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 current fly-in Renard diamond project in northern Quebec, confirming earlier media reports that the project will face delays as the road schedule is off-track.

While in September Stornoway CEO Matt Manson acknowledged a slippage in the construction of 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 toldThe Northern Miner the holdup in the road, which is being built by Quebec’s Ministry of Transportation, will 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,” says Manson.

In a statement released on the same day, Stornoway explained the road is being constructed in four segments, labelled A to D, with work on the southern segments A and B moving along with 109 km out of 143 km completed to date. 

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

In early October, Quebec’s Finance Minster 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 Route 167 extension, where development started in February under the former Liberal government.  

To get a better handle on costs, the new provincial government has called for an independent review of 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 the majority of the 75 workers in the company’s camp are still working on the road.

“So it’s an ongoing project, but we are talking about the schedule that will give us road access will be late.”

Stornoway previously guided receiving vehicle access to the Renard site by July 2013, but that may now happen at the end of 2013 or later.

“We are basically 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, says Manson, noting the company has “limited ability to mitigate that risk.”

But with the bargaining chip it does have, as Stornoway has agreed to commit $44 million to the development of the road if it’s completed on time, 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,” comments Masons. 

“BMO Research 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,” writes BMO analyst Ed Sterck in a note.

The company expects to start paying the $44-million commitment over 10 years once Renard is in production.

Under the yet to be revised timeline, Stornoway predicts first ore into the plant by July 2015, with commercial production starting by Jan. 1, 2016.

Based on reserves, the project should churn out 1.7 million carats a year over its 11-year life.

To help get closer to that goal, the company is working on financing and permitting the $802-million project. In early September it signed a mandate letter with seven financial firms for a potential $475-million loan. A month later, it received the mining lease for Renard, with the certificate of authorization expected shortly.

Given the achievements to date, Manson remains optimistic at Renard.

“So this is a real situation, the road is being built – albeit it’s looking like it’s going to be late now – 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¢.