Foxtrot Property – Renard Kimberlitic Bodies, Quebec
The Foxtrot Property, containing the Renard cluster of kimberlite bodies, is a 50/50 joint venture between Stornoway’s wholly-owned subsidiary Ashton, and SOQUEM Inc.’s (“SOQUEM”) wholly-owned subsidiary, Diaquem. Ashton is the project operator. Since 1996, Ashton and SOQUEM have evaluated an area of more than 400,000 square kilometres of the eastern Archean Superior craton. Exploration conducted by the joint venture has resulted in the discovery of a new field of kimberlitic intrusions on the Foxtrot property, notably the Renard cluster of kimberlitic bodies, and a nearby system of kimberlitic dykes, the Lynx-Hibou dykes.
Renard Diamond Project – Positive Economic Study Announced
On October 28, 2008, Stornoway announced the receipt of a positive economic study for the Renard Diamond Project, located at the Foxtrot Property in North Central Québec, followed by the filing on SEDAR on December 12, 2008 of a National Instrument (”NI”) 43-101 technical report on the Renard Project located at the Foxtrot Property in North Central Québec.
The Foxtrot Property is a 50:50 joint venture with SOQUEM INC. (”SOQUEM”). The independent technical report has been prepared by Scott Wilson Roscoe Postle Associates Inc. (Scott Wilson RPA) and is the qualifying report relating to the Renard Preliminary Assessment. AMEC Americas Limited (AMEC) and SENES Consultants Limited (SENES) have prepared or contributed to sections of this technical report. The technical report includes improved estimates of project economics resulting from certain conceptual mine plan efficiencies identified since Stornoway disclosed the initial results of the preliminary assessment on October 28th, 2008. The improved economics are highlighted as follows:
Highlights:
- Pre-tax IRR on a “Base Case” economic assessment utilizing a 5.9 million carat mineral resource from Renard kimberlites 2, 3 and 4 has increased marginally to 14.2% (12.1% after tax) from 13.9% (11.8% after tax). Pre-Tax NPV (calculated before tax at an 8% discount rate) increases to C$56m from C$52m.
- Pre-tax IRR on an “R4-R9 Price Sensitivity” economic assessment has increased to 17.5% (14.9% after tax) from 16.4% (13.9% after tax), with pre-tax NPV increasing to C$93m from C$78m. This upside economic assessment utilizes an expanded 6.2 million carat mineral resource from Renard kimberlites 2, 3, 4 and 9 and is predicated upon the application of an alternate diamond price to both of the Renard 4 and Renard 9 kimberlites.
The Renard Preliminary Assessment comprises a National Instrument (”NI”) 43-101 compliant mineral resource estimate and a diamond processing plant design prepared by AMEC Americas Limited (”AMEC”). A conceptual mine plan, capital and operating cost estimate, and an economic assessment were prepared by Agnico-Eagle Mines Limited (”Agnico”) and reviewed and accepted by Scott Wilson RPA. The economic assessment is based, in part, on Inferred Mineral Resources, and is preliminary in nature. Inferred Mineral Resources are considered too geologically speculative to have mining and economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is no certainty that the Preliminary Assessment will be realized.
Since the results of the Preliminary Assessment were initially reported on October 28th, 2008, no changes have been made to the mineral resource statement or estimate of potential mineral deposits. However, additional inferred mineral resource from the Renard 2 kimberlite has been added to the conceptual mine plan resulting in a marginally increased IRR under the base case economic assessment. In addition, an additional 540,000 tonnes of inferred mineral resource in the Renard 9 kimberlite has been added to the conceptual mine plan in the economic assessment scenario that applies the Renard 2 and 3 diamond price to the Renard 4 and Renard 9 kimberlites. This additional Renard 9 mineral resource has had a more significant impact on the project economics under this upside scenario. Estimates of project capital cost, operating cost and mining method remain the same, as does the mineral resource statement and the assumptions used in the financial model.
Overview of the Mineral Resource Statement, Estimate of Potential Mineral Deposit, and Conceptual Mine Plan
The NI 43-101 compliant mineral resource at Renard comprises 7.0 million carats of Indicated Resources (11.6 million tonnes at an average grade of 60 carats per hundred tonnes, or “cpht”) and 4.5 million carats of Inferred Resources (7.2 million tonnes at an average grade of 63 cpht). Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. Extensive upside has been identified in the form of an additional 9 to 21 million carats classified as potential mineral deposit (14 to 32 million tonnes ranging from 31 to 164 carats per hundred tonnes). The potential quantity and grade of any potential mineral deposit is conceptual in nature, and it is uncertain if further exploration will result in the target being delineated as a mineral resource. Consequently, the economic assessment, in both “Base Case” and “R4-R9 Price Sensitivity” scenarios, does not incorporate any of this non-resource, conceptual material. The evaluation of the large quantity of potential mineral deposit at Renard will be the prime focus of the joint venture in the coming year. If confirmed as additional mineral resource, it offers the potential to significantly extend the preliminary mine life and enhance the project’s economics prior to a formal production decision.
The conceptual mine plan combines open pit mining and sublevel, open stope underground mining. The mining sequence and design were determined by optimizing the pit depth and underground stopes to achieve a production rate of 3,500 tonnes/day or 1.3 million tonnes per annum. The capital expense is estimated to be $308 million, including $73 million for a diamond processing plant and including a contingency of $50 million. Operating costs (op-ex) are anticipated to average C$50.35/tonne, including $14.06/tonne for open pit mining, $22.74/tonne for underground mining, C$14.92/tonne for processing and C$16.13/tonne for surface services and general administration. Capital and operating costs were estimated between April and July 2008 through contractor quotes or real-case unit costs derived from current Agnico operations. Site access is based on the assumed availability of an all-season road from the south.
Financial models have been prepared using a US dollar 3-year historical exchange rate of C$1.146 and assuming a 3% diamond marketing cost. Diamond prices are as of an open market valuation exercise undertaken by WWW International Diamond Consultants Ltd. (”WWW”) in March 2008 (Stornoway press release dated April 28th 2008) and an annual diamond price escalation factor of 2.5% has been applied. The diamond price escalation factor does not commence until 2011, and extends through the life of mine, consistent with a consensus of recent diamond industry price forecasts.
The two adjusted economic assessment scenarios are summarized as follows:
| Base Case | R4-R9 Price Sensitivity Case | ||||
|---|---|---|---|---|---|
| Carats Recovered (m) | 5.89 | 6.19 | |||
| Tonnes Processed (m) | 7.50 | 8.04 | |||
| Grade (cpht) | 78 | 77 | |||
| Mine Life (years) | 7 | 7 | |||
| Total Cap-ex (C$m) | $307.70 | $308.21 | |||
| Average Op-ex (C$/tonne) | $50.35 | $50.00 | |||
| Total Revenue (C$m) | $879 | $974 | |||
| Undiscounted Pre-Tax Cash Flow (C$m) | $194 | $264 | |||
| Pre-Tax IRR2 | 14.2% (with sensitivities of 6.8% to 21.1%) |
17.5% (with sensitivities of 10.2% to 24.2%) |
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| After-Tax IRR2 | 12.1% (with sensitivities of 6.1% to 18%) |
14.9% (with sensitivities of 8.8% to 20.7%) |
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| Pre-Tax NPV3 | C$56m (with sensitivities of C$35m to C$96m) |
C$93m (with sensitivities of C$66m to C$143m) |
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1 The preliminary assessment includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainity that the preliminary assessment will be realized. The cash flow considers the Project from the time of the construction decision and does not include costs for permitting, prefeasibility, and feasibility studies. The mine production, economic analysis and cash flows represent forward-looking information. Assumptions have been made for diamond prices, values and grades. Forecasts of diamond grades and valuation are based on limited sampling that may not be representative of actual diamond production. 2 Based on a 2.5% annual diamond price escalation starting in 2011. Sensitivities are shown at 0% and 5% for the purposes of this release, and are not contained within the independent technical report. 3 Based on an 8% discount rate with sensitivities of 10% and 5%. |
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Qualified Persons for the NI 43-101 Report
The authors of the NI 43-101 technical report are Mr. Normand Lecuyer (ing.) and Dr. William E. Roscoe (P.Eng.) of Scott Wilson Roscoe Postle Associates Inc., Mr. Randall Cullen (P.Geo.) and Ms. Alexandra Kozak (P.Eng.) of AMEC Americas Ltd. and Mr. Gerd Wiatzka (P.Eng) of SENES Consultants Limited. Mr. Cullen is the independent Qualified Person responsible for the preparation of the mineral resource estimate for the Renard Diamond Project. Mr. Normand Lecuyer (ing.) and Dr. William E. Roscoe (P.Eng.) of Scott Wilson Roscoe Postle Associates Inc. have reviewed and accepted the conceptual mine plan, capital and operating cost estimates, and the preliminary economic analyses developed by Agnico and are the independent Qualified Persons for these aspects of the study. Details regarding data verification, exploration information, and the mineral resource estimates for the Renard Project are included in the technical report, which is titled “Technical Report on the Preliminary Assessment of the Renard Project, Quebec, Canada” NI 43-101 Report dated December 12, 2008, as filed on SEDAR.
Results from Winter Drill Program at Renard
In March 2009, a winter drill program on the Renard 2 and Renard 3 kimberlite pipes was completed. The drilling confirmed a significantly expanded zone of kimberlite on the northern and eastern sides of Renard 2 at depths greater than 250 meters below surface. Three separate deep drill holes have now delineated the zone in the northsouth and east-west axes, prompting a re-evaluation of the geological model for the overall pipe. It now appears that Renard 2 is approximately twice as large as previously thought when modeled to a depth of 570 meters below surface, which represents the base of the geological model used in the recent National Instrument (”NI”) 43-101 compliant mineral resource statement (Stornoway Press Release dated December 15, 2008). The pipe is approximately three times larger than previously thought when modeled to a depth of 700 meters below surface.
The drilling resulted in the discovery of a substantial amount of new kimberlite at Renard 2, which has a dramatic impact on estimates of the overall size of the pipe. In the recently released Renard Preliminary Assessment, Renard 2 contributed the bulk of the mineral resource contained within the conceptual mine plan. Management expects that the discovery of such a large amount of new kimberlite, much of it within the scope of the existing underground mine design, will have a very positive impact on the project economics. As a result, additional work programs are planned to convert the new material identified in the winter drill program into a mineral resource.
In total, five deep delineation drill holes were completed at Renard 2 as part of the winter drill program. Drill hole R2-55 gave an intersection of kimberlite on the northern side of the pipe 178 meters longer than expected from the existing geological model. Drill holes R2-57 and R2-58 were designed to provide the east-west dimension of this new extension, and returned kimberlite intersections of 339 meters and 250 meters respectively. Drill hole R2-57 ended in kimberlite at 729 meters due to drilling difficulties, and did not determine the actual eastern contact of the pipe at depth. Drill hole R2-58 includes a 56m intersection of dilute kimberlite (country rock plus kimberlite). These drill intersections, taken together with the existing drill database, are consistent with Renard 2 measuring approximately 180 meters by 50 meters (north-south and east-west dimensions) at a depth of 400 meters below surface, and 195 meters by 45-60 meters at a depth of 570 meters below surface. In the previous geological modeling, the pipe dimensions at these depths were thought to be only 70 meters by 38 meters and 48 meters by 10 meters respectively. The pipe remains open below 700 meters.
Preliminary field logging indicates that the new kimberlite intersections are comprised predominantly of lithologies seen elsewhere within Renard 2, including Brown Transitional Kimberlite Breccia (”Kimb2b”), Blue Tuffisitic Kimberlite Breccia (”Kimb2a”), Hypabyssal Kimberlite Breccia and Hypabyssal Kimberlite, along with rafts of Country Rock and Country Rock Breccia with Kimberlite.
In the recent NI 43-101 compliant mineral resource statement for the project, Renard 2 was estimated to contain 3.36 million tonnes of Indicated Mineral Resource (at an average grade of 81 carats per hundred tonnes, or “cpht”) and 1.80 million tonnes of Inferred Mineral Resource (at an average grade of 86 cpht). At that time, upside identified at Renard 2 in the form of potential mineral deposit was an additional 2.5 to 7.1 million tonnes (calculated to a depth of 700 meters below surface) with grades estimated between 73 and 164 cpht. The potential mineral deposit was determined on the basis of known drill intersections of kimberlite for which insufficient diamond sampling existed to adequately estimate a diamond resource grade, or on the basis of the implied depth extent of the kimberlite pipes to 700 meters below surface, or on the basis of geological uncertainty in the definition of kimberlite geological models. The new drilling results support a better constrained geological model that is consistent with a revised potential mineral deposit estimated at between 10.5 and 12.3 million tonnes to 700 meters below surface, a substantial increase over the previous estimate.
The reader is cautioned that the new kimberlite material reported from the winter drill program, as well as any “potential mineral deposit”, does not constitute a mineral resource, and it is uncertain if further exploration will result in it being delineated as a mineral resource. In addition, mineral resources are not mineral reserves and do not have demonstrated economic viability. Future work required to update the Renard mineral resource statement includes additional delineation drilling and the integration of the observed geological units within the new kimberlite zone into the overall resource model using detailed petrographic and microdiamond analysis.
Two drill holes were also successful in extending the dimension of the Renard 3 kimberlite pipe at depth on a more modest basis, while a third drill hole deviated from its planned location and did not intersect the pipe. Full drill results, including expected and actual drill intersections, are provided in the table below.
| Hole ID | Azimuth (degree) |
Dip (degree) |
Length (Meters) |
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| Renard 2 | |||||||||||||
| R2-543 | 175 | -70 | 453 |
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| R2-553 | 354 | -63 | 660 |
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| R2-563 | 156 | -67 | 411 |
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| R2-57 | 094 | -70 | 739 |
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| R2-58 | 178 | -66 | 441 |
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| Renard 3 | |||||||||||||
| R3-56 | 130 | -62 | 321 |
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| R3-57 | 208 | -67 | 447 |
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| R3-58 | 050 | -76 | 325 |
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1A negative ("-") difference indicates a decrease in geological model size when compared to the model utilized in the Dec 15th NI 43-101 compliant mineral resource statement. A positive ("+") indicates an increase in model size. Differences between expected and actual contacts have a smaller influence on the shape of the geological model at the top of the pipe than at the bottom owing to the amount of geological control already existing. 2 Hole ended in kimberlite. Terminated due to drilling difficulties. 3Minor revisions from March 09, 2009 release incorporating final geological logging and positional survey data |
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Next steps at Renard
In June 2009, the next phase of an ongoing resource expansion and optimization program commenced at Renard. This program includes core drilling of some 9,500m on the Renard 2 kimberlite pipe which is expected to continue until late August. The objective of this program is to convert the 10.5 to 12.3 million tonnes of potential mineral deposit material identified at Renard 2 to a formal resource classification. Results from the winter drill program at Renard suggest that the Renard 2 kimberlite is approximately twice as large as previously thought when modeled to a depth of 570 meters below surface, and approximately three times larger when modeled to a depth of 712 meters below surface. The summer program will focus on detailed delineation drilling and sampling of the newly discovered material within Renard 2, and is expected to allow a restatement of the NI 43-101 mineral resource by year end, followed by a revision of the project’s economic assessment.
In the existing Renard Preliminary Assessment, Renard 2 contributed the bulk of the high grade resource contained within the conceptual mine plan. Management believes that the discovery of such a large amount of new kimberlite in Renard 2, much of it within the scope of the existing underground mine design, could have a very positive impact on project economics, and could potentially add approximately 8 to 10 years of mine life to the 7 year mine plan already established. The growing scale of the Renard Diamond Project, taken together with the Quebec government’s recent announcement of major capital funding for the regional Route 167 Extension project, are recent, positive developments.
The 2009 summer work at Renard conforms with Stornoway’s stated objective of conducting modest, value-driven,exploration programs focused on the Company’s key, advanced projects during the currently challenging resource equity environment. It compliments ongoing desktop work at Stornoway’s 90% owned Aviat Project designed to provide a qualified estimate of contained value and potential mining methods for Aviat’s large Eastern Sheet Complex (”ESC”; Stornoway Press Release dated May 05, 2009), and continuing readiness to exploit, on an opportunistic and inexpensive basis, new discovery prospects identified within Stornoway’s grassroots exploration portfolio.
During the year ended April 30, 2009, the Company used an undiscounted cash flow method to test for potential impairment on the Renard Diamond Project, which is carried at $131.2 million. A description of this testing can be found in the section “Critical Accounting Estimates – Impairment of Long-lived Assets” below. Management determined that the carrying value of the project did not exceed its estimated recoverable value as at April 30, 2009 and accordingly, no write-down of the carrying value was required.