Stornoway Diamond Corp. has struck an agreement with the Quebec government that breaks the logjam over completion of a 240-kilometre stretch of road leading to the company’s diamond mine project.
The project, an all-season two-lane gravel highway extending Route 167 further north to Stornoway’s Renard property in the remote James Bay area, ran into major cost overruns.
The newly installed Parti Québécois government, which is footing most of the bill, ordered a review of the infrastructure project, which ballooned to about $470-million from the initial 2009 budget of $260-million.
The delay threatened Stornoway’s target of starting mine construction in July 2013 and getting to production by 2015.
Meanwhile, critics slammed the project as a glaring example of the previous Liberal government’s largesse towards the private sector by assuming hefty infrastructure and electric-power costs for new mining and forestry developments in the north.
The original terms of the agreement between Quebec and Stornoway were for the company to contribute $44-million over a 10-year period – financed by a loan from the province -- to the highway extension, as well as pay out up to $1.2-million a year in maintenance costs.
Quebec, which also holds a significant stake in the company, was to pay the rest of the construction cost as well as cover overruns.
Construction on the road began in February.
Under new terms negotiated between the province and the company, Stornoway will take over responsibility for building the final 97 kilometres of the 240-kilometre long highway, but as a lower-cost “mining grade” single-lane road.
The government will pay for the first 143 kilometres of the road.
Quebec will also provide Stornoway with an unsecured credit facility of up to $77-million to complete the work.
The government says the new deal represents a $124-million reduction in its share of the construction cost.
Total costs for the entire road extension will come in at no more than $304-million, it said in a news release Thursday.
“We sat down with Quebec and negotiated a new framework. The obvious thing to do was for us to take over management of the process,” Stornoway president and chief executive officer Matt Manson said in an interview.
“We’ll be in full control of the development schedule for the first time.”
The Renard diamond property – Quebec’s first diamond mine -- is located about 250 kilometres north of the Cree community of Mistassini and 350 kilometres north of Chibougamau in north-central Quebec.
Pre-production capital costs are in the $800-million range.
“We view this agreement positively as it represents an important milestone in derisking the Renard diamond project and is indicative of the government’s ongoing support for the project,” Desjardins Securities analyst Brian Christie said in a research note Thursday.