Quebec diamond mine poised to reopen

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Osisko Gold Royalties Ltd. [OR-TSX, NYSE] Monday September 14 said the Renard diamond mine, operated by Stornoway Diamonds Inc. in Quebec, will be restarting operations later this month.

It said the move follows a review of operations and the establishment of a detailed restart plan. Stornoway took the decision to suspend operations in May, 2019 after experiencing liquidity problems due in part to a weak diamond market.

In September, 2019, Osisko and other secured creditors of Stornoway acquired the assets and properties of Stornoway as well as its debts and liabilities. Under the agreement, Osisko retained its 9.6% diamond stream on the Renard mine. It also became a 35.1% shareholder following a creditors’ bid transaction which closed in November, 2019.

In a press release on Monday, Osisko said the diamond market continues to be challenging; however, structural impediments to diamond sales are easing and increased demand has improved observed pricing for specific goods.

A detailed plan to restart production includes cost reductions of $30 million over the next 16 months of operations. The projected impact will be a reduction in the all-in cost of production.

“Further to the cost reduction, the current shareholders of Stornoway have committed to reinvest up to $30 million (up to $7.5 million for Osisko) in a senior secured working capital facility,” Stornoway said.  “This additional commitment will provide the required financial flexibility for Stornoway to continue operating in a challenging diamond market,” it said.

No initial drawdown is expected on the facility at this time as Stornoway currently has $10 million in cash as well as approximately 332,000 unsold carats in inventory which it expects to sell later in 2020.

“We feel there is significant value in the Renard mine given the scarcity of diamond mines globally and the approximately $1 billion of well-built infrastructure,” said Osisko Chair and CEO Sean Roosen.

The Renard Diamond Mine is located 350 km north of Chibougamau in the James Bay region of north-central Quebec. Construction began in July 2014 and commercial production was declared on January 1, 2017.  Average annual diamond production was forecast at 1.8 million carats/year over the first 10 years of mining. In a March 2019, Stornoway said the company faced a challenging transition from open pit mining to primarily underground mining.

On Monday, Osisko shares rose 1.9% or $0.32 to $17.07. The shares are trading in a 52-week range of $16.92 and $6.35.

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