RE: RE: RE: RE: RE: Critial of Renard?tornoway hopes to improve Renard
2008-10-30 12:31 ET - Street Wire
by Will Purcell
EiraThomas's Stornoway Diamond Corp. expects the scale and lifespan of apossible Renard diamond mine in Quebec will be significantly greaterthan estimated in its preliminary economic study released on Oct. 28,2008. Ms. Thomas said Stornoway would be busy drilling next year to addas much kimberlite as possible to its feasibility plan, which wouldimprove the project's economics. Further, Stornoway's president, MattManson, believes its key assumptions are conservative, allowingconsiderable opportunity for improving the bottom line.
The plan
Stornoway's plan includes just 7.4 million tonnes of kimberlite fromRenard-2, Renard-3 and the richer portion of Renard-4, holding anestimated 5.8 million carats. Mining at a rate of 3,500 tonnes per daywould yield an annual diamond haul of 970,000 carats for about sixyears.
Stornowaythinks the mine will cost $308-million to build and about $50.40 pertonne to operate. The total costs would be just under $700-million,while total revenues are projected to be nearly $870-million -- enoughfor an internal rate of return of about 14 per cent.
The modestrate of return managed to enthuse some investors Wednesday, withStornoway's shares bouncing as high as 15.5 cents in intraday trading.Ms. Thomas thinks more investors will warm to the Renard project overthe next year. Big spending plans are always a worry for shareholdersof what recently was a 10-cent stock. Ms. Thomas said the 2009 budgetwould be manageable and Stornoway will not need to find its$155-million share of the capital cost for a few years.
The strategy
Addingmore carats to the plan is a key part of Stornoway's strategy, as itbelieves it has a bumper crop yet to harvest. The company's totalresource contains 11.5 million carats, and there is a substantialamount of rock that could reach resource status with more drilling. Inall, Stornoway believes its Renard kimberlites could provide between 14million and 27 million carats beyond what is in its current mine plan.
Renard-2will be a focus for drilling next year, as the pipe and an associatedbulge could contain between two million and 6.5 million carats. Thebulge is of particular interest, as it contains higher-grade rock thatneeds just a modest amount of additional drilling.
Stornoway willdrill at the high-grade Renard-3 pipe, which could add up to threemillion carats to its feasibility mine plan. High-grade zones near thesurface of the Lynx and Hibou dikes are also priority candidates fordrilling next year because of their high grades. Stornoway thinks itcan add up to four million carats to an updated plan.
Stornowaycould add as much as eight million more carats from lower-grade partsof Renard-4 and Renard-9 to its plan. That would require sufficientdiamond grades and values to warrant mining as well as more drilling.
Fortunately,Mr. Manson thinks some conservative assumptions will give Stornowaysome feasibility upside. The company used an exchange rate of 87 U.S.cents to the Canadian dollar, and the current rate is nearly a fullU.S. dime below that estimate. As well, the company based its fuelcosts on prices in effect this spring, which were near a crest of $145(U.S.) per barrel.
As well, Ms. Thomas thinks Stornoway's diamondprices are conservative. Prices are off about 10 per cent from thissummer's crest, but they remain up to 10 per cent above Stornoway'slast assessment, completed in March.
A longer mine life andgreater processing rates would make it worthwhile to extend a hydroline to the mine, rather than rely on costly diesel generators. Thatwould significantly lower operating costs, enhancing the prospects atRenard-4 and Renard-9.
Stornoway closed up four cents to 14 cents Wednesday on 1.17 million shares.