2011 Letter to Shareholders
October 25, 2011
Dear Fellow Shareholders
The past 12 months has been a year of deal making and transition for Stornoway, as we work towards our objective of building Québec’s first diamond mine. On December 14, 2010, we announced the acquisition of the 50% interest in Renard held by our partner DIAQUEM Inc., a subsidiary of Investissement Québec, which at the deal closing in April made DIAQUEM our largest shareholder with a 25% interest in the Company’s voting common shares and a 37% interest fully diluted. With this arrangement we have established the platform upon which we plan to develop Renard. Stornoway now owns 100% of one of the world’s best undeveloped new diamond projects, and Investissment Québec has become a strong, supportive shareholder with board representation and a $100 million credit facility on standby for Stornoway to be utilized in future project financing.
On August 1st, 2011 we announced two financing agreements with the Government of Québec whereby Stornoway will assist in the construction financing and maintenance costs of the key catalyst for the Renard Project: the Route 167 highway extension project that will make Renard the first diamond mine in Canada with reliable, year round road access. After many years of studies and advocacy, undertaken initially by industry and the local communities of the James Bay region working in close cooperation, the realisation of the Route 167 extension project allows us to look forward to a diamond mine in Québec with a modest cost profile, low operating risk, and long mine life. The new road, being developed by the Ministry of Transportation under the auspices of Québec’s “Plan Nord”, is also the schedule driver for our project. At time of writing we are expecting ground breaking on the road to occur imminently and first vehicle access to Renard by the middle of 2013, putting us on track for first diamond production in 2015.
Through this deal-making we have also pursued a full feasibility-level work program at Renard that will shortly result in the publication of our Bankable Feasibility Study and our Social and Environmental Impact Assessment. This blue-chip work program, comprising the full range of engineering design work, geotechnical and hydrogeological testing, environmental studies and community engagement, has been ably led by Patrick Godin, Stornoway’s COO, and his team in Montreal. The high quality of this work will stand us in good stead as we now turn our focus to completing project permitting and financing.
Although Stornoway’s focus is on developing Renard, we remain committed to an active exploration program for new diamond discoveries. We maintained this exploration agenda even through the darkest days of the 2008-2009 credit crisis, and we remain one of the few diamond explorers still active in Canada. The rewards for this commitment are perhaps now emerging. Two projects in particular, Pikoo in Saskatchewan and Aeon in Québec, are generating exciting results. Both are showing multiple, un-sourced kimberlite indicator mineral anomalies with diamondiferous geochemistry, and both have credible geophysical targets that have emerged from summer surveys. Aeon and Pikoo are owned 100% by Stornoway following claim acquisitions in 2011 and are close to infrastructure. Our ambition is to drill both projects in 2012.
Stornoway is going through a traditional phase in the evolution of a mining development company, when the excitement of exploration and resource growth gives way to a realisation of the challenges of permitting, construction and financing. Equally traditional is the gain in shareholder value that comes from meeting those challenges. We have seen very steady corporate and project-related progress in 2011 but we are yet to see a commensurate gain in share valuation, in part due the volatile equity markets that have affected the mining sector over the last three months. We have a view on what Renard is worth as a developed mine: a project located in one of the world’s lowest risk mining jurisdictions, connected to road and power infrastructure, producing a substantial volume of sought-after rough diamonds at robust operating margins and over a long mine life. Our aim is to pursue the development of this project as efficiently and diligently as possible, drawing upon the broad range of financing options that are available to us. In doing this, you can be assured that our over-riding objective will be to maximise the value of our shareholders’ investments.
2011 has also been a year of transition for the people that make up Stornoway. The growth of our Montreal based mine development team under Pat Godin’s leadership has given us a strong new center of gravity in Québec. Our Board of Directors has also been undergoing change. During the year, we welcomed as new directors Ebe Scherkus, Agnico-Eagle’s President and COO, Pat Godin, and three distinguished representatives of Investissement Québec, Monique Mercier, John LeBoutillier and Michel Blouin. We also saw the departure of Eira Thomas and Catherine Mcleod-Seltzer, two of Stornoway’s founders, as well as David Garofalo. We would like to acknowledge the important contributions these individuals have made to Stornoway over the years and we wish them well in the future.
The next twelve months will be a period of hard work for Stornoway and also great opportunity. We look forward with optimism to the exciting times ahead.
President and CEO
Toronto, October 19, 2011