Stornoway expects delays at Renard

Stornoway Diamond (SWY-T) recently provided an update on the construction of the Route 167 extension that would give it full-year road access to its fly-in Renard diamond project in Quebec, confirming earlier media reports that the project would face delays, as the road schedule is off-track.

While in September Stornoway CEO Matt Manson acknowledged a slippage in the construction deadlines for the 243 km all-season road, he said it shouldn’t impact Renard’s start-up date. However, his stance has since changed.

On Oct. 30, Manson told The Northern Miner that the holdup in the road, which is being built by Quebec’s Ministry of Transportation as part of Plan Nord, would push back the construction and production schedule at Renard, without specifying the new guideline.

“Until we have more information from the government, we can’t give a specific guidance on what that is,” Manson says.
In a statement released the same day, Stornoway explained that the road is being built in four segments, labelled A to D, with work on southern segments A and B moving along with 109 km out of 143 km completed to date. 

But for northern segments C and D, Quebec’s Ministry of Finance has put off awarding civil work contracts until reviewing the overall construction expenditures for the road.

In October, Quebec’s Finance Minister Nicolas Marceau and Treasury Board President Stéphane Bédard told local media that the costs for major projects have soared in recent years, including for the $332-million road, where development started in February under the former Liberal government. 

To get a better handle on spending, the new Parti Québécois government has called for an independent review of all major infrastructure projects.

Manson says he expects the review will be completed by year-end, after which work on the northern segments should continue. 

“By no means is construction of the road ending here,” he says, adding that most of the company’s 75 workers are still working on the road. He says the project is ongoing, but expects that the road-access schedule will be late.

Stornoway previously expected the road would extend to the Renard site by July 2013, but that may now happen at the end of 2013, or later. 

“We are scheduling our construction process on when the government tells us we will be able to drive, start to finish, on the road, and that milestone is trending later,” Manson says, noting the company has “limited ability to mitigate that risk.” 

But with the bargaining chip it does have — Stornoway has agreed to commit $44 million to the road’s timely development — the junior is discussing alternative construction strategies with the government to reduce further delays. 

“It’s possible to build it on a smaller, more modified scope, which could be done more cheaply, and more quickly,” Manson says. 

BMO Research analyst Edward Sterck writes in an October note that his firm “speculates that a winter road linking Renard with the southern segment of Route 167 could still allow for some construction equipment to be mobilized over this winter.” The company expects to pay the $44-million commitment over 10 years after Renard enters production.

Under the yet-to-be-revised timeline, Stornoway forecasts commercial production starting by January 2016, with annual output estimated at 1.7 million carats over an 11-year mine life. 

To reach this goal, the company is working on financing and permitting the $802-million project. 

In September it signed a mandate letter with seven financial firms for a potential $475-million loan. On Oct. 18, it received the mining lease for Renard, with the certificate of authorization expected shortly.

Given the progress to date, Manson remains optimistic at Renard despite the hiccup in the road-building schedule. 

“So this is a real situation. The road is being built — albeit it’s looking like it’s going to be late — and the project is almost fully permitted. So this is an active project, and we are moving forward.”

On Oct. 31, the company closed up nearly 2% to 61¢, near its 52-week low of 52¢.