Stornoway gets the go-ahead at Renard

Stornoway Diamond (TSX: SWY; US-OTC: SWYDF) has received a positive environmental assessment decision from the Canadian government, being the last major permit the company needs to build its flagship Renard diamond mine in Quebec.

The latest approval came 18 months after the company filed the project’s environmental and social impact assessment, and less than eight months after it received Renard’s mining lease and certificate of authorization from the provincial government.

“Global authorizations have now been given on the federal and provincial levels,” Matt Manson, Stornoway’s president and CEO, says in an interview. “At this stage — that’s it — we consider ourselves fully permitted, green-lighted and ready to go.”

Eric Lemieux, an analyst at Laurentian Bank Securities, says the company’s “permitting operations and social acceptability efforts have been stellar,” putting the “project on solid footing.”

With permitting checked off, Stornoway is wrapping up the all-season road to Renard so it can start building the mine before year-end, given that it lines up with project financing. Manson says the remaining 97 km of the 240 km long road will be delivered on time: “We are working below budget and ahead of schedule. It’s going well and we are confident that we will meet the published guidance of October.”

The junior started building the last stretch of the road as a single-lane, 50 km per hour mining road in March, after securing a $77-million loan from the province. Earlier this year, Quebec’s Ministry of Transport finished building the first 143 km as a two-lane, 70 km per hour highway, as part of its Plan Nord initiative to promote sustainable development in the northern parts of the province.

Located 350 km north of Chibougamau in the Otish Mountains region of north-central Quebec, Renard is expected to churn out 1.6 million carats per year over its 11-year life, based on reserves of 17.9 million carats. A new estimate put indicated resources — inclusive of the reserves — at 27.1 million carats, with another 16.9 million carats in inferred. The cost to get Renard up and running is $752 million, with first production slated for 2016.

“The last hurdle for the company to clear is funding the project,” writes BMO Capital Markets analyst Edward Sterck. “Whilst funding a development project in the current market environment will not be easy, it is by no means impossible.”

The company signed a mandate letter with a consortium of banks to arrange a senior debt of up to US$475 million last September. And Investissement Quebec, the company’s 25% shareholder, has committed $100 million towards construction and has “a pre-emptive right to take 25% of any equity raise,” Sterck notes.   

“We have been negotiating a debt piece for almost twelve months now,” Manson says, noting due diligence by the seven lenders under the mandate letter has been completed. Manson adds the final loan amount should be in the US$400-million range, as he’s looking to fund Renard equally through debt and equity. The loan should be finalized in the fourth quarter.

 “And now it is a question of completing the balance of the project financing, which is basically the equity piece,” Manson says. The company is negotiating with potential equity investors and off-takers to ensure construction starts by year-end.

Lemieux of Laurentian Bank has a “buy” rating and a $2.40 target on the stock. Sterck appears less optimistic, with a “speculative market perform” rating and no target.