Stornoway Diamonds Corp. (TSX: SWY)

Price: 2.26

Shares O/S (MM): 88.8

Dividend: 0.00

Price Target: 3.65 ­ 0.90

Implied All-In Return: 62%

Market Cap (MM): 201

Yield: 0.0%

Target price change: Stornoway concluded a 1-for-4 share consolidation last

week. This and some minor changes to our model resulted in a new target price of

C$3.65 but an unchanged Outperform recommendation.

More shares to come: Shareholders voted strongly in favour of the deal where

Stornoway is buying the 50% of the Renard project it did not own from Diaquem,

ultimately a subsidiary of SGF, the Quebec government's main industrial and

financial holding company. On closing of this deal (April 1 is the target) SGF

will be issued with shares equivalent to 25% of Stornoway's issued capital and

non-voting convertible shares which would take its fully-converted interest to

37% of the outstanding equity. If this were effected today our target price would

not alter materially.

Owning all of Renard is positive: We believe that owning all of Renard is more

efficient in that investment/operating decisions can be taken faster. In addition,

having SGF as a shareholder in the top company is a strong statement of support

for Stornoway from the Quebec government. Effectively, non-SGF Stornoway

shareholders now share in 63% of Renard instead of 50% previously, with the

quid-pro-quo being the sale to SGF of 37% of the non-Renard properties.

Next catalysts: The bankable feasibility study for the Renard project is due in Q3

this year. In the meantime we would expect share price catalysts to include

further results from ongoing drilling on the project and other Stornoway

properties. The bulk-sample testing at Renard 6/5 is hoped to provide a large

diamond parcel to allow upgrading of resources from inferred to indicated, while

the recently-announced micro-diamond results from Renard 1 is also positive.