Stornoway improves Renard economics

VANCOUVER — Following a December resource update that more than tripled the tonnage and diamond count at the Renard project in Quebec’s Otish mountains, a new preliminary economic assessment of the project has improved the economics dramatically for 50-50 joint-venture owners Stornoway Diamond (SWY-T) and Soquem, a Quebec government corporation.

“A little over a year ago we put out the first mineral resource statement and the first economic assessment for this project,” said Matt Manson, CEO of Stornoway, in a conference call. “The project was pretty skinny. . . we had positive economics, but the positive economics were pretty marginal.

“We had a choice to make and what did we do? We chose to soldier on and drill, make the deposit bigger. . . and we had some spectacular success.”

The partners made more than a threefold increase in indicated and inferred resources after an $8-million drill program last year. The Renard project now has a total indicated resource of 26.5 million tonnes grading 87 carats per hundred tonnes (cpht) and an inferred resource of 17.8 million tonnes grading 75 cpht. The resources are contained within four kimberlite pipes, named as Renard 2, 3, 4 and 9, and two dikes, called Lynx and Hibou.

With the improved resource the company has been able to envision a much bigger project with better economics.

“We’ve been able to now expand the mine in both size and in scope,” said Manson.

Miners would process 3,500 tonnes per day for the first three years, as with the last plan. They would then, however, increase throughput to 5,000 tonnes daily and stay at that level for the life of the mine, which has increased from 7 years to 25 years.

The mine would produce 1.1 million carats in the first year, increasing to a peak of 1.6 million carats by year six. By the end of its 25-year lifespan, the operation would have produced nearly 30 million carats in total.

The study envisages the use of both open-pit and underground methods at the mine, with an initial production split of 2,000 tonnes from open-pit and 1,500 tonnes from underground operations. Three of the project’s four kimberlite pipe deposits — Renard 2, 3 and 4 — will support open pits that reach roughly 100 metres depth and require an average strip ratio of 1.5 to 1. As underground operations ramp up, the mill would be expanded to process 5,000 tonnes of ore daily. The operators would then phase out the open pits in year six and underground operations would then provide all mill feed.

The underground mines tapping into the Renard 2 and 4 kimberlites would use block caving. The Renard 3 and 9 kimberlite pipes will be extracted using blasthole open stoping due to their geometries and sizes.

A single shaft reaching 800 metres below surface would provide access to the Renard 2, 4 and 9 underground workings. A ramp from the bottom of the Renard 3 pit would provide access to that underground operation.

Increasing the scale of the proposed project reduced its estimated operating costs by 22% — the new study predicted life-of-mine operating costs at $39.45 per tonne, compared to $50.35 in the old study.

The bigger operation will, however, cost more to build. The preliminary assessment pegged preproduction capital costs at $450 million, including $101 million for a processing plant and a contingency of $65 million, compared to $308 million in the last plan. The partners have estimated a payback period of 5 years.

The new, improved Renard project generated a pretax net present value (NPV) of $885 million, using an 8% discount rate, compared with a previous NPV estimate of $56 million. The pretax internal rate of return (IRR) came in at 24.8%, using a diamond valuation of US$117 per carat and a U.S. exchange of $1.11, which is a significant improvement from the 14.2% IRR previously estimated.

Permitting, in particular the social and environmental impact assessment, will be the biggest delay going forth, according to Manson. The company has filed a notice of intent to begin the process, which is expected to take 18 to 24 months. Manson added that Quebec has some of the most reliable timelines for assessments.

“We recognize that the investment climate within Quebec for building this kind of project is second to none in the world,” said Manson.

The company is also waiting on an impact assessment and feasibility study for an all-season, multiservice road known as Route 167 Extension that will provide access to the site. The Quebec Ministry of Transportation has committed $130 million of capital funding for the project, though a final funding arrangement has not yet been settled. Stornoway has estimated $39.4 million would be required for the company to build its own winter road if the government road is not ready.

The partners plan to conduct a small exploration program this year at the property, and aim to begin a feasibility study with the data already compiled.

“If you’re trying to actually build a diamond deposit, and going to a project financing stage, the first job is to have a strong project and I think we’ve now checked that box,” said Manson.

Stornoway’s share price moved up 27¢ the day after the assessment was released to close at 77¢, a new 52-week high. The company’s 52- week low is 11¢; it has 288.4 million shares outstanding.