Stornoway CEO ‘happy’ with Renard’s first diamond sale

Stornoway Diamond’s (TSX: SWY) CEO Matt Manson says he’s “perfectly satisfied” with the results of the company’s first-ever diamond sale from its new Renard mine in northern Quebec, despite selling only part of the stones, due to adverse market conditions stemming from India’s demonetization.

Stornoway sold 38,913 carats averaging US$195 per carat for US$7.6 million, during the November tender held in Antwerp, Belgium, which attracted 153 diamantaires. The carats sold represent 35% of the 111,556 carats produced at Renard by the end of September. The company, however, only had 78,000 carats for auction, of which it sold half.

Manson says Stornoway held back part of its smaller and lower-quality diamonds, after receiving “unreasonably low” bids when the Indian government moved to withdraw all 500 and 1,000 rupee notes from circulation. The ban on all high-value currency notes has temporarily crippled many parts of the Indian economy, including the diamond cutting and polishing industry — a largely cash business. As a result, many of the bidders at Stornoway’s tender could not sell to their clients in India, Manson says.

“We have a strong balance sheet, so the smart thing to do was withdraw those items from sale. We will sell them at a future date and at a higher price when this situation has been sorted out,” Manson says. He believes the situation will resolve shortly.

Workers at Stornoway Diamond’s Renard diamond mine in northern Quebec, James Bay region, 350 km north of Chibougamau. Credit: Stornoway Diamond.

The executive — who has been the company’s CEO since 2009 and has played a crucial role in financing and building Renard, Quebec’s first diamond mine — says he was pleased with the outcome of the first diamond sale, held between Nov. 14 and 23.

“It was a big moment for us. Obviously, you don’t want to have to withdraw goods in your first sale. It was a unique situation with this Indian currency thing. But all things considered, I’m happy. All things considered, I’m perfectly satisfied.”

However, Manson stresses because the company sold its higher-quality diamonds, the average sale price of US$195 per carat does not represent Renard’s longer-term pricing profile.

Stornoway has already warned the market that it expects to come in below the reserve model price of US$160 per carat because it is producing more smaller-sized stones than planned.

Manson reckons he will have a better idea of the value of Renard’s diamonds after two or three tenders. The company has three sales planned for the first quarter of 2017.

Meanwhile, the Renard mine, which officially opened on Oct. 19, is producing more diamonds than expected.

The asset has already surpassed its 2016 full-year production guidance of 220,000 carats, grading 97 carats per hundred tonnes.

As of mid-November, Renard churned out 261,353 carats at 107 carats per hundred tonnes. The higher grade owes to a better-than-expected ore mix within the pit.

The Renard mine should reach commercial production by year-end. Once in full production, it should produce 1.8 million carats a year in the first decade.

Commenting on the tender, BMO analyst Edward Sterck notes the sale missed his revenue forecast of US$10.5 million. He projected Stornoway would sell 70,000 carats at US$150 per carat.

“Revenues were impacted by the withdrawal of small and lower-quality stones in reaction to market disturbances impacting the Indian cutting and polishing industry. Positively, the ramp up of production is progressing better than forecast, with higher grades resulting in carat production running well ahead of expectations,” Sterck writes.