Stornoway Diamond deals with Renard hiccups

Stornoway Diamond (TSX: SWY) had an exceptionally smooth build at its Renard mine, in Quebec, which was completed five months ahead of schedule and under budget by $37 million.

Renard achieved commercial production (defined as 60% of capacity) on Jan. 1, and has been on track in terms of ore production with better than expected grades. But there have been some hiccups in the new miner’s early days.

“Four days before we had our first sale in November, Prime Minister Modi of India demonetized the Indian economy,” president and CEO Matt Manson told The Northern Miner in an interview in late March.

“And that hit us like a ton of bricks, because all of the small-scale diamond polishers are in India. The mom and pop businesses in Surat and Gujarat, which are in the tens of thousands, they work in cash. So their ability to buy product and pay their workers was taken away in mid-November just as we were to have our first sale.”

Renard produced 448,887 carats at a grade of 112 carats per hundred tonnes last year — both figures well ahead of plan.

But Stornoway only sold 38,913 carats at its first sale last year. However, because it withdrew some smaller diamonds from sale, the average received price was US$195 per carat — a price that can’t be seen as representative for future sales.

In addition to a lack of demand for smaller and lower-quality diamonds, diamond breakage in the Renard plant has also been an issue, resulting in a higher proportion of smaller diamonds than expected.

The breakage issues in the plant aren’t unusual in new diamond mines.

“Diamonds are surprisingly fragile even though they are the hardest mineral,” Manson said.

The company is in the process of consulting with experts to reduce breakage levels.

As a result of the uncertainty in the diamond market, Stornoway has been cautious with its price forecast for 2017.

In February, it released production guidance of 1.7 to 1.8 million carats at an average price of US$100-US$132 per carat for 2017.

Despite the lack of demand at the lower end of the market, Renard product has been well received, Manson said.

“The first couple of sales, people are a little cautious because they don’t know how it’s going to come out, how the stones are going to perform on the polishing wheels. They don’t know how the colour is going to change, or the fluorescence,” Manson said.

However, subsequent sales have been better, Manson said. “We just closed our fourth sale and it was terrific. We were healthily over our reserve pricing in every category.”

Larger, higher-quality goods from Renard are seeing strong premiums.

Notably, brown diamonds from the mine have been selling well because their colour improves with polishing.

“By our second or third sale, we realized the prices we were getting bid for our brown stones were going through the roof. And some wanted to corner the market on them, because they realized that they were polishing lighter and they were making a lot of money on them,” Manson told The Northern Miner.

The company has received 25-30% higher prices for brown diamonds in recent sales compared to its first.

This story originally appeared in the June 2017 issue of Diamonds in Canada.

-With files from The Northern Miner.