Stornoway Diamond Corporation (TSX:SWY; the “Corporation”
or “Stornoway”) is pleased to report financial and
operating results for the quarter ended June 30, 2018.
QUARTER ENDED JUNE 30, 2018
HIGHLIGHTS:
(All quoted figures in CAD$, unless otherwise
noted)
- For the three months ended June 30,
2018, Stornoway reported a net loss of $35.9 million ($0.04 per
share on a basic and fully diluted basis). Adjusted net loss1 for
the quarter was $31.3 million.
- During the quarter, two tender
sales totalling 201,283 carats were completed for gross proceeds2
of $28.6 million3 at an average price of US$109 per carat ($142 per
carat3). Revenue recognized was $56.9 million, derived from the
sale of 328,899 carats of run of mine production in three tender
sales at an average achieved price1 of US$115 per carat ($147 per
carat1,[4]), and the sale of 41,979 carats of incidental production
in one out of tender contract sale at an average price of US$19 per
carat ($25 per carat5).
- Diamond processing comprised
223,351 carats recovered from 562,060 tonnes of ore at a grade of
40 carats per hundred tonnes (“cpht”). Grade and carat recoveries
reflect the processing of lower grade production ore and ore
stockpiles as the Renard mine transitions from open pit to
underground mining.
- Underground mining during the
quarter comprised 366,550 tonnes, with 296,637 tonnes of ore
extracted. Ramp up of the underground mine production during the
quarter was impeded by equipment availability and drawpoint
management. Subsequent to the quarter end, mining rates at or above
the design capacity of 6,000 tonnes per day have been successfully
achieved.
- 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.
- Cash operating costs per tonne
processed1 were $58.69 per tonne ($147.69 per carat) and capital
expenditures1 were $19.9 million.
- For the second quarter of FY2018,
Stornoway reported adjusted EBITDA1 of $(6.4) million, or (13.1)%
of Adjusted Revenues1, which includes an $10.9 million write-down
of cash costs to bring inventory to its net realizable value.
- At quarter end, cash and cash
equivalents stood at $31.6 million and Available Liquidity1,
including available credit facilities, stood at $46.5 million.
1 See
“Non-IFRS Financial Measures” section2 Before stream and royalty3
Based on an average $:US$ conversion rate of $1.304 Based on an
average $:US$ conversion rate of $1.295 Based on an average $:US$
conversion rate of $1.33 |
Matt Manson, President and CEO, commented: “Our
second quarter results reflect the continuing transition to
underground mining at Renard, and the accompanying lower carat
recoveries and sales during the first half of the year. Ramp-up of
the underground mine has been slower than expected, but by the end
of July, subsequent to the quarter-end, we had established
sufficient drawpoints, equipment availability and manpower levels
to achieve mining rates at or above our underground design
capacity. As we move into the central mining areas of the Renard 2
kimberlite, and away from the ore body’s margins, we are also
seeing the expected reduction in dilution and improvement in grade.
Our new ore-sorting plant is performing well, costs are in line
with plan, and we expect better carat recoveries and larger sales
in the second half of the year. Achieving our 2018 production
guidance at Renard, which was revised in May in consequence of the
lower carat recoveries during the ramp-up, will be dependent on
maintaining our current production levels and budgeted grade for
the remainder of the year.” Matt Manson continued: “Construction of
the Renard mine, the ramp-up of processing, the introduction of
ore-sorting, and the construction and ramp-up of the underground
mine has all been achieved with the capital structure established
in our original 2014 construction funding. Sales revenue during
this period has been less than initially forecast, resulting in
lower financial liquidity and cash flow than expected.
Consequently, and as previously reported, we are engaged with our
lenders and key stakeholders on certain amendments to financing
agreements designed to provide greater financial flexibility in our
operations, and provide sufficient working capital to the business
as we work towards attaining free cash flow. These discussions have
been positive and are currently ongoing.”
Table 1. Financial Results Highlights
(expressed
in millions of Canadian dollars, except as otherwise noted) |
|
Three months ended |
|
Six months ended |
|
|
June 30, 2018 |
|
June 30, 2017 |
|
June 30, 2018 |
|
June 30, 2017 |
|
Open pit tonnes mined
(tonnes) |
613,683 |
|
1,328,580 |
|
1,038,606 |
|
2,574,525 |
|
Underground ore tonnes
mined (tonnes) |
296,637 |
|
22,174 |
|
413,435 |
|
36,568 |
|
Ore processed
(tonnes) |
562,060 |
|
512,005 |
|
1,124,580 |
|
931,238 |
|
Carats Recovered |
223,351 |
|
417,362 |
|
509,202 |
|
802,513 |
|
Carats Sold |
370,878 |
|
350,159 |
|
685,060 |
|
809,285 |
|
Revenues |
56.9 |
|
42.6 |
|
112.9 |
|
91.0 |
|
Cost of Goods Sold |
74.9 |
|
32.3 |
|
118.2 |
|
65.9 |
|
Selling, General,
Administrative and Exploration Expenses |
7.8 |
|
5.1 |
|
12.6 |
|
10.5 |
|
Financial expenses |
19.6 |
|
2.2 |
|
37.5 |
|
(0.5 |
) |
Foreign exchange loss
(gain) |
2.3 |
|
(3.2 |
) |
5.5 |
|
(4.3 |
) |
Net (loss) income |
(35.9 |
) |
3.1 |
|
(46.8 |
) |
1.9 |
|
Net loss per Share –
Basic and Diluted |
(0.04 |
) |
Nil |
|
(0.06 |
) |
Nil |
|
Adjusted Net Loss1 |
(31.3 |
) |
(5.0 |
) |
(45.2 |
) |
(7.5 |
) |
Adjusted EBITDA1 |
(6.4 |
) |
(16.8 |
) |
1.0 |
|
38.1 |
|
Adjusted EBITDA margin
(%)1 |
(13.1 |
)% |
39.5 |
% |
1.1 |
% |
41.8 |
% |
Capital
expenditures1 |
19.9 |
|
28.8 |
|
51.0 |
|
48.1 |
|
FINANCIAL SUMMARY
Revenues during the second quarter of 2018
totalled $56.9 million, compared to $42.6 million in the
corresponding period of 2017. Revenues in the current quarter
include $13.5 million recognized from the contract liabilities
related to the upfront proceeds received under the Renard Stream
agreement in consideration for future commitments to deliver
diamonds at contracted prices (June 30, 2017 – $5.1 million).
Stornoway reported net loss of $35.9 million
(June 30, 2017 – $3.1 million net income), and Adjusted Net Loss1
of $31.3 million (June 30, 2017 – $5.0 million), reflecting a
decrease in gross profit, which includes an $18.3 million
write-down to bring stockpile, work-in-progress and finished goods
inventories to their net realizable value, partially offset by an
increase in deferred income tax recovery. Adjusted EBITDA1 stood at
$(6.4) million, representing (13.1)% of adjusted revenues1
(June 30, 2017 – $16.8 million representing 39.5% of
revenues), reflecting an increase in operating expenses, which
includes a $10.9 million write-down of cash costs included in
inventory, to bring stockpile, work-in-progress and finished goods
inventories to their net realizable value, largely attributable to
the processing of lower grade ore as the Renard Mine transitions
from open pit to underground mining.
As at June 30, 2018, cash and cash equivalents
stood at $31.6 million, and available liquidity1, including
available credit facilities, stood at $46.5 million (December 31,
2017 - $101.8 million). These amounts exclude $15.9 million of
restricted cash deposits related to debt service reserve accounts.
Management estimates that the Corporation’s working capital as at
June 30, 2018 will not be sufficient to meet obligations,
commitments and budgeted expenditures through June 30, 2019 (see
“Nature of Operations and Going concern” in Note 1 of the condensed
interim consolidated financial statements for the three and six
months ended June 30, 2018). The Corporation’s ability to pursue
future operations and fund its planned activities is dependent on
Corporation’s ability to secure additional financing in the near
future. During the second quarter, Stornoway was engaged in
discussions with its lenders and key stakeholders to amend the
terms of certain financing agreements to better suit the working
capital requirements of the business pending the expected
attainment of free cash flow. These discussions, which are ongoing,
have thus far received a positive response, including the receipt
of waivers that, among other things, defer $10.4 million principal
payments up to, but excluding, September 30, 2018 in order to
provide sufficient time to allow discussions to proceed.
OPERATIONAL SUMMARY
Environment, Health, Safety and Communities
One lost time incident (“LTI”) was recorded
during the quarter, for a year to date LTI rate of 1.3 for both
contractors and Stornoway employees. Stornoway employees stood at
570 as at June 30, 2018, including 507 mine located employees, of
which 13% were Crees, 23% were from Chibougamau and Chapais, and
64% were from outside the region. No incidences of
environmental non-compliance were reported in the quarter.
Mining and Processing
During the second quarter, 613,682 tonnes were
mined from the Renard 3 and Renard 65 open pits, with 156,813
tonnes of ore extracted. A total of 366,550 production and
development tonnes were mined from the Renard 2 underground mine
during the quarter, of which 296,637 tonnes ore were extracted,
including 295,846 tonnes of ore delivered to the process plant.
Production during the quarter was 223,351 carats recovered from the
processing of 562,060 tonnes of ore at an attributable grade of 40
cpht. 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. Ore processed during the quarter
was sourced primarily from the underground mine, from low grade
stockpiles, and from the Renard 65 open pit. The first mining
panels opened up at the margin of the orebody at the 290 meter
production level of the Renard 2 underground mine are composed of
highly diluted lower grade ore which has impacted carat production.
As expected, however, grades have increased as additional panels
have been opened in less diluted ore within the main body of the
kimberlite.
Ramp up of the Renard 2 underground mine
production progressed during the second quarter. The development of
an Assisted Block Cave as the principal mining method in the
underground mine continued, with current focus on achieving optimum
granulometry for the blasted ore and opening up multiple panels to
support the planned mining rate. Subsequent to the quarter end,
sufficient draw points have been opened, the minimum required
equipment has been delivered and improved manpower levels have been
established to allow the underground mine ore production to be
reached at or above the 6,000 tonnes per day design capacity.
The new ore sorting plant 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.
In the second quarter of 2018, cash operating
cost per tonne processed1 was $58.69 ($147.69 per carat
recovered1), compared to $44.69 per tonne1 ($54.83 per carat
recovered1) in the corresponding period of 2017. The increase in
cash operating cost per tonne processed is explained the transition
to underground mining, while the increase in cash operating cost
per carat recovered is explained by the processing of lower grade
ore during the quarter.
Diamond Sales
During the quarter, two tender sales totalling
201,283 carats were completed for gross proceeds2 of $28.6 million
at an average price of US$109 per carat ($142 per carat1,3).
Revenue recognized during the quarter was derived from 328,899
carats of run of mine production recovered between January and
March 2018. Gross proceeds2 were $48.4 million4 at an average
price1 of US$115 per carat ($147 per carat4). These results include
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 carat6), which were recorded as revenues 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 during the quarter in an out of tender contract sale for gross
proceeds2 of $1.0 million5 at an average price of US$19 per carat
($25 per carat5). These represent recoveries of small diamond
“incidentals” produced between March and May 2018 in excess of that
expected from the Renard Mineral Resource. This compares to 350,159
carats sold in two tender sales events in the first second of 2017,
with gross proceeds2 of $40.9 million at US$87 per carat ($117 per
carat7).
6
Based on an average $:US$ conversion rate of $1.267 Based on an
average $:US$ conversion rate of $1.34 |
Capital Projects
Capital expenditures1 of $19.9 million in the
quarter were principally related to the development of the
underground mine, open pit development in Renard 65, as well as the
construction and commissioning of the ore-waste sorting
circuit.
Capital expenditures in the underground mine
during the second quarter focussed on lateral development on the
290 meter level access and drilling drifts for the upper portion of
the mine, as well as development of the main ramp towards the 470
meter level. A total of 976 meters of lateral development were
completed. Underground mine development in the third quarter will
focus on development of the ramp towards 470 meter level and level
access to the Renard 3 kimberlite.
As the mine completes its transition from open
pit to underground mining operations, the second half of the year
is expected to see a reduction in development capital expenditures,
with emphasis placed on ore production.
EXPLORATION
On January 18, 2018, Stornoway announced an
exploration program to both develop existing resource upside
potential at the Renard Mine and to make new discoveries.
Highlights of the work completed to date are as follows.
RIL Property
Drilling has resulted in the discovery of a new
kimberlite at the RIL Property, a grassroots project located
approximately 80km north of the town of Elliot Lake, Ontario. A
single geophysical target under a small lake was tested with
diamond drilling in February 2018. Although no diamonds were
recovered from 150kg of rock submitted for microdiamond recovery,
or from a 1.3t mini-bulk sample processed for macrodiamond
recovery, kimberlite clusters commonly comprise bodies with
variable diamond contents.
Detailed aeromagnetic surveying completed during
the quarter confirms the presence of additional promising targets
on Stornoway’s current 8,590 ha claim package. Final results of the
geophysical survey are pending, but new staking to cover more
targets identified from preliminary data is underway.
Renard Property
During March and April 2018, three light reverse
circulation (RC) drill rigs tested a total of 91 geophysical
anomalies with 95 holes. Kimberlite chips were recovered at three
targets, indicating the presence of dyke-like bodies, and chips of
Country Rock Breccia or related alteration were recovered at nine
targets. While RC drilling facilitates rapid cost effective
preliminary testing of targets, core drilling will be required to
follow up the CRB discoveries for adjacent or blind kimberlite
diatremes.
NON-IFRS FINANCIAL MEASURES
This document refers to certain financial
measures, such as Adjusted Net Loss, Adjusted Revenues, 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 quarter ended June 30, 2018 for further
discussion of these items, including reconciliations to IFRS
measures.
CONFERENCE CALL AND WEBCAST
Stornoway will host a conference call for
analysts and investors on August 14, 2018 at 11:00 a.m. EDT. This
call may be accessed by calling 1 (844) 215-3287 toll free in North
America, or 1 (209) 905-5939 from international locations, with
Conference ID 9348237. A live webcast of the conference call will
also be available at
https://edge.media-server.com/m6/p/um4rmfby. A
replay of the second quarter earnings conference call will be made
available on Stornoway’s 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 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 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) requirements for and sources of, and access to,
financing and uses of funds; (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, access to financing, 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 favourable 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 not 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) unfavourable 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.