- The Quiet Summer of 2011, and Honest Work
- Respectable Showing For the Diamond Sector at PDAC 2011
- PDAC 2011 – this March
- Promising Diamond Find by Metalex in Northern Ontario, Plus Grades from Chidliak and Movement at Renard
- Peregrine Finds 1.15 Carat Diamond at Chidliak
- Stornoway Diamond Corp. Works to Expand Resources at Renard Project
- 2010 Toronto Resource Investment Conference
- Newsworthy Week For Canadian Diamond Companies
- Different Types of Diamonds at Fort à la Corne
- Kimberlites and Diamonds of Western Canada
5034 AAD Aappaluttoq Aber Diamonds ABX ACS AEM Ag Agnico-Eagle Mines Agrium Alberta Alto Ventures Amarillo Amaruk AMEC Amerigo Archangel Diamond Archon Minerals Ltd. Arctic Arctic Star Diamond ARG Argentina Argyle Ashton Mining Canada Attawapiskat ATV ATW ATW Venture Corp. Au Australia AUY Avalon Rare Metals Avanti Mining Corp. Aviat AVL Baffin Island Barrick Bathurst Beluga BHP BHP Billiton Birch Mountains Bling Blue Note Mining Blue Pearl Cluster BN BRIC Buenaventura Buffalo Head Hills Bunder Burnstone Ventures Inc. BVE BVN Canada Candente Candle Lake Canterra carbonatite Caribou Castillian CCE Chariot Resources CHD Chidliak Chile Chris Jennings Chuck Fipke Churchill Churchill craton CL CLF Cliffs Co Codelco Coloured Gemstones Commerce Resources Contact Diamond Corporation copper CTM Cu Cullinan DDN DeBeers Diamond Diamondex Diamonds Diamonds North Dianor Diavik Diopside dividend DNT DO-27 DOR DSP Eastmain Resources Ekati El Teniente emerald EnCana Corp. ER EuroZinc Exotic Metals FALC FGE FGT First Nickel Inc. Fiskenaesset FNI FNV Forest Gate Fort a la Corne Foxtrot Franco-Nevada G Gahcho Gahcho Kue Gem Diamonds geologic terms glossary gold Goldcorp GPR Great Panther Resources Great Panther Silver Greenland Grib Grizzly Discoveries Inc. Gualcamayo Guanajuato Guaniamo GZD Harry Winston Hawthorne Gold Hearne HGC Hibou HUD Hudson Resources Hunter Exploration HW HWD IME In Indicator Minerals indium interview iron Jericho Jericho Diamond Mine Jigsaw K K-2 Kahuna Kennady Lake Killiq kimberlite Kinross KWG Kyle Lake Lac De Gras Las Aguilas lead Leadbetter Lesotho Letseng Li limestone lithium Lockerby LUC Lucara Lukoil LUN Lundin Mining Lynas Lynx Mapimi Marifil Mines Ltd. market hype MAT Matamec Exploration Inc. Metalex Ventures Mexico Mexivada MFM Mina El Carmen Mo molybdenum Monument Diamond Project Motapa Mothae Mountain Province Diamonds MPV MTC MTP MTX Muskox Kimberlite natural gas Nb NEM Neuqen Basin New Gold Newmont New Nadina Diamonds Ltd. NGD Ni NI 43-101 nickel niobium NMC NNA Noront NOT Notch Nunaminerals Nunavut oil Orion Otish Pascua Llama Pb PC Gold Pd PDAC Pedernal Peregrine Peregrine Diamonds Petra Diamonds PGD PGE PGM PKL placer platinum Pogo Mine potash Potash Corp. pre-feasibility PST003 Pt Punta Colorado Qavvik Qilaq QUA Quadra Mining QUC Quebec Quebect Quest Rare Metals Quest Uranium rare earth elements Rare Element Resources Raytech Metals Corp. Re REE Renard RES Restigouche rhenium Rio Colorado Rio Narcea Rio Tinto RSC RTP ruby San Antonio San Juan San Roque sapphire Saskatchewan SGF Shear Diamonds Shear Minerals Shore Gold silver SL Snap Lake Sola Resource Corp Soltoro SOQUEM Inc. SRM Star Stewart Blusson stockhouse.com Stornoway Stornoway Diamonds Strange Lake Strateco Resources SWY Ta TAH Tahera tantalum TCK.A TCK.B TCM Teck Cominco Terrane Metals Tesla TGX Thompson Creek Metals Thor Lake TIF Tiffany & Co. Topia Topia Mine Toronto Resource Investment Conference Triex True North Gems TRX Tsa Da Glisza Tuktu Tuktu-1 Tunerq tungsten Tuzo Type IIa U uranium VAA Vaaldiam Mining Inc. VALE-INCO Veladero Venezuela Victor WDO Wesdome Western Troy Capital Resources WRY WWW International Diamond Consultants Ltd. Yamana Gold Inc. YRI zinc Zn
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Promising Diamond Find by Metalex in Northern Ontario, Plus Grades from Chidliak and Movement at Renard
Posted by David
High Counts from the James Bay Lowlands
Metalex Ventures Ltd. reported recovery of 800+ relatively coarse (0.425-0.85 mm) diamonds in part of a RC drill sample from the T1 kimberlite in the James Bay lowlands. The kimberlite is part of the Kyle Lake project and is 94.2% owned by MTX and 5.8% owned by Arctic Star Diamond Corp.: TSX-ADD.
The Kyle Lake project is near the ” Ring of Fire” chromium and PGE metals region of northern Ontario. This region has been the focus of exploration by companies such as Cliffs Natural Recources (NYSE-CLF), Noront Resources Ltd (TSX.V-NOT), and KWG Resources Inc (TSX.V-KWG). Although the region has been the focus for diamond exploration since the 1990′s and is home to De Beers’ Victor (Attawapiskat) diamond mine.
What is interesting aside from the high number of coarse diamonds is that it came from a small section of the T1 kimberlite: 138-153 m depth. The company is awaiting detailed results, particularly on analysis of the coarser (>0.85mm) portions of the sample. Complete diamond counts will be released when all samples from the hole have been processed.
As a bit of speculation, that this hole is RC could mean that the true diamond distribution of this zone in the kimberlite could be coarser than what is seen in this sample. This is due to the fact that diamond breakage is rather high in RC drill-hole samples. The mechanics of the process is such that the drill bit: usually tri-cone or drag-bit, and the circulation process is quite rough on the hard, yet brittle diamonds. This is compared to traditional diamond drill core sampling followed by caustic fusion that typically has better preservation of large stones. The advantages to RC drilling is that it is far cheaper and often faster.
Investors should keep in mind that it is really the two factors of diamond valuation and diamond grade, and not diamond counts, that determine the economics of a diamond mine. In addition to working on the final results from the T1 kimberlite, MTX is also having a bulk sample from the nearby U2 pipe assessed.
Diamond Grade News Out of Chidliak
Yesterday morning, Peregrine Diamonds Ltd. released that they had determined a grade of 1.04 c/t from their mini-bulk sample of the CH-7 kimberlite from the Chidliak property. The 47.2 t (dry) sample returned 49.07 c of stones larger than 0.85 mm. The largest three diamond crystals were 6.53, 2.18, and 1.24 c. The sample was collected by trenching the kimberlite outcrop to a depth of 2 m.
Eric Friedland, CEO, is quoted in the press release: “We are pleased to see a grade of one carat per tonne and a population of gem quality diamonds in this mini-bulk sample from CH-7, results that certainly justify a large bulk sample of this pipe and are another illustration of the excellent potential forChidliak to host a diamond mine. We now have five kimberlites with economic potential in Arctic settings at Chidliak, and four of those are clustered within an area that has only an eight kilometre radius: CH-1, CH-6, CH-7 and CH-31. We hope to add to this growing list of potentially economic kimberlites as more microdiamond results from the 34 kimberlites discovered this year are received. As we await all the results from the 2010 exploration programme, including a 14 tonne sample collected from CH-6, we are completing our 2011 exploration strategy which will entail the further evaluation of known kimberlites with economic potential, including the planning for larger bulk samples, as well as the discovery of more diamondiferous pipes starting next March with the drilling of a number of compelling lake-based targets.”
Firm Contracted for Environmental and Social Impact Assessment of Renard
Also yesterday, Stornoway Diamond Corp. awarded a contract to Roche ltd. Groupe-conseil to investigate the environmental and social impact of the future Renard diamond mine in central Quebec. The Renard mine will be Quebec’s first diamond mine and has a current NPV of $885 million (CAN). The engineering and environmental consulting firm will investigate the corporate social responsibility (CSR) factors that surround the project. Attention to CSR by communities, governments, and companies has increased over the past ten years to the point where having a social license to operate is almost as important as having an economic deposit. Understanding the CSR issues surrounding a project has become a necessity for companies with assets in the first world. Signing on an experienced group such as Roche is an important step in the processes to obtaining all of the necessary permits for the Renard mine.
Disclaimer: The author holds shares of SWY. Relevant comments are welcome and encouraged. Spam comments will be deleted. This article is based on the opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2010 www.kimreport.com
Posted by David
Last week, Stornoway Diamond Corporation released the results of their latest drilling program at their Renard project (part of the Foxtrot property) in central Quebec. The dimensions of three diamond-bearing kimberlite bodies were expanded beyond those expected by the previous models.
Renard 1, 3, 4, and 65 Models Expanded
Although the density of drill-holes is too low to properly resolve the bodies at depth at a resolution that is suitable to be deemed an indicated or even inferred resource under NI 43-101 standards, the upside is promising. Three drill-holes each were put into Renard 3, 4, and 65. These data increase the previously modeled dimensions of the kimberlite pipes. The maximum lower cut-off for Renard 3 was extended from the depth of 395m established in the existing NI 43-101 report to 439m. The same was done for Renard 4, going from 380m to 759m. No previous 43-101-compliant resource values existed for Renard 65, but drilling encountered kimberlite a a maximum vertical depth of 513m. One drill hole was also put into Renard 1 and further confirmed multiple lithologies and a maximum depth of 370m. The increase in tonnage for the project is not as large or as certain as with the reported increase in Renard 2 earlier this year, but it is substantial and unexpected (see above image of a geological model of R-4 with 3 drill-holes showing kimberlite outside of the modeled dimensions (PMD: potential mineral deposit).
Renard 65 (geological model above) stands apart from the other two bodies (R3 and 4) as it is entirely classified as PMD and cannot be included in the 43-101 feasibility study recently contracted out to SNC-Lavalin. R65 is quite large in terms of ore tonnage, but lower grade than other bodies. The body would potentially add to the mine life or throughput of ore at the mine as extra reserves, but not significantly affect overall mine grade or diamond valuation as it is believed to be one of the least economic bodies in the cluster. Renard 1 would be classified in the same group as 65. Also adding to the potential reserves at the future Quebec mine would be the 4+ km long Lynx dyke, and smaller Hibou dyke. However, the diamonds from these kimberlite dykes are typically more brownish in colour than the ones from the Renard pipes and thus have a lower average valuation (US$/c).
Other Projects Put on Hold
Stornoway’s increasing focus on Renard has left its other lower-stage targets on the back-burner. Aviat on the Melville peninsula in Nunavut is the next most promising after Renard. Though less-studied and containing smaller white diamonds, its high grade (~2c/t) and unknown extent holds significant potential. Completion of a mine at Renard should provide an income stream to fund the next necessary step of bulk sampling.
The only remaining project of relative significance held by Stornoway is its minority share in the Churchill kimberlite project operated by Shear Minerals. Although a portion of the project has attracted the attention of Rio Tinto, it appears to be doomed to languish as Shear Minerals has become preoccupied by its purchase of the Jericho mine and Stornoway’s lack of funds for non-priorities.
Coins Remaining in the Piggy Bank
As of its last quarterly report, the company had $14 million in cash. From this, Stornoway must fund its 50% share of the upcoming Renard mine feasibility study (the other half belongs to SOQUEM). A secondary study is in the works to examine bringing hydroelectric power lines into the camp from the north. If possible, attaching the mine to the electric grid would occur a few years into the mine-life. The earlier pre-feasibility study from over a year ago assumed on-site electric generation. Access to Quebec’s cheap hydroelectricity would significantly lower operating costs and avoid vulnerability to high oil prices.
Given that the third generation of Canadian diamond mines (Renard, Fort à la Corne, and maybe even Gahcho Kue) are coming on-line in the next few years, diamond stocks are rising. A half-decade of disinterest and bad luck (see Tahera and Jericho) is hopefully over, and investors: individual and institutional, will begin to see the value in the long wait for a diamond mine to reach production.
Disclaimer: The author holds shares of SWY and SRM. Relevant comments are welcome and encouraged. Spam comments will be deleted. This article is based on the opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2010 www.kimreport.com
Posted by David
The recent plea from the Dubai sovereign wealth fund, Dubai World, for a moratorium on payments to their $59 billion (USD) debt underscores that there are still plenty of skeletons in the closet to be found as the world economy races and stalls back to recovery. Sometimes this engine even goes backwards for a bit in the face of surprising news such as this.
Is this revelation really so surprising? Perhaps in the particular details and that it involves a supposedly wealthy country backed by decades of high oil production revenues. Or at least it was before it invested a good bit of that money to finance the hyper-development of a previously sleepy Arabian emirate. However, it is not surprising that large negative developments continue to come to light as the financial systems recover and consolidate. It took many years of unchecked greed and financial short-sightedness to create the crisis (crises?) that started in 2007. It is only logical that it will be a few years until we are free of this baggage.
What does this mean for commodities? The “good times” are gone and many investors/developers now have to deal with an annoying factor known as “reality” when they are interpreting the market, supply/demand trends, and so forth.
This whole topic is too big for one article and it would be redundant, not to mention exhausting, to focus on an all-encompassing review of things as they stand and look to do so in the future. Following the news of Dubai World’s troubles made me think of all the discretionary luxury goods (haute couture, man-made islands shaped-like things, and particularly jewellery) that are disproportionately consumed by such a rather small population, and how that allegory can be expanded to the world at large.
Are those we previously thought to be ultra-rich truly immune to economic fluctuations? It really is a relative matter, but it appears that the 2007-2009 meltdown(s) has (have) even touched those we thought to be dependable for the consumption of commodities of limited practicality. Diamonds (and other gems) are perhaps the best example of such an item. They can be synthesized easily now for aesthetic and industrial purposes, leaving natural diamonds of no particular commercial use aside from vanity and symbolism.
However, it is the rarity, history, and symbolism/mystique surrounding natural diamonds that makes them so sought after, even in troubled economic times such as now.
This recent reprieve in the markets over the past six months has been accompanied by bursts of positive news releases from a previously lacklustre Canadian diamond exploration sector. This recovery was second to only that seen by rare earth metals in the past few months.
Peregrine First Out of the Gate
The major catalyst for this renewed interest in diamond properties in 2009 was the Chidliak discovery on Baffin Island. Although the most recent news from Peregrine (and JV partner BHP Billiton) was less than stellar compared to previous developments, the Chidliak-Qilaq project is the first diamondiferous kimberlite discovery in Canada in years to hold significant economic potential. PGD stock has relaxed from its surprising highs in September-October stable levels at well over $1. The nature of the Chidliak find was covered in an earlier article back in March. What is interesting in recent months is the lag time for the market to acknowledge this find: about six months since its first real publicity at a sparsely attended PDAC session on diamond exploration.
Shore Pushes Onwards
Two other major players in the Canadian diamond junior sector have seen stock jumps more closely tied to news releases. Shore Gold released its most recent NI 43-101 complaint report concerning the Orion South kimberlite body in the Fort a la Corne (FalC) JV project with Newmont in Saskatchewan (not to be confused with the adjacent Star property wholly owned by SGF). This technical report and resource estimate is lengthy at 108 pages, as it should be considering the complex geology found in the FalC pipe compared to some other Canadian kimberlites (e.g. Snap Lake, Lynx). The bulk of the geological characteristics of the FalC kimberlites were covered in an earlier KIM Report article. The main issues indicated with that article over a year ago was for SGF to up their average diamond valuations due to grades well below 1 ct/t (100 cpht), and to give a reasonable estimate of the total mining cost per ton. The proximity of local communities and their infrastructure (power, roads, etc.) will bring costs down well below those of Arctic projects. But by how much? P&E Mining Consultants do a very thorough job of considering all technical aspects of the most promising body of the 70+ in the FalC project.
SGF and NEM commissioned WWW International Diamond Consultants Ltd. to evaluate the diamonds recovered from underground and LDDH samples. 2320.2 c was priced at $199495 (US), or $86/c (using the March 11 2008 pricing). The most promising units of the Orion South kimberlite: EJF and P-2 had price ranges of $100-166/c and $91-123/c, respectively. Diamonds from other lithologies of Orion South have lower valuations. P&E optimistically use the high end values for their modelling of the resource. This is significantly lower than the $225/c valuation at Star, located 2.5 km to the SE. Grades range from 0.128-0.147c/t depending on the case used. Tonnage (minimum case) is 76.8 Mt indicated and 86.3 Mt inferred.
The mining plan for Orion South suggests an open pit. Slope of the pit wall would be 30º for the ore/waste rock and 18º for the overburden due to its unconsolidated nature.
Mining costs are hard to put together from just reading the report. It assumes that the exchange rate will be US$0.85/CAD$. Stripping costs for the overburden (glacial till) will be $1/t overburden, with mining, processing, and general/administrative costs pegged at $6.54/t kimberlite. Thus using the absolute minimum values SGF and NEM look to clear about $4/t (rough estimate for overburden clearance) from Orion. Though should aspects such as US-CAD exchange rates, rough diamond prices, and/or fuel prices strongly fluctuate, this number could go much higher or lower. The key assumption being made here -as with all deposits, is that the modelled resource accurately reflects the real resource in the ground closely enough that it remains economic. The major difficulty with the FalC kimberlites is that their petrological/lithological heterogeneity (i.e. changes in diamond grade throughout zones in the kimberlite body) is difficult to pin down. The overall low grade of the pipe and mediocre diamond valuation (compared to other pipes with grades <0.5c/t) leaves little room for mistakes, mistakes that SGF and NEM have spent years and millions of dollars to avoid.
At its conclusion the Orion South/Star project requires a further $4.5 million to bring things to the feasibility stage, not all that much compared to the aggregate amount spent on developing the FalC kimberlites since their discovery in the late 1980s.
Last, But Not Least
The second major junior in the Canadian sector is Stornoway. This has followed the trend set by Peregrine and then Shore Gold in a resurgent Canadian diamond exploration sector. First reporting 4x the original tonnage for the Renard-2 kimberlite property in early October and then expanding on that find this month by reporting revised numbers for entire Foxtrot (Renard, Lynx, and Hibou bodies) property (aka the Renard Diamond Project) that effectively triple the contained carats compared to estimates published last year. 23.0 Mc are indicated and 13.3 Mc are inferred with further upside as some bodies remain not fully studied. Grades at Renard-2 for indicated (1.03 c/t) and inferred (1.2 c/t) resources are up 27% and 39% respectively.
There is a bit of cloud to this silver lining though in that diamond valuations from Renard-2 and -3 are down 3% to US$117/c and for Lynx down 14% to $57/c (“Base Case” estimates). The NI 43-101 compliant technical report covering this release will be out in less than 45 days.
Considering these developments it is curious if any other diamond juniors will be lucky enough to come across some positive news in order to be next in line to capitalize on this new, but fragile, enthusiasm. With the tax-loss selling season approaching, that enthusiasm is fragile indeed.
Disclaimer: The author owns 4000 shares of SWY. This article is based on the personal opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2009 www.kimreport.com
Posted by David
At the 2009 PDAC convention this month, CEO and President Matt Manson of Stornoway Diamond Corp. commented that this current economic environment and resultant government plans to increase spending is good for companies trying to develop mines in the sense of available infrastructure. Mr. Manson was in particular referring to Stornoway’s Renard diamond project in the Otish Mountains of central Quebec. The pre-feasibility study released last fall made the assumption that the current winter road access available to the potential mine site would be upgraded to an all-season paved road by the time construction would commence. This was discussed to in the earlier KIM Report article covering the findings of this study.
Good news came last Monday, when announced in Quebec’s 2009-2010 budget was $698 million for the development of roads in northern Quebec. Included in this allotment is money for the Route des Monts Otish (Route 167 Extension) that will extend from Chibougamau to the Renard site intersecting several other (metals) projects along the way (Eastmain, Strateco, and Western Troy). Details of the road project (in French) can be found on the government of Quebec website.
This boon comes at a time when investors are showing little of the patience necessary to see out a diamond project develop into a mine. Although not as large as Ekati or Diavik, Renard is still of significant size, especially when the nearby Lynx and Hibou dykes (bulk sampling near completion) are considered. The main advantage Renard has is that it is not an Arctic diamond mine, but that it is located in central Quebec, within close proximity to infrastructure (closer now with this announcement). It will have much lower mining costs as compared to isolated projects.
Further Infrastructure Spending?
There still remains the potential for electric power to be brought in to the region, as power lines run only tens of kilometres away from the site, but no announcement has been made regarding this as of yet. However, the pre-feasibility study assumed that the mine would operate using electricity generated on site and with oil above US$100. At this point, considering the assumptions made by AMEC in conducting the study, any other additional infrastructure forthcoming is just gravy.
Disclaimer: The author holds 4000 shares of SWY. This article is based on the personal opinions and experience of the author. Please conduct due diligence when investing.
Posted by David
Last Tuesday, Stornoway Diamond Corporation was halted late in the trading session due to release of the highlights from their long-anticipated pre-feasibility study regarding their Foxtrot diamond project in central Quebec (50% JV with SOQUEM Inc.). The Foxtrot project contains the Renard (R) kimberlite pipes as well as the Lynx and Hibou dykes. This is a NI 43-101 compliant report that outlines the Renard resource with 7 Mc indicated (11.6 Mt x 0.6 c/t) at R-2, -3, and -4, and 4.5 Mc inferred (7.2 Mt x 0.63 c/t) at R-2, -3, -4, -9, and the neighbouring Lynx dyke. R-3 appears to be the highest-grade body at 1.16 c/t, but has the lowest tonnage. An additional 9-21 Mc (14-32 Mt at 0.31-1.64 c/t) is classified as potential mineral deposit, but this requires further evaluation.
The projected cost to construct a mine on the site is C$308 million including contingency funds. Operating costs are assumed around C$50.39/t using the combined open pit + underground method, similar to that seen at Diavik’s A154 South kimberlite pipe. Plans for infrastructure to the mine (road, electricity) are in talks with local communities, government, and other mining companies with projects in the region. This has been covered in more detail by an earlier KIM Report article. The operating cost assumes that an all-season road will be built, but that the mine will be powered by diesel generators.
Diamond valuations for the R-2, -3, and -4 bodies were reported last fall as US$109/c (R-2 and R-3) and US$69/c (R-4). Doing some quick math, this means the value of the indicated resource is C$760.78 million (using the exchange rate given in the report of C$1.146/US$1). After subtracting the processing costs of the ore (C$585.53 million), this leaves the net value of the diamonds to be C$175.25 million. This is for the indicated resource alone, and does not take into account the inferred resource of 4.5 Mc or the additional 9-21 Mc of potential deposit that is still being evaluated. It would appear that the indicated resource pays for over 56% of the capital cost of the mine. However, given the expected processing capacity of the mine to be 1.3 Mt/y, this ore would take nine years to process. SWY would focus on the richer pipes on the mine (R-2 and R3) and leave the lower grade ones (R-4) for later processing in order to pay off the capital. The company will have to look at other bodies on the Foxtrot property for higher grade ore. R-65, Hibou, and Lynx are all possible candidates.
Should the Canadian dollar remain at current levels, the net profit for the indicated resource will be higher. As the Canadian dollar appears more likely to stay a dime below, rather than above, the American dollar, and world diamond prices continue to rise, SWY should be able to get a mine into the black relatively quickly after construction.
SWY has made an attempt to be as conservative as possible in calculating the costs of constructing and operating a mine as well as the amount of resource present. A prudent decision considering the fate of the last junior in Canada that went into diamond production. C$50 million of the C$308 million capital cost is budgeted for contingency. SWY investor relations has indicated that the report was calculated using spot prices from this summer when oil at well over US$100/bbl, giving a strong buffer in the budget against any rise in fuel costs.
There are two main goals for SWY in the immediate future: (1) expand the resource and put more viable carats under the “indicated” and even “measured” categories. Getting more solid diamond valuations is also a priority. (2) obtain the funds to build a mine. SWY is free of long-term debt thanks to some large backers. However, it has to come up with its C$154 million share of the capital costs, and there is only $6.9 million currently in the bank. Viable options for this have been discussed in the aforementioned earlier article. Permitting, environmental evaluations, and the like will also have to be conducted in order for construction to proceed.
The next day following this news, SWY closed up 40% to C$0.15/share on 1.1 million shares. By Friday that share price was back down around C$0.12/share, the level it was before the release of the report. This is a long way from the ~$0.80/share this time last year. However, should the mine get underway, a much higher share price is a very strong possibility.
Disclaimer: The author holds 4000 shares of SWY. This article is based on the opinions and experience of the author. Please do your own due diligence when investing.
Posted by David
Stornoway Diamond Corp. (TSX-SWY) saw a 24.14% jump in stock price today, up seven cents to $0.36/share. The rise followed the resumption of trading following a halt this morning due to a financing-related news release. SWY reported that they have received $22 million from a private placement of 24,444,444 common shares at ninety cents a share. This is a premium of 195% on top of the opening price of $0.305 today. The participants in the private placement are Agnico-Eagle Mines Ltd. (TSX-AEM) and Lorito Holdings Ltd. This $22 million will go to pay off debt in the form of debentures held by AEM and Lorito. AEM is already a significant shareholder of SWY, and with this transaction they will hold 17.6% of the outstanding shares. After the completion of this transaction, SWY will be debt-free.
This transaction is something of a coup in the current market. Juniors have been struggling to obtain funds to develop their projects and pay off debts. The credit market has been mostly deaf and blind to the woes of these companies as many lenders are themselves finding it a struggle to remain solvent. For a mining and exploration junior to pull off a private placement at a pre-subprime crisis share price is something of a shock (albeit a pleasant one) to investors and analysts who have become used to seeing the market cap of companies such as SWY slide by fifty to eighty percent. By offering equity to pay off its debts, SWY has managed to find a creative alternative to solving its cash problems in a bear market. The main upside here is that the dilution of the stock is one third of that if SWY were to issue stock at market price.
Now with balanced books, SWY faces only one major and immediate hurdle – to finance the construction of a diamond mine on their Foxtrot property in Quebec. This project, focusing mainly on the Renard kimberlite pipes, but also the Lynx and Hibou kimberlite dykes nearby, is joint owned 50/50 with SOQUEM and is fully described in an earlier article. SWY’s share of the mine construction costs will likely be over $100 million. The actual numbers are due out in September with the pre-feasibility study. The report was initially due this summer, but similar projects submitted earlier by Peregrine and Shore Gold tied up AMEC, the company contracted to conduct the study, until recently. Should the report be positive, as the geology and current diamond prices suggest, a significant amount of capital investment must be made to bring in the needed infrastructure for a mine. SWY will have to carry at least 50% of these costs.
Immediate of these costs is road access. Renard will not be an arctic diamond mine, dependent on airlifts and unpredictable ice roads for supply, but rather a site accessible by land year round. SWY is in talks with Western Troy Capital Resources Inc. (TSX.V-WRY), Strateco Resources Inc. (TSX-RSC), and Eastmain Resources Inc. (TSX-ER) – other mineral/metal exploration companies with projects in the Otish Mountains, local communities, and the Quebec government to build the “Route Monts Otish”. This partnership would provide strong benefits for all parties involved by sharing the cost of construction. SWY will need to bring September’s report to the table when the parties decide who pays what share of the road costs. It is also possible that the construction will bring in electricity service as well, further reducing the large bill SWY faces.
After September, SWY will have to come to a decision on how to fund the mine. Even if the Quebec government pays its full 50% share and the aforementioned road plan comes through, the cost to SWY will be well into the tens of millions of dollars. The company has a number of options to consider in obtaining the cash necessary to build the mine:
(1) They can go the traditional route and get financing from credit institutions. If the credit market simmers down by the winter this may be a possibility. Factors that would attract a lender are that the company has settled its accounts, the Foxtrot property has high and fairly well established diamond potential, and the company has many other promising secondary properties such as Aviat and Churchill (the latter a JV with Shear Minerals).
(2) Future private placements can be made. This will dilute the stock, but by how much is dependent on how the share price is doing at the time of issue. If today’s rise in share price is any indication, a positive report in September may be the catalyst investors need to return the company to the ~$1.00 level. In addition, management has established that they possess some expertise in brokering strong deals with large investment players (Rio Tinto is another major shareholder, with ~11% of the company).
(3) The company may bring in a third party to purchase a portion of their share in exchange for funding most of SWY’s costs a la the Franco-Nevada strategy.
(4) Interested parties could be sold secondary assets in exchange for cash to fund the mine. In addition to the aforementioned Aviat and Churchill projects, SWY holds promising advanced and reconnaissance stage projects in Nunavut, Ontario, the Northwest Territories, Alberta, and Saskatchewan.
It is likely the company will use a mix involving one, some, or even all of the above options to in order to proceed with construction.
Given that Quebec is regularly acclaimed as one of the top mining-friendly provinces in Canada, and that the province has a direct stake in the project, there seems to be fewer speedbumps on the road to Renard. Management with have to use every means at their disposal in order to navigate markets wracked with investor apathy towards diamond players.
Disclaimer: The author holds 2000 shares of SWY. This article is based on the personal opinion and experience of the author. Please do your own due diligence when investing.