SITE VISIT NOTES
STORNOWAY DIAMOND CORPORATION
(SWY : TSX : C$0.12 | NOT RATED)
Renard diamond project, Québec, June 25, 2009
Last month, we had the opportunity to visit Stornoway Diamond’s marquee Renard
diamond project in northern Québec. The tour was guided by Matt Manson, President
and CEO, and Dave Skelton, VP Project Development. The project is owned 50/50 by
Stornoway (the operator) and SOQUEM. SOQUEM is a wholly owned subsidiary of Société
générale de financement du Québec (SGF). SGF is the industrial and financial holding
company of the Province of Québec. SOQUEM was created in 1965 to support
exploration, development and mining in Québec and has since contributed to the
discovery and development of five mines, of which three are still in production.
Stornoway is one of the leading diamond explorers in Canada with a strong and
experienced management team, and a highly prospective diamond exploration pipeline
in Québec, Nunavut, Ontario and the Northwest Territories. Renard is the most advanced
project, the interest in which was acquired through the hostile acquisition of Ashton
Mining of Canada in 2006. The project, covering 127,715 hectares, is located 820
kilometres north of Montréal, 120 kilometres south of the all-weather Trans-Taiga
highway and 150 kilometres south-southeast of the LG-4 hydroelectricity generation
station (Figure 29). An all-weather road has been proposed, part of the Plan Nord
infrastructure development program, which would eventually provide direct project
access. Road feasibility studies by the Government of Québec are ongoing with C$130
million already budgeted. The Cree Nation appears highly supportive of responsible
business development in the region.
Figure 27: SWY : TSX
Source: StockCharts.com
Figure 28: SWY : TSX
Shares O/S (M):
Shares FD (M):
Working Cap. (M):
Market Cap. (M):
Source: Company reports,
Canaccord Adams
Renard is situated in the eastern portion of the Achaean Superior Craton. Five episodes of
kimberlite emplacement have been identified in Québec and the Renard cluster of pipes is
part of the Otish event, which occurred approximately 640 million years ago. Nine
kimberlite bodies have been identified within a 2-square-kilometre area along with
multiple dykes (Figure 30). The pipes are relatively complex with exposures to lower
diatreme facies. The dominant phase is a massive volcaniclastic kimberlite. This tuffisitic
kimberlite breccia (TKB) contains 15-90% fresh to moderately altered granitoid country
rock clasts. The matrix is dominated by serpentinized olivine macrocrysts, carbonates and
serpentine. Throughout the bodies and on their margins, one can find minor intrusions of
hypabyssal kimberlite (HK). HK consists of less than 15% crustal xenoliths, generally highly
altered and digested, within abundant disseminated calcite and olivine macrocrysts.
Almost 600 holes totalling more than 92,000 metres have been drilled to date, largely
diamond drill, plus eight geotechnical and hydrological holes. Bulk sampling includes
4,000 tonnes, each recovered through an underground sampling program on the Renard
2 and 3 pipes, 2,400 tonnes recovered from the Renard 4 pipe from surface, 591 tonnes
from surface from the Hibou dyke and 530 tonnes from surface sampling of the Lynx
dyke system. The underground sampling program involved a total of 739 metres of
underground development, comprising a portal, ramp and drifts, which were excavated
to a depth of 55 metres below surface. A 10-tonne-per-hour Dense Media Separation
(DMS) plant was assembled on site (Figure 31) to produce a concentrate; diamond
recovery from concentrate is conducted at the company’s North Vancouver laboratory.
In December 2008, Stornoway received an independent NI 43-101 compliant resource
estimate for the Renard project from AMEC (Figure 32). Diamond valuations are based on
a March 2008 valuation by WWW International Diamond Consultants Ltd. (WWW). The
valuation determined modelled diamond price estimates of US$123/carat for Renard 2 and
Renard 3, US$80/carat for Renard 4, and US$68/carat for Lynx. In April 2008, AMEC
reviewed the size frequency distributions for each Renard kimberlite body and observed “a
large degree of similarity” in the diamond size distributions within the Renard kimberlite
cluster. Accordingly, AMEC recommended US$123/carat be used for each of Renard pipes
2, 3, 4 and 9 in the examination of an upside case for economic analysis.
It is interesting to note that four of 15 larger stones valued by WWW were valued at over
US$4,000/ct at the time. It has been suggested that there is a separate and distinct
diamond distribution evident in the pipes evaluated to date in the Renard cluster. This
second distribution is manifest in larger, higher-quality stones, a feature that bodes
extremely well as larger samples (i.e., during commercial operations) are recovered
A Preliminary Economic Assessment (PEA) was conducted by Scott Wilson RPA with
mining plan conceptualization by Agnico-Eagle borrowing from the latter’s Goldex mine
experience. The study was released initially in December 2008 but updated in March 2009.
The study focused on Renard 2, 3 and 4 (Figure 33) with four years of concurrent open pit
mining at 2,000 t/d and underground mining at 1,500 t/d. The four-year initial period was
followed by more than two years of underground mining at 3,500 t/d, a rate considered
“challenging” by Roscoe Postle at the time. The planned Renard 2 and 3 pits extended to
90 metres below surface, while the Renard 4 pit was planned to a 125 metre depth. The
overall strip ratio was estimated at 3.36:1. Lakes in the immediate area demand minor
dyke building and drainage. Underground mining would utilize blasthole stoping and
cemented rock fill (CRF) to address ground conditions. Crushing is proposed utilizing high
pressure grinding roll (HPGR) technology. Capex is estimated at $308 million, while
operating costs are estimated at $50.35 per tonne milled. Base case pricing generated a
12.1% after-tax IRR and $34 million NPV at an 8% discount rate. The project is expected to
produce 970,000 ct/a at an average cost of $154/ct, with 2.5 million carats derived from
open pit mining and 3.3 million carats from underground operations. Using AMEC’s upside
economic scenario, including the higher modelled values for Renard 4 and Renard 9, yields
an after-tax IRR of 14.9% and a $61 million NPV(8%). The results of the PEA established a
baseline but did not capture the market’s attention; in our opinion, the market failed to
appreciate the project’s significant upside potential.
On March 9, Stornoway announced that three holes drilled in the winter 2009 program
had extended the dimensions of Renard 2 at depth (Figure 34). R2-55 intersected 176
metres more kimberlite than expected under the previous geological model. This hole
tripled the north-south dimension of Renard 2 to 150 metres at a depth of 500 metres. The
three holes drilled successfully expanded Renard 2 by approximately two times in volume
to a depth of 570 metres, or three times in volume to a depth of 700 metres. Hole R2-57
ended in kimberlite at 729 metres due to drilling problems. Current estimates of
dimensions are approximately 180 by 50 metres (north-south and east-west, respectively)
at a depth of 400 metres below surface, and 195 metres by 45-60 metres at a depth of 570
metres below surface, an expansion of 10-12.5 million tonnes. Renard 2 remains open
below 700 metres. Two holes “modestly” expanded the dimensions of Renard 3.
Two rigs are currently on site, conducting a 9,500 metre definition drilling program on
the new Renard 2 expansion. Summer drilling will be incorporated into a revised NI 43-
101 resource by year-end as the conclusion of Phase 1 for $7 million. Phase 2 is planned
for 2010, focused on work leading to a feasibility study for $13 million.
Based on our site visit, we consider it highly likely that ongoing exploration will lead to
confirmation of the potential for a diamond mine at Renard with an eventual mine life
exceeding 15 years at 3,500 t/d, or perhaps 10 years at 5,000 t/d. We believe that larger
samples will confirm the higher-value diamond distribution at Renard 4 and 9 and
confirm a second diamond distribution of higher-value diamonds overall with positive
implications for the economics of the project. We are of the view that support from the
Government of Québec and the Cree Nation will crystallize in a number of forms over the
next two years, again, with positive implications for the project’s economics.
In summary, a number of sources of project and company enhancement may also be
important catalysts for Stornoway’s share price:
• Confirmation by ongoing drilling of Renard 2’s increased girth to depth. Theincreased project scale could justify a throughput rate higher than the 3,500 t/d rate
currently planned or a significantly longer mine life.
• Confirmation that Renard 4 and Renard 9 have the same diamond distribution, andconsequently higher average diamond value, as Renard 2 and Renard 3. Renard 9 would
be bulk sampled at depth later in the mine plan; it has the potential to add significantly
to mine life, as does the main Renard 4 body at depth and the Renard 65 pipe.
• Ongoing improvement of rough diamond prices, a key driver of project value.
• Valuation of Hibou diamonds; awaiting stabilization of rough diamond market. Surfacetrenching of the Hibou and Lynx dykes could add one or two years’ mine life.
• Clarity on funding for the eventual development of the Renard diamond mine.
• Outcomes from desktop studies of Stornoway’s second-most-advanced project, 90%-owned Aviat in Nunavut.
• Potential new discovery or discoveries from Stornoway’s inexpensive grassrootsgenerative exploration program.
Junior Mining Weekly | 28
14 July 2009
An analyst has visited the principal Foxtrot diamond project of Stornoway Diamond
Corporation. Partial payment or reimbursement was received from the issuer for the
related travel costs.
Investment risks
The commercialization risks associated with mineral exploration and development are
high; thus investment in the shares of Stornoway Diamond Corporation is for risk
accounts only.