Stornoway’s flagship asset is the Renard Diamond Project which the company has been working on for 10 years. Current NI 43-101 compliant Indicated and Inferred Mineral Resources stand at 23.8 and 17.5 million carats respectively, with a further 23.5 to 48.5 million carats classified in the non-resource category.

A few weeks ago, the company completed the field portion of a bulk sample program on the Renard 65 Kimberlite pipe. The objective of the bulk sample program is to collect a large enough parcel of diamonds to allow the conversion of material that is currently classified as an Inferred Mineral Resource at Renard 65 to an Indicated Mineral Resource and then, if warranted, to a Mineral Reserve. Another step in the process of building Quebec’s first diamond mine.

Although Renard is clearly the big value driver for Stornoway (Stock Profile – TSE:SWY), the company also maintains a fairly robust exploration program. The company has three advance stage exploration projects and three grassroots projects located across Canada.

2012 was an interesting year for diamonds. Two major players in the industry, BHP and Rio Tinto, announced plans to get out of the diamond mining business. This shift has some wondering about the state of the industry. But KPMG writes in a recent quarterly diamond report, “…reserves are continuously depleting with mature open-pit mines reaching their target economic depth. Also, there have been limited new diamond discoveries in the recent past.”

The KPMG report predicts an average world diamond price decline of 2% in 2013 followed by a 7% rise in 2014 and a 9% rise in 2015. Good news for Stornoway Diamonds President & CEO, Matt Manson, who we managed to track down for an exclusive interview during what has been a busy time for the company.

Stornoway has been in the diamond mine development business for many years now. Please provide our readers with an overview of the company and some of your major achievements along the way.

Since 2006 Stornoway’s focus has been the development of the Renard Diamond Project in Quebec. In the last 6 years we have worked our way through the lengthy and expensive process of establishing what is now one of the world’s largest undeveloped diamond resources. This has been an immense amount of work, in drilling, sampling, bulk sampling, geological modeling and diamond valuation.

At the same time, we have transformed Stornoway from a grass roots explorer focussed primarily on Canada’s north, to a mining company headquartered in Montreal at the heart of the Quebec mining community and preparing to develop the world’s next diamond mine.

Along the way, we have unitized the project by acquiring the interest of our partner SOQUEM Inc., making Investissement Quebec our largest shareholder, entered into a financing agreement with the Quebec Government that facilitated the start of construction on the Route 167 Extension which will make Renard the first diamond mine in Canada with an all season road, completed the project’s Feasibility Study, filed the project’s ESIA, signed an Impacts and Benefits Agreement with the Crees of James Bay last March, and signed partnership agreements with the communities of Chibougamau and Chapais this past July.

Most recently, in September we announced a Mandate Letter and draft term sheet in connection with a potential $475 million debt financing for Renard with seven commercial lenders, a deal that once completed will rank as the largest project financing for a diamond project yet completed. We received the project’s mining lease in October and we expect to receive our principal regulatory approval for mine construction, the project’s “Certificate of Authorization” soon. These are all significant achievements for a company making the long and difficult transition from exploration to production.

This year there have been some big changes in the diamond industry. Most recently, Harry Winston announced it was buying the Etaki diamond mine from BHP Billiton for $500 million. What is the significance of these changes and what does these mean for Stornoway?

These changes are a natural part of the evolution of the diamond industry in Canada, of which Stornoway is obviously at the heart.  The exit of BHPB from the diamond business, and also we understand Rio Tinto, has been expected for some time. Both the Diavik and Ekati mines are nearing the end of their currently defined reserve life, and diamonds are a very small part of the business of these two very large mining companies.

These transactions have created an unmerited negative sentiment about the diamond sector in Canada, especially in the media. In actual fact, they reflect the very limited outlook for future diamond supply. Renard, at 2 million carats per year peak production, is one of the largest new projects under development in the world, but will only represent 2% of world supply. This is not an industry that suits large diversified miners seeking to expand their mining divisions and improve margins. This is not possible in the tight diamond sector, and hence BHPB and Rio Tinto are exiting.

In the short term, Stornoway is focussed on the timely development of Renard, which we believe is a highly valuable project with a long potential mine life. In the medium to long term, the reorganization of ownership of BHPB and Rio Tinto’s assets into other companies will help create more liquidity in the public equity markets for diamond companies, improve the industry’s visibility in general, and provide greater opportunities for growth in the sector.

Stornoway has, from what I can tell, an excellent relationship with Quebec’s First Nations people. Was this a key component associated with receiving your mining lease for Renard from the Quebec Ministry of Natural Resources in October?

Stornoway has maintained a positive relationship with the Crees of James Bay (Eeyou Istchee) and in particular the Cree Nation of Mistissini, since the discovery of Renard in 2001. In 2010 we signed a Pre-development Agreement with the Crees and an IBA, the Mecheshoo Agreement, in March 2012. This last agreement was the most recent example of an IBA between a mining company and an aboriginal community in Canada. Our relationship with the Crees is based on trust and respect.

During the mine design process we organised regular community meetings to take input from local people on specific aspects of the project’s configuration. In negotiating the Mechesho Agreement, we brought the Cree parties under a CA and negotiated on the basis of complete transparency on the project’s employment and business opportunities, and financial model. We respect that we are operating within the  traditional territories of the Crees.

The Crees have, in my opinion, a very well developed view on mining, which they regard as welcome as long as it conforms with the best interests of the Crees, is respectful of the environmental, and contributes to the well-being of their communities. These are also Stornoway’s objectives. The good relationship between Stornoway and the Crees, our “social licence”, is well understood by the permitting authorities, and is a contributing factor in our successful permitting process.

Now that the permit has been received, what are the remaining hurdles in front of Stornoway before you are able to put the project into production?

Until now, the three principal challenges for Stornoway in the development of Renard have been project permitting, maintaining road development on schedule for first road access in 2013, and project financing. The receipt of our Certificate of Authorization is the principal hurdle in our permitting process – so it will be good to have that box checked.

On October 29th we press released that delays in the development of the Route 167 Extension would likely arise owing to the decision of the Quebec government to review costs associated with the project and defer the awarding of the road’s two last construction contracts. On November 15th, just two weeks later, we were able to announce a new agreement with Quebec where Stornoway would assume completion of the road as a single lane, mining-grade road, and be financed by Quebec with a line of credit up to $85 million to do so.

This agreement gives us control over the road project, and for the first time control over the project schedule, and we were able to re-confirm all-season road access for 2013. The remaining challenge for us now is to meet project financing. Our $475 million commercial debt deal will be part of the answer. We are also pursing financing opportunities tied to diamond supply, and at some stage we will come back to the equity markets.

The task of financing the first development project for a junior miner seeking to transform itself into a producer is always the supreme challenge in the growth of a mining company. However, we are meeting this challenge with the same optimism for ultimate success with which we have met all other challenges to date.

By nature of the industry there aren’t many diamond mines in the world. Are there additional operational challenges associated with mining diamonds due to the limited number of operation mines? (i.e. know-how, equipment, etc.)

No. Most diamond mines use established technology easily available in the mining support trade. Most employment roles in a diamond mine are not specific to diamond mining. Specialized people are required in the areas of diamond processing, security, marketing and mine geology. We already possess much of this expertise in house.

The expected contraction in world diamond supply also makes it easier than previously to recruit specialized people from the open job market. We see the general shortage of master mechanics and electricians in the Canadian mining industry as a greater risk to us that any shortage of people with diamond experience.

People tend to focus on your Renard project for obvious reasons but the company also has a number of exploration projects. What is the status of your exploration activities?

As is natural for a development-stage company, we have reined in our spending on our portfolio of exploration projects over the last two years as we focus on developing Renard. This portfolio includes the advanced stage projects Aviat, Qilalugaq (both in Nunavut) and Timiskaming (Ontario) and grassroots projects (including Pikoo in Saskatchewan and Aeon in Quebec).

In June we were able to release the first NI 43-101 compliant resource at Qilalugaq  (a total Inferred Mineral Resource 26.1 million carats from 48.8 million tonnes, with an average +1 DTC total diamond content of 53.6 carats per hundred tonnes to a depth of 205m, and additional resource upside in the form of a target for further exploration of between 7.9 to 9.3 million carats from 14.1 to 16.6 million tonnes total content of kimberlite with an average +1 DTC total diamond content of 56.1 cpht, extending to 305m depth.).

We have also been operating very targeted sampling and prospecting programs in our grassroots projects over the last 12 months. Stornoway has always valued an active portfolio of projects, and our strategy is to return to exploration more aggressively once Renard is fully financed and underway.

Disclosure: at publication date Stornoway Diamonds is a client of MiningFeeds.