Stornoway Diamond Corporation (TSX-SWY)
;
(the “Corporation” or “Stornoway”) announced today its
results for the quarter ended September 30, 2016.
Quarter ended September 30, 2016
Highlights
(All quoted figures in CAD$)
- The Renard Diamond Mine was officially opened on October 19,
2016, at a ceremony held in the presence of Quebec’s Minister of
Energy and Natural Resources and Minister responsible for the Plan
Nord, as well as current and former staff members, project
stakeholders and local community members.
- Stornoway’s first sale of Renard diamonds will be held in
Antwerp, Belgium starting on November 14, 2016. This is two months
earlier than previously anticipated.
- Ore processing commenced on July 15, 2016. Initial production
is based on ore sourced directly from the Renard 2-3 open pits and
supplemented from stockpiled ore as required. During the quarter,
91,010 tonnes were processed with attributable production of
111,556 carats.
- Construction progress stood at 99% compared to the re-baselined
plan of 100% at the end of the quarter.
- Incurred project costs and commitments at the quarter-end
totalled $730 million, or 94% of budget.
- On site manpower during the month of September averaged 331
workers, of which 21.2% were Crees of the Eeyou Istchee.
- Mining in the Renard 2-3 and Renard 65 open pits stood at
11,570,023 tonnes, or 104% of plan, with 1,295,194 tonnes of ore
stockpiled. Underground mine development stood at 2,630 meters, or
97% of plan.
- At quarter-end, remaining project construction activities were
focused on completion of the processed kimberlite containment
facility and development of the underground mine’s fresh air
raise.
- For the three months ended September 30, 2016, the Corporation
reported a net loss of $15.5 million or $0.02 loss per share basic
and fully diluted mainly attributable to the derivative losses
resulting from change in the fair value of derivative embedded of
the convertible debentures.
- Cash, cash equivalents and short-term investments stood at
$150.9 million. Prior to their expiry on Friday, July 8, 2016,
91,912,732 common share purchase warrants, representing 97.5% of
the warrants issued on July 8, 2014, were exercised at a price of
$0.90 per share for total proceeds to the Corporation of $82.7
million. Excess financing capacity available to complete the
project, comprising cash, receivables and expected mine tax
credits, and available credit facilities, is now forecasted to be
$149 million assuming the satisfaction of all covenants and
conditions precedent relating to future funding commitments and a
CAD$:US$ conversion rate of $1.25. The above calculation does not
include an additional $48 million cost overrun facilities that are
considered unlikely to be drawn.
Matt Manson, President and CEO, commented: “The
current quarter reflects the wind-down of mine construction
activities at Renard and the commencement of our production
ramp-up. Our final forecast for mine capital cost continues in line
with our previously reduced estimate of $775 million, and we remain
on track for commercial production by year end. Open pit mining and
ore stockpiling continues comfortably ahead of plan, and the
development of our underground mine ramp has largely caught-up the
delays caused by water infiltration earlier in the year. As
reported on October 6, our first diamond sale will commence today,
November 14, in Antwerp, Belgium, which is earlier than previously
planned. Based on the characteristics of our early diamond
production and the rate of our ramp-up, we are on track to exceed
our guidance for FY2016 carat production, albeit at a lower than
expected initial diamond price owing to a higher than expected
proportion of small diamonds in the early product mix. Proceeds
from this diamond sale will represent un-budgeted pre-production
revenue, and will supplement further our already strong balance
sheet position.”
Financial Summary
Stornoway ended the quarter with cash, cash
equivalents and short-term investments of $150.9 million, compared
with $137.4 million at the end of the previous quarter. All payment
deposits under Stornoway’s streaming agreement with Orion Mine
Finance, the Caisse de dépôt et placement du Québec and Blackstone
Tactical Opportunities had been received at the end of the first
quarter 2016. No draw has been made under Stornoway’s $100 million
secured loan from Investissement Quebec, which remains available to
complete mine development. Stornoway’s current cash resources and
committed funds are sufficient to cover planned mine development
expenses, financing and corporate costs during calendar 2016.
At completion of construction and commissioning,
the Corporation currently forecasts excess funding in connection
with its Renard Diamond Project of approximately $149 million
comprised of cash, undrawn debt facilities, receivables and
expected mine tax credits. The $48 million of undrawn cost overrun
facilities is unlikely to be drawn and is therefore excluded from
the $149 million above. This forecast assumes the attainment of
commercial production on or about December 31, 2016, a project cost
of $775 million (which includes assumed levels of escalation and
contingencies), the satisfaction of all covenants and conditions
precedent for future funding, and a CAD$:US$ exchange rate of $1.25
for unfunded US dollar denominated financing commitments. The above
forecast excludes any estimate of revenue from the first sale of
diamonds, which was previously expected to fall outside of the
capital expenditure period which will occur in November 2016. As
construction concludes and ramp-up to commercial production is
achieved, this forecast is expected to change based on the timing
of expenditures and receipts, volatility in the CAD$:US$ exchange
rate, and any change to the forecast cost of the project. Capital
expenditures incurred during the three and nine month periods were
of $47.5 million and $216.8 million respectively, with capital
expenditures to date of $729.5 million having been incurred and
committed against the total project cost.
Net loss for the three month period ended
September 30, 2016 (“Current Quarter”) of $15.5 million compared to
a $10.3 million net income during the three months ended October
31, 2015 (“Comparative Quarter”) is in large part due to a change
of $25.0 million in other (income) expense. Other expense of $12.4
million (Comparative Quarter – $12.6 million of income) is due to
derivative loss resulting from changes to fair value and foreign
amortization of financing fees due to drawing of the cost overrun
facilities of $48 million becoming unlikely. These fees of $5.2
million will be amortized starting July 1, 2016 until December 31,
2017. Loss per share for the current quarter was $0.02 per share
basic and diluted. (Comparative Quarter – income of $0.01 per share
for both basic and fully diluted).
Ore Processing
Ore Processing at Renard commenced on July 15,
2016 and during the quarter, 91,010 tonnes of ore had been
processed with attributable carat production of 111,556 carats,
representing an average grade of 123 carats per hundred tonnes. 21
stones were recovered during the quarter larger than 10.8 carats in
size ('specials'). Stornoway’s first diamond sale commenced
today November 14, 2016 in Antwerp, Belgium, approximately 2 months
earlier than previously anticipated.
Ore processing and diamond recovery during July
and early August were irregular as plant equipment and material
balancing issues were identified and addressed. During the month of
September ore processing was achieved on a continuous basis at an
average run-rate of 1,792 tonnes per day, representing 30% of plant
nameplate capacity. Peak processing run-rate achieved during
September was 3,130 tonnes per day, or 52% of nameplate capacity.
Commercial production at Renard is defined as 60% of nameplate
capacity for a 30-day period. This is expected to be achieved, on
schedule, on or around December 31, 2016.
Daily manpower at site in September averaged 331
workers, of which 21.2% were Crees of the Eeyou Istchee. Stornoway
employees stood at 445 as at September 30, 2016, including 383 with
the on-site development team, of which 17% were Crees, 24% were
from Chibougamau and Chapais, and 59% were from outside the
region.
Mining
As at September 30th, 2016, a total of
11,570,023 tonnes of overburden, waste rock and ore had been
extracted from the Renard 2- Renard 3 and Renard 65 open pits,
compared to a plan of 11,134,656 tonnes (104%). A total of 435,696
tonnes were delivered to the ore stockpiles in the quarter and the
stockpile of ore available for processing at the end of the quarter
was 1,350,441 tonnes or 149% of plan.
Development progress in the underground mine
stood at 2,630 meters, or 97% of the plan. Progress on the ramp
during the second quarter totalled 788 meters, or 145% of plan,
with generally good ground conditions and no significant water
infiltration. At current development rates, the underground mine is
expected to be at 100% of plan by the end of the year.
Construction Highlights
Construction activities at Renard were
essentially complete at the end of the quarter at 99% of plan, with
the remaining works focused on site landscaping, the development of
the fresh air raise and the completion of the processed kimberlite
containment facility. These items are expected to be
completed in the 4th quarter of 2016.
Exploration Update
Exploration programs are ongoing on the
Corporation’s 100% owned generative Canadian diamond projects,
including the Adamantin property located approximately 100 km south
of the Renard Diamond Project and 25 km west of the Route 167
Extension road. Adamantin now comprises 28,171 hectares of
claims in three blocks, following recent additional land
acquisitions. Till sampling at Adamantin during 2015 confirmed the
presence of indicator mineral anomalies interpreted to be sourced
from undiscovered kimberlites with diamond potential, with one till
sample having a diamond in the +0.25mm-0.50mm size fraction.
Drilling during March and April of 2016 resulted in the discovery
of 11 distinct kimberlite bodies, as announced on May 5th, 2016. A
total of 300 kilograms of reverse circulation chips were submitted
for micro-diamond recovery by caustic dissolution, and 2,500
kilograms for macro-diamond recovery by dense media separation. As
announced September 1st, 2016, no diamonds were recovered from
these samples, leaving the source of the diamond in till
unexplained. Further exploration efforts will focus on
geochemical sampling and geophysics within the expanded land
position. During July and August field crews collected ground
geophysical data to better define known kimberlites and to outline
untested anomalies for potential future drilling. Till samples were
also collected in specific areas of interest to better constrain
existing targets, as well within the newly acquired land packages
where historical data suggests the presence of additional
kimberlites. An airborne geophysical survey over the new
landholdings has been commissioned to identify new targets.
Financial Summary
Consolidated
Statements of Financial Position |
|
|
|
|
|
(millions
of Canadian dollars) |
|
September 30, 2016 |
|
December 31, 2015 |
|
|
|
|
|
Cash, cash equivalents
and short-term investments |
|
150.9 |
|
209.1 |
Property, plant and
equipment |
|
1073.3 |
|
831.4 |
Other assets |
|
60.2 |
|
42.7 |
Total
Assets |
|
1284.4 |
|
1,083.2 |
|
|
|
|
|
Long-term debt and
convertible debentures |
|
249.7 |
|
219.6 |
Long-term deferred
revenue |
|
306.1 |
|
207.1 |
Other liabilities |
|
99.9 |
|
80.5 |
Equity |
|
628.7 |
|
576.0 |
Total
Liabilities and Equity |
|
1284.4 |
|
1,083.2 |
Key Financial and Operating Highlights
(millions
of Canadian dollars, except earnings per share) |
|
Three months endedSeptember
30, 2016 |
|
Three months endedOct
31, 2015 |
|
|
|
|
|
Cash
used in operating activities |
|
|
(5.7 |
) |
|
|
112.6 |
|
Cash
used in investing activities |
|
|
(57.5 |
) |
|
|
(172.3 |
) |
Cash
provided (used) in financing activities |
|
|
70.9 |
|
|
|
(0.9 |
) |
Effect
of foreign exchange rate changes on cash and cash equivalents |
|
|
0.3 |
|
|
|
0.3 |
|
Increase (decrease) in
cash and cash equivalents |
|
|
8.0 |
|
|
|
(60.3 |
) |
|
|
|
|
|
Net income (loss) for the period |
|
|
(15.5 |
) |
|
|
10.3 |
|
|
|
|
|
|
Earnings (Loss) per share – basic and
diluted |
|
|
(0.02 |
) |
|
|
0.01 |
|
The Corporation’s consolidated Financial
Statements are prepared in Canadian dollars in accordance with
International Financial Reporting Standards. Condensed Interim
Consolidated Financial Statements for the quarter ended September
30, 2016, and Management’s Discussion and Analysis have been posted
on the Corporation’s website www.stornowaydiamonds.com and on SEDAR
at www.sedar.com.
About the Renard Diamond
Project
The Renard Diamond Project is located
approximately 250 km north of the Cree community of Mistissini and
350 km north of Chibougamau in the James Bay region of
north-central Québec. On July 8, 2014, Stornoway announced the
completion of a $946 million project financing transaction to fully
fund the project to production, and construction commenced on July
10, 2014. Processing of ore commenced on July 15, 2016.
In March 2016, Stornoway released the results of
an Updated Mine Plan and Mineral Reserve Estimate in March 2016.
The study highlighted the potential of the project to become a
significant producer of high value rough diamonds over an initial
14 year mine life. Probable Mineral Reserves, as defined in
National Instrument 43-101 – Standards of Disclosure for Mineral
Projects (“NI 43-101”), stand at 22.3 million carats. In accordance
with the Corporation’s September 2015 Mineral Resource estimate,
total Indicated Mineral Resources, inclusive of the Mineral
Reserve, stand at 30.2 million carats, with a further 13.35 million
carats classified as Inferred Mineral Resources, and 33.0 to 71.1
million carats classified as non-resource exploration upside.
Average annual diamond production is forecast at 1.8 million carats
per annum over the first 10 years of mining, at an average
valuation of US$155/carat based on March 2016 terms.
Readers are cautioned that the potential quality
and grade of any target for further exploration is conceptual in
nature, there has been insufficient exploration to define a Mineral
Resource and it is uncertain if further exploration will result in
the target being delineated as a Mineral Resource. All kimberlites
remain open at depth. Readers are referred to the technical report
dated January 11, 2016, in respect of the September 2015 Mineral
Resource estimate, and the technical report dated March 30, 2016,
in respect of the March 2016 Updated Mine Plan and Mineral Reserve
Estimate for further details and assumptions relating to the
project.
About Stornoway Diamond
Corporation
Stornoway is a leading Canadian diamond
exploration and development company listed on the Toronto Stock
Exchange under the symbol SWY and headquartered in Montreal. Our
flagship asset is the 100% owned Renard Diamond Project, Québec’s
first diamond mine. Stornoway is a growth oriented company with a
world-class asset, in one of the world’s best mining jurisdictions,
in one of the world’s great mining businesses.
On behalf of the BoardSTORNOWAY DIAMOND
CORPORATION/s/ “Matt Manson”Matt MansonPresident and Chief
Executive
For more information, please contact Matt Manson
(President and CEO) at 416-304-1026 x2101or Orin Baranowsky (Vice
President, Investor Relations and Corporate Development) at
416-304-1026 x2103 or toll free at 1-877-331-2232
Pour plus d’information, veuillez contacter M.
Ghislain Poirier, Vice-président Affaires publiques de
Stornoway au 418-254-6550, gpoirier@stornowaydiamonds.com
** Website: www.stornowaydiamonds.com Email:
info@stornowaydiamonds.com **
This press release contains "forward-looking
information" within the meaning of Canadian securities legislation.
This information and these statements, referred to herein as
“forward-looking statements”, are made as of the date of this press
release and the Corporation does not intend, and does not assume
any obligation, to update these forward-looking statements, except
as required by law.
These forward-looking statements include, among
others, statements with respect to Stornoway’s objectives for the
ensuing year, Stornoway’s medium and long-term goals, and
strategies to achieve those objectives and goals, as well as
statements with respect to Stornoway’s beliefs, plans, objectives,
expectations, anticipations, estimates and intentions. Although
management considers these assumptions to be reasonable based on
information currently available to it, they may prove to be
incorrect.
Forward-looking statements relate to future
events or future performance and reflect current expectations or
beliefs regarding future events and include, but are not limited
to, statements with respect to: (i) the amount of Mineral
Reserves, Mineral Resources and exploration targets; (ii) the
amount of future production over any period; (iii) net present
value and internal rates of return of the mining operation;
(iv) assumptions relating to recovered grade, size
distribution and quality of diamonds, average ore recovery,
internal dilution, mining dilution and other mining parameters set
out in the 2016 Technical Report; (v) assumptions relating to
gross revenues, operating cash flow and other revenue metrics set
out in the 2016 Technical Report; (vi) mine expansion
potential and expected mine life; (vii) expected time frames
for completion of permitting and regulatory approvals related
to construction activities at the Renard Diamond Project;
(viii) the expected time frames for the completion of the
open pit and underground mine at the Renard Diamond Project; (ix)
the expected time frames for the completion of construction,
ramp-up, achievement of commercial production and achievement of
plant nameplate capacity at the Renard Diamond Project and the
financial obligations or costs incurred by Stornoway in connection
with such mine development; (x) future exploration plans;
(xi) future market prices for rough diamonds; (xii) the
economic benefits of using liquefied natural gas rather than diesel
for power generation; (xiii) sources of and anticipated
financing requirements; (xiv) the effectiveness, funding or
availability, as the case may require, of the Senior Secured Loan,
the COF and the Equipment Facility and the use of proceeds
therefrom; (xv) the Corporation’s ability to meet its Subject
Diamonds Interest delivery obligations under the Purchase and Sale
Agreement; (xvi) the impact of the Financing Transactions on
the Corporation’s operations, infrastructure, opportunities,
financial condition, access to capital and overall strategy; (xvii)
the foreign exchange rate between the US dollar and the Canadian
dollar; and (xviii) the availability of excess funding for the
construction and operation of the Renard Diamond Project. Any
statements that express or involve discussions with respect to
predictions, expectations, beliefs, plans, projections, objectives,
assumptions or future events or performance (often, but not always,
using words or phrases such as “expects”, “anticipates”, “plans”,
“projects”, “estimates”, “assumes”, “intends”, “strategy”, “goals”,
“objectives”, “schedule” or variations thereof or stating that
certain actions, events or results “may”, “could”, “would”, “might”
or “will” be taken, occur or be achieved, or the negative of any of
these terms and similar expressions) are not statements of
historical fact and may be forward-looking statements.
Forward-looking statements are made based upon
certain assumptions by Stornoway or its consultants and other
important factors that, if untrue, could cause the actual results,
performances or achievements of Stornoway to be materially
different from future results, performances or achievements
expressed or implied by such statements. Such statements and
information are based on numerous assumptions regarding present and
future business prospects and strategies and the environment in
which Stornoway will operate in the future, including the price of
diamonds, anticipated costs and Stornoway’s ability to achieve its
goals, anticipated financial performance, regulatory developments,
development plans, exploration, development and mining activities
and commitments, and the foreign exchange rate between the US and
Canadian dollars. Although management considers its assumptions on
such matters to be reasonable based on information currently
available to it, they may prove to be incorrect. Certain important
assumptions by Stornoway or its consultants in making
forward-looking statements include, but are not limited to:
(i) required capital investment and estimated workforce
requirements; (ii) estimates of net present value and internal
rates of return; (iii) receipt of regulatory approvals on
acceptable terms within commonly experienced time frames;
(iv) anticipated timelines for completion of construction,
ramp-up, achievement of commercial production and achievement of
plant nameplate capacity at the Renard Diamond Project, as well as
continuous development of an open pit and underground mine at the
Renard Diamond Project (v) anticipated geological formations;
(vi) market prices for rough diamonds and the potential impact
on the Renard Diamond Project; (vii) the satisfaction or waiver of
all conditions under each of the Senior Secured Loan, the COF and
the Equipment Facility to allow the Corporation to draw on the
funding available under those financing elements for the completion
of the development and construction of the Renard Diamond Project;
(viii) Stornoway’s interpretation of the geological drill data
collected and its potential impact on stated Mineral Resources and
mine life; (ix) future exploration plans and objectives;
(x) the Corporation’s ability to meet its Subject Diamonds
Interest delivery obligations under the Purchase and Sale
Agreement; and (xi) the continued strength of the US dollar against
the Canadian dollar. Additional risks are described in Stornoway’s
most recently filed Annual Information Form, annual and interim
MD&A, and other disclosure documents available under the
Corporation’s profile at:
www.sedar.com
By their very nature, forward-looking statements
involve inherent risks and uncertainties, both general and
specific, and risks exist that estimates, forecasts, projections
and other forward-looking statements will not be achieved or that
assumptions do not reflect future experience. We caution readers
not to place undue reliance on these forward-looking statements as
a number of important risk factors could cause the actual outcomes
to differ materially from the beliefs, plans, objectives,
expectations, anticipations, estimates, assumptions and intentions
expressed in such forward-looking statements. These risk factors
may be generally stated as the risk that the assumptions and
estimates expressed above do not occur, including the assumption in
many forward-looking statements that other forward-looking
statements will be correct, but specifically include, without
limitation: (i) risks relating to variations in the grade,
size distribution and quality of diamonds, kimberlite lithologies
and country rock content within the material identified as Mineral
Resources from that predicted; (ii) variations in rates of
recovery and breakage; (iii) the uncertainty as to whether
further exploration of exploration targets will result in the
targets being delineated as Mineral Resources;
(iv) developments in world diamond markets; (v) slower
increases in diamond valuations than assumed; (vi) risks
relating to fluctuations in the Canadian dollar and other
currencies relative to the US dollar; (vii) increases in the
costs of proposed capital, operating and sustaining capital
expenditures; (viii) increases in financing costs or adverse
changes to the terms of available financing, if any; (ix) tax
rates or royalties being greater than assumed; (x) uncertainty
of results of exploration in areas of potential expansion of
resources; (xi) changes in development or mining plans due to
changes in other factors or exploration results; (xii) risks
relating to the receipt of regulatory approvals or the
implementation of the existing Impact and Benefits Agreement with
aboriginal communities; (xiii) the effects of competition in
the markets in which Stornoway operates; (xiv) operational and
infrastructure risks; (xv) execution risk relating to the
development of an operating mine at the Renard Diamond Project;
(xvi) failure to satisfy the conditions to the funding or
availability, as the case may require, of the Senior Secured Loan,
the COF and the Equipment Facility; (xvii) changes in the
terms of the Forward Sale of Diamonds, the Senior Secured Loan, the
COF or the Equipment Facility; (xviii) the funds of the Senior
Secured Loan, the COF or the Equipment Facility not being available
to the Corporation; (xix) the Corporation being unable to meet
its Subject Diamonds Interest delivery obligations under the
Purchase and Sale Agreement; (xx) future sales or issuances of
Common Shares lowering the Common Share price and diluting the
interest of existing shareholders; and (xxi) the additional
risk factors described herein and in Stornoway’s annual and interim
MD&A’s, most recently filed AIF, its other disclosure documents
and Stornoway’s anticipation of and success in managing the
foregoing risks. Stornoway cautions that the foregoing list of
factors that may affect future results is not exhaustive and new,
unforeseeable risks may arise from time to time.