Stornoway Diamond Corporation (TSX:SWY)
(the “Corporation” or “Stornoway”) announced today
its results for the quarter ended September 30, 2017.
Quarter ended September 30, 2017
Highlights
(All quoted figures in CAD$ unless otherwise
noted)
- Net loss of $3.1 million or $Nil per share on a basic and fully
diluted basis.
- 442,154 carats recovered during the quarter from the processing
of 506,381 tonnes of ore compared to a plan of 422,475 carats from
540,000 tonnes (at 87 carats per hundred tonnes, “cpht”, compared
to a plan of 78 cpht).
- Mining in the Renard 2-3 and Renard 65 open pits comprised
1,074,148 tonnes, or 101% of plan, with 523,257 tonnes of ore
extracted. Underground mine development at the end of September
comprised 1,206 meters, or 102% of plan.
- Diamond sales of 405,643 carats were completed with gross
proceeds1 of $48.1 million in the quarter. An additional 32,989
carats were sold during the third quarter for which revenue will be
realized in the fourth quarter as proceeds from the sale were not
received prior to September 30, 2017. Adjusted EBITDA2 was $15.0
million, or 30.0% of revenues.
- Average diamond pricing achieved at sale of US$95 per carat
($119 per carat2-3), compared to US$87 per carat in the second
quarter and US$81 in the first quarter.
- Cash operating costs per tonne processed2 of $57.97 per tonne
($66.39 per carat) and capital expenditures2 of $22.7 million in
the quarter, both within plan.
- During the quarter, a program of plant modification measures
centred on a new ore-waste sorting circuit was approved by the
Board of Directors, with an extraordinary capital cost of $22
million to be funded from existing financial resources.
Construction on the new circuit commenced in September.
- At quarter end, cash, cash equivalents and short-term
investments stood at $52.6 million. Available liquidity2 to the
Corporation, comprising cash and cash equivalents and available
credit facilities, stood at $157.8 million.
1 Before stream and royalty2 See “Non-IFRS Financial Measures”
section.3 Based on an average C$: US$ conversion rate of $1.25.
Matt Manson, president and CEO commented:
“Strong production results in the third quarter were matched by
continued good performance in cost management. Our average
operating cost of $66.39 per carat compares favourably with an
average sales price of $119 per carat, with a beat on carats
produced and grade over our mine plan. This strong underlying
operating result in our business is being achieved even as we
continue our work to improve the quality of our diamond recoveries.
To that end, construction of our new ore-waste sorting
circuit is well in hand, with commissioning scheduled for the first
quarter of 2018. Our pricing at sale is increasing quarter by
quarter, although a correction at the end of the third quarter
served to slow the rate of increase, and we foresee a flat outlook
for the rest of the year. At quarter-end we reported another strong
balance sheet of cash and available credit facilities, positioning
us favourably to complete our capital programs in 2017 and the
first half of 2018.”
Financial Summary
Revenue during the quarter totalled $50.0
million. This was the third quarter after the declaration of
commercial production, and there were no sales in the comparable
period. Revenue includes $6.0 million related to the amortization
of upfront proceeds received by the Corporation under the Renard
Stream agreement in consideration for future commitments to deliver
diamonds at contracted prices. The Corporation’s cost of sales were
$49.2 million related to mining, processing, rough diamond sorting
activities, site services and depreciation, with adjusted EBITDA of
$15.0 million, or 30.0% of sales. The increase in adjusted EBITDA
as compared to prior years was due to two tender sales in the third
quarter of 2017 compared to none in the comparable period of 2016,
as the Renard Diamond Mine was in the construction phase. Financial
expenses for the second quarter were $5.4 million. During the
quarter, the Corporation recorded interest expense of $6.9 million
which was partially offset by an unrealized gain on the fair value
of derivatives embedded in the Corporation’s convertible debentures
of $1.9 million. Revenue during the nine months ended September 30,
2017, totalled $141.0 million.
Financial Highlights (expressed in thousands of
Canadian dollars , except otherwise noted)
|
Three months ended |
|
Nine months ended |
|
|
Sept. 30,2017 |
|
Sept. 30,2016 |
|
Sept 30,2017 |
|
Sept 30,2016 |
|
|
|
|
|
|
Revenues |
49,977 |
|
─ |
|
141,019 |
|
─ |
|
Cost of goods sold |
49,165 |
|
─ |
|
119,478 |
|
─ |
|
Selling, general and
administrative expenses |
4,281 |
|
3,151 |
|
13,604 |
|
8,811 |
|
Exploration
expenses |
179 |
|
432 |
|
1,760 |
|
2,341 |
|
Gain on sale of
interests in exploration properties |
─ |
|
─ |
|
(400 |
) |
─ |
|
Financial (income)
expenses |
5,410 |
|
11,069 |
|
4,891 |
|
25,461 |
|
Foreign exchange (gain)
loss |
(4,312 |
) |
896 |
|
(8,572 |
) |
(4,234 |
) |
Net (loss) income
before tax |
(4,746 |
) |
(15,548 |
) |
10,258 |
|
(32,379 |
) |
Income tax expense |
(1,673 |
) |
─ |
|
13,968 |
|
─ |
|
Net income (loss) |
(3,073 |
) |
(15,548 |
) |
(3,710 |
) |
(32,379 |
) |
Income (loss) per Share
– Basic |
Nil |
|
(0.02 |
) |
Nil |
|
(0.04 |
) |
Income (loss) per share
– Diluted |
Nil |
|
(0.02 |
) |
Nil |
|
(0.04 |
) |
Adjusted EBITDA2 |
15,018 |
|
(3,583 |
) |
49,856 |
|
(11,152 |
) |
Adjusted EBITDA margin
(%)2 |
30.0 |
% |
N/A |
|
35.4 |
% |
N/A |
|
Capital
expenditures2 |
22,714 |
|
N/A |
|
63,772 |
|
N/A |
|
Environment, Health, Safety and Communities
No lost time incidents (“LTI”) were recorded
during the quarter, for a year to date LTI rate of 0.6 for
contractors and zero for Stornoway employees. No incidents of
environmental non-compliance were recorded during the quarter.
Daily manpower at site in September averaged 337 workers of which
16.8% were Crees of the Eeyou Istchee. Stornoway employees stood at
492 as at September 30, 2017, including 433 at the mine site, of
which 13% were Crees, 26% were from Chibougamau and Chapais, and
61% were from outside the region.
Mining and Processing
During the second quarter 1,074,148 tonnes were
mined from the Renard 2-3 and Renard 65 open pits, compared to a
plan of 1,067,056 tonnes (+1%), with 523,257 tonnes of ore
extracted. 506,381 tonnes of ore were processed with a diamond
recovery of 442,154 carats at an attributable grade of 87cpht,
compared to a plan of 540,000 tonnes and 422,475 carats at 77 cpht
(+5%, -6% and +12% respectively). Processed ore was derived from
the Renard 2 and Renard 3 kimberlites, and sourced from the open
pit, the ore stockpiles and from development drifts in the
underground mine.
Processing rates during the quarter averaged
5,957 tonnes per day excluding a 7 day scheduled annual maintenance
shutdown in July compared to a nameplate capacity of 6,000 tonnes
per day at 78% utilization.
Cash operating costs per tonne processed were
$57.972 ($66.39 per carat processed2-3) compared to a plan of
$61.062 ($78.04 per carat processed2). Cash costs per tonne were in
line with plan, while costs per carat processed were lower than
plan reflecting the higher volume of carats recovered during the
quarter compared to plan.
Diamond Sales
Stornoway sold a total of 405,643 carats during
the quarter in 2 tender sales (2017 sales #6 and #7) with gross
proceeds1 of $48.1 million at an average price of US$95 per carat
($119 per carat2,3). These amounts exclude 32,989 carats included
in the final tender of the quarter, but for which revenue will be
recognized in the fourth quarter as proceeds from the sale were not
received prior to September 30, 2017. At quarter-end, the
Corporation held no excess diamond inventory other than normal
course goods in progress. Stornoway expects to conclude two
additional tenders in the fourth quarter.
Capital Projects
Capital expenditures2 in the third quarter were
$22.7 million, primarily related to the development of the
underground mine.
Development of the underground mine during the
quarter focussed on lateral development in kimberlite at the 160
meter level, development of the production drifts at the 240, 270
and 290 meter levels, and on the fresh air raise. Lateral
development comprised 1,206 meters compared to a plan of 1,177
meters (+2%). Ground conditions have been good and there has been
no recurrence of the water inflow issues that affected ramp
development in late 2015 and early 2016. Development in the
fourth quarter will focus on stope preparation, blast hole
drilling, ramp development and draw point construction. First
production ore is expected from the underground mine during the
first quarter of 2018, with full production scheduled for the
second quarter of 2018.
During the quarter the Corporation commissioned
a modified method for the handling and disposal of processed
kimberlite (“PK”). From the start of ore processing, PK had been
de-watered with centrifuges for trucking to a dry-stack disposal
site. High moisture content in the PK reduced its competence for
stacking, and made disposal cumbersome. Under the modified disposal
system, fine PK will be pumped for disposal into a modified
containment facility, with water outflow collected and recirculated
to the plant or treated at the existing water treatment facility. A
degrit module has been installed in the process plant and civil
works modifications completed at the containment facility to
accommodate the disposal of the coarse PK. A modification to the
mine’s operating permit in support of these changes was received on
scheduled, and the new PK handling and disposal method has been
operating successfully since the beginning of the quarter.
In early August, the Corporation’s Board of
Directors approved an extraordinary capital expenditure of $22
million for a program of plant improvement aimed at improving the
quality profile of Renard production, to be funded from existing
financial resources. At the centre of this plan is the introduction
of an ore-waste sorting circuit rated at 7,000 tonnes of ore per
day, and expandable, designed to extract waste in the +30mm-200mm
size range immediately prior to its introduction to the secondary
cone crusher. The ore-waste sorting circuit will include covered
conveyors, a gravity fed tower containing primary, secondary and
scavenging spectral sorters, and a waste rock load out. Work
on the concrete foundations began in August, and all steel work and
enclosures are schedule to be completed by year end. Commissioning
is schedule for the first quarter of 2018. In addition to an
improved diamond size and quality profile through diamond breakage
mitigation, the addition of this circuit is expected to have an
ancillary benefit of reducing load on the rest of the Renard
process plant, allowing for future potential plant expansion.
Commentary on Diamond Production and the Rough Diamond
Market
Since ore processing at Renard began, diamond
production has been influenced by: (1) Better than expected head
feed grades derived from a positive geological reconciliation of
ore units in the open pits and the underground mine development
levels; (2) High levels of diamond breakage impacting the size
distribution, quality and grade of diamonds recovered; (3) Higher
than expected production of small (-3mm) diamonds derived from a
more efficient diamond liberation in crushing and processing than
was anticipated; (4) a positive response to Renard diamonds in the
rough market demonstrated by a real terms increase (after
accounting for size distribution and quality variations) of 19%
between the first sale in November 2016 and the seventh in July
2017; and (5) Changing market conditions for certain diamond
categories such as smaller and lower quality items which were
severely impacted by the Indian demonetization events of late 2016
and for which prices have not yet fully recovered. The positive
grade reconciliation experienced at the Renard Mine to date, and
the lower than expected pricing at sale, is the net result of each
of the above factors.
Stornoway believes that significant value
improvement will be achieved with the successful mitigation of the
diamond breakage to more acceptable levels. During the first half
of 2017, steps were undertaken to understand the cause of the
breakage, with attention focussed on crusher operating settings,
material balancing in the plant, pumps, ore recirculation and
screens. Progress was measured with diamond breakage studies and
simulant testing, and diamond breakage conditions were replicated
in laboratory bench tests. Following this work, 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 under the extraordinary capital plan approved
by the Board of Directors will contribute to a higher quality, and
potentially higher grade, diamond product through the removal of a
large proportion of the abrasive dilution from the crushing
circuits.
At the same time, Stornoway will seek to
continue the better than expected liberation of small (-3mm)
diamonds as a source of incremental revenue above that contemplated
in the project’s Mineral Resources.
Conference Call and Webcast
Stornoway will host a third quarter earnings conference call for
analysts and investors on November 3, 2017 at 1100am EST.
This call may be accessed by calling 1-844-215-3287 toll free in
North America, of 1-209-905-5939 from international locations, with
Conference ID 2499129. A live webcast of the call will be available
at https://edge.media-server.com/m6/p/nyed2trz. A
replay of the call, and a copy of the earnings presentation, will
be made available on the Stornoway website at
www.stornowaydiamonds.com.
About the Renard Diamond
Mine
The Renard Diamond Mine is Quebec’s first
producing diamond mine and Canada’s sixth. It is located
approximately 250 km north of the Cree community of Mistissini and
350 km north of Chibougamau in the James Bay region of
north-central Québec. Construction on the project commenced on July
10, 2014, and commercial production was declared on January 1,
2017. Average annual diamond production is forecasted at 1.8
million carats per annum over the first 10 years of mining. Readers
are referred to the technical report dated January 11, 2016, in
respect of the September 2015 Mineral Resource estimate, and the
technical report dated March 30, 2016, in respect of the March 2016
Updated Mine Plan and Mineral Reserve Estimate for further details
and assumptions relating to the project.
Qualified Persons
Disclosure of a scientific or technical nature
in this press release was prepared under the supervision of M.
Patrick Godin, P.Eng. (Québec), Chief Operating Officer.
Stornoway’s exploration programs are supervised by Robin Hopkins,
P.Geol. (NT/NU), Vice President, Exploration. Each of M. Godin and
Mr. Hopkins are “qualified persons” under NI 43-101.
About Stornoway Diamond
Corporation
Stornoway is a leading Canadian diamond
exploration and development company listed on the Toronto Stock
Exchange under the symbol SWY and headquartered in Longueuil. Our
flagship asset is the 100% owned Renard Diamond Mine, Québec’s
first diamond mine. Stornoway is a growth oriented company with a
world-class asset, in one of the world’s best mining jurisdictions,
in one of the world’s great mining businesses.
On behalf of the BoardSTORNOWAY DIAMOND
CORPORATION/s/ “Matt Manson”Matt MansonPresident and Chief
Executive Officer
For more information, please contact Matt Manson (President and
CEO) at 416-304-1026 x2101or Orin Baranowsky (CFO) at 416-304-1026
x2103 or Jodi Hackett (Manager, Communications) at 416-304-1026
x2104 or toll free at 1-877-331-2232Pour 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.