During Intraday hours; Stornoway Diamond Corporation (TSE:SWY) declared that it has successfully finished the drawdown of the first $80 million tranche of its $250 million diamond stream; illustrating that construction of Renard remains on schedule and on budget. The timing of this payment is in-line with our modeling assumptions.
Recall, as part of the C$946 million Renard project financing, Orion Mine Finance and the Caisse de depot et placement du Quebec entered into a $250 million diamond streaming agreement with Stornoway for 20% of diamond production from Renard. The upfront stream payment is payable in three tranches, scheduled for March 2015, September 2015, and March 2016. Drawdown of each tranche is conditional upon the satisfaction of certain terms and conditions, comprising the independent certification of construction progress at Renard and its cost to complete being within plan.
As we highlighted in our industry comment “Weaker CAD Lifts Developer Valuations” on February 24th; the foreign exchange rate assumed within the project financing was 1.10 (USD/CAD), and therefore at recent foreign exchange rates, the firm stands to realize a noteworthy ( $41.6 million) foreign exchange surge on the entire upfront stream payment ($250 million).
Diamond Prices, Development Risk, Technical Risk and Operating Risk are major risks to be considered while trading. We maintain our “Sector Outperform” rating and “Speculative “risk ranking.