, construction would begin in 2012 with production by the end of 2013.

Stornoway says it’s skipping the prefeasibility study phase because many of the elements of a preliminary economic assessment released in March 2010 were at a high enough level to go straight to the feasibility study.

The March report envisioned a 5,000-tonne-per-day open-pit and underground mine that would produce 1.1 million carats in the first year of production, increasing to 1.6 million carats per year by the sixth year, amounting to 30 million carats over the 25-year mine life.

Capital costs for the project were estimated at $450 million. The pre-tax net present value was pegged at $885 million, using an 8% discount rate, with an internal rate of return of 24.8%.

These costs don’t include a new 269-km road being built by the Quebec government that will link Highway 167, at Temiscamie to the Renard project. The government has committed $130 million for the road and the timing for completion coincides with the Renard project plan. However, if there are any hiccups along the way with the road, Stornoway says a winter road could be constructed.

Right now the project is accessibly only by air. Its remote location, 360 km northeast of Chibougamau and 150 km southeast of the Hydro-Quebec LG-4 generating station, is prompting the company to do a separate feasibility study and environmental assessment for a power line so the potential mine could have access to cheaper power.

The power line study is being undertaken by Hydro-Quebec but funded by Stornoway and Soquem.

The feasibility study is also going to look at expanding operations from 5,000 tonnes per day to 7,000, will include an environmental and social impact assessment, mine permitting, community consultation and the negotiation of an impact and benefits agreement.

Stornoway shares were unchanged today at 57¢ apiece. The company has a 52-week trading range between 80¢ and 10.5¢, and nearly 170 million shares outstanding.