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Stornoway Diamond climbs on confirmation of advanced project financing talks

Published: 13:20 27 Mar 2014 EDT

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Stornoway Diamond (TSE:SWY) shares were rising Thursday after the company confirmed that it is in advanced negotiations with a "number of parties" regarding a financing plan for its Renard diamond project in north-central Quebec. 

The company said in a statement released earlier this afternoon that it is aware of unusual trading activity in its stock, therefore making the decision to confirm talks of negotiations despite not generally responding to rumours or media speculation.

Stornoway also cautioned that although management is encouraged with the progress made to date, the outcome is still uncertain and subject to further negotiations, as well as binding term sheets and definitive agreements and regulatory and shareholder approvals. 

The company said the transaction could be structured with any combination of debt, equity, forward sale of diamonds and other forms of financing. 

Project financing is the key component of Renard that is left to be sorted before ground is broken on the property. The budget for pre-production capital is $750 million. 

The Renard project, which is located about 350 km north of Chibougamau in the James Bay region of Quebec, has the potential to be a significant producer of high value rough diamonds over a long mine life, according to a feasibilty study released in November 2011 that was then optimized early last year. 

Stornoway’s plans, as established in the January 2013 optimization study, include plant commissioning before the end of December 2015, with commercial production to be achieved by mid-2016.

From there, the numbers are dizzying, with the mine set to average about 1.7 million carats a year at about US$190/carat, yielding revenues between $300 and $450 million.

According to the NI 43-101 compliant report for the site released in July of 2013, total indicated resources stand at 27.09 million of contained carats, with a further 16.85 million carats classified as inferred and 25.7 million to 47.8 million carats of total exploration upside.

The project is set to be Quebec’s first diamond mine, and is a development in which the government of Quebec sees some significant potential, as clearly demonstrated by the act of its pledging $77 million to Stornoway for the completion of the company’s segment of a 240km long road to the diamond explorer's production site. 

Shares of Stornoway advanced 11% on Thursday, to C$1.02 in Toronto, pushing year-to-date gains to over 30%.

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