Stornoway Diamond Corporation (TSX:SWY) (the
“Corporation” or “Stornoway”) announced today its results for the
quarter ended March 31, 2017.
Quarter ended March 31, 2017
Highlights
(All quoted figures in CAD$ unless otherwise
noted)
- Commercial production at the Renard Diamond Mine formally
declared, effective January 1, 2017, marking the end of the
project's initial capital expense period.
- 385,151 carats recovered during the quarter from the processing
of 419,233 tonnes of ore, for an attributable grade of 92 cpht,
compared to a plan of 369,307 carats at 91 cpht.
- Diamond sales of 459,126 carats were completed for proceeds of
$48.5 million. Adjusted EBITDA1 of $15.0 million, or 35.9% of
sales.
- Total diamond sales since the project began now stand at
498,039 carats at an average price of US$83 per carat ($110 per
carat2), reflecting higher than expected efficiencies in the
recovery of small diamonds and higher than expected diamond
breakage experienced during processing ramp-up.
- Cash operating costs per tonne processed1 of $57.86 per tonne
($62.99 per carat) and capital expenditures1 of $17.1 million, both
well within plan.
- Mining in the Renard 2-3 and Renard 65 open pits comprised
1,245,021 tonnes, or 112% of plan, with 625,576 tonnes of ore
extracted. Underground mine development comprised 1,459 meters, or
113% of plan.
- Reported a net loss of $3.0 million or $Nil per share on a
basic basis and a loss of $0.01 per share on a fully diluted
basis.
- At quarter end, cash, cash equivalents and short-term
investments stood at $72.1 million.
- Available liquidity1 to the Corporation, comprising cash and
cash equivalents and available credit facilities, net of payables
and receivables, stood at $153 million.
1 See “Non-IFRS Financial Measures” section.
2 Based on an average C$: US$ conversion
rate of $1.33.
Matt Manson, President and CEO, commented: “This
quarter represents the first full operating period for the Renard
Mine. Mining rates, development progress in the underground mine,
and carat production all continue to exceed plan. Mining costs and
capital expenditures are tracking within budget. Achieved pricing
in our first tender sales reflects the higher than normal levels of
diamond breakage that we have been experiencing during the first
months of processing ramp up. Pricing has also been impacted by a
better than expected liberation of small diamonds and the market
effects of Indian demonetization. Nevertheless, we are seeing
positive trends in both the quality of our diamond production and
in rough market pricing. We are particularly encouraged by the
market’s reception for Quebec’s first diamond production. Yields of
polished from the rough are reported as high, with good performance
during manufacturing. Achieved pricing in the tender sales has been
progressively higher compared to our reserve pricing as the market
gains an understanding of the production, and tender participation
has been strong. This trend has continued into the first sale of
the second quarter, which was completed in April. As our production
ramp-up continues, our focus remains the quality of our diamond
recovery profile and the continued growth of our diamond
sales.”
Financial Summary
Sales proceeds during the quarter totalled $48.5
million. This was the first quarter after the declaration of
commercial production, and there were no sales in the comparable
period. Sales include $6.8 million of deferred revenue relating to
prior payments received by the Corporation under its streaming
agreement. Total cost of sales were $36.4 million, with adjusted
EBITDA1 of $15.0 million, or 35.9% of total sales. Net loss was
$3.0 million, or $Nil per share and $0.01 loss per share fully
diluted. Income during the quarter was impacted, amongst other
things, by a gain in the fair value of an embedded derivative,
interest charges relating to the company’s borrowings, and
inventory variations relating to the accumulation of the project’s
ore stockpile. Stornoway ended the quarter with cash, cash
equivalents and short-term investments of $72.1 million, compared
with $86.0 million at the end of the previous quarter. At quarter
end, total financial liquidity, comprising cash and cash
equivalents, receivables and available credit facilities stood at
$153 million.
Financial Highlights
(expressed in thousands of Canadian dollars , except otherwise
noted)
|
|
Three months ended |
|
|
Mar. 31,2017 |
Mar. 31,2016 |
|
|
|
|
Revenues |
|
48,492 |
|
─ |
|
Cost of goods sold |
|
36,420 |
|
─ |
|
Selling, general and
administrative expenses |
|
5,120 |
|
2,408 |
|
Exploration
expenses |
|
646 |
|
609 |
|
Gain on sale of
interests in exploration properties |
|
(400 |
) |
─ |
|
Financial (income)
expenses |
|
(2,730 |
) |
26,193 |
|
Foreign exchange
gain |
|
(1,019 |
) |
(6,600 |
) |
Net (loss) income
before tax |
|
10,455 |
|
(22,610 |
) |
Income tax expense |
|
13,430 |
|
─ |
|
Net loss |
|
(2,975 |
) |
(22,610 |
) |
Loss Per Share -
Basic |
|
Nil |
|
(0.03 |
) |
Loss per share -
Diluted |
|
(0.01 |
) |
(0.03 |
) |
Adjusted EBITDA1 |
|
14,963 |
|
(2,300 |
) |
Adjusted EBITDA margin
(%)1 |
|
35.9 |
% |
N/A |
|
Capital
expenditures1 |
|
17,083 |
|
N/A |
|
Environment, Health, Safety and Communities
One lost time incident (“LTI”) was recorded
during the quarter, for a year to date LTI rate of 2.3 for
contractors and zero for Stornoway employees. No incidents of
environmental non-compliance were recorded during the quarter.
Daily manpower at site in March averaged 272 workers, of which
19.5% were Crees of the Eeyou Istchee. Stornoway employees stood at
451 as at March 31, 2017, including 395 at the mine site, of which
14% were Crees, 25% were from Chibougamau and Chapais, and 61% were
from outside the region.
Mining and Processing
Commercial Production at the Renard Mine was
officially declared on January 1, 2017, marking the end of the
project’s initial capital expense period. During the first quarter
1,245,021 tonnes were mined from the Renard 2-3 and Renard 65 open
pits, compared to a plan of 1,108,149 tonnes, with 625,576 tonnes
of ore extracted. 419,233 tonnes of ore were processed with a
diamond recovery of 385,151 carats at 92 cpht, compared to a plan
of 406,000 tonnes and 369,307 carats at 91 cpht (increases of 3%,
4% and 1% respectively). Ore processed comprised primarily Renard 2
material, and was derived from both the working open pit and the
ore stockpile. Processing rates during the quarter averaged 4,279
tonnes per day compared to a nameplate capacity of 6,000 tonnes per
day as the project ramp-up continued.
Elevated levels of diamond breakage in the
process plant continues to influence the quality and size
distribution of diamond recoveries. Mitigation activities are
ongoing, and are focussed on achieving optimal crushing conditions
in the Cone Crusher and High Pressure Grinding Roll, reducing the
waste content in the ore-feed, and in minimizing re-circulation
within the plant, particularly of free diamonds and waste. Initial
progress has been encouraging.
Development of the underground mine was 1,459
meters compared to a plan of 1,295 meters, and is now comfortably
ahead of schedule. Development within ore at the 160 meters level
is well advanced and ground conditions remain excellent. There has
been no recurrence of the water inflow issues that affected ramp
development in late 2015 and early 2016.
Cash operating costs per tonne processed were
$57.86 per tonne1 ($62.99 per carat) compared to a plan for the
quarter of $60.14 per tonne ($66.12 per carat). Capital
expenditures1 were $17.1 million, primarily related to the
development of the underground mine.
Diamond Sales
Stornoway sold a total of 459,126 carats during
the quarter in 3 tender sales and 4 out-of-tender sales. All
parcels of smaller and lower quality items that had been withdrawn
from sale in the first Renard tender in November 2016 have now been
sold, and the Corporation ended the quarter with no carried
inventory other than normal mine production as goods in
progress.
Total sales recorded to the end of March 2017
have been 498,039 carats sold for proceeds of $54.5 million, or
US$83 per carat ($110 per carat). These sales represent diamonds
recovered between July 2016 and January 2017, during which the
Corporation was experiencing high levels of diamond breakage in its
process plant, and a higher recovery of small diamonds compared to
plan. Realised prices in certain product categories were also
impacted by the recent demonetization events in India. Pricing is
expected to increase during the course of the year as breakage
mitigation efforts continue and pricing for smaller and lower
quality items recovers. Adjustments have also been made to the
plant’s bottom screen cut-off to reduce the proportion of fines
recovered, bringing it into compliance with the bottom size cut-off
defined in the Mineral Resource and allowing higher future plant
capacity. This will have the effect of reducing the proportion of
small diamonds recovered, with a commensurate increase in average
diamond pricing. Stornoway expects to achieve an annual average
sales price in FY2017 of between US$100 and US$132 per carat, as
per previous guidance.
Stornoway expects to conduct two tender sales in
the second quarter, three in the third, and two again in the fourth
quarter.
Exploration Update
Exploration programs are ongoing on the
Corporation’s 100% owned generative Canadian diamond projects,
including the Adamantin property located approximately 100 km south
of the Renard Diamond Project and 25 km west of the Route 167
Extension road. Adamantin now comprises 28,171 hectares of
claims in three blocks, following recent additional land
acquisitions. Till sampling at Adamantin during 2015 confirmed the
presence of indicator mineral anomalies interpreted to be sourced
from undiscovered kimberlites with diamond potential, with one till
sample having a diamond in the +0.25mm-0.50mm size fraction.
Drilling during March and April of 2016 resulted in the discovery
of 11 distinct kimberlite bodies, as announced on May 5, 2016. As
announced September 1, 2016, no diamonds were recovered from these
samples, leaving the source of the diamond in till unexplained.
Further till sampling and geophysical surveys undertaken in 2016,
have identified additional targets of interest. Drilling activities
commenced before the end of the current quarter and were completed
in April 2017. Two new kimberlites have been discovered and sampled
for their potential diamond content. These results are not yet
available.
Conference Call and Webcast
Stornoway will host a first quarter earnings
conference call for analysts and investors on May 10, 2017 at
8:30am EST. This call may be accessed by calling
1-844-215-3287 toll free in North America, of 1-209-905-5939 from
international locations, with Conference ID 13010334. A live
webcast of the call will be available at
http://edge.media-server.com/m/p/5bzg2zeu. A replay of the call,
and a copy of the earnings presentation, will be made available on
the Stornoway website at www.stornowaydiamonds.com.
Non-IFRS Financial Measures
This press release refers to certain financial
measures, such as EBITDA, Adjusted EBITDA, Cash Operating Cost per
Tonne Ore Processed, Capital Expenditures and Available Liquidity,
which are not measures recognized under IFRS and do not have a
standardized meaning prescribed by IFRS. Please refer to the
interim management and discussion analysis of the current quarter
for more details about calculation of these financial measures in
the “Non IFRS Financial Measures” section.
“EBITDA” is the term the Corporation uses as an
approximate measure of pre-tax operating cash flow and is generally
used to better measure performance and evaluate trends of
individual assets. EBITDA comprises earnings before deducting
interest and other financial charges, income taxes and
depreciation.
“Adjusted EBITDA” is the calculation of EBITDA
adjusted by all the non-cash items that are included in the EBITDA
calculation. These items are share based compensation and the
depreciation of deferred revenue. Also, exploration costs do not
reflect the operating performance of the Corporation and are not
indicative of future operating results. “Adjusted EBITDA Margin” is
the calculation of Adjusted EBITDA divided by total revenues less
amortization of deferred revenue from the Renard Stream.
“Cash Operating Cost per Tonne Processed” is the
term the Corporation uses to describe operating expenses (including
inventory variation which includes depreciation) per tonne
processed on a cash basis. This is calculated as cash operating
cost divided by tonnes of ore processed for the period. This ratio
provides the user with the total cash costs incurred by the mine
during the period per tonne of ore processed, including
mobilization costs. The most directly comparable measure calculated
in accordance with IFRS is operating expenses. “Cash Operating Cost
per Carats Recovered” is the total cash operating cost divided by
carats recovered.
“Capital Expenditure” is the term used to
describe cash capital expenditure incurred. This measure is
consistent with that used in the $78.7M capital cost estimate
previously provided as guidance for the fiscal year 2017.
“Available Liquidity” comprises cash and cash
equivalents, short-term investments and available credit facilities
(less related upfront fees), net of payables and receivables.
About the Renard Diamond
Project
The Renard Diamond Mine is Quebec’s first
producing diamond mine and Canada’s sixth. It is located
approximately 250 km north of the Cree community of Mistissini and
350 km north of Chibougamau in the James Bay region of
north-central Québec. Construction on the project commenced on July
10, 2014, and commercial production was declared on January 1,
2017. Average annual diamond production is forecast at 1.8 million
carats per annum over the first 10 years of mining. Readers are
referred to the technical report dated January 11, 2016, in respect
of the September 2015 Mineral Resource estimate, and the technical
report dated March 30, 2016, in respect of the March 2016 Updated
Mine Plan and Mineral Reserve Estimate for further details and
assumptions relating to the project.
Qualified Persons
Disclosure of a scientific or technical nature
in this press release was prepared under the supervision of M.
Patrick Godin, P.Eng. (Québec), Chief Operating Officer, and Mr.
David Farrow, Pr.Sci.Nat (South Africa) and P.Geo. (BC), Vice
President Diamonds. Stornoway’s exploration programs are supervised
by Robin Hopkins, P.Geol. (NT/NU), Vice President, Exploration.
Each of M. Godin, Mr. Farrow and Mr. Hopkins are “qualified
persons” under NI 43-101.
About Stornoway Diamond
Corporation
Stornoway is a leading Canadian diamond
exploration and development company listed on the Toronto Stock
Exchange under the symbol SWY and headquartered in Montreal. Our
flagship asset is the 100% owned Renard Diamond Project, Québec’s
first diamond mine. Stornoway is a growth oriented company with a
world-class asset, in one of the world’s best mining jurisdictions,
in one of the world’s great mining businesses.
On behalf of the BoardSTORNOWAY DIAMOND
CORPORATION/s/ “Matt Manson”Matt MansonPresident and Chief
Executive
For more information, please contact Matt Manson
(President and CEO) at 416-304-1026 x2101or Orin Baranowsky
(Interim CFO and Vice President, Investor Relations and Corporate
Development) at 416-304-1026 x2103 or toll free at
1-877-331-2232
Pour plus d’information, veuillez contacter M.
Ghislain Poirier, Vice-président Affaires publiques de
Stornoway au 418-254-6550, gpoirier@stornowaydiamonds.com
** Website: www.stornowaydiamonds.com Email:
info@stornowaydiamonds.com **
FORWARD-LOOKING STATEMENTS
This document contains forward-looking
information (as defined in National Instrument 51 102 – Continuous
Disclosure Obligations) and forward-looking statements within the
meaning of Canadian securities legislation and the United States
Private Securities Litigation Reform Act of 1995 (collectively
referred to herein as “forward-looking information” or
“forward-looking statements”). These forward-looking statements are
made as of the date of this document and, the Corporation does not
intend, and does not assume any obligation, to update these
forward-looking statements, except as required by law.
These forward-looking statements relate to
future events or future performance and include, among others,
statements with respect to Stornoway’s objectives for the ensuing
year, our medium and long-term goals, and strategies to achieve
those objectives and goals, as well as statements with respect to
our management’s beliefs, plans, objectives, expectations,
estimates, intentions and future outlook and anticipated events or
results. Although management considers these
assumptions to be reasonable based on information currently
available to it, they may prove to be incorrect.
Forward-looking statements made in this document
include, but are not limited to, statements with respect to: (i)
the amount of Mineral Reserves, Mineral Resources and exploration
targets; (ii) the amount of future production over any period;
(iii) net present value and internal rates of return of the mining
operation; (iv) assumptions relating to recovered grade, size
distribution and quality of diamonds, average ore recovery,
internal dilution, mining dilution and other mining parameters set
out in the 2016 Technical Report as well as levels of diamond
breakage; (v) assumptions relating to gross revenues, cost of
sales, cash cost of production, gross margins estimates, planned
and projected capital expenditure, liquidity and working capital
requirements; (vi) mine expansion potential and expected mine life;
(vii) expected time frames for completion of permitting and
regulatory approvals related to ongoing construction
activities at the Renard Diamond Mine; (viii) the expected
time frames for the completion of the open pit and underground mine
at the Renard Diamond Mine; (ix) the expected time frames for the
ramp-up and achievement of plant nameplate capacity of the Renard
Diamond Mine (x) the expected financial obligations or costs
incurred by Stornoway in connection with the ongoing development of
the Renard Diamond Mine; (xi) future exploration plans; (xii)
future market prices for rough diamonds; (xiii) the economic
benefits of using liquefied natural gas rather than diesel for
power generation; (xiv) sources of and anticipated financing
requirements; (xv) the effectiveness, funding or availability, as
the case may require, of the Senior Secured Loan and the remaining
Equipment Facility and the use of proceeds therefrom; (xvi) the
Corporation’s ability to meet its Subject Diamonds Interest
delivery obligations under the Purchase and Sale Agreement; (xvii)
the impact of the Financing Transactions on the Corporation’s
operations, infrastructure, opportunities, financial condition,
access to capital and overall strategy; (xviii) the foreign
exchange rate between the US dollar and the Canadian dollar; and
(xix) the availability of excess funding for the operation of the
Renard Diamond Mine. Any statements that express or involve
discussions with respect to predictions, expectations, beliefs,
plans, projections, objectives, assumptions or future events or
performance (often, but not always, using words or phrases such as
“expects”, “anticipates”, “plans”, “projects”, “estimates”,
“assumes”, “intends”, “strategy”, “goals”, “objectives”, “schedule”
or variations thereof or stating that certain actions, events or
results “may”, “could”, “would”, “might” or “will” be taken, occur
or be achieved, or the negative of any of these terms and similar
expressions) are not statements of historical fact and may be
forward-looking statements.
Forward-looking statements are made based upon
certain assumptions by Stornoway or its consultants and other
important factors that, if untrue, could cause the actual results,
performances or achievements of Stornoway to be materially
different from future results, performances or achievements
expressed or implied by such statements. Such statements and
information are based on numerous assumptions regarding present and
future business prospects and strategies and the environment in
which Stornoway will operate in the future, including the recovered
grade, size distribution and quality of diamonds, average ore
recovery, internal dilution, and levels of diamond breakage, the
price of diamonds, anticipated costs and Stornoway’s ability to
achieve its goals, anticipated financial performance, regulatory
developments, development plans, exploration, development and
mining activities and commitments, and the foreign exchange rate
between the US and Canadian dollars. Although management considers
its assumptions on such matters to be reasonable based on
information currently available to it, they may prove to be
incorrect. Certain important assumptions by Stornoway or its
consultants in making forward-looking statements include, but are
not limited to: (i) required capital investment and estimated
workforce requirements; (ii) estimates of net present value and
internal rates of return; (iii) recovered grade, size distribution
and quality of diamonds, average ore recovery, internal dilution,
mining dilution and other mining parameters set out in the 2016
Technical Report as well as levels of diamond breakage, (iv)
receipt of regulatory approvals on acceptable terms within commonly
experienced time frames; (v) anticipated timelines for ramp-up and
achievement of nameplate capacity at the Renard Diamond Mine, (vi)
anticipated timelines for the development of an open pit and
underground mine at the Renard Diamond Mine; (vii) anticipated
geological formations; (viii) market prices for rough diamonds and
their potential impact on the Renard Diamond Mine; (ix) the
satisfaction or waiver of all conditions under the Senior Secured
Loan and the remaining Equipment Facility to allow the Corporation
to draw on the funding available under those financing elements;
(x) Stornoway’s interpretation of the geological drill data
collected and its potential impact on stated Mineral Resources and
mine life; (xi) future exploration plans and objectives; (xii) the
Corporation’s ability to meet its Subject Diamonds Interest
delivery obligations under the Purchase and Sale Agreement; and
(xiii) the continued strength of the US dollar against the Canadian
dollar.
By their very nature, forward-looking statements
involve inherent risks and uncertainties, both general and
specific, and risks exist that estimates, forecasts, projections
and other forward-looking statements will not be achieved or that
assumptions do not reflect future experience. We caution readers
not to place undue reliance on these forward- looking statements as
a number of important risk factors could cause the actual outcomes
to differ materially from the beliefs, plans, objectives,
expectations, anticipations, estimates, assumptions and intentions
expressed in such forward-looking statements. These risk factors
may be generally stated as the risk that the assumptions and
estimates expressed above do not occur, including the assumption in
many forward-looking statements that other forward-looking
statements will be correct, but specifically include, without
limitation: (i) risks relating to variations in the grade, size
distribution and quality of diamonds, kimberlite lithologies and
country rock content within the material identified as Mineral
Resources from that predicted; (ii) variations in rates of recovery
and levels of diamond breakage; (iii) the uncertainty as to whether
further exploration of exploration targets will result in the
targets being delineated as Mineral Resources; (iv) developments in
world diamond markets; (v) slower increases in diamond valuations
than assumed; (vi) risks relating to fluctuations in the Canadian
dollar and other currencies relative to the US dollar; (vii)
increases in the costs of proposed capital, operating and
sustainable capital expenditures; (viii) increases in financing
costs or adverse changes to the terms of available financing, if
any; (ix) tax rates or royalties being greater than assumed; (x)
uncertainty of results of exploration in areas of potential
expansion of resources; (xi) changes in development or mining plans
due to changes in other factors or exploration results; (xii)
risks relating to the receipt of regulatory approvals or the
implementation of the existing Impact and Benefits Agreement with
aboriginal communities; (xiii) the effects of competition in the
markets in which Stornoway operates; (xiv) operational and
infrastructure risks; (xv) execution risk relating to the
development of an operating mine at the Renard Diamond Mine; (xvi)
failure to satisfy the conditions to the funding or availability,
as the case may require, of the Senior Secured Loan and the
Equipment Facility; (xvii) changes in the terms of the Forward Sale
of Diamonds, the Senior Secured Loan or the Equipment Facility;
(xviii) the funds of the Senior Secured Loan or the Equipment
Facility not being available to the Corporation; (xix) the
Corporation being unable to meet its Subject Diamonds Interest
delivery obligations under the Purchase and Sale Agreement; (xx)
future sales or issuances of Common Shares lowering the Common
Share price and diluting the interest of existing shareholders; and
(xxi) the additional risk factors described herein and in
Stornoway’s annual and interim MD&A’s, most recently filed AIF,
its other disclosure documents and Stornoway’s anticipation of and
success in managing the foregoing risks. Stornoway cautions that
the foregoing list of factors that may affect future results is not
exhaustive and new, unforeseeable risks may arise from time to
time. and (xxi) the additional risk factors described herein and in
Stornoway’s annual and interim MD&A’s, most recently filed AIF,
its other disclosure documents and Stornoway’s anticipation of and
success in managing the foregoing risks. Stornoway cautions that
the foregoing list of factors that may affect future results is not
exhaustive and new, unforeseeable risks may arise from time to
time.