TORONTO (miningweekly.com) – Shares in TSX-listed Stornoway Diamond Corp shot up 26% on Monday, after the junior unveiled much better economics for its Renard project, in Quebec.

In fact, the company feels confident enough that it will propose to its 50% partner on the project, Quebec government-owned Soquem, that they move straight into a feasibility study for the asset, which could mean a construction decision late in 2011 and production as early as 2013, CEO Matt Manson said in an interview.

Stornoway has updated the preliminary economic assessment for Renard, after announcing last year that it had more than tripled the resource base at the project, and is now forecasting an operating margin of 70% from what will be Quebec's first diamond mine, compared with the 55% forecast in the initial December 2008 study.

And while the C$450-million preproduction cost estimate is higher, reflecting increased throughput capacity plans, overall operating costs per ton are estimated at 22% lower than in the initial study.

Thanks to the increased resource estimate, the mine life is now expected to be at least 25 years, compared with the relatively paltry seven years in the previous study.

The company used a diamond price of $117/ct as a base case in its latest calculations, which Manson said he believes to be “conservative”, as the scarcity of large new sources of rough diamond supply and growing demand put pressure on prices.

“But the point is that Renard is a doable proposition at current economics, on current diamond prices, on current exchange rates, on current costs,” he said.

“We don't need diamond prices to grow to make it work.

“And then if you do inflate diamond prices in your evaluation of this asset, the valuation gets very compelling.”

For Renard, the big milestone over the next 18 months or so, will be getting all the permitting approvals necessary to move ahead with the mine, and that process will run at the same time as work for the final feasibility document.

A notice of intent, which is the first step towards getting the permitting under way, was filed last month.

The preliminary assessment published on Monday includes plans for both openpit and underground (block-cave) mining, with a plant throughput of 5 000 t/d, but, given the enlarged resource and 25-year mine, life, the feasibility study will probably also look at a 7 000-t/d option, Manson said.

Mining of the openpit is expected to end in the sixth year of operations, after which all production will come from underground, according to the latest study.

IT'S WHO YOU KNOW

As far as financing the project goes, Manson said he would like to have the funds locked in by the end of 2011, in time for the construction decision.

The financing strategy is still under discussion on both sides, but company could potentially take advantage of its well-connected and -funded partner when considering financing options for its 50% of the project.

“I think what you will likely see in the end, is a unitised financing package with ourselves and our partner getting together to provide the requisite project financing into this asset through hopefully some form of blended equity and debt-type financing.”

Both Manson and executive chairperson Eira Thomas are well schooled in the difficulties of financing Canadian diamond projects – they were senior executives at Aber Diamonds (now Harry Winston) when that company was getting ready to build its Diavik operation, in the Northwest Territories.

“We have first-hand experience in what it takes to get traditional mine project financing for a diamond project.

“And it's a challenge. Diamond projects aren't like gold projects, because you can't hedge the product, you can't forward sell it, you can't look in the newspaper every day to see what the price of diamonds are, the market is less transparent,” Manson said.

As a result, credit committees at banks that would traditionally provide mine project finance can have some trouble getting their heads around the project.

“But we always bring the conversation back to a discussion of where we are and who our partners are,” he added.

“We're in Quebec, the world's best mining jurisdiction, and we're partners with a branch of the Quebec government.”

Shares in Stornoway Diamond Corp rose 26% on Monday, to C$0,63 apiece by 15:59 in Toronto.

There are currently four diamond mines operating in Canada: BHP Billiton's Ekati mine, De Beers Canada's Snap Lake operation and Rio Tinto, Harry Winston and Kinross Gold's Diavik, all in the Northwest Territories, as well as the Victor mine in Ontario, which is owned and operated by De Beers.

To subscribe to Mining Weekly's print magazine email subscriptions@creamermedia.co.za or buy now.