Go to main menu Go to main content Go to footer

Business ᐊᐱᒥᐱᐦᑖᑭᓂᐧᐃᒡ ᐋᐱᑎᓰᐧᐃᓐ

Stornoway fire sale guarantees Renard mine operations will continue uninterrupted

BY Patrick Quinn Sep 27, 2019

Diamonds may be forever but world markets aren’t so predictable. Perhaps that’s the lesson from the recent bankruptcy protection granted to Stornoway Diamond, which operates Quebec’s first diamond mine about 250 kilometres north of Mistissini.

After business restructuring, the financing agreement will see four of Stornoway’s secured creditors take over ownership of the equity while supplying $20 million of working capital to ensure the Renard diamond mine operates without interruption.

In many ways, the Renard mine was a great success even before launching production in January 2017. Since diamonds were discovered on the north shore of Lac Lagopède in 2001, Stornoway maintained an active dialogue with the nearby Cree communities and reached a unique agreement that guarantees jobs, contracts and future royalties to Eeyou Istchee.

Unfortunately, global market conditions resulted in plummeting prices and an oversupply of stones. The industry’s key markets in Asia have been hurt by US-China tensions, political unrest in Hong Kong and a weaker currency in India, which cuts or polishes about 90% of international diamonds. There is also increasing competition from lab-created synthetic stones.

“I think it’s a good mine at a bad timing,” Stornoway CEO Patrick Godin told the Nation. “It’s not because the mine is not doing well – that the employees are not working hard or that we are not respecting environmental rules – it’s because the price is getting us.”

While diamonds from the mine sold at $147 per carat when the project was financed in 2014, today the price is roughly half that amount. Stornoway has struggled to adjust to the slumping market and was finally forced to seek a buyer this year when prices fell further, causing insufficient cash flows to continue operations.

“The reading of our financial statement showed we were going to hit a wall so we discussed with our senior creditors in advance,” said Godin. “We looked for different alternatives, such as the sale of the company. We received only one offer and it was not acceptable. So the senior creditors altogether agreed to buy the mine to the value of their debt, what we call a credit debt.”

The four senior creditors – Investissement Québec, Osisko Gold Royalties, the Caisse de dépôt et placement du Québec and Triple Flag Mining Finance – will respect the Mecheshoo Agreement with the Crees, the financing agreement with Caterpillar that is essential to operations, and all employment and supplier relations. Under the terms of the bridge loan, Osisko will reinvest its 9.6% revenue stream back into the mine for at least a year.

While one of the bid’s conditions is to maintain the present management, the transition will see the formerly public company become private, with an accompanying board of directors. This means that shareholders and non-secure creditors will lose their investments, an unfortunate necessity to preserve the mine’s still significant future potential.

Godin expects prices will rebound with next year’s closure of Australia’s Argyle mine, the world’s largest diamond mine. When the Renard mine reaches its planned annual output of 1.6 million carats, it will become the world’s fifth or sixth largest diamond producer with operations anticipated to continue for another 10 to 20 years.

This economic potential is particularly meaningful because of Stornoway’s ongoing collaboration with Mistissini and the Grand Council of Crees. Godin has no doubt that these positive relations will continue.

“I’m in permanent communication with the Grand Chief, the Chief of Mistissini and the mayor of Chibougamau, so they are fully aware of the development of the project,” explained Godin. “We are all concerned. It’s a priority for all of us and I’m not seeing any issues from our Cree parties in regard of the four new owners of the company.”

The special Impact and Benefits Agreement (IBA) signed in 2012 – the Mecheshoo Agreement – provides for Cree training, employment and business opportunities and establishes principles of social, cultural and environmental respect under which the project will be managed. The long-term revenue sharing agreement is consistent with the mining industry’s best practices for engagement with First Nations communities.

“We have an IBA with them and we will collaborate to the extent possible to make that mine a success,” said Bill Namagoose, executive director of the Grand Council of the Crees. “We hope there is a viable financial solution to that. It’s more of the marketplace that dictates what happens here.”

The new buyers have long connections to the mining industry, including numerous developments in Indigenous territories, and Godin describes them as sophisticated and respectful. There was no question during negotiations that the Mecheshoo Agreement would be kept.

“The first thing they said was we want to maintain the agreement,” asserted Godin. “I’m pleased to work with the Crees. [The relationship] is a work in progress we’ll judge at the end of the mine’s life. The commitment is excellent. I’m seeing my Cree partners as friends too.”

Involving Crees heavily in the mine’s development has been mutually beneficial, with employees from the region improving worker retention and local contractors responsible for much of the nearly billion dollars of infrastructure investment. Among these investments was an all-season road connected to the provincial highway network, a camp for 600 workers and an airport.

Throughout this construction process, Stornoway prioritized businesses associated with Eeyou Istchee and credited them with completing the projects so efficiently. These ongoing supplier relationships include companies such as Eskan, Swallow-Fournier, Air Creebec, Eenatuk, Petronor and Kiskinchiish. 

Godin is confident these relationships will continue and expand under the new ownership. As the Renard mine transitions from open-pit to underground operations, Cree jobs should be safe and there will even be emerging opportunities for workers.

“The employees will see nothing [from this sale] – it is mainly at the corporate level,” said Godin. “We are looking for miners actually – we have 45-50 jobs open. There are nice job opportunities for Crees.”

LATEST ᒫᐦᒡ ᑎᐹᒋᒧᐧᐃᓐ

Patrick Quinn lives in Montreal with his wife and two small children. With a passion for words and social justice, he enjoys sharing Eeyou Istchee's stories and playing music.