Stornoway Diamond Corporation (TSX-SWY; the “Corporation”
or “Stornoway”) is pleased to report financial and
operating results for the fourth quarter and year ended December
31, 2017.
Earnings, operating expenses and capital
expenses quoted reflect the recent adoption of a change in
accounting policy regarding the capitalization of certain
underground mine development costs (see “Change in Accounting
Policy” below).
Year Ended December 31, 2017
Highlights:
(All quoted figures in CAD$, unless otherwise
noted)
- For the year ended December 31, 2017, Stornoway reported net
loss of $114.6 million ($0.14 per share on a basic and fully
diluted basis), compared to net income of $19.6 million in 2016
($0.03 per share basic and fully diluted). Included in 2017
earnings is a non-cash impairment charge of $171.0 million,
reflecting a lower diamond price environment than was originally
forecast by the Corporation. Net income before impairment1 was
$11.1 million for the fourth quarter and $15.0 million for the
year.
- During 2017, the Renard Diamond Mine attained commercial
production, completed the processing ramp-up on schedule and
accomplished two full quarters at or above plant nameplate
operating capacity.
- Mining in the Renard 2-3 and Renard 65 open pits in the fourth
quarter comprised 827,181 tonnes, with 442,476 tonnes of ore
extracted. For the full year, open pit mining stood at 4,475,854
tonnes (102% of plan), with 2,091,782 tonnes of ore extracted.
- A total of 398,267 carats were recovered in the fourth quarter
from the processing of 518,817 tonnes of ore at a grade of 77
carats per hundred tonnes (“cpht”). For the full year, a total of
1,642,934 carats were recovered from 1,956,436 tonnes of ore at 84
cpht (98%, 97% and 99% of plan respectively).
- Diamond sales of 486,633 carats2 were completed in the fourth
quarter with gross proceeds1,3 of $52.6 million at an average price
of US$86 per carat ($108 per carat4). For the full year, Stornoway
sold 1,701,561 carats for gross proceeds1,3 of $186.2 million at an
average price of US$85 per carat ($109 per carat5).
- In the fourth quarter, cash operating costs per tonne
processed1,[6] were $42.10 per tonne ($54.85 per carat) and capital
expenditures1,6 were $47.7 million. For the full year, cash
operating costs per tonne processed1,6 were $45.02 per tonne
($53.60 per carat) and capital expenditures1,6 were $126.9
million.
- In the fourth quarter, the Corporation reported adjusted
EBITDA1,6 of $25.2 million, or 45.5% of revenues, and $85.0
million, or 43.3% of revenues, for the full year ended December 31,
2017.
- At year end, cash, cash equivalents and short-term investments
stood at $81.0 million and available liquidity1 to the Corporation,
including available credit facilities, stood at $101.8
million.
1 See “Non-IFRS Financial Measures” section2 Including 32,989
carats that were sold in the third quarter for which revenue was
realized in the fourth quarter.3 Before stream and royalty4 Based
on an average $:US$ conversion rate of $1.265 Based on an average
$:US$ conversion rate of $1.296 See “Change in Accounting Policy”
section
Matt Manson, President and CEO, commented: “In
2017, Stornoway’s Renard Diamond Mine produced a strong performance
in mining, carat production, processing ramp-up, and cost. It has
delivered strong operating margins, with EBITDA of $85 million,
despite the lower diamond pricing environment that has
characterised our first year of sales. As 2017 ended, Renard had
established itself as the lowest cost diamond mine in Canada, and
Renard diamonds had developed a strong position in the rough
diamond market. The first half of 2018 will see ore production
transition from our starter open pit to our underground mine.
Ensuring an efficient ramp-up of the underground operations is a
key priority for the Renard team. At the same time, we are
introducing our new ore-waste sorting circuit designed to improve
the quality of our diamond production and provide future processing
expansion capacity. Both of these capital projects, once completed,
will define the character of the project for the next decade.” Mr.
Manson continued, “Since the completion of our project fund-raising
in 2014, and through four years of mine construction and
operations, Stornoway has maintained a strong balance sheet and
liquidity position. This will remain a priority for us in our
financial management as we pass through the scheduled capital
spending of 2018 and pursue the production and revenue growth
potential of our business.”
Table 1. Financial Results Highlights
(expressed in millions of Canadian dollars,
except as otherwise noted)
|
Three months ended |
Year ended |
|
December 31, 2017 |
December 31, 2017 |
Ore mined
(tonnes) |
490,237 |
|
2,218,385 |
|
Waste mined
(tonnes) |
444,058 |
|
2,704,560 |
|
Ore processed
(tonnes) |
518,816 |
|
1,956,435 |
|
Carats
Recovered |
398,267 |
|
1,642,934 |
|
Carats
Sold2 |
486,633 |
|
1,701,561 |
|
Revenues |
55.5 |
|
196.5 |
|
Cost of Goods
Sold |
43.2 |
|
149.2 |
|
Impairment
charge |
171.0 |
|
171.0 |
|
Selling,
General, Administrative and Exploration Expenses |
4.6 |
|
19.9 |
|
Financial and
other (income) expenses |
3.1 |
|
7.6 |
|
Foreign
exchange (gain) loss |
0.7 |
|
(7.9 |
) |
Net (loss)
income |
(118.6 |
) |
(114.6 |
) |
Net (loss)
income per Share – Basic and Diluted |
(0.14 |
) |
(0.14 |
) |
Net income
before impairment1 |
11.1 |
|
15.0 |
|
Adjusted
EBITDA1 |
25.2 |
|
85.0 |
|
Adjusted EBITDA
margin (%)1 |
45 |
% |
43 |
% |
Capital expenditures1 |
47.6 |
|
126.9 |
|
Financial Summary
Revenue for the fourth quarter is estimated at
$55.5 million, and at $196.5 million for the full year FY2017.
Revenue includes amortization of upfront proceeds received by the
Corporation under the Renard Stream Agreement in consideration for
future commitments to deliver diamonds at contracted prices.
Under the changed accounting policy, the
Corporation reported FY2017 Adjusted EBITDA1,6 of
$85.0 million, or 43.3% of revenue. The Corporation incurred a
non-cash impairment charge of $171.0 million as at December 31,
2017 on the carrying value of the Corporation’s property plant and
equipment, reflecting an outlook of lower than expected diamond
pricing. Prior to this charge, the Corporation reported net income
before impairment1 for FY2017 of $15.0 million.
During the fourth quarter the Corporation drew
down funds available under its senior loan facility with Diaquem
Inc. (a wholly-owned subsidiary of Ressources Québec) prior to its
scheduled expiry at year-end, and made $16.0 million of principal
repayments on existing indebtedness. As at December 31, 2017, cash,
cash equivalents and short-term investments stood at $81.0 million
and Available Liquidity1 to the Corporation, including available
credit facilities, stood at $101.8 million.
Change in Accounting Policy
The fourth quarter and full year FY2017 results
incorporate the impact of an accounting policy change recently
adopted by the Corporation in accordance with IAS 8 “Accounting
policies, changes in accounting estimates and errors” wherein
certain costs associated with the development of the underground
mine that were previously expensed will now be capitalized and
amortized over the period during which the underground
infrastructure can be expected to contribute to the revenue-earning
capability of the mine. Mining companies use different accounting
treatments on development expenditure incurred during the
production phase. This change will result in the financial
statements providing reliable and more relevant information on
Stornoway’s financial performance, such as operating expense,
capital expense, and earnings.
Table 2 illustrates a reconciliation certain
financial and operating metrics impacted by the accounting policy
change for the three 2017 interim consolidated financial statements
of the Corporation.
Table 2. Reconciliation of Key Financial
and Operating Metrics Pursuant to Accounting Policy
Change
(expressed in millions of Canadian dollars,
except as otherwise noted)
Three months ended |
Year ended |
March 31, 2017 |
June 30, 2017 |
September 30, 2017 |
December 31, 2017 |
December 31, 2017 |
Before Change |
Impact |
After Change |
Before Change |
Impact |
After Change |
Before Change |
Impact |
After Change |
After Change |
After Change |
Cost of Goods Sold ($m) |
36.4 |
|
-2.8 |
|
33.6 |
|
33.9 |
|
-1.6 |
|
32.3 |
|
49.2 |
|
-9.1 |
|
40.1 |
|
43.3 |
|
149.2 |
|
Cash Operating Cost per Tonne Processed
($/t)1 |
57.86 |
|
-5.19 |
|
52.67 |
|
54.12 |
|
-9.43 |
|
44.69 |
|
57.97 |
|
-15.98 |
|
41.99 |
|
42.10 |
|
45.02 |
|
Cash Operating Cost per Carat Recovered
($/ct)1 |
62.98 |
|
-5.65 |
|
57.33 |
|
66.39 |
|
-11.56 |
|
54.83 |
|
66.39 |
|
-18.30 |
|
48.09 |
|
54.85 |
|
53.60 |
|
Capital Expenditures ($m)1 |
17.1 |
|
+2.2 |
|
19.3 |
|
24.0 |
|
+4.8 |
|
28.8 |
|
22.7 |
|
+8.5 |
|
31.2 |
|
47.6 |
|
126.9 |
|
Adjusted EBITDA ($m)1 |
19.7 |
|
+1.6 |
|
21.3 |
|
15.1 |
|
+1.7 |
|
16.8 |
|
15.0 |
|
+6.7 |
|
21.7 |
|
25.2 |
|
85.0 |
|
Adjusted EBITDA Margin1 |
40.6 |
% |
+3.3 |
% |
43.9 |
% |
35.6 |
% |
+3.9 |
% |
39.5 |
% |
30.0 |
% |
+13.4 |
% |
+43.4 |
% |
45.4 |
% |
43.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operational Summary
Environment, Health, Safety and Communities
No lost time incidents (“LTI”) were recorded
during the quarter, for a year to date LTI rate of 0.4 for
contractors and zero for Stornoway employees. Average daily
manpower at site in December averaged 324 workers (Stornoway and
contractors) of which 12% were Crees of the Eeyou Istchee.
Stornoway employees stood at 505 as at December 31, 2017, including
437 mine located employees, of which 12% were Crees, 26% were from
Chibougamau and Chapais, and 62% were from outside the region. One
incident of administrative environmental non‐conformity was
identified during the quarter due to reporting an accidental glycol
spill outside of the 24-hour prescribed delay.
Commercial Production, Ramp-Up and Completion
Certification
Stornoway formally declared commercial
production at the Renard Diamond Mine on January 1, 2017, marking
the end of the project’s initial capital expense period. Production
ramp-up was completed on schedule at the end of the second quarter
of 2017, with an average processing rate of 6,149 tonnes per day
achieved in June 2017. Since then, two full operating quarters have
been completed at average processing rates of 5,957 tonnes per day
and 6,014 tonnes per day respectively.
Subsequent to the year end, on February 7, 2018,
the Corporation announced the attainment of full Completion
Certification at the Renard Mine pursuant to the terms of
Stornoway’s July 2014 material project finance agreements.
Mining and Processing
During the fourth quarter, 827,181 tonnes were
mined from the Renard 2-3 and Renard 65 open pits, with 442,476
tonnes of ore extracted. 518,817 tonnes of ore from the Renard 2
and Renard 3 kimberlites were processed with a diamond recovery of
398,267 carats at an attributable grade of 77cpht.
During the year, 4,475,854 tonnes were mined
from the Renard 2-3 and Renard 65 open pits, compared to a plan of
4,369,532 tonnes (102%), with 2,091,782 tonnes of ore extracted.
1,956,436 tonnes of ore were processed with a diamond recovery of
1,642,934 carats at an attributable grade of 84cpht, compared to a
plan of 1,999,000 tonnes and 1,694,312 carats at 85 cpht (98%, 97%
and 99% respectively).
Carat production was lower than planned in the
fourth quarter and on a full year basis, due to the unscheduled
batch processing of lower grade Renard 65 ore in November for the
purpose of obtaining a valuation sample of Renard 65 diamonds.
In the fourth quarter, cash operating costs per
tonne processed1,6 were $42.10 per tonne ($54.85 per carat
recovered1,6). On a full year basis, cash operating costs per tonne
processed1,6 were $45.02 per tonne ($53.60 per carat recovered1,6).
Under the changed accounting policy, cash operating costs are lower
and capital expenditures are higher than was contemplated in the
2017 guidance.
Diamond Sales
During the fourth quarter, Stornoway sold a
total of 486,6332 carats in 2 tender sales with gross proceeds1,3
of $52.6 million, at an average price of US$86 per carat ($108 per
carat4). On a full year basis Stornoway sold 1,701,561 carats for
gross proceeds1,3 of $186.2 million, at an average price of US$85
per carat ($109 per carat5).
Commentary on Diamond Production and the Rough
Diamond Market
During 2017, the quality and size distribution
of diamond recoveries at Renard were negatively impacted by high
levels of diamond damage incurred during processing, producing a
commensurate reduction in the average price achieved at sale. The
Corporation believes that significant value improvement may be
achieved upon successful mitigation of the breakage to more
acceptable levels. The source of the breakage has been localized,
primarily, within the secondary cone crusher and tertiary high
pressure grinding roll crusher, and appears associated with the
high proportion of hard, internal dilution inherent in Renard ore
producing an abrasive environment within the crushers. The
Corporation believes that the introduction of ore-waste sorting,
approved under an extraordinary capital plan by the Board of
Directors in August 2017, will contribute to a higher quality
diamond product through the removal of a large proportion of the
abrasive dilution from the crushing circuits. Commissioning of the
new ore-waste sorting circuit is expected to commence shortly.
Between the first sale of Renard diamonds in
November 2016, and the tenth sale in December 2017, the average run
of mine pricing for Renard diamonds, after accounting for size
distribution and quality variations, increased in real terms by
13.5%. This increasing trend reflected a positive reaction by the
rough market to the qualities, colours and polished yields of the
Renard diamond production, and increasing participation in the
Corporation’s diamond tenders. This result was attained despite a
challenging rough diamond market in 2017, which was characterized
by an increase in sales from rough producers (including from three
new diamond mining projects) and flat to low sales growth for
polished diamonds and diamond jewellery. These market conditions
were exacerbated by the Indian demonetization events of late 2016,
which impacted rough diamond pricing for smaller and lower quality
items during the course of 2017. By year end, the effect of the
Indian demonetization event had largely been removed from the rough
diamond market, and a strong holiday selling season, particularly
in Asian markets, had resulted in moderate price growth at the
start of 2018 for both rough and polished diamonds.
Subsequent to the year end, the Corporation
announced on January 29, 2018 that in the first tender of 2018 it
had sold 138,687 carats were sold for gross proceeds1,3 of US$14.4
million at an average price of US$104 per carat. This is the
highest price for Renard diamonds achieved to date, and reflected
the strengthening diamond market and appreciable improvements in
breakage levels, size distribution and quality mix.
Capital Projects
Under the changed accounting policy, capital
expenditures1,6 in the fourth quarter were $47.7 million, primarily
related to the development of the underground mine and the
construction of the ore-waste sorting circuit. For the year ended
December 31, 2017, capital expenditures1,6 stood at $126.9 million.
Under the changed accounting policy, cash operating costs are lower
and capital expenditures are higher than was contemplated in the
2017 guidance.
Development of the underground mine during the
fourth quarter focussed on lateral development in kimberlite and
waste for the drill drift on levels 160, 240 and 270, and also for
the draw-points on level 290. Development of the fresh air raise
was also completed during this period. Lateral development
comprised 1,227 meters compared to a plan of 1,062 meters (+16%).
On a yearly basis, lateral development stood at 4,869 meters
compared to a plan of 4,460 meters (+9%).
The first production blast in the underground
mine occurred successfully on December 20th, 2017. Full production
from the underground mine is on schedule to commence within the
second quarter of 2018.
Updated FY2018 Guidance
Under the changed accounting policy, cash
operating costs1 in FY2018 are expected to be $48 to $50 per tonne
processed ($75 to $77 per carat recovered), and capital
expenditures1 are expected to be $100 million. This compares to
previous FY2018 guidance of $56 to $58 per tonne processed ($87 to
$92 per carat recovered) and $82 million of capital expenditures1.
Other FY2018 guidance (Table 3) is un-impacted by the accounting
changes.
Table 3. Updated FY2018
Guidance
(expressed in millions of Canadian dollars, except as
otherwise noted) |
|
|
MINING AND PROCESSING |
|
|
|
|
Open Pit
Tonnes Mined |
|
|
|
2.7 million |
Underground Tonnes Mined |
|
|
|
2.2 million |
Tonnes
Processed |
|
|
|
2.5 million |
Carats
Recovered |
|
|
|
1.6 million |
Grade
(cpht) |
|
|
|
65 |
Cash
Operating Cost per Tonne Processed |
|
|
|
$48-50 |
Cash
Operating Cost per Carat Recovered |
|
|
|
$75-77 |
|
|
|
|
|
SELLING AND MARKETING |
|
|
|
|
Carats
Sold (+7 DTC) |
|
|
|
1.1 million |
Carats
Sold (-7 DTC) |
|
|
|
0.5 million |
Average
Diamond Pricing (+7 DTC) |
|
|
|
US$ 125-165 |
Average
Diamond Pricing (-7 DTC) |
|
|
|
US$ 15-19 |
|
|
|
|
|
CAPITAL |
|
|
|
|
Capital
Expenditures |
|
|
|
$100 million |
Mineral Reserves Update
Mineral Reserves as of December 31, 2017 have
been updated based on mining depletion. At
December 31, 2016, Proven and Probable Mineral Reserves
for the Renard Diamond Mine were 30.2 million tonnes at a grade of
66.3 carats per hundred tonnes (“cpht”) for 20.0 million
attributable carats.
Exclusive of the Mineral Reserves, the Renard
Diamond Mine includes additional Indicated Mineral Resources of 2.8
million carats (6.1 million tonnes at 46 cpht), Inferred Mineral
Resources of 13.1 million carats (23.4 million tonnes at 56 cpht),
and 33.0 to 71.1 million carats of non-resource exploration upside
(76.2 to 113.2 million tonnes at grades ranging from 20 to 168
cpht). Readers are cautioned that the potential quantity and grade
of any such 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. All kimberlites remain open at
depth. The 2017 Updated Mineral Resource incorporates geological
data on kimberlite contacts and internal geology as revealed on the
160 meter, 270 meter and 290 meter levels in the Renard underground
mine.
Non-IFRS Financial Measures
This document refers to certain financial
measures, such as Net Income Before Impairment, Adjusted EBITDA,
Adjusted EBITDA Margin, Average Diamond Pricing Achieved, Cash
Operating Cost per Tonne Processed, Cash Operating Cost per Carat
Recovered, Capital Expenditures, and Available Liquidity, which are
not measures recognized under IFRS and do not have a standardized
meaning prescribed by IFRS. As a result, these measures may not be
comparable to similar measures reported by other corporations.
Each of these measures have been derived from
the Corporation’s financial statements and have been defined and
calculated based on management’s reasonable judgement. These
measures are used by management and by investors to assist in
assessing the Corporation’s performance. The measures are intended
to provide additional information to the user and should not be
considered in isolation or as a substitute for measures prepared in
accordance with IFRS. Refer to the “Non-IFRS Financial Measures”
section of the Corporation’s Management Discussion and Analysis as
at and for the year ended December 31, 2017 for further
discussion of these items, including reconciliations to IFRS
measures.
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 Person
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.
Robin Hopkins, P.Geol. (NT/NU), Vice President, Exploration, both
“qualified persons” under National Instrument (“NI”) 43-101.
About Stornoway Diamond
Corporation
Stornoway is a leading Canadian diamond
exploration and production company listed on the Toronto Stock
Exchange under the symbol SWY and headquartered in Montreal. A
growth oriented company, Stornoway owns a 100% interest in the
world-class Renard Mine, Québec’s first diamond mine.
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 (CFO)
at 416-304-1026 x2103 or Jodi Hackett (Manager, Communications) at
416-304-1026 x2104 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 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 estimated amount of future production over any
period; (iii) net present value and internal rates of return
of the mining operation; (iv) expectations and targets
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) expectations, targets
and forecasts relating to gross revenues, operating cash flows and
other revenue metrics set out in the 2016 Technical Report, growth
in diamond sales, cost of goods sold, cash cost of production,
gross margins estimates, planned and projected diamond sales, mix
of diamonds sold, and capital expenditures, liquidity and working
capital requirements; (vi) mine and resource expansion potential,
expected mine life, and estimated incremental ore recovery, revenue
and other mining parameters from potential additional mine life
extension; (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 financial obligations or
costs incurred by Stornoway in connection with the ongoing
development of the Renard Diamond Mine; (x) mining, development,
production, processing and exploration rates, progress and plans,
as compared to schedule and budget, and planned optimization,
expansion opportunities, timing thereof and anticipated benefits
therefrom; (xi) future exploration plans and potential upside
from targets identified for further exploration; (xii) expectations
concerning outlook and trends in the diamond industry, rough
diamond production, rough diamond market demand and supply, and
future market prices for rough diamonds and the potential impact of
the foregoing on various Renard financial metrics and diamond
production; (xiii) the economic benefits of using liquefied
natural gas rather than diesel for power generation;
(xiv) sources of and anticipated financing requirements;
(xv) the ability to meet Subject Diamonds Interest delivery
obligations under the Purchase and Sale Agreement; (xvi) the
foreign exchange rate between the US dollar and the Canadian
dollar; and (xvii) the anticipated benefits from recently approved
plant modification measures and the anticipated timeframe and
expected capital cost thereof. 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) the accuracy of our estimates regarding
capital 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) the expected mix of
diamonds sold, and successful mitigation of ongoing issues of
diamond breakage in the Renard Diamond Mine process plant and
realization of the anticipated benefits from plant modification
measures within the anticipated timeframe and expected capital
cost; (v) the stabilization of the Indian currency market and full
recovery of prices; (vi) receipt of regulatory approvals on
acceptable terms within commonly experienced time frames and
absence of adverse regulatory developments; (vii) anticipated
timelines for the development of an open pit and underground mine
at the Renard Diamond Mine; (viii) anticipated geological
formations; (ix) continued market acceptance of the Renard diamond
production, conservative forecasting of future market prices for
rough diamonds and impact of the foregoing on various Renard
financial metrics and diamond production; (x) the timeline,
progress and costs of future exploration, development, production
and mining activities, plans, commitments and objectives; (xi) the
availability of existing credit facilities and any required future
financing on favorable terms and the satisfaction of all covenants
and conditions precedent relating to future funding commitments;
(xii) the ability to meet Subject Diamonds Interest delivery
obligations under the Purchase and Sale Agreement;
(xiii) Stornoway’s interpretation of the geological drill data
collected and its potential impact on stated Mineral Resources and
mine life; (xiv) the continued strength of the US dollar against
the Canadian dollar and absence of significant variability in
interest rates; (xv) improvement of long-term diamond industry
fundamentals and absence of material deterioration in general
business and economic conditions; and absence of significant
variability in interest rates; (xvi) increasing carat recoveries
with progressively increasing grade in LOM plan;
(xvii) estimated incremental ore recovery, revenue and other
mining parameters from potential additional mine life extension
with minimal capital expenditures; (xviii) availability of
skilled employees and maintenance of key relationships with
financing partners, local communities and other stakeholders; (xix)
long-term positive demand trends and rough diamond demand
meaningfully exceeding supply; (xx) high depletion rates from
existing diamond mines; (xxi) global rough diamond production
remaining stable; (xxii) modest capital requirements post-2018 with
significant resource expansion available at marginal cost; (xxiii)
substantial resource upside within scope of mine plan; (xxiv)
opportunities for high grade ore acceleration and processing
expansion and realization of anticipated benefits therefrom; (xxv)
significant potential upside from targets identified for further
exploration; and (xxvi) limited cash income taxes payable over the
medium term.
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) risks associated with our dependence on the Renard
Diamond Mine and the limited operating history thereof; (v)
unfavorable developments in general economic conditions and in
world diamond markets; (vi) variations in diamond valuations
and fluctuations in diamond prices from those assumed; (vii)
insufficient demand and market acceptance of our diamonds; (viii)
risks associated with the production and increased consumer demand
for synthetic gem-quality diamonds; (ix) risks relating to
fluctuations in the Canadian dollar and other currencies relative
to the US dollar and variability in interest rates; (x) inaccuracy
of our estimates regarding future financing and capital
requirements and expenditures, significant additional future
capital needs and unavailability of additional financing and
capital, on reasonable terms, or at all; (xi) uncertainties related
to forecasts, costs and timing of the Corporation’s future
development plans, exploration, processing, production and mining
activities; (xii) increases in the costs of proposed capital,
operating and sustainable capital expenditures;
(xiii) increases in financing costs or adverse changes to the
terms of available financing, if any; (xiv) tax rates or
royalties being greater than assumed; (xv) uncertainty of mine
life extension potential and results of exploration in areas of
potential expansion of resources; (xvi) changes in development
or mining plans due to changes in other factors or exploration
results; (xvii) risks relating to the receipt of regulatory
approvals or the implementation of the existing Impact and Benefits
Agreement with aboriginal communities; (xviii) the failure to
secure and maintain skilled employees and maintain key
relationships with financing partners, local communities and other
stakeholders; (xix) risks associated with ongoing issues of diamond
breakage in the Renard Diamond Mine process plant and the failure
to realize the anticipated benefits from plant modification
measures within the anticipated timeframe and expected capital
cost, or at all; (xx) the negative market effects of recent Indian
demonetization and continued impact on pricing and demand; (xxi)
the effects of competition in the markets in which Stornoway
operates; (xxii) operational and infrastructure risks;
(xxiii) execution risk relating to the development of an
operating mine at the Renard Diamond Mine; (xxiv) the Corporation
being unable to meet its Subject Diamonds Interest delivery
obligations under the Purchase and Sale Agreement;
(xxv) future sales or issuances of Common Shares lowering the
Common Share price and diluting the interest of existing
shareholders; (xxvi) the risk of failure of information systems;
(xxvii) the risk that our insurance does not cover all potential
risks; (xxviii) the risks associated with our substantial
indebtedness and the failure to meet our debt service obligations;
and (xxix) 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.