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Junior miners almost never dive right in 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 in a tough market. Unfortunately, it might be pretty difficult to replicate the Stornoway model. It required finding yourself in the best possible jurisdiction, great exploration success, incredible timing along with a lot of luck. Stornoway leader Matt Manson spoke with the Financial Post’s Peter Koven concerning the company’s remarkable progress at its $775-million Renard project after it was left for dead by shareholders in 2008.
Q You recently announced that the Renard mine is under budget and in front of schedule. That never happens. How did you get it done?
A Whenever we visit do procurement for mining equipment, pumps, valves, anything, we’ll visit a specific supplier. We all know he’s the very best guy in the business and he has supplied every mine in the region for the last 10 years. We’re able to visit him and say, “Listen, this will be our budget price with this valve. Can you supply against that price and just how fast can you get it done?”
When there’s a more competitive construction environment, you might find the very best guy in the business is employed by Goldcorp for the next six months. So you go with the next best guy, who will cost you a bit more and might not be quite the same quality. So you end up being behind schedule and also over budget.
But within this market, the guy we would like isn’t employed by others and he has got his best team on the job in a few days. And he’s happy to get it done for the price. That’s the way it’s been opting for us.
There’s a truism in the mining business that timing is everything. People prefer to build their projects in 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 did you turn the organization around?
A In December 2008, we were a 5.5-cent stock. We presented our first economic analysis of Renard in October 2008 also 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 money available to us. We went drilling having a $6-million budget and we were built with a big homer. We discovered the ore is larger at depth than we expected. After 2009, we tripled the size of the resource. Therefore the mine was made from drilling in ’09 with Quebec’s super flow-through, which we’d to get since it was the only real capital that could keep us alive through the credit crisis. So that’s a fairy tale-type story.
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Q As well as your timing was very good with the Quebec government’s “Plan Nord” launch, right? That program got the street built right up to your website.
A The project wasn’t likely to work without a road. When the Plan Nord premiered, the road was all set to go because for quite some time just before that, the (First Nation) communities, with support from the mining companies, had place the money together to do the various studies for that road. The path have been selected, gravel pits have been identified, consultations had happened. The path was exercised and ready to go.
Q The amount of Stornoway’s success is due to being in Quebec?
A That’s a major part of it. There is a mining industry there; you will find contractors and suppliers. Most our hiring and our contracting are put in Quebec. We got the street through Plan Nord. We’ve got an excellent relationship with the Crees. And the permitting environment in Quebec is really strong. They have tough standards and there’s a lot of legwork needed in the permitting process. But it is predictable and on-schedule and responsive. So we haven’t seen the project delayed because of insufficient 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 are the Ring of fireside equivalent around the Quebec side. We’re an online resource project within the James Bay area. You will find impacted aboriginal nations nearby. It has gone very well for us and it has struggled for that Ontario side.
The difference is the political relationship between government and impacted aboriginal nations. In Quebec, they sorted out their fundamental relationship within the 1970s with the James Bay Northern Quebec agreement between Quebec and the Crees. The character of resource rise in the James 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 resources got developed, hydroelectric stations got built and roads went in.
On the Ontario side, you do not have a sophisticated political relationship between government and impacted (aboriginal communities). You have aboriginal nations who aren’t actually in a position to build their very own economic base because of isolation. And you have resource companies coming in wanting to do development and entering into an unsettled context. Now big efforts are being created using Bob Rae and the Ontario government and also the authorities to stay the framework. But Quebec is about 30 years ahead.
Q What’s your take on diamonds market? The last year continues to be pretty rough.
A It’s cyclical. I think De Beers described the issues of 2015 as a stocking problem. I’d accept that. We did not have a huge explosion in supply and that we did not have an enormous drop-off in demand. What we should did have is excellent inefficiency in the middle part of the pipeline when it comes to how goods were moving. After the entire year, De Beers essentially flushed out the pipeline by withholding supply. I believe that went quite a distance to solve 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 within our lives that everyone recognizes because the thing to buy to commemorate the most crucial emotional moments in your life. And when diamonds didn’t exist, we’d have to find another thing that we all agreed is the cultural symbol that you put on your finger to declare your marital status. And that i aren’t seeing any indication that the cultural place of diamonds has been undermined.
Q What’s next for Stornoway once Renard is running smoothly?
A We’re a public company. After the day, it is all about maximizing shareholder value. We certainly wish to go ahead and take business forward and fill it up. And we see opportunities arising once we have Renard working the actual way it needs to work.
Q Diamonds business is so small , concentrated. Are there really a large amount of growth opportunities available?
A Yeah, I believe there are. But one thing we’re not likely to do is go downstream. We see ourselves as a mining company first. So it’s greatly going to be growth around the mining side.
This interview has been edited and condensed
pkoven@nationalpost.com
Twitter.com/peterkoven
