Stornoway Diamond Corporation (TSX:SWY)
(the “Corporation” or “Stornoway”) is pleased to
announce financial and operating results for the twelve months
ended December 31, 2016.
Year Ended December 31, 2016
Highlights:(All quoted figures in CAD$, unless otherwise
noted)
- The Renard Diamond Mine was officially opened on October 19,
2016 at a ceremony held in the presence of local and regional
dignitaries, current and former staff members, project stakeholders
and community members;
- Following the commencement of ore processing on July 15, 2016,
Commercial Production was formally declared on January 1,
2017. The attainment of Commercial Production marks the end
of the project’s initial capital expense period;
- Total project costs at December 31, 2016 were $771.2 million,
or 99% of budget. $2.8 million of costs have been deferred to 2017,
giving a final cost to complete estimate of $774 million, $37
million below the initial capital budget established in July
2014;
- As previously released on February 6, 2017, 2,074,827 tonnes of
open pit ore were mined in FY2016, with 399,162 tonnes processed,
increases of 136% and 77% respectively over plan. 448,887 carats
were recovered at an attributable grade of 112 carats per hundred
tonnes (“cpht”), increases of 106% and 15% respectively over
plan;
- The first sale of Renard Diamonds was held during November in
Antwerp in Belgium. In total, 38,913 carats were sold at an average
price of US$195 per carat, for proceeds of $10.2 million (US$7.6
million) representing un-budgeted pre-production revenue;
- For the three months ended December 31, 2016, the Corporation
reported a net income of $52.0 million or $0.06 earnings per
share basic and $0.05 fully diluted, and for the year ended
December 31, 2016, it reported net income of $19.6 million or $0.03
earnings per share basic and fully diluted;
- Cash, cash equivalents and short-term investments stood at
$86.0 million. At the end of construction, total financial
liquidity, comprising cash, receivables and expected mine tax
credits, and available credit facilities, stood at $165 million
assuming the satisfaction of all covenants and conditions precedent
relating to future funding commitments and a CAD$:US$ conversion
rate of $1.30. The above calculation excludes an additional $48
million of Cost Overrun Facility that was terminated subsequent to
the year-end.
Matt Manson, President and CEO commented:
“Stornoway’s FY2016 results confirm the final completion of the
Renard Mine well below our original budget estimates and ahead of
schedule. With the capital period now over and the attainment of
commercial production, we are continuing our processing ramp-up and
steadily increasing the volume of goods offered at our diamond
sales. Two additional tenders have now been completed subsequent to
the year end, and while pricing continues to be impacted by Indian
market conditions and our diamond recovery profile, we are seeing
improvements in the market for the lower quality items and strong
premiums in larger, higher quality goods. Stornoway will complete
one additional sale prior to the end of the current quarter.” Matt
Manson continued: “Our successful project build and earlier
operational start-up has contributed to a greatly strengthened
balance sheet compared to what was contemplated in our original
July 2014 project financing plan. With $165 million of total
liquidity at year-end, including $100 million of undrawn senior
debt, and our sales proceeding, we are in a strong position as we
start 2017.”
Financial Summary
Stornoway ended the year with cash, cash
equivalents and short-term investments of $86.0 million, compared
with $150.9 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
senior secured loan from Investissement Quebec, which remains
available to the Corporation.
As of December 31, 2016 and the completion of
project construction, total financial liquidity stood at $165
million comprised of cash, undrawn debt facilities, receivables and
expected mine tax credits net of payables. This calculation
excludes an additional $48 million of available cost overrun
facilities terminated subsequent to year-end. Capital expenditures
incurred during year were of $278.2 million with capital
expenditures to date of $772.5 million having been incurred and
committed against the total project cost. This cost estimate
excludes any credit from pre-production revenue derived from the
sale of diamonds in November, 2016.
Net income for the year ended December 31, 2016
(“Current Period”) of $19.6 million increased compared to a $3.7
million net loss during the eight months ended December 31, 2015
(“Comparative Period”) is in large part due to a change of $46.4
million deferred tax asset recorded in the fourth quarter of 2016.
Net income per share for the current year was $0.03 per share basic
and diluted. (Comparative Period – income of $Nil per share for
both basic and fully diluted).
Financial Summary
Consolidated
Statements of Financial Position |
|
|
(millions
of Canadian dollars) |
|
December 31, 2016 |
|
December 31, 2015 |
|
|
|
|
|
Cash, cash equivalents
and short-term investments |
|
86.0 |
|
209.1 |
Property, plant and
equipment |
|
1,102.1 |
|
831.4 |
Other assets |
|
123.5 |
|
42.7 |
Total
Assets |
|
1,311.6 |
|
1,083.2 |
|
|
|
|
|
Long-term debt and
convertible debentures |
|
231.7 |
|
219.6 |
Long-term deferred
revenue |
|
296.7 |
|
207.1 |
Other liabilities |
|
93.7 |
|
80.5 |
Equity |
|
689.5 |
|
576.0 |
Total
Liabilities and Equity |
|
1,311.6 |
|
1,083.2 |
|
|
|
|
|
Key Financial and Operating Highlights
(millions
of Canadian dollars, except earnings per share) |
|
Twelve months endedDec 31,
2016 |
|
Eight months endedDec
31, 2015 |
|
|
|
|
|
Cash
provided in operating activities |
|
74.8 |
|
|
98.9 |
|
Cash
used in investing activities |
|
(165.9 |
) |
|
(139.3 |
) |
Cash
provided (used) in financing activities |
|
77.3 |
|
|
(2.4 |
) |
Effect of foreign exchange rate changes on cash and cash
equivalents |
|
(2.0 |
) |
|
11.4 |
|
Increase (decrease) in
cash and cash equivalents |
|
(15.8 |
) |
|
(31.4 |
) |
|
|
|
|
|
Net income (loss) for the year |
|
19.6 |
|
|
(3.7 |
) |
|
|
|
|
|
Earnings (Loss) per share – basic and
diluted |
|
0.03 |
|
|
Nil |
|
|
|
|
|
|
Operational Update
Declaration of Commercial Production and Completion of
Construction
Commercial Production at Renard is defined as an
average processing rate of 60% of plant name-plate capacity over a
30 day period. This was achieved on December 3, 2016, with an
average processing rate of 4,120 tonnes per day over the preceding
30 day period compared to a name-plate capacity of 6,000 tonnes per
day. Stornoway formally declared commercial production on the first
day of the month following the month in which it is achieved, which
was January 1, 2017. The company expects to continue the ramp-up of
the process plant to full production over the next two
quarters.
The attainment of Commercial Production marked
the end of the project’s initial capital expense period. Total
project costs at December 31, 2016 totalled $771.2 million, or 99%
of budget. $2.8 million of costs related principally to the fresh
air raise for the underground mine will be incurred in 2017, giving
a final cost to complete estimate of $774 million, $37 million
below the initial capital budget established in July 2014.
Three lost time incidents (“LTI”) were recorded
during the quarter. The project lost time incident (“LTI”) rate for
FY2016 was 1.5 for Stornoway employees, and 1.7 for contractors.
The project-to-date LTI rate stands at 0.9 for Stornoway employees
and 1.8 for contractors.
No incidences of environmental non-compliance
were recorded during the quarter and year to date. Two incidences
of non-compliance have been recorded during the project to
date.
Daily manpower at site in December averaged 278
workers, of which 19.1% were Crees of the Eeyou Istchee. Stornoway
employees stood at 429 as at December 31, 2016, including 379 from
the on-site development team, of which 16% were Crees, 24% were
from Chibougamau and Chapais, and 60% were from outside the
region.
Mining and Processing
For the year ended December 31, 2016, Stornoway
extracted a total of 7,840,130 tonnes of ore, waste and overburden
from the Renard 2- Renard 3 and Renard 65 open pits, compared to a
plan of 6,339,501 tonnes (+24%). 2,074,827 tonnes of ore were mined
compared to a plan of 879,641 tonnes (+136%).
At year end, a total of 1,842,068 tonnes of ore
have been delivered to the stockpile compared to a plan of 735,898
tonnes (+150%), excluding an additional 63,243 tonnes of
non-resource Renard 3 material.
During 2016 2,729 meters of development was
completed in the underground mine, compared to a plan of 2,768
meters (-1%). At year-end total development in the underground mine
stood at 3,616 meters, or 99% of the plan. There has been no
recurrence of the water inflow issues that slowed ramp development
towards the end of 2015. The Renard 2 kimberlite was intersected at
the 160 meter level on December 4, 2016 and by year end 117 meters
of development within ore had been completed in good ground
conditions.
Ore processing commenced on July 15, 2016. By
year-end, a total of 399,162 tonnes of ore had been processed with
carat production of 448,887 carats, compared to a plan of 218,400
carats (+106%). The attributable grade was 112 cpht compared to a
plan of 97 cpht (+15%). The higher tonnage of ore processed was due
to the earlier than expected availability of the plant, and the
higher grade was due to a better than expected mix of ore units
available in the Renard 2-3 open pit.
Sales
Stornoway’s first diamond sale occurred between
November 14 -23, 2016 in Antwerp, Belgium. In total, 38,913 carats
were sold at an average price of US$195 per carat, for proceeds of
$10.2 million (US$7.6 million). The diamonds sold in this first
sale represent a portion of our production recovered during the
initial commissioning and ramp-up of the Renard project during
August and September 2016. Recent events in India surrounding
demonetization impacted pricing and demand for certain smaller and
lower quality items, as a result, a quantity of these were
withdrawn from the sale. Because of this, and because of a higher
than expected proportion of small diamonds recovered during the
ramp-up period attributable, in part, to plant-induced diamond
breakage, the result of this first sale cannot be taken as
representative of the longer term pricing profile of the
project.
Two additional tender sales of Renard diamonds
have occurred subsequent to the year end, with a third scheduled
prior to the end of the first quarter of 2017.
Mineral Reserves and Mineral
Resources
At December 31, 2016, Proven and Probable
Mineral Reserves for the Renard Diamond Mine were 33 million tonnes
at a grade of 67 carats per hundred tonnes (“cpht”) for 21.95
million attributable carats. Exclusive of Mineral Reserves, the
Renard Diamond Mine includes an additional Indicated Mineral
Resource of 2.9 million carats (6.3 million tonnes at 46 cpht),
Inferred Mineral Resources of 13.3 million carats (24.5 million
tonnes at 54 cpht) and 33.0 million to 71.1 million carats of
non-resource exploration upside (76.2 million to 113.2 million
tonnes at grades ranging from 25 to 168 cpht) [1]. Mineral
resources that are not mineral reserves do not have demonstrated
economic viability. Readers are cautioned that the potential
quantity and grade of any exploration target 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.
[1] Indicated Mineral Resources have been
adjusted by an additional 2.9 million tonnes of ore and 2
million carats previously excluded from the indicated Mineral
Resources cited in the February 6, 2017 Press Release of the
Corporation.
Exploration Update
Stornoway conducts exploration programs on 100%
owned generative Canadian diamond projects, and maintains a number
of non-material, grass-roots exploration properties, including the
Adamantin project in Quebec. The Adamantin property comprises
28,169 hectares of claims in three blocks, located approximately
100 km south of the Renard Diamond Mine and 25 km west of the Route
167 Extension road. Indicator mineral till sampling during 2015
identified promising results, including a diamond in the
+0.25mm-0.50mm size fraction. An initial exploratory drill program
in March and April of 2016 discovered 11 discrete kimberlite bodies
at Adamantin. No diamonds were recovered from available kimberlite
material, and unsourced indicator mineral anomalies remain on the
property. Further till sampling and geophysical surveys undertaken
in 2016, have identified additional targets of interest. In January
2017, Stornoway’s board of directors approved a 2017 budget
allocation of up to $2.0 million at the Adamantin Project,
including additional drilling. This work will commence in March
2017.
Subsequent to the year-end, on February 16,
2017, the Corporation completed a property purchase agreement with
North Arrow under which North Arrow has acquired the Corporation’s
remaining interests in the Qilalugaq and Pikoo Diamond Projects in
exchange of 2,000,000 common shares of North Arrow. As additional
consideration, the Corporation will receive 0.5% and 1.0% gross
overriding royalties on diamonds and 0.5% and 1.0% net smelter
returns royalties on base and precious royalties mine from the
Qilalugaq and Pikoo Projects, respectively. North Arrow will also
make a $2.5 million and a $1.25 million cash payment to the
Corporation at the same time that first royalties payments relating
to the Qilalugaq and Pikoo projects, respectively, are payable.
About the Renard Diamond
Mine
The Renard Diamond Mine is Quebec’s first
producing diamond mine and Canada’s sixth. It 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. Construction on the project commenced on July
10, 2014, and commercial production was declared on January 1,
2017. Average annual diamond production is forecast at 1.8 million
carats per annum over the first 10 years of mining. 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.
Qualified Persons
Disclosure of a scientific or technical nature
in this press release was prepared under the supervision of M.
Patrick Godin, P.Eng. (Québec), Chief Operating Officer, and Mr.
David Farrow, Pr.Sci.Nat (South Africa) and P.Geo. (BC), Vice
President Diamonds, both “qualified persons” under NI 43-101.
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, our medium and long-term goals, and strategies to
achieve those objectives and goals, as well as statements with
respect to our 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 as well as levels of diamond
breakage; (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 ongoing
construction activities at the Renard Diamond Mine; (viii)
the expected time frames for the completion of the open pit and
underground mine at the Renard Diamond Mine; (ix) the expected time
frames for the ramp-up and achievement of plant nameplate capacity
of the Renard Diamond Mine (x) the expected financial
obligations or costs incurred by Stornoway in connection with the
ongoing development of the Renard Diamond Mine; (xi) future
exploration plans; (xii) future market prices for rough
diamonds; (xiii) the economic benefits of using liquefied
natural gas rather than diesel for power generation;
(xiv) sources of and anticipated financing requirements;
(xv) the effectiveness, funding or availability, as the case
may require, of the Senior Secured Loan and the remaining Equipment
Facility and the use of proceeds therefrom; (xvi) the
Corporation’s ability to meet its Subject Diamonds Interest
delivery obligations under the Purchase and Sale Agreement;
(xvii) the impact of the Financing Transactions on the
Corporation’s operations, infrastructure, opportunities, financial
condition, access to capital and overall strategy; (xviii) the
foreign exchange rate between the US dollar and the Canadian
dollar; and (xix) the availability of excess funding for the
operation of the Renard Diamond Mine. 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 recovered
grade, size distribution and quality of diamonds, average ore
recovery, internal dilution, and levels of diamond breakage, 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) 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 as well as levels of diamond
breakage, (iv) receipt of regulatory approvals on acceptable terms
within commonly experienced time frames; (v) anticipated
timelines for ramp-up and achievement of nameplate capacity at the
Renard Diamond Mine, (vi) anticipated timelines for the development
of an open pit and underground mine at the Renard Diamond Mine;
(vii) anticipated geological formations; (viii) market prices
for rough diamonds and their potential impact on the Renard Diamond
Mine; (ix) the satisfaction or waiver of all conditions under the
Senior Secured Loan and the remaining Equipment Facility to allow
the Corporation to draw on the funding available under those
financing elements; (x) Stornoway’s interpretation of the
geological drill data collected and its potential impact on stated
Mineral Resources and mine life; (xi) future exploration plans and
objectives; (xii) the Corporation’s ability to meet its
Subject Diamonds Interest delivery obligations under the Purchase
and Sale Agreement; and (xiii) the continued strength of the US
dollar against the Canadian dollar.
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 diamond 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 sustainable 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 Mine;
(xvi) failure to satisfy the conditions to the funding or
availability, as the case may require, of the Senior Secured Loan
and the Equipment Facility; (xvii) changes in the terms of the
Forward Sale of Diamonds, the Senior Secured Loan or the Equipment
Facility; (xviii) the funds of the Senior Secured Loan 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,
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.