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Stornoway’s Renard may face delays

Stornoway Diamond’s Renard diamond project in Quebec, which is estimated to come online in 2015, may be deferred because of potential delays in the provincial government’s road building schedule.



Stornoway Diamond’s Renard diamond project in Quebec, which is estimated to come online in 2015, may be deferred because of potential delays in the provincial government’s road building schedule.

Last year, the company pledged to pitch in $44 million to help the government extend Route 167 from Chibougamau to the Otish Mountains. The extension is expected to cost roughly $330 million and be completed in 2013.

However, the company’s CEO Matt Manson was recently quoted in Montreal Gazette saying, “Construction has progressed well so far, but it still remains unknown whether it can be completed in the next year.”

He added the company is still hoping to meet its 2015 start-up target as it continues to arrange project financing and look for ways to reduce start-up costs.

Earlier this month, the company, which is aiming to fund its estimated $802-million underground operation at Renard through a mix of debt and equity and a potential off take agreement, signed a mandate letter with seven lenders to arrange a US$475-million project financing for Renard.

The lead arranger is the Bank of Montreal and lenders include Caterpillar Financial, Export Development Canada, Investissement Québec, Nedbank Capital, Société Générale (Canada Branch) and The Bank of Nova Scotia.

Investissement Québec, the company’s largest shareholder, has already committed $100 million in project financing.

National Bank Financial analyst Eldon Brown says the syndicate should execute a commitment letter by early next year, and complete documentation by mid-2013, just in time to kick off mine construction.

To optimize the project’s start-up costs, the firm is looking at mining Renard by using a ramp only, and deferring the development of the shaft until later in the mine life.

This could potentially lower Renard’s development costs by a net amount of $80 million to $100 million in exchange of a higher operating cost of 10% to 15%, writes BMO Capital Market analyst Edward Sterck.

“Since Renard is forecast to be a high margin project but hampered by a large upfront capital requirement, BMO Research views this as a positive option.”

Sterck predicts that the potentially smaller capex combined with the debt package and potential diamond stream, could reduce the equity the company would have to raise to as low as $200 million.

Currently, Stornoway is completing a 5,000-tonne bulk sample program of the Renard 65 kimberlite pipe, with results expected in early 2013.

The bulk sample should enhance the R65 inferred resource to measured and indicated, notes Sterck, saying it could possibly be included in the mine plan.

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