Junior miners almost never make the leap into successful producers with large-scale operations and happy shareholders. But Stornoway Diamond Corp., which is on the right track to create Quebec’s first diamond mine into production this year, showed it truly can be done, even just in a rough market. Unfortunately, it would be pretty tough to replicate the Stornoway model. It required finding yourself in the best possible jurisdiction, great exploration success, incredible timing along with a fair bit of luck. Stornoway leader Matt Manson spoken with the Financial Post’s Peter Koven concerning the company’s remarkable progress at its $775-million Renard project after it had been left for dead by shareholders in 2008.
Q You recently announced that the Renard mine is under budget and ahead of schedule. That never happens. How have you do it?
A When we visit do procurement for mining equipment, pumps, valves, whatever it is, we’ll go to a specific supplier. We all know he’s the best guy in the industry and that he has supplied every mine in the region during the last 10 years. We will visit him and say, “Listen, this will be our budget price with this valve. Can you supply against that price and how fast can you get it done?”
When there’s a more competitive construction environment, you might find the best guy in the industry is employed by Goldcorp for the following six months. Which means you opt for the next best guy, who’ll cost you a little bit more and might not be quite exactly the same quality. Which means you end up being behind schedule and also over budget.
But within this market, the guy we would like is not employed by anybody else and he’s got his best team at work in a few days. And he’s pleased to do it for our price. That’s the way it has been going for us.
There’s a truism in the mining business that timing is everything. People prefer to build their projects within the down cycles and mine them in the up cycles. And we’re certainly building this project in a down cycle.
Q Stornoway looked like it had been almost carried out in 2008. How have you turn the company around?
A In December 2008, we were a 5.5-cent stock. We presented our first economic analysis of Renard in October 2008 and it was skinny. Our bacon was saved by Quebec’s super flow-through (share program). During the cold months of 2009, it was the only real money available to us. We went drilling having a $6-million budget and that we were built with a big homer. We discovered the ore is much bigger at depth than we expected. After 2009, we tripled how big the resource. Therefore the mine is made from drilling in 2009 with Quebec’s super flow-through, which we’d to obtain because it was the only capital that may keep us alive through the credit crisis. So this is a fairy tale-type story.
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Q As well as your timing was very good using the Quebec government’s “Plan Nord” launch, right? That program got the street built right up to your website.
A The work wasn’t likely to work without a road. Once the Plan Nord premiered, the road was all set to go because for quite some time prior to that, the (First Nation) communities, with support from the mining companies, had put the money together to complete the various studies for the road. The route had been selected, gravel pits have been identified, consultations had happened. The path was worked out and ready to go.
Q How much of Stornoway’s success is a result of being in Quebec?
A This is a major part of it. There is a mining industry there; there are contractors and suppliers. Most our hiring and our contracting are put in Quebec. We got the street through Plan Nord. We have a very good relationship with the Crees. And the permitting environment in Quebec is really strong. They have tough standards and there’s a large amount of legwork required in the permitting process. But it’s predictable and on-schedule and responsive. So we haven’t seen the work delayed due to lack of permits.
Q That’s a fascinating contrast to the “Ring of Fire” in Ontario, where there doesn’t appear to be any substantial progress happening.
A We’re the Ring of fireside equivalent around the Quebec side. We’re an online resource project in the James San francisco bay area. There are impacted aboriginal nations nearby. It has gone very well for us and it has struggled for the Ontario side.
The difference is the political relationship between government and impacted aboriginal nations. In Quebec, they taken care of their fundamental relationship within the 1970s with the James Bay Northern Quebec agreement between Quebec and the Crees. The nature of resource development in the James San francisco bay area was established then, which relationship has been subsequently strengthened. So after they settled the framework for resource development on the Quebec side, the time got developed, hydroelectric stations got built and roads went in.
On the Ontario side, you do not have a classy political relationship between government and impacted (aboriginal communities). You have aboriginal nations who aren’t actually able to build their very own economic base because of isolation. And you have resource companies coming in thinking of doing development and getting into an unsettled context. Now big efforts are being created using Bob Rae and also the Ontario government and also the federal government to stay the framework. But Quebec is all about 30 years ahead.
Q What’s your undertake the diamond market? Recent times continues to be pretty rough.
A It’s cyclical. I believe De Beers described the problems of 2015 as a stocking problem. I would agree with that. We did not have a huge explosion in supply and that we didn’t have a huge drop-off sought after. What we did have is excellent inefficiency in the middle part of the pipeline in terms of how goods were moving. After the year, De Beers essentially disguarded the pipeline by withholding supply. I believe that went quite a distance to resolve the issue.
What I always say about diamonds is it is a very unique business. We’re mining something that people buy as a luxury product, but it is a non-discretionary luxury product. It is the something in our lives that everybody recognizes because the thing to buy to commemorate the most crucial emotional moments in your life. And if diamonds didn’t exist, we’d need to find something else that we all agreed may be the cultural symbol that you simply you should get some finger to declare your marital status. And I aren’t seeing any indication that the cultural host to diamonds has been undermined.
Q What’s next for Stornoway once Renard is running smoothly?
A We’re a public company. After your day, it’s all about maximizing shareholder value. We certainly wish to take the business forward and fill it up. And that we see opportunities arising once we’ve got Renard working the way it needs to work.
Q The diamond business is so small , concentrated. Are there really a lot of growth opportunities out there?
A Yeah, I think there are. But one thing we’re not going to do is go downstream. We have seen ourselves like a mining company first. So it’s greatly likely to be growth around the mining side.
This interview has been edited and condensed
pkoven@nationalpost.com
Twitter.com/peterkoven
