Stornoway Diamonds (Canada) Inc. is filing for bankruptcy protection for the second time in four years as the gem miner struggles to deal with volatile pricing on global markets. Its future now looks murky as a Quebec government spokesman said the province will put no more public money into the venture.
The privately held company said Friday it is immediately suspending operations at its Renard site in Northern Quebec while it plots a path forward. About 75 people out of a work force of 500 will perform tasks such as maintaining equipment and other assets toward an eventual return of operations, Stornoway said.
Renard is the province’s first and only diamond mine and one of four active in Canada.
“The growing uncertainty of the diamond price in the short and medium term, coupled with the significant and sudden drop in the price of the resource on the world market, have had a major impact on the company’s long-term financial situation,” Stornoway said in a statement. “This was in part due to the halt in the import of rough diamonds to India and by the global geopolitical climate.”
After a surge in consumer demand during the COVID-19 pandemic fuelled by government stimulus measures, the diamond industry is now experiencing a deep correction and prices have tanked. Shoppers have turned, in some cases, to spending money on travel and experiences, while others are simply deciding not to buy big-ticket items. In India, the world’s biggest cutter and polisher of diamonds, the country’s powerful diamond association last month called on producers to limit supply in a bid to stabilize the market.
“There has been a diamond demand shock,” said Paul Zimnisky, a leading sector analyst who’s based in New York, adding the growing availability of lab-grown diamonds is certainly not helping what is an already oversupplied natural diamond market. “I think we will begin to see a recovery in prices by mid next year as the benefit of the industry’s supply chain curtailment strategy is met with improving demand fundamentals.”
Stornoway has been hit hard in the past when the market has been flooded by smaller and lower-quality stones because smaller diamonds account for a significant portion of its production by weight. The company’s overall size also puts it at a disadvantage to larger rivals such as De Beers and Russia’s Alrosa, which benefit from economies of scale.
Montreal-based Stornoway has launched a process to file for bankruptcy protection under Canada’s Companies’ Creditors Arrangement Act in a bid to restructure and turn around its finances. It is seeking investment and sale proposals.
The company is owned by Osisko Gold Royalties Ltd., Investissement Québec (IQ, the Quebec government’s investment arm), pension fund manager Caisse de dépôt et placement du Québec and TF R&S Canada Ltd.
Mathieu Rouy, spokesperson for IQ, said the investment agency owns a 35-per-cent equity stake in Stornoway, as well as $175.7-million in debt. “The company made the necessary decision given market conditions,” he said. He declined to comment on IQ’s future intentions.
Mathieu St-Amand, spokesperson for Quebec Economy Minister Pierre Fitzgibbon, said the government will not put any more money into the venture.
Renard is located in Quebec’s Otish Mountains, a range of hills north of Lac Mistassini on traditional Cree territory. The mine is expected to produce an average of 1.6 million carats a year over an initial 14-year mine life, representing approximately 1 per cent of global supply, according to Stornoway’s website.
The Quebec government once held hopes that Renard would be a cornerstone project for a major development of the province’s vast northern territory. In 2015, then-premier Philippe Couillard talked about $50-billion in private and public investments for the north by 2035.
Things haven’t quite worked out as planned. Renard suffered some early snags, notably in the fall of 2017, when its diamonds were found to be breaking in processing at a higher frequency than the company expected.
Stornoway fixed the breakage, but that and other production and pricing problems forced the company to go to its lenders and key stakeholders in 2018 for additional funds and loan flexibility. The following year, the company hit another major cash crunch, and Osisko and other creditors took control of Stornoway after it filed for bankruptcy protection.