Stornoway Diamond Corporation (TSX:SWY)
(the “Corporation” or “Stornoway”) announced today
its results for the quarter ended June 30, 2017.
Quarter ended June 30, 2017
Highlights
(All quoted figures in CAD$ unless otherwise
noted)
- Net income of $2.3 million or $Nil per share on a basic and
fully diluted basis.
- During the course of the quarter, the Corporation achieved the
milestone of one million carats of diamonds produced and attained
nameplate processing capacity, on schedule.
- 417,362 carats recovered during the quarter from the processing
of 512,005 tonnes of ore compared to a plan of 486,591 carats from
513,000 tonnes, due to the processing of lower grade ore (at 82
cpht compared to a plan of 95 cpht).
- Mining in the Renard 2-3 and Renard 65 open pits comprised
1,328,580 tonnes, or 129% of plan, with 500,473 tonnes of ore
extracted. Underground mine development at the end of June
comprised 2,746 meters, or 103% of plan.
- Diamond sales of 350,159 carats were completed with proceeds of
$40.9 million. Adjusted EBITDA1 of $15.1 million, or 35.6% of
sales.
- Average diamond pricing achieved at sale of US$87 per carat
($117 per carat1-2), compared to US$81 per carat in the first
quarter. An additional 151,135 carats were sold subsequent to
quarter end for proceeds of $19.8 million, at an average price of
US$101 per carat ($128 per carat3). Overall, pricing for Renard
diamonds has increased +19% since sales began (expressed in real
terms after accounting for size distribution and quality
variations).
- Cash operating costs per tonne processed1 of $54.12 per tonne
($66.39 per carat) and capital expenditures1 of $24.0 million in
the quarter, both within plan.
- Subsequent to the quarter end, a program of plant modification
measures aimed at reducing breakage and producing a higher quality
diamond product approved by the Board of Directors, with an
expected capital cost of $22 million to be funded from existing
financial resources.
- At quarter end, cash, cash equivalents and short-term
investments stood at $60.4 million. Available liquidity1 to the
Corporation, comprising of cash and cash equivalents and available
credit facilities, stood at $168.1 million.
Matt Manson, president and CEO commented: “Our
second quarter saw the attainment of full nameplate processing
capacity at Renard, achieved by the end of June on schedule.
Capital and operating costs continue within plan, and our business
has again demonstrated a strong cash operating margin. Grade and
carats produced for the quarter reflect the processing of a higher
proportion of lower grade ore from our stockpiles. However, we
continue to see good overall productivity in mining and processing,
and development of the underground mine, which will be the
principal source of ore to the plant starting next year, is
proceeding comfortably within schedule.” Matt Manson continued: “We
are particularly encouraged by the steady increase in pricing for
Renard diamonds as the market familiarizes itself with our
production. Pricing continues to be impacted by high levels of
diamond breakage, and our work to date on this issue has shown that
reducing the proportion of hard, country rock waste in the ore feed
will have a meaningful impact on our recoveries. To this end the
Stornoway board has approved additional capital expenditures of
C$22 million, from existing funds, to add a waste sorting circuit
to our process plant. This work, within an overall diamond value
improvement action plan, will be conducted over the next three
quarters, and is expected to contribute significantly to the
volume, quality and value of our diamond production.”
Financial Summary
Revenues during the quarter totalled $42.6
million. This was the second quarter after the declaration of
commercial production, and there were no sales in the comparable
period. Revenue includes $5.1 million related to the amortization
of upfront proceeds received by the Corporation under the Stream
agreement in consideration for future commitments to deliver
diamonds at contracted prices. The Corporation’s cost of sales were
$33.9 million related to mining, processing, rough diamond sorting
activities, site services and depreciation, with adjusted EBITDA of
$15.1 million, or 35.6% of sales. The increase in adjusted EBITDA
as compared to prior years was due to two tender sales in the
second quarter of 2017 and none for the second three months of
2016, as the Renard Diamond Mine was in the construction phase.
Financial expenses for the second quarter were $2.2 million. During
the quarter, the Corporation recorded interest expense of $6.8
million which was partially offset by an unrealized gain on the
fair value of derivatives embedded in the Corporation’s convertible
debentures of $4.9 million. Revenue during the six months ended
June 30, 2017, totalled $91.0 million.
Financial Highlights (expressed in thousands of
Canadian dollars, except otherwise noted)
|
|
Three months ended |
|
Six months ended |
|
|
|
June 30, 2017 |
|
June 30, 2016 |
|
June
30, 2017 |
|
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
42,550 |
|
─ |
|
91,042 |
|
─ |
|
Cost of goods sold |
|
33,893 |
|
─ |
|
70,313 |
|
─ |
|
Selling, general and
administrative expenses |
|
4,203 |
|
3,252 |
|
9,323 |
|
5,660 |
|
Exploration
expenses |
|
935 |
|
1,300 |
|
1,581 |
|
1,909 |
|
Gain on sale of
interests in exploration properties |
|
─ |
|
─ |
|
(400 |
) |
─ |
|
Financial (income)
expenses |
|
2,211 |
|
(11,801 |
) |
(519 |
) |
14,392 |
|
Foreign exchange
gain |
|
(3,241 |
) |
1,470 |
|
(4,260 |
) |
5,130 |
|
Net (loss) income
before tax |
|
4,549 |
|
5,779 |
|
15,004 |
|
(16,831 |
) |
Income tax expense |
|
2,211 |
|
─ |
|
15,641 |
|
─ |
|
Net loss |
|
2,338 |
|
5,779 |
|
(637 |
) |
(16,831 |
) |
Loss Per Share –
Basic |
|
Nil |
|
(0,01 |
) |
Nil |
|
(0.02 |
) |
Loss per share –
Diluted |
|
Nil |
|
Nil |
|
Nil |
|
(0.02 |
) |
Adjusted EBITDA |
|
15,143 |
|
(4,552 |
) |
34,838 |
|
(7,569 |
) |
Adjusted EBITDA margin
(%) |
|
35.6 |
% |
N/A |
|
38.3 |
% |
N/A |
|
Capital
expenditures |
|
23,975 |
|
N/A |
|
41,058 |
|
N/A |
|
Environment, Health, Safety and Communities
No lost time incident (“LTI”) were recorded
during the quarter, for a year to date LTI rate of 1.0 for
contractors and zero for Stornoway employees. No incidents of
environmental non-compliance were recorded during the quarter.
Daily manpower at site in June averaged 310 workers, of which 19.5%
were Crees of the Eeyou Istchee. Stornoway employees stood at 493
as at June 30, 2017, including 438 at the mine site, of which 15%
were Crees, 24% were from Chibougamau and Chapais, and 61% were
from outside the region.
Mining and Processing
During the second quarter 1,328,580 tonnes were
mined from the Renard 2-3 and Renard 65 open pits, compared to a
plan of 1,033,459 tonnes (+29%), with 500,473 tonnes of ore
extracted. 512,005 tonnes of ore were processed with a diamond
recovery of 417,362 carats at 82cpht, compared to a plan of 513,000
tonnes and 486,591 carats at 95cpht (-0.1%, -14% and-14%
respectively). Ore processed comprised primarily of lower grade
Renard 2 material, sourced from both the open pit and the ore
stockpile. Processing rates during the quarter averaged 5,626
tonnes per day compared to a nameplate capacity of 6,000 tonnes per
day. In the month of June, the company achieved an average daily
processing rate of 6,149 tonnes, representing the successful
completion of the project’s production ramp-up on schedule.
Development of the underground mine in the
second quarter was 2,746 meters compared to a plan of 2,642 meters
(+3%). Work has focussed on lateral development in kimberlite at
the 160 meter level, development of the production drifts at the
270 and 290 meter levels, and on the fresh air raise. Ground
conditions have been good and there has been no recurrence of the
water inflow issues that affected ramp development in late 2015 and
early 2016.
Cash operating costs per tonne processed were
$54.12 per tonne1 ($66.39 per carat processed1 compared to a plan
of $52.19 per tonne1 ($55.02 per carat processed1). Cash costs per
tonne were in line with plan, with costs per carat processed and
per carat sold reflecting the lower volume of carats recovered and
sold during the quarter compared to plan. Capital expenditures1
were $24.0 million, primarily related to the development of the
underground mine.
Process Plant Modifications for Diamond
Value Improvement
Since ore processing at Renard began, the
project has experienced high levels of diamond breakage. This is
manifested most directly in the proportion of larger diamonds
recovered, and in the average quality profile. Both factors
negatively impact the achieved average diamond price at sale.
During the first half of the year, steps have been undertaken to
understand the cause of the breakage and to mitigate it to
acceptable levels, with attention focussed on crusher operating
settings, material balancing in the plant, screen changes, diamond
breakage studies and simulant testing.
With the insight gained from the work completed
in the first half of 2017, Stornoway’s board of directors has
approved a program of plant modifications and operational
refinements designed to reduce the breakage to a more acceptable
level and produce a higher quality diamond product. Central to this
plan is the introduction of waste sorting. High levels of internal
country rock dilution is a distinguishing feature of the Renard
kimberlites. Total levels of internal and external dilution from
hard, gneissic country rock typically exceeds more than 50% of the
ore feed to the process plant. The high content of waste in the ore
is preventing the correct conditions of diamond liberation to be
achieved in the plant’s secondary and tertiary crushers, and the
concentration of the hard waste alongside free diamonds in the
crushers and recovery circuits is a principal cause of the
breakage.
As part of the first half program of work,
Stornoway has conducted trials on a spectral waste sorting
technology and achieved promising results in the segregation of the
white and pink, quartz and feldspar dominated gneissic and
granitoid waste from the darker coloured, olivine rich kimberlite.
A waste sorting circuit rated at 7,000 tonnes of ore per day, and
expandable, will be added to the Renard process plant immediately
after the primary jaw crusher and before the secondary cone crusher
to extract waste in the +30mm-200mm size range. Extracted waste
will be trucked for disposal, and the concentrated, less-dilute
kimberlite will be re-introduced to the plant for crushing. An
extraordinary capital budget of $22 million has been allocated for
this work, to be funded from existing financial resources. The
addition of this circuit is expected to add $1 per tonne to
operating costs, and will have the ancillary benefit of reducing
load on the rest of the Renard process plant, allowing future
potential plant expansion. Commissioning of the new circuit is
scheduled for the first quarter of 2018.
Diamond Sales
Stornoway sold a total of 350,159 carats during
the quarter in 2 tender sales (2017 sales #4 and #5) at an average
price of US$87 per carat ($117 per carat1-2). The sales represent
run of mine production and at quarter-end the company held no
excess diamond inventory other than normal course goods in
progress.
Subsequent to the quarter end, the company
completed a sale of an additional 151,135 carats (2017 sale #6) for
proceeds of $19.8 million at an average price of US$101 per carat
($128 per carat3). This result was achieved with a standard run of
mine sales mix within Stornoway’s FY2017 pricing guidance of US$100
to US$132 per carat.
The average pricing achieved to date from the
sales of Renard diamonds has been significantly impacted by the
ongoing issues of diamond breakage in the process plant, which has
reduced the proportion of larger diamonds available for sale, and
increased the proportion of small diamonds in the sales mix. Small
diamonds continue to achieve substantially lower market pricing
than was being achieved prior to the Indian de-monetization events
of late 2016. However, the average run of mine pricing for Renard
diamonds, after accounting for size distribution and quality
variations, has increased in real terms by 19% since the first sale
was completed in November 2016. While the rough market has
strengthened modestly during this period, the size of the increase
reflects the growing acceptance of the Renard diamond production by
Stornoway’s tender sale clientele.
Stornoway expects to conclude one additional
sale in the third quarter and two in the fourth quarter.
Exploration Update
Exploration activities by the Corporation are
ongoing, including the acquisition, by staking, of three new 100%
owned diamond properties targeting specific features of interest
identified from a review of proprietary databases (Wabi, CYP and
MET). The select properties total about 4,538 hectares, and
additional landholdings may be acquired. Applications for access
permits are in preparation, and the Company anticipates conducting
work programs later this season.
Drilling activities completed in April 2017 on
the 28,171 hectare Adamantin property (located approximately 100 km
south of the Renard Diamond Mine and 25 km west of the Route 167
Extension road) resulted in the discovery of two new kimberlite
occurrences. Diamond results are still pending for these
discoveries. 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, but no diamonds were
recovered from these samples, leaving the source of the diamond in
till currently unexplained.
Conference Call and Webcast
Stornoway will host a second quarter earnings conference call
for analysts and investors on August 14, 2017 at 1100am EST.
This call may be accessed by calling 1-844-215-3287 toll free in
North America, of 1-209-905-5939 from international locations, with
Conference ID 58480597. A live webcast of the call will be
available at http://edge.media-server.com/m/p/mvni9egd. A replay of
the call, and a copy of the earnings presentation, will be made
available on the Stornoway website at
www.stornowaydiamonds.com.
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 forecasted 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.
Stornoway’s exploration programs are supervised by Robin Hopkins,
P.Geol. (NT/NU), Vice President, Exploration. Each of M. Godin and
Mr. Hopkins are “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 Longueuil. Our
flagship asset is the 100% owned Renard Diamond Mine, 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 Officer
For more information, please contact Matt Manson
(President and CEO) at 416-304-1026 x2101or Orin Baranowsky
(Interim CFO and 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 **
FORWARD-LOOKING STATEMENTS
This document contains forward-looking
information (as defined in National Instrument 51 102 – Continuous
Disclosure Obligations) and forward-looking statements within the
meaning of Canadian securities legislation and the United States
Private Securities Litigation Reform Act of 1995 (collectively
referred to herein as “forward-looking information” or
“forward-looking statements”). These forward-looking statements are
made as of the date of this document 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 relate to
future events or future performance and 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 management’s beliefs, plans, objectives, expectations,
estimates, intentions and future outlook and anticipated events or
results. Although management considers these
assumptions to be reasonable based on information currently
available to it, they may prove to be incorrect.
Forward-looking statements made in this document
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, cost of
sales, cash cost of production, gross margins estimates, planned
and projected capital expenditure, liquidity and working capital
requirements; (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 levels of 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’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. 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.
____________________________
1 Refer to “Non-IFRS Financial Measures” section of the MD&A
for further discussion of these matters.2 Based on an average C$:
US$ conversion rate of $1.34.3 Based on an average C$: US$
conversion rate of $1.26.