Thumbs-up for Stornoway’s Renard project

Stornoway Diamond (SWY-T) has completed a feasibility study of its wholly owned Renard diamond project in Quebec’s Otish Mountains region that shows potential for a robust, long-life operation, albeit at higher capital costs than expected.

Prepared by lead consultants SNC Lavalin (SNC-T), the study envisages a combined open-pit and underground operation exploiting several nearby kimberlite pipes over at least 11 years at a rate of 6,000 tonnes of ore per day, producing an average of 1.7 million carats per year.

Initial capital costs are pegged at $802 million, while total life-of-mine capital costs would be $994.4 million.

Miners would go after 18 million carats in probable reserves contained in 23 million tonnes grading 0.78 carat per tonne. 

Reserves are in the Renard 2, 3 and 4 kimberlite pipes, with most production in the first two years derived from an open pit at Renard 2 and 3, and developed to a maximum depth of 113 meters with a  5-for-1 strip ratio.

As Stornoway describes it, starting in year two, production would come from an underground mine using a 6-metre-diameter shaft to 740 meters depth and an access ramp.

Underground mining of Renard 2 and 3 to a maximum depth of 610 metres would employ blast-hole shrink stoping with waste backfill placed from surface.

Underground mining of Renard 4 would start in year eight using blast-hole shrink stoping with waste backfill under a crown pillar.

Overall, 83% of diamond production would be from Renard 2, 8% from Renard 3 and 9% from Renard 4. 

The average weighted diamond valuation is US$180 per carat, as calculated by WWW International Diamond Consultants in June.

The proposed mine’s base case generates a net present value of $376 million at a 7% discount rate, and a 14.9% internal rate of return after taxes and mining duties.

Gross revenue in real terms is projected at $4.1 billion and operating cash flow at $2.7 billion.

Over the mine’s life, operating costs are estimated at $54.71 per tonne and US$70.27 per carat for a 68% operating margin using a 1-to-1 Canadian-to-U.S. dollar ratio.

However, Stornoway states that its long-term business plan “allows for a significantly longer mine life based on the project’s total National Instrument 43-101 mineral resources. Looking beyond the formal mineral resources, we have already identified a large quantity of exploration upside, and each kimberlite is open at depth.”

Next up for Stornoway are detailed engineering and project-financing discussions, after which the board could officially green light the project. Public hearings on the project could get under way in mid-2012, though Stornoway has already been having regular meetings and other interactions with local Cree communities.

Meanwhile, power and road access are two more factors that need to be settled.

The base case assumes an oil price of US$90 per barrel and a need for 10 megawatts of diesel-powered electricity generation. Hydro-Quebec is now separately studying the feasibility of building a 161-kilovolt power line connecting Renard to the nearby Laforge 1 hydroelectric power station. 

Renard’s development is also benefiting from the Quebec government’s $337-million commitment to extend Route 167 to the project site. Stornoway assumes it will have vehicle access to the Renard site by July 2013, based on the provincial government’s road-building schedule. Stornoway has pledged to kick in $44 million towards the highway-extension costs.

And so, Stornoway is penciling in July 2015 as the moment when plant production at Renard can start, and Quebec can celebrate the opening of its first-ever diamond mine.

Stornoway’s shares took a hit on the feasibility study news, dropping from $1.40 to just under a dollar at presstime, with 118.6 million shares outstanding. Shares traded around $2 when long-time chairperson Eira Thomas resigned from the company in August.