Stornoway sets sights higher after merger

Stornoway Diamond Corp. is aiming to become one of the few successful middle-tier diamond exploration and development companies, following its amalgamation with Ashton Mining and Contact Diamond Corp., which concluded in mid-January. The Vancouver-based company now has three advanced exploration projects in the eastern Arctic, one on the border of Quebec and Ontario, and another in northern Alberta, as well as a 50 percent interest in the Renard property in Quebec.

Middle-tier companies are much more common in the gold sector than in the diamond sector, Stornoway's CEO, Eira Thomas, said at the BMO Capital Markets Global Resources Conference in Tampa, Fla., Feb. 26. Aber Diamond Corp. and Shore Gold are the big players in the Canadian diamond industry and there are lots of juniors, but the only middle-tier companies are Mountain Province and Tahera Diamond Corp., according to Thomas, and they are single-asset companies.

Stornoway intends to join that exclusive crowd. "We wanted to get a path to production with a strong project pipeline, with some good upside discovery potential," Thomas explained. "We wanted to put together a strong and experienced management team with operating credibility and then increase our financial capacity and our market profile," she added.

Since the three-way merger, Matt Manson has joined Stornoway as president of the company. Manson is a geologist who worked for Aber from 1999 to 2005 during the period when that company transitioned through feasibility and raised the capital to build Diavik, Canada's second diamond mine, in the Northwest Territories. "Matt was ultimately responsible for setting up their marketing division, so his experience in the diamond pipeline is at the more advanced stages," Thomas said.

Thomas herself also started her career as a geologist with Aber in 1990 and was part of the team that discovered Diavik. She joined Aber's board of directors in 1998 and remained with the company for a total of 16 years.

Vision: success at mining, selling rough diamonds

"Our vision, basically, is to become successful in the practical business of mining and selling rough diamonds, and at the same time we intend to continue with a very aggressive exploration strategy to find and seek out world-class diamond mining opportunities in a market which has become increasingly undersupplied," Thomas said. "Essentially this new company will have a much larger, diversified asset base," she added. Stornoway will be assisted by expertise from one of its large shareholders, Toronto-based Agnico-Eagle Mines, which operates a gold mine in Quebec and is purchasing Cumberland Resources, owner of the Meadowbank gold project in Nunavut.

The expanded Stornoway will have a market cap of about $200 million, which should be sufficient to make the company attractive to a broader spectrum of institutional shareholders, Thomas believes. "We also feel that it is exactly the right time to be pursuing this type of strategy. The diamond market is currently strong and it's predicted to get stronger over the coming years," she said. Demand for diamonds is increasing not only in emerging Asian markets, such as India, but also in the United States, because the baby boomers are coming into their prime spending years, Thomas noted.

Aviat most northerly project

Stornoway's most northerly project is Aviat in eastern Nunavut, one of six joint ventures that the company is involved with on the Melville Peninsula. Stornoway has a 70 percent interest in Aviat, with BHP Billiton holding 20 percent and Hunter Exploration Group the remaining 10 percent. Since Stornoway began exploring Aviat in 2002, the company has made 11 kimberlite discoveries there, and the property was its principal exploration focus in 2006.

"This past summer was an important year for us, because we actually learned that we had a series of stacked sheets on the Aviat project that together could comprise significant tonnage," Thomas said.

"We're quite excited about this.

We've got eight stacked sheets up to four meters thick; they've been drilled now over an area of about 1.5 by 3 km and represent potentially more than 40 to 50 million tons in one sheet," she added.

The grade of these kimberlites is around 0.86 carats per metric ton (86 carats per 100 tons), and the next step for the project is to better understand the diamond value, Thomas said.

Stornoway will undertake further delineation drilling on the property this year and a larger bulk sampling program next year.

Qilalugaq optioned

Stornoway has optioned the Qilalugaq project, also on the Melville Peninsula, from BHP Billiton.

The mining giant has found one of the largest kimberlites in Canada here, almost 14 hectares in size.

"The grade is somewhat lower than the other bodies in the eastern Arctic, it's about 30 carats per 100 tons, it's not a BHP-size target, but we do feel that this project has the potential to fit in nicely into our project portfolio as we start to develop our asset base in this middle-tier company, so we'll be continuing to do more work on this project," Thomas said.

Stornoway discovered two new kimberlites within three weeks of acquiring the project last summer, and the company is optimistic that Qilalugaq has potential for further discoveries.

At the Churchill project near the community of Rankin Inlet in Nunavut, Stornoway is partnering with Edmonton-based Shear Minerals. "We've found a large number of kimberlites in this region, however, very few of those actually return diamonds," Thomas said. "That all changed in the summer of 2006. We actually have identified a number of high-grade, sheet-like deposits, or dikes, on the project," she added. A drill hole from the Kahuna, the thickest kimberlite dike intercepted so far, graded 109 carats per 100 tons, and there was also a high-grade intercept from another dike, PST003, at 200 carats per 100 tons.

"We're excited about this because these bodies themselves are vertically in place, which means they're quite easy to tackle from a mining perspective," Thomas said. "They're also located within about 20 km of tidewater, and infrastructure overall in this area is improving," she added. Churchill will be one of Stornoway's priorities for 2007, and the company plans to collect a much larger sample from the kimberlite dikes, as well as delineating additional targets in the area.