Vancouver
A quest for funding to fulfill a diamond of an idea
Brenda Bouw
RTGAM






Vancouver - Eira Thomas remembers sitting on a rock overlooking Lac de Gras, gazing at the northern tundra and its autumn shades of red and gold, when her father, a fellow geologist, put their huge Diavik discovery into perspective.

He turned to his daughter, then 25 years old and head of a team that discovered in the Northwest Territories what would become one of the world's largest diamond mines, and tried to temper her future career expectations.

"He said to me, 'Eira, you have to remember this is a rare and unique thing ... So many geologists, very capable and good geologists, make great discoveries throughout their career, but never see them go into production,'" recalled Ms. Thomas, now 41.

"I always felt like I won the lottery the first time around."

Today, Ms. Thomas is playing another ticket with Renard, an undeveloped deposit that her company, Stornoway Diamonds Corp., is trying to transform into Quebec's first diamond mine.

Vancouver-based Stornoway recently released an independent preliminary assessment from the project in Northern Quebec that suggests the area has triple the resources originally expected and could produce about three times longer, for about 25 years.

The catch, of course, is that it will also cost a lot more to build - about $511-million, compared to previous estimates of $308-million when the proposed mine was thought to be smaller. Stornoway still has to secure the financing to build a mine and clear several other hurdles to meet its production target of late 2013.

It's an "aggressive" schedule, according to Ms. Thomas, who is straightforward about the risks.

"The risks are, can a company of Stornoway's size actually go out to the capital markets and raise the necessary capital to put the mine into production, and can we meet the schedule?" the company's executive chairman said in a recent interview.

"For us, it's more about when, not if."

Renard also means Ms. Thomas will try to repeat the already rare success her father alluded to years ago.

"There is a lot of pressure, there is no question. People are always looking and saying 'Well, you can't do that more than once.'"

Stornoway is clear about one thing though: Renard is not another Diavik. It's expected to produce about 1.6 million carats a year versus about eight million from Diavik, which began production in 2003. Renard is also about one-quarter the grade of Diavik, which means it has fewer carats per tonne. However, the company says production costs will be much cheaper at an estimated $39 a tonne, compared with an average of well over $100 for Diavik, which cost $1.3-billion to build.

But Renard has so far turned out better than Stornoway had hoped when it bought the development through a hostile takeover of Ashton Mining of Canada Inc. as part of a three-way merger with Contact Diamond Corp. in 2007.

"What we didn't anticipate was that we would triple the size of the ore body by drilling deep. It's a huge geological revelation … Suddenly, Renard has gone from something which is kind of marginal to something that really can be a company maker."

That kind of promotional talk can be a turn-off for many mining investors, especially those burned by high-profile scandals of the past. Add the fact that diamond mining is not as well understood by investors as many other types of mining, and it's not surprising most analysts are cautious about recommending Stornoway.

In addition to financing and regulatory approvals, Stornoway also faces the question of whether it can execute, given typically long lead times between diamond discovery to production, Raymond James analyst Bart Jaworski said in a recent note.

"We encourage investors to remain cautious on [the stock], given a limited return to target at this time," he wrote.

One advantage Stornoway is said to have with Renard is its 50-50 joint venture with Soquem Inc., a mining and exploration investment company owned by the Quebec government. Local aboriginals groups are also said to be on board.

"We are of the view that support from the government of Quebec and the Cree Nation will crystallize in a number of forms over the next two years, again, with positive implications for the project's economics," Canaccord's Eric Zaunscherb said in a recent note, who nevertheless refers to Stornoway as a speculative play.

The province has already committed millions to building a road to the proposed mine site, located about 800 kilometres north of Montreal. The government, through Soquem, is also responsible for half of the costs to build the mine. Ms. Thomas is hoping to finance Stornoway's portion through a half-equity, half-debt financing, but says it's too early to nail that down.

Right now, Stornoway is working the investment circuit, marketing its recent Renard results. Stornoway chief executive officer Matt Manson was in Montreal recently, while Ms. Thomas, who is expecting her second child in July, works the phone from the company's modest headquarters in an industrial park in North Vancouver. Both will travel to London in the coming weeks for a diamond conference and to try to generate investor interest in Europe.

Sipping a cup of tea and donning a pair of Diavik-sourced diamond earnings she calls her "uniform," the red-haired geologist acknowledges she has become the face of Stornoway largely because of her success with Diavik and her unique status as a woman at the top of a mining company. All of that attention, and the nickname "Queen of Diamonds," which has followed her for years, has been both frustrating and fortunate.

"It's great that it generates interest, but at the same time you always feel somewhat torn ... you don't want to leave the perception that this is a one-woman show. It definitely isn't."

She points in particular to Mr. Manson, whom she has known since they studied geology together at the University of Toronto, as having been overshadowed in the Stornoway story.

Mr. Manson refers to Ms. Thomas as the "relationship person" in the company, while he deals with much of the day-to-day operations. "A lot of our business, the business of exploring and finding and developing things and building mines, is kind of aspirational. Another way of saying that is promotional. We are all optimists in this business."

But do they have a mine?

"I think so," Mr. Manson said. "At this stage, it's looking just terrific."