Stornoway Reports First Quarter 2019 Financial Results
LONGUEUIL, Québec, May 13, 2019 (GLOBE NEWSWIRE) -- Stornoway Diamond Corporation (TSX-SWY; the “Corporation” or “Stornoway”) reports its financial and operating results for the quarter ended March 31, 2019.
QUARTER ENDED MARCH 31, 2019 HIGHLIGHTS:
(All quoted figures in CAD$, unless otherwise noted)
- For the three months ended March 31, 2019, the Corporation reported a net loss of $48.4 million ($ (0.05) per share on a basic and fully diluted basis). Adjusted net loss1 for the first quarter was $51.0 million ($(0.05) per share basic and fully diluted).
- For the first quarter, the Corporation reported adjusted EBITDA1 of $13.4 million, or 25.2% of revenues, which includes an $8.9 million write-down of cash costs to bring inventory to its net realizable value. For the first quarter of 2018, adjusted EBITDA1 was $24.7 million, or 44.2% of revenues.
- During the quarter, two tender sales totalling 429,506 carats were completed for gross proceeds2 of $47.3 million at an average price of US$83 per carat ($110 per carat3). Revenue recognized during the quarter was $53.3 million. In terms of total carats sold, gross proceeds and pricing, this represents increases of 38%, 47% and 8% over the fourth quarter of 2018, respectively. First quarter diamond sales represent diamonds recovered during the fourth quarter of 2018.
- First quarter diamond production was 444,562 carats produced from the processing of 582,613 tonnes of ore at an average grade of 76 carats per hundred tonnes (“cpht”). Carats recoveries decreased by 8% compared to the fourth quarter of 2018, principally due to mechanical issues at the front end of the process plant related to very cold weather in January and February. In March, the process plant surpassed its budgeted daily rate with an average of 7,209 tonnes processed per day. In the month of April, an average of 7,734 tonnes per day were processed.
- Q1 2019 cash operating costs per tonne processed1 were $57.14 per tonne ($74.88 per carat2) and capital expenditures1 were $17.0 million.
Patrick Godin, President and CEO, commented: “The first quarter saw significant improvements in sales, attributable to the increases in grade recovered during the fourth quarter of 2018. Average pricing also showed a slight increase, due to higher quality of goods and the mix sold. The market, however, did not show notable improvements from the fourth quarter. In terms of processing, January and February were challenging months due to very cold weather, but March saw outperformance over the budgeted average daily processing rate, and we are pleased to report that the month of April saw an average of 7,734 tonnes per day processed, the highest single monthly performance ever achieved at Renard. Underground development of the next mining horizon in Renard 2 is progressing according to plan, and the initiation of underground production in Renard 3 took place in late April, over two months in advance of target.”
Table 1. Key Operational and Financial Highlights
| For the three months ended | ||||
| March 31, | March 31, | |||
| 2019 | 2018 | |||
| OPERATIONAL HIGHLIGHTS | ||||
| Lost time incidents rate ("LTI") | 1.2 | 2.0 | ||
| Average daily manpower (workers) | 316 | 377 | ||
| Ore tonnes mined (open pit and underground) | 772,517 | 319,784 | ||
| Ore tonnes processed | 582,613 | 562,520 | ||
| Carats recovered | 444,562 | 285,851 | ||
| Carats sold4 | 429,506 | 314,182 | ||
| Capital expenditures1 | 17.0 | 31.1 | ||
| Underground development (meters) | 1,411 | 1,302 | ||
| Cash operating cost per tonne processed1 | 57.1 | 50.7 | ||
| Cash operating cost per carat recovered1 | 74.9 | 99.8 | ||
| FINANCIAL HIGHLIGHTS | ||||
| Revenues | 53,339 | 55,949 | ||
| Cost of goods sold | 77,808 | 43,317 | ||
| Selling, general and administrative expenses | 3,717 | 4,051 | ||
| Exploration expenses | 102 | 826 | ||
| Financial expenses | 22,057 | 17,840 | ||
| Foreign exchange (gain) loss | (2,501 | ) | 3,159 | |
| Net loss before tax | (47,844 | ) | (13,244 | ) |
| Income tax expense (recovery) | 599 | (2,264 | ) | |
| Net loss | (48,443 | ) | (10,980 | ) |
| Loss per share - Basic and diluted | (0.05 | ) | (0.01 | ) |
| Adjusted net loss1 | (50,961 | ) | (12,812 | ) |
| Adjusted EBITDA1 | 13,416 | 24,728 | ||
| Adjusted EBITDA margin (%)1 | 25.2 | % | 44.2 | % |
FINANCIAL SUMMARY
Revenues during the first quarter of 2019 were $53.3 million. Revenues include amortization recognized from contract liabilities related to the upfront proceeds received under the Renard Stream agreement in consideration for future commitments to deliver diamonds at contracted prices.
Stornoway reported a net loss of $48.4 million in the first quarter of 2019, in comparison to a net loss of $11.0 million in the first quarter of 2018.
Cash operating costs per tonne processed1 were $57.14 for the quarter. This is slightly above the $54 upper bracket of the guidance provided for FY2019, primarily attributable to lower tonnes processed. The planned catch up on processing and cost reduction initiatives are expected to bring the metric within the guidance range over the balance of 2019.
BALANCE SHEET AND LIQUIDITY CHALLENGES
As at March 31, 2019, cash and cash equivalents stood at $29.5 million. This amount excludes $13.7 million of restricted cash deposits related to debt service reserve accounts.
A continued downward pressure on the market price for rough diamonds has inhibited the Corporation’s ability to generate positive free cash flow in 2019. To address this situation, the Corporation is taking a series of significant and effective actions to preserve its liquidity, including, among other things, cost reductions of $18 million to $20 million for fiscal year 2019, to be implemented over the course of the year, and the initiation of a strategic review to consider all options available to the Corporation. The Corporation’s management is also in active discussions with its financial partners to secure the Corporation’s long-term financial viability.
The operations of the Renard Mine are performing in accordance with plan and management is continuing to make further improvements to support the long term viability of the Renard Mine.
OPERATIONAL SUMMARY
Environment, Health, Safety and Communities
During the quarter, two lost time incidences (“LTI”) were recorded, for an average LTI rate of 1.2 (2.9 for contractors and 0.7 for Stornoway employees). No incidences of environmental non-compliance were recorded during the quarter. Daily manpower at the site averaged 316 workers, of which 14% were Crees of the Eeyou Istchee, 21% were from Chibougamau or Chapais, and 65% were from outside the region.
Mining and Processing
During the quarter ended March 31, 2019, 571,958 tonnes were mined from the Renard 65 open pit, with 168,889 tonnes of ore extracted. 711,591 tonnes were mined from the underground mine, with 603,628 tonnes of ore were extracted. Average ore tonnage hauled to surface was 6,707 tonnes per day (tpd), significantly above the design capacity of the underground mine of 6,000 tpd. Due to having sufficient ore stockpiled from Renard 65 to meet planned processing requirements into the second quarter of 2020, Stornoway has taken the decision to temporarily suspend open pit mining operations at Renard 65. This decision will enable the idling of part of the surface equipment fleet, realizing operating cost savings and delaying capital expenditures. All affected surface equipment operators were trained to transition to underground operations or will occupy other open positions.
During the quarter, 582,613 tonnes of ore were processed with 444,562 carats recovered at an attributable grade of 76 cpht. The processed ore was derived from underground production at the Renard 2 kimberlite (89%), open pit production from the Renard 65 kimberlite (6%) and underground development ore from the Renard 3 kimberlite (5%). Plant availability in the first quarter was lower than expected, and the plant operated below its design rate in January (5,520 tpd) and target rate in February (6,715 tpd). Mechanical issues, primarily at the front end of the process plant and primarily due to the very cold weather experienced in the first quarter were the significant drivers of the process plant underperformance. Processing rates improved in March (7,209 tpd), above the target processing rate of 7,000 tpd, demonstrating improvements in plant reliability. The average processing rate was 7,734 tpd in April, 10% above the target rate, the highest average rate for a single month ever achieved at Renard. Management is confident that the plant will continue to surpass the budgeted average daily rate in the coming months. Carats recovered decreased 8% quarter over quarter, due to the lower tonnes processed and a slight decline in grade that had been anticipated in the mining sequence.
Diamond Sales
Two tender sales were completed in the first quarter for a total of 429,506 carats sold. During the quarter, revenue recognized was derived from 361,404 run-of-mine5 carats and 68,102 supplemental5 carats that were sold for gross proceeds2 of $47.3 million at an average price of US$83 per carat ($110 per carat3). The carats sold increased by 38% compared to the fourth quarter of 2018 due to higher recovered grades. Average pricing increased by 8% from the previous quarter, due to the higher quality of goods and mix sold.
Capital Projects
Capital expenditures1 in the first quarter were $17.0 million. Expenditures were primarily related to the development of the next underground mining horizon in the Renard 2 ore body (450-470m level), the development of the first underground mining horizon in the Renard 3 ore body (290m level) and the development of the underground access ramp. 1,411 meters of lateral development were achieved in the quarter. The development of the 450-470m mining horizon in Renard 2 is progressing in line with schedule, and the initiation of underground production in the Renard 3 ore body took place in late April, over two months in advance of the target of the beginning of the third quarter.
Renard Mineral Resource Development
Stornoway’s exploration plans for 2019 are focused on resource upside at the Renard Mine, including the Renard 3 and Renard 4 kimberlites, with a view to convert certain Mineral Resources6 to Mineral Reserves, and to accelerate the inclusion of both ore bodies in the Renard mine plan. Re-evaluation of the Renard 7 kimberlite, not currently part of the project Mineral Resource6, commenced during the first quarter of 2019.
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 and Capital Expenditures, which are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. As a result, these measures may not be comparable to similar measures reported by other corporations.
Each of these measures have been derived from the Corporation’s financial statements and have been defined and calculated based on management’s reasonable judgement. These measures are used by management and by investors to assist in assessing the Corporation’s performance. The measures are intended to provide additional information to the user and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. Refer to the “Non-IFRS Financial Measures” section of the Corporation’s Management Discussion and Analysis as at and for the year ended December 31, 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 May 14, 2019 at 8:30 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 6414099. A live webcast of the conference call will also be available at https://edge.media-server.com/m6/p/wsmep7mx. A recording of the conference call will be made available on Stornoway’s website 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 Mr. Patrick Sévigny, P.Eng. (Québec), Vice President, Operations 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 Board
STORNOWAY DIAMOND CORPORATION
/s/ “Patrick Godin”
Patrick Godin
President and Chief Executive Officer
| For more information, please contact Alexandre Burelle (Manager, Investor Relations and Business Development) at 450-616-5555 x2264 or toll free at 1-877-331-2232 |
| Pour plus d’information, veuillez contacter Alexandre Burelle (Directeur, Relations avec les investisseurs et développement des affaires) au 450-616-5555 x2264, aburelle@stornowaydiamonds.com |
| ** Website: www.stornowaydiamonds.com mail: 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.
1 See “Non-IFRS Financial Measure” section
2 Before stream and royalty
3 Based on an average $:US$ conversion rate of 1.33
4 In the Comparative Quarter a third tender sale was completed totaling 127,616 carats, the revenue for this sale having been recognized in the second quarter of 2018.
5 Run-of-Mine (ROM) carats, represents the proportion of total diamonds recovered above the mineral resource bottom cut-off (+1 DTC) and normalized to a proportion of small diamonds (-7 DTC) that is consistent with the mineral resources. The excess carats recovered above the normalized, run-of-mine production is defined as supplemental carats. The supplemental goods are segregated from the run-of-mine production during the sale tender process.
6 Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. The potential quantity and grade of any exploration target is conceptual in nature, there has been insufficient information to define a mineral resource and it is uncertain if further exploration will result in it being delineated as a mineral resource.
