Stornoway hustles for Renard

In December Stornoway Diamond (swy-t) struck a deal with  provincially owned Soquem to buy the remaining half of the Renard diamond project in Quebec.
Under the proposed agreement, Diaquem, a wholly owned subsidiary of Soquem, will receive an equity consideration in the form of a 25% interest in Stornoway’s voting shares and additional non-voting convertible shares, such that Diaquem’s total interest will be equal to 37% on a fully diluted basis.
Diaquem will also receive a 2% gross royalty revenue on the life-of-mine production from Renard. “This transaction will make Diaquem a significant shareholder of Stornoway,” said Matt Manson, president and CEO of Stornoway, during a conference call.
In conjunction with this arrangement, Soquem’s parent company Société générale de financement du Québec (SGF) has agreed to provide Stornoway with $100 million in credit support with respect to future project debt financing.
“For the past several years, SGF has supported Quebec’s diamond exploration and development activities through Soquem,” commented Pierre Shedleur, president and general manager of SGF. “We are proud to support Stornoway’s future growth and contribute to the Renard diamond development project in Quebec.”
Upon closing of the acquisition, which is subject to shareholder approval, Stornoway will own 100% of Renard and will have established a firm footing for the project’s future financing and development.
“In the past 18 months we have established Renard as a large diamond resource with compelling economics,” stated Manson. “This transaction establishes the platform for which, in close cooperation with SGF, we intend to advance Quebec’s first diamond mine.”
Manson further elaborated: “For Stornoway, this deal checks all the boxes. We have acquired sole ownership of a major undeveloped diamond project in one of the world’s best mining jurisdictions and we have pre-arranged a significant project debt package, even before the completion of our feasibility study and without encumbering the project’s diamond marketing rights.”
The 680-sq.-km project is in the Otish Mountains region of north-central Quebec, 360 km northeast of Chibougamau. It contains an indicated resource of 26.5 million tonnes of 0.87 carat per tonne for 23 million carats, and an inferred resource of 17.8 million tonnes of 0.75 carat, equal to 13.3 million carats.
An updated preliminary assessment of the project, completed in March 2010, envisioned a mine life of at least 25 years based on a production rate of 5,000 tonnes per day, for a total life-of-mine production just shy of 30 million carats. The study suggested Renard has an after-tax net present value of $538 million (at an 8% discount rate) and an after-tax internal rate of return of 20.5%.
In a separate agreement, Stornoway has arranged a $35-million bought-deal financing with a syndicate of underwriters led by RBC Capital Markets. The offering comprises 57.4 million shares priced at 61¢ each. A portion of the proceeds will be used to fund the Renard feasibility study that is currently underway, as well as pre-development costs.
Stornoway expects to call a shareholder meeting in early February to consider the proposed Soquem deal. Concurrent with the acquisition, the company intends to ask shareholders to approve a share rollback on the basis of up to 5-to-1.
Stornoway has already locked-up the support of Agnico-Eagle Mines (aem-t, aem-n) and the Lundin family, representing about 20.8% of Stornoway’s issued and outstanding shares.
“Stornoway’s board and management team strongly recommends the deal to shareholders,” said Manson. “Fairness opinions have been received from NCP Northland Capital Partners and RBC Capital Markets to the effect that the transaction is fair from a financial point of view to Stornoway shareholders.”