Stornoway puts the pieces in place at Renard

Everything is coming together for Stornoway Diamond (SWY-T) at its Renard project in Quebec.

In a matter of months, Stornoway Diamond gained full control of its Renard project in Quebec, secured the first big chunk of financing it needed to build it and rolled back its shares four-for-one.

“We basically did a big transformative series of transactions all at the same time,” says president and CEO Matt Manson. “Now we’ve got all the pieces in place.”

It started last spring, when Stornoway approached its former 50% partner at the project, province-owned Société génerale de financement du Québec (SGF), about negotiating a new joint-venture agreement for the project. Now that Renard was becoming a development project — with a feasibility study and environmental and social impact assessments on track to be completed in the third quarter — it had outgrown the original agreement.

“We were working on a letter agreement from the late ‘90s that described how a grassroots regional sampling program was going to be run on a 50/50 JV basis with consensus required on all major decisions,” Manson explains. “That wasn’t going to be suited to a mine where multi-million dollar cash calls are being routinely made one partner to the other.”

Manson says the talks quickly evolved into discussion of a buyout.

At the same time, the Quebec government announced it was going to merge SGF with Investissement Québec, another provincial agency focused on small business. That lit a fire under the partners to complete a deal before the restructuring.

Stornoway ended up with 100% ownership of Renard and Investissement Québec ended up with a 37% interest in Stornoway in two different share classes. It has 25% of Stornoway’s common shares (and the right to elect three directors to the company’s board). The remainder of Investissement Québec’s stake is in non-voting, convertible shares that pay a dividend and can be sold.

“The reason we did that was we wanted to leave control in the market for this company,” Manson says, given the amount of equity the company had to issue for its partner’s 50% stake. “In total, Investissement Québec has a 37% interest in us but we wanted to keep the basic voting shares to around 25%. . . That’s really driven by the market – we didn’t want to be a controlled company of Investissement Québec.”

As part of the deal, Stornoway also secured a credit support agreement with Investissement Québec for $100 million in project financing.

More good news came in the Quebec budget, in March, with the government committing to spend $280 million to extend Route 167 northward. The two-lane gravel highway will provide road access to Renard and construction is expected to begin this year.

Leading up to the feasibility later this year, Stornoway increased inferred resources at Renard by 31% and indicated resources by 3%. The project now hosts 26.6 million indicated tonnes at 89 cpht for 23.8 million carats and 31.1 million inferred tonnes at 56 cpht for 17.5 million carats.

Upcoming plans for Stornoway include a revised diamond valuation of an 8,000-carat parcel due in the second quarter, and a bulk sample at the low-grade Renard 65 kimberlite, where the company is aiming to collect a large enough parcel to upgrade the resource to the indicated category.

Post share consolidation, Stornoway has 118.4 million shares outstanding. The stock traded at $2.39 at presstime.