Image credit: Stornoway
The government of the Quebec province has provided a C$15 million loan to resume production at the Renard mine, the first diamond complex in the north of this Canadian region. Taking into account the allocated funds, the total amount of the state investments in the diamond project will be minimum C$225 mn.
The global diamond market that was stagnant for several weeks this spring due to the coronavirus pandemic began to recover gradually in the summer. That is why, on September 1, the decision was taken to resume production at the Renard mine suspended since March, and it was to be reopened by the end of September. The Quebec government has undertaken to pay half of the funds needed to resume the work. At the same time, the Quebec province holds only 35% of the shares of Stornoway Diamonds, which owns the mine.
For its part, the Montreal-based Osisko Gold Royalties Ltd receiving the royalties from gold, silver and diamond mines and holding 35.1% of Stornoway in its portfolio has pledged to extend a loan of C$7.5 mn. The other two shareholders, the Caisse de dépôt et placement du Québec deposit fund and the Toronto-based Triple Flag company, which own 16.9% and 13% of Stornoway, respectively, will invest C$3.75 mn each in the revival of the diamond mine.
Thus, the shareholders will additionally invest C$30 mn in the project. A year ago, they already provided a C$20-mn loan to Stornoway. “If we were the only shareholders that invested the money, we would probably say ‘no’ ... The costs of just maintaining the mine in ‘hibernation’ is $15 mn per year,” - said Pierre Fitzgibbon, the Minister of Economy of Quebec. However, the journalists were unable to find out from him why the regional government agreed to bear the burden of the largest financial risk share. When asked whether the project would bring an adequate return, he answered in the negative. The Renard revival will cut the Stornoway’s costs by $30 mn over the next 16 months. According to the minister, the savings of about 20% give a guarantee that the recovery of the production will be ‘without losing money’.
Osisko Gold Royalties Ltd said in its statement that the credit facility would allow Stornoway to maintain the financial flexibility required to continue its operations in a challenging market environment. The company has about C$10 mn in cash and about 332 thousand carats of rough diamonds in its vaults, which would be sold out by the end of this year. “The situation on the diamond market continues to be difficult. Nonetheless, the structural barriers to rough diamond sales become weaker and the increased demand has boosted the prices for some specific goods,” said Osisko, which - together with other lenders - took control of Stornoway in November 2019.
“The Stornoway team has demonstrated the ability to effectively manage the Renard mine, and short-term cost reduction will help increase the profits. We believe the Renard mine continues to be of significant value, while the diamond mines are becoming increasingly rare. And in recent years, more than a billion dollars have been invested in its high-quality infrastructure,” said Sean Roosen, Chairman and CEO of Osisko. According to Josée Méthot, CEO of the Association minière québécoise, up to 425 out of about 540 employees who used to work at Stornoway before the quarantine will return to their work. Méthot says this is ‘due to changes in the mining strategy’.
Alex Shishlo for Rough&Polished
