Hard work and perseverance have been paying off for Stornoway Diamond (TSX: SWY) president and CEO Matt Manson.
The 48-year-old executive recently saw the start of construction at the Renard diamond project in north-central Quebec — nearly a decade after the project first caught his eye as a potential acquisition.
“I’ve been in this since then to see the mine built,” the Glasgow native says during an interview at his downtown Toronto office in the historic Gooderham Building. The third-floor suite is mainly used for investor relations, as Stornoway’s headquarters are in Montreal.
Construction at Renard kicked off in July, after Stornoway closed a nearly $1-billion financing. Commercial production at the mine is targeted for mid-2017, and once in full swing, Quebec’s first diamond mine should produce 1.6 million carats a year over an initial 11-year life. Notably, Renard will be the first diamond mine in Canada to be accessible by an all-weather road.
Getting to this point has not been easy. But of all the challenges he’s faced along the way, Manson says his biggest achievement as CEO has been closing the $946-million financing package — a complex deal that included debt, equity, and streaming components. The deal, which Stornoway pulled off with a $120-million market capitalization, is the biggest-ever project financing for a publicly listed diamond company, and involved funding from the Quebec government, private equity, an institutional fund, and an equipment manufacturer.
“I deserve the Nobel prize in mine project financing for doing that,” Manson says, smiling. “I’m happy for you to use that quote.”
While Manson previously worked for Aber Resources, a predecessor of Dominion Diamond (TSX: DDC; NYSE: DDC), his involvement with Renard actually started with a gold company — Quebec’s Agnico Eagle Mines (TSX: AEM; NYSE: AEM).
In 2005, Agnico hired Manson to run its 40% subsidiary Contact Diamond and to find an acquisition for it. Manson began looking at buying the promising Renard project.
At that time, Ashton and SOQUEM — the mining exploration arm of the Quebec government — jointly owned Renard. The partners had conducted four years of exploration work on the asset since discovering it in 2001.
After a few false starts, Manson took the acquisition idea to Stornoway’s then CEO Eira Thomas in 2006. (Thomas was involved in Aber Resources’ discovery of the Diavik diamond project in the Northwest Territories.) Stornoway and Contact already had a joint diamond exploration program in place, so the possibility of buying Renard piqued Thomas’s interest.
This resulted in Stornoway acquiring Ashton and Contact in a merger that closed in early 2007, providing the company with a 50% interest in Renard.
Agnico helped finance the combination by providing Stornoway $23 million of the $60-million cash component of the bid for Contact and Ashton, Manson notes, adding Stornoway took care of the rest.
Manson says Agnico has taken part in every Stornoway financing since then and currently has a 3.3% interest in the company.
“At this stage, it is a value investment for them. You know, we are not going to be taken over by Agnico. But they like the asset, they have always liked it, and there is a lot of history there.”
Manson, who became Stornoway’s president in March 2007 and CEO in January 2009, concedes the company, like many other juniors, took a turn for the worse in 2008.
Renard’s first preliminary economic assessment (PEA) in October 2008 failed to impress investors, with a seven-year mine life and modest economics.
“It was a small and skinny diamond project in the middle of nowhere and in the middle of a credit crisis and the stock sank like a stone,” Manson recounts. Shares bottomed that year at 5¢.
But things quickly turned around, as Stornoway managed to raise funds for a 2009 drill program.
“We had a stroke of extreme great fortune because at that stage, the only money out there was flow through and because we were a Quebec company we could access Quebec super flow.”
Stornoway raised $3 million through flow-through shares and partner SOQUEM matched that to give it $6 million.
“We went drilling and we had a complete home run,” Manson says. “We discovered that the Renard 2 orebody — contrary to established dogma — was getting bigger as it went down, rather than skinnier. Kimberlites are supposed to be carrot-shaped, fat at the top and skinner at the bottom, and this thing was actually going the other way.”
As drilling at depth at Renard 2 began hitting long intersections of kimberlite, the picture started to change for Stornoway.
“The stock began to take off, and we raised more flow though and did more drilling and by the end of the year we were back up, and I believe 85¢ was the high,” Manson says.
By the end of 2009, Stornoway had tripled Renard’s resource estimate.
The next year, Stornoway published Renard’s second PEA using the updated resource to outline a 20-year mine life (including inferred resources) and greatly improved returns. “After that PEA had come out, we knew we had a major project on our hands,” Manson says.
Stornoway bought Renard’s remaining 50% interest from SOQUEM in April 2011. Since the purchase was made largely in shares, SOQUEM’s parent company Investissement Québec became Stornoway’s largest shareholder. Subsequently, the firm published a positive feasibility study for Renard, which demonstrated a mine life of 11 years.
The company moved ahead with permitting, building a 240-km road to the project from Chibougamau with the help of the provincial government, and community agreements. It also optimized the feasibility study in 2013 (the study demonstrated the project has a post-tax net present value of $391 million and an internal rate of return of 16.3%), and most importantly, secured the funds needed to build the estimated $811-million mine this July.
Not measured in the feasibility numbers is the upside potential from inferred resources at Renard, or the project’s potential to produce large diamonds. A March valuation of Renard diamonds pegged their value at US$190 per carat, but that doesn’t include the project’s potential for large diamonds — something the company is preparing for by adding the capacity to recover large diamonds of up to 30 mm in size (or 200 carats) to its plant.
The project holds 18 million carats of probable reserves in 23.8 million tonnes grading 75 carats per hundred tonnes.
Manson, who studied geophysics at the University of Edinburgh, says he has always been interested in the Earth, the solar system and the bigger questions of geology.
His initial exposure to the mining industry came in 1988, just a year after he moved from Scotland to pursue a master’s and PhD in geology at the University of Toronto.
“I came to Canada in 1987 and I was in geology and my colleagues in graduate school were going to the big booze-up on Tuesday night at the Prospectors’ and I went along and discovered the mining industry,” he recalls.
The social gathering — the Kirkland Lake Night at the annual Prospectors and Developers Association of Canada conference — left Manson with a positive impression of the sector.
“When you study geology in Britain you don’t really think of a career in mining, even though some of the biggest mining companies are British, you know Rio Tinto, Anglo American, BHP Billiton,” he says, noting a job in the oil and gas industry was preferred.
But Manson realized that Toronto was a centre for the mining industry and for mining project finance, and he decided to stay and work in Canada.
In the mid-nineties, while finishing his PhD thesis on the geology of Lake Superior, he got a job with Caledonia, managed by GoldQuest Mining’s (TSXV: GQC) current CEO Bill Fisher. At Caledonia, Manson got his first taste of diamond exploration while working in the Northwest Territories. The firm later sent him to northern Scotland to run a gold exploration project.
“In the mid-nineties there was so much exploration going in diamonds that it was very easy to fall into, there were lots of job, lots of money being raised, and lots of activity.”
In 1996, Manson joined Fisher at Ambrex Mining, now named Karmin Exploration (TSXV: KAR) to look for diamonds in Brazil. But Ambrex switched its search to gold and made the Aripuana polymetallic discovery in Mato Grosso (currently under development with joint-venture partner Votorantim Metais.)
A year later, Manson started consulting for various companies, including Aber Diamond, which owned a 40% interest in the Diavik diamond project. In 1999, he began working full time with Aber as vice-president of marketing and subsequently vice-president of technical services and control, under the direction of CEO Bob Gannicott.
Manson participated in the financing and development of the Diavik mine as well as the establishment of Aber’s diamond marketing operations. Diavik went into production in early 2003, as Canada’s second diamond mine. Manson stayed with the firm until late 2004, before joining Contact Diamond.
“I had a front row seat. It was a terrific experience — it was a terrific primer for everything we are doing now,” he says.
While Manson is fully aware of what he’s already accomplished at Renard, he’s also earned kudos from his mentors in the business, including Agnico Eagle CEO Sean Boyd.
“When I first met Matt you could tell he was not only very knowledgeable but he had energy and enthusiasm for the diamond business,” Boyd said in an emailed response to questions. “(He) has done an exceptional job moving Stornoway towards production in an extremely challenging market.”
— Salma Tarikh is a staff writer with The Northern Miner.