Renard Diamond Mine Generates Cash

The only diamond mine in Quebec has returned to making money after experiencing financial difficulties that led to its restructuring of its share capital in the fall of 2019.

Andre Dubuc
The Press

Once a listed company, Stornoway was taken private in November 2019 when Osisko Gold Royalties and secured creditors converted their claims into shares of the new Renard mine owner. Small shareholders have suffered greatly in the process. Stornoway was dragging debts of 300 million. The construction of the mine had cost 1 billion.

1^er November 2019, Osisko thus became the holder of 35.1% of the shares of 11272420 Canada, a Longueuil joint-stock company owned through a 100% subsidiary of Renard. The other owners are Investissement Québec, the Caisse de depot and Triple Flag Mining.

The largest gold producer in Quebec, Osisko was created in 2014. It has 160 royalties and metal streams in the Americas.

The company, headquartered in Montreal, has a diamond flow of 9.6% on production at Renard. Exceptionally, Osisko has agreed to reinvest the proceeds from the stream in the company that owns the mine until next April.

The recent publication of Osisko Gold Royalties’ Annual Information Form gives news of the mine located 350 km north of Chibougamau.

Under the new administration, Stornoway has focused on cost reduction. The mine ceased operations from April to September 2020, due to COVID-19 and the low sale price of diamonds.

Over the whole of 2021, it mined and sold 1.84 million carats at an average price of US$94 per carat, “a significant improvement from pre-pandemic price levels, [et] the upward trend continues,” says Osisko.

In February, the last sale had an average price of US$170 (about CAN222) per carat.

An improvement in the global diamond price was expected after 2020 following the closure of Rio Tinto’s Argyle mine in Australia, which has long been the largest in the world.

“Stornoway’s cost reductions, combined with stronger diamond prices, have enabled Renard to generate positive cash flow,” the company said in the document filed with the stock market authorities. Renard did not have to draw any more money from its credit facility in 2021. It was even able to repay half of what it owed Osisko, approximately C$3.9 million.

Funding of 315 million

In addition, Osisko on Thursday completed a financing of 250 million US (315 million CAN) by way of bought deal with Eight Capital and RBC Capital Markets. They agreed to acquire 18,600,000 common shares of Osisko at a price of US$13.45 (CAN16.94). Underwriters have the option to add up to 2.79 million additional shares at the same price.

The share price lost more than 7% on Friday, to $16.54 in Toronto.

Along with the financing announcement, Osisko disclosed the purchase of a silver stream from the CSA mine in New South Wales, Australia, at a cost of US$90 million (C$113.35 million). This money will be used to finance part of the purchase of the CSA mine by a third party. At the same time, the Quebec company invested 15 million US (19 million CAN) in the capital of this company which acquired the CSA mine, in operation since 1960.

CSA produces approximately 430,000 ounces of silver and 51,000 tonnes of copper annually. It has an estimated lifespan of 15 years. Its combined reserves and resources total approximately 11,000,000 ounces of silver and 875,000 tonnes of copper.

Under this stream, Osisko will receive 100% of silver sales, approximately US$10 million (CAN12.6 million) per year, in exchange for a payment of 4% of the price per ounce of silver, i.e. approximately US$500,000 (CAN630,000) annually, based on a price of US$25 (CAN31.50) per ounce.

Osisko also obtained the option to invest up to 100 million US (126 million CAN) in exchange for a cash flow on the mine’s copper production. The terms remain to be defined. Osisko also has a right of first refusal on future flows or royalties attached to any of the properties belonging to the entity that currently bears the name of Metal Acquisitions Corp.

A call placed Friday at Osisko was not immediately followed up.