Stornoway Diamond Corporation (TSX:SWY)
(the “Corporation” or “Stornoway”) is pleased to
provide production and sales results at the Renard Diamond Mine for
the second quarter ended June 30, 2018. Highlights are as
follows:
(All quoted figures in CAD$ unless otherwise
noted)
- 201,283 carats sold in two tender sales for gross proceeds1 of
$28.6 million2 at an average price of US$109 per carat ($142 per
carat2).
- Second quarter diamond production was 223,351 carats produced
from the processing of 562,060 tonnes of ore at an average grade of
40 carats per hundred tonnes (“cpht”). Grade and carat recoveries
during the quarter reflect the processing of lower grade production
ore and ore stockpiles as the Renard Mine transitions from open pit
to underground mining.
- Mining in the Renard 3 open pit concluded in April. Ramp up of
the underground mine production progressed steadily during the
quarter, with mined underground tonnes averaging 3,864 tonnes per
day (“tpd”) in June.
- Commissioning of the ore sorting plant, which commenced in
March, was completed during the quarter and is now fully
operational. Waste rejected represents between 15% and 30% of
material sorted, with 1-2% kimberlite content in the reject stream.
Diamonds recovered since sorting commenced exhibit low levels of
breakage.
Matt Manson, President and CEO of Stornoway
commented “Our second quarter production and sales report reflects
the ongoing transition from open pit to underground mining and the
introduction of ore-waste sorting. By the end of the quarter this
transition was essentially complete, albeit with a slower than
expected underground ramp-up because of lengthening lead times on
mobile mining equipment. We have been particularly encouraged by
the performance of the new ore sorting plant. Initial diamond
results are encouraging, and given the volume and quality of the
waste that is being rejected we see the potential for processing
capacity in our plant beyond its current name-plate rating.
Exploiting this potential new capacity will involve the development
of a modified mine plan to support the accelerated mining required,
and permitting.” Matt Manson continued: “The end of the second
quarter also marks the end of the principal construction capital
spending at Renard. The second half of the year is expected to see
lower capital spending, higher processing rates and higher grades
and carat recoveries. We are also seeing the rough diamond market
continue to strengthen on the basis of strong market fundamentals
and consumer demand. On this basis, we are engaged with our lenders
on the modification of certain debt instruments to better suit the
working capital requirements of the business over the longer term.
These discussions are ongoing and progressing well.”
Second Quarter Diamond Sales
Results
The second quarter sales of 201,283 carats
represented run-of-mine production recovered between February and
March 2018. Gross proceeds1 were $28.6 million2 at an average price
of US$109 per carat ($142 per carat2). On a segmented basis,
147,008 carats of +7 DTC sieve size diamonds were sold at an
average price of US$142 per carat ($185 per carat2), and 54,275
carats of -7 DTC sieve size diamonds were sold at an average price
of US$20 per carat ($26 per carat2). These results exclude sales
from the third tender sale of the first quarter, being 127,616
carats sold at an average price of US$123 per carat ($156 per
carat3), which were recorded as revenues in the second quarter, as
deliveries to clients were made at the beginning of the second
quarter.
In addition to the sale of run of mine
production, an additional 41,979 carats of diamonds smaller than
the -7 DTC sieve size were sold in an out of tender contract sale
for gross proceeds1 of $1.0 million4 at an average price of
US$18.50 per carat ($25 per carat4). These represent recoveries of
small diamond “incidentals” produced between March and May 2018
that are in excess of that expected from the Renard Mineral
Resource. The sale of such incidentals represents incremental
revenue above that provided for in Stornoway’s FY2018 segmented
sales guidance.
Second Quarter Production
Results
Second quarter production was 223,351 carats
recovered from the processing of 562,060 tonnes of ore at an
attributable grade of 40 carats per hundred tonnes. Grade and carat
recoveries during the quarter reflect the processing of lower grade
ore as the Renard Mine transitions from open pit to underground
mining. Open pit mining at Renard 2 was completed in March and at
Renard 3 in April. Ore processed during the quarter was sourced
primarily from the underground mine, from low grade stockpiles, and
from the Renard 65 open pit. Carat production during the second
quarter was consistent with the revised guidance for the Renard
Mine issued on May 15, 2018.
Ramp up of the Renard 2 underground mine
production progressed during the second quarter, with average daily
production rates being 1,538 tpd in April, 4,342 tpd in May, and
3,864 tpd in June. Development of an Assisted Block Cave as the
principal mining method in the underground mine is proceeding well,
with the focus being on achieving optimum granulometry for the
blasted ore and opening up multiple panels to support the planned
mining rate. Currently, however, production rates are being
restricted more by equipment availability than by the quantity of
ore in drawpoints available for mucking. As expected, the low
grades and high dilution observed in the initial panels developed
at the margin of the ore body are giving way to higher grades and
lower dilution as mining panels are opened within the main body of
the kimberlite. Processing rates in the quarter averaged 6,460
tonnes per day compared to an annual plan of 7,000 tonnes per
day.
The new ore sorting plant (“OSP”) at Renard was
commissioned during the quarter, and has been processing ore on a
consistent basis since mid-May. The volume and quality of waste
segregated from the ore-feed has exceeded expectations, with waste
rejected representing between 15% and 30% of material sorted.
Kimberlite content in the waste stream has averaged between 1% and
2%.
This has resulted in a significant reduction in
process plant head-feed and opened up new plant capacity for future
exploitation. Because the waste within the Renard ore is hard and
difficult to crush, its rejection from the main process plant has
also resulted in a net reduction in power consumption for
processing even with the addition of the new sorting circuit.
Considering the highly abrasive characteristics
of the ore processed to date through the OSP, consisting mainly of
highly diluted, low grade material, the diamonds recovered since
its introduction have exhibited lower levels of breakage than
observed previously with comparable feed composition.
Balance Sheet and Financial
Liquidity
At quarter end, cash and cash equivalents stood
at $31.6 million and Available Liquidity5 to the Corporation,
including available credit facilities, stood at $46.5 million (on a
preliminary and unaudited basis). These amounts exclude $15.9
million representing restricted deposits related to debt service
reserve accounts. During the second quarter the Corporation was
engaged in discussions with its lenders to amend the terms of
certain debt instruments to better suit the working capital
requirements of the business pending the expected attainment of
free cash flow. Pursuant to these discussions, which are ongoing,
both Diaquem Inc., a wholly owned subsidiary of Investissement
Quebec and Stornoway’s senior lender, and Fonds de Solidarité FTQ,
an unsecured lender, have agreed to the deferral of principal
payments totalling $10.4 million (on senior and unsecured
indebtedness totalling $129.7 million) from June 30, 2018 to
September 30, 2018. Diaquem Inc. also agreed to waive the
obligation of the Corporation to meet the historical debt service
coverage ratio and the projected debt service coverage ratio under
the credit agreement dated July 8, 2014, until September 30,
2018.
NON-IFRS FINANCIAL MEASURES
This document refers to certain financial
measures, such as 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.
Available Liquidity
“Available Liquidity” comprises cash and cash
equivalents and available credit facilities (less related upfront
fees) and is used by the management and investors to measure the
amount of cash resources available to the Corporation, over and
above the cash generated from operations, to support the operating
and capital requirements of the business.
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 a
“qualified person” 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 Sébastien Huot (Manager, Financial Reporting and Investor
Relations) at 450-616-5555 x2223 or toll free at 1-877-331-2232Pour
plus d’information, veuillez contacter Sébastien Huot (Directeur,
Information Financière et Relations Investisseurs) au 450-616-5555
x2223, shuot@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, carats recovered, carats sold,
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, carats recovered, carats sold,
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.
____________________
1 Before stream and royalty.
2 Based on an average $: US$ conversion rate of
$1.30
3 Based on an average $: US$ conversion rate of
$1.26
4 Based on an average $: US$ conversion rate of
$1.33
5 See “Non-IFRS Financial Measures” section