Stornoway Reports Second Quarter 2018 Production And Sales Results

 

LONGUEUIL, Quebec, July 06, 2018 (GLOBE NEWSWIRE) -- Stornoway Diamond Corporation (TSX:SWY) (the “Corporation” or “Stornoway”) is pleased to provide production and sales results at the Renard Diamond Mine for the second quarter ended June 30, 2018.  Highlights are as follows:

(All quoted figures in CAD$ unless otherwise noted)

• 201,283 carats sold in two tender sales for gross proceeds¹ of $28.6 million² at an average price of US$109 per carat ($142 per carat²).
• Second quarter diamond production was 223,351 carats produced from the processing of 562,060 tonnes of ore at an average grade of 40 carats per hundred tonnes (“cpht”). Grade and carat recoveries during the quarter reflect the processing of lower grade production ore and ore stockpiles as the Renard Mine transitions from open pit to underground mining.
• Mining in the Renard 3 open pit concluded in April. Ramp up of the underground mine production progressed steadily during the quarter, with mined underground tonnes averaging 3,864 tonnes per day (“tpd”) in June.
• Commissioning of the ore sorting plant, which commenced in March, was completed during the quarter and is now fully operational. Waste rejected represents between 15% and 30% of material sorted, with 1-2% kimberlite content in the reject stream. Diamonds recovered since sorting commenced exhibit low levels of breakage.              

Matt Manson, President and CEO of Stornoway commented “Our second quarter production and sales report reflects the ongoing transition from open pit to underground mining and the introduction of ore-waste sorting. By the end of the quarter this transition was essentially complete, albeit with a slower than expected underground ramp-up because of lengthening lead times on mobile mining equipment. We have been particularly encouraged by the performance of the new ore sorting plant. Initial diamond results are encouraging, and given the volume and quality of the waste that is being rejected we see the potential for processing capacity in our plant beyond its current name-plate rating. Exploiting this potential new capacity will involve the development of a modified mine plan to support the accelerated mining required, and permitting.” Matt Manson continued: “The end of the second quarter also marks the end of the principal construction capital spending at Renard. The second half of the year is expected to see lower capital spending, higher processing rates and higher grades and carat recoveries. We are also seeing the rough diamond market continue to strengthen on the basis of strong market fundamentals and consumer demand. On this basis, we are engaged with our lenders on the modification of certain debt instruments to better suit the working capital requirements of the business over the longer term. These discussions are ongoing and progressing well.”

Second Quarter Diamond Sales Results

The second quarter sales of 201,283 carats represented run-of-mine production recovered between February and March 2018. Gross proceeds¹ were $28.6 million² at an average price of US$109 per carat ($142 per carat²). On a segmented basis, 147,008 carats of +7 DTC sieve size diamonds were sold at an average price of US$142 per carat ($185 per carat²), and 54,275 carats of -7 DTC sieve size diamonds were sold at an average price of US$20 per carat ($26 per carat²). These results exclude sales from the third tender sale of the first quarter, being 127,616 carats sold at an average price of US$123 per carat ($156 per carat³), which were recorded as revenues in the second quarter, as deliveries to clients were made at the beginning of the second quarter. 

In addition to the sale of run of mine production, an additional 41,979 carats of diamonds smaller than the -7 DTC sieve size were sold in an out of tender contract sale for gross proceeds¹ of $1.0 million⁴ at an average price of US$18.50 per carat ($25 per carat⁴). These represent recoveries of small diamond “incidentals” produced between March and May 2018 that are in excess of that expected from the Renard Mineral Resource. The sale of such incidentals represents incremental revenue above that provided for in Stornoway’s FY2018 segmented sales guidance.

Second Quarter Production Results

Second quarter production was 223,351 carats recovered from the processing of 562,060 tonnes of ore at an attributable grade of 40 carats per hundred tonnes. Grade and carat recoveries during the quarter reflect the processing of lower grade ore as the Renard Mine transitions from open pit to underground mining. Open pit mining at Renard 2 was completed in March and at Renard 3 in April. Ore processed during the quarter was sourced primarily from the underground mine, from low grade stockpiles, and from the Renard 65 open pit. Carat production during the second quarter was consistent with the revised guidance for the Renard Mine issued on May 15, 2018.

Ramp up of the Renard 2 underground mine production progressed during the second quarter, with average daily production rates being 1,538 tpd in April, 4,342 tpd in May, and 3,864 tpd in June. Development of an Assisted Block Cave as the principal mining method in the underground mine is proceeding well, with the focus being on achieving optimum granulometry for the blasted ore and opening up multiple panels to support the planned mining rate. Currently, however, production rates are being restricted more by equipment availability than by the quantity of ore in drawpoints available for mucking. As expected, the low grades and high dilution observed in the initial panels developed at the margin of the ore body are giving way to higher grades and lower dilution as mining panels are opened within the main body of the kimberlite. Processing rates in the quarter averaged 6,460 tonnes per day compared to an annual plan of 7,000 tonnes per day.

The new ore sorting plant (“OSP”) at Renard was commissioned during the quarter, and has been processing ore on a consistent basis since mid-May. The volume and quality of waste segregated from the ore-feed has exceeded expectations, with waste rejected representing between 15% and 30% of material sorted. Kimberlite content in the waste stream has averaged between 1% and 2%.  

This has resulted in a significant reduction in process plant head-feed and opened up new plant capacity for future exploitation. Because the waste within the Renard ore is hard and difficult to crush, its rejection from the main process plant has also resulted in a net reduction in power consumption for processing even with the addition of the new sorting circuit.

Considering the highly abrasive characteristics of the ore processed to date through the OSP, consisting mainly of highly diluted, low grade material, the diamonds recovered since its introduction have exhibited lower levels of breakage than observed previously with comparable feed composition.

Balance Sheet and Financial Liquidity

At quarter end, cash and cash equivalents stood at $31.6 million and Available Liquidity⁵ to the Corporation, including available credit facilities, stood at $46.5 million (on a preliminary and unaudited basis). These amounts exclude $15.9 million representing restricted deposits related to debt service reserve accounts. During the second quarter the Corporation was engaged in discussions with its lenders to amend the terms of certain debt instruments to better suit the working capital requirements of the business pending the expected attainment of free cash flow. Pursuant to these discussions, which are ongoing, both Diaquem Inc., a wholly owned subsidiary of Investissement Quebec and Stornoway’s senior lender, and Fonds de Solidarité FTQ, an unsecured lender, have agreed to the deferral of principal payments totalling $10.4 million (on senior and unsecured indebtedness totalling $129.7 million) from June 30, 2018 to September 30, 2018. Diaquem Inc. also agreed to waive the obligation of the Corporation to meet the historical debt service coverage ratio and the projected debt service coverage ratio under the credit agreement dated July 8, 2014, until September 30, 2018.

NON-IFRS FINANCIAL MEASURES

This document refers to certain financial measures, such as Available Liquidity, which are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. As a result, these measures may not be comparable to similar measures reported by other corporations.

Each of these measures have been derived from the Corporation’s financial statements and have been defined and calculated based on management’s reasonable judgement. These measures are used by management and by investors to assist in assessing the Corporation’s performance. The measures are intended to provide additional information to the user and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS.

Available Liquidity

“Available Liquidity” comprises cash and cash equivalents and available credit facilities (less related upfront fees) and is used by the management and investors to measure the amount of cash resources available to the Corporation, over and above the cash generated from operations, to support the operating and capital requirements of the business.

ABOUT THE RENARD DIAMOND MINE

The Renard Diamond Mine is Quebec’s first producing diamond mine and Canada’s sixth. It is located approximately 250 km north of the Cree community of Mistissini and 350 km north of Chibougamau in the James Bay region of north-central Québec. Construction on the project commenced on July 10, 2014, and commercial production was declared on January 1, 2017. Average annual diamond production is forecast at 1.8 million carats per annum over the first 10 years of mining. Readers are referred to the technical report dated January 11, 2016, in respect of the September 2015 Mineral Resource estimate, and the technical report dated March 30, 2016, in respect of the March 2016 Updated Mine Plan and Mineral Reserve Estimate for further details and assumptions relating to the project.

QUALIFIED PERSON

Disclosure of a scientific or technical nature in this press release was prepared under the supervision of M. Patrick Godin, P.Eng. (Québec), Chief Operating Officer a “qualified person” under National Instrument (“NI”) 43-101.

ABOUT STORNOWAY DIAMOND CORPORATION

Stornoway is a leading Canadian diamond exploration and production company listed on the Toronto Stock Exchange under the symbol SWY and headquartered in Montreal. A growth oriented company, Stornoway owns a 100% interest in the world-class Renard Mine, Québec’s first diamond mine.

On behalf of the Board
STORNOWAY DIAMOND CORPORATION
/s/ “Matt Manson”
Matt Manson
President and Chief Executive Officer

For more information, please contact Matt Manson (President and CEO) at 416-304-1026 x2101 or 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 1-877-331-2232 Pour plus d’information, veuillez contacter Sébastien Huot (Directeur, Information Financière et Relations Investisseurs) au 450-616-5555 x2223, shuot@stornowaydiamonds.com ** Website: www.stornowaydiamonds.com Email: info@stornowaydiamonds.com **

FORWARD-LOOKING STATEMENTS

This document contains forward-looking information (as defined in National Instrument 51‑102 – Continuous Disclosure Obligations) and forward-looking statements within the meaning of Canadian securities legislation and the United States Private Securities Litigation Reform Act of 1995 (collectively referred to herein as “forward-looking information” or “forward-looking statements”). These forward-looking statements are made as of the date of this document and, the Corporation does not intend, and does not assume any obligation, to update these forward-looking statements, except as required by law.

These forward-looking statements relate to future events or future performance and include, among others, statements with respect to Stornoway’s objectives for the ensuing year, our medium and long-term goals, and strategies to achieve those objectives and goals, as well as statements with respect to our management’s beliefs, plans, objectives, expectations, estimates, intentions and future outlook and anticipated events or results. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

Forward-looking statements reflect current expectations or beliefs regarding future events and include, but are not limited to, statements with respect to: (i) the amount of Mineral Reserves, Mineral Resources and exploration targets; (ii) the estimated amount of future production over any period; (iii) net present value and internal rates of return of the mining operation; (iv) expectations and targets relating to recovered grade, size distribution and quality of diamonds, average ore recovery, carats recovered, carats sold, internal dilution, mining dilution and other mining parameters set out in the 2016 Technical Report as well as levels of diamond breakage; (v) expectations, targets and forecasts relating to gross revenues, operating cash flows and other revenue metrics set out in the 2016 Technical Report, growth in diamond sales, cost of goods sold, cash cost of production, gross margins estimates, planned and projected diamond sales, mix of diamonds sold, and capital expenditures, liquidity and working capital requirements; (vi) mine and resource expansion potential, expected mine life, and estimated incremental ore recovery, revenue and other mining parameters from potential additional mine life extension; (vii) expected time frames for completion of permitting and regulatory approvals related to ongoing construction activities at the Renard Diamond Mine; (viii) the expected time frames for the completion of the open pit and underground mine at the Renard Diamond Mine; (ix) the expected financial obligations or costs incurred by Stornoway in connection with the ongoing development of the Renard Diamond Mine; (x) mining, development, production, processing and exploration rates, progress and plans, as compared to schedule and budget, and planned optimization, expansion opportunities, timing thereof and anticipated benefits therefrom; (xi) future exploration plans and potential upside from targets identified for further exploration; (xii) expectations concerning outlook and trends in the diamond industry, rough diamond production, rough diamond market demand and supply, and future market prices for rough diamonds and the potential impact of the foregoing on various Renard financial metrics and diamond production; (xiii) the economic benefits of using liquefied natural gas rather than diesel for power generation; (xiv) sources of and anticipated financing requirements; (xv) the ability to meet Subject Diamonds Interest delivery obligations under the Purchase and Sale Agreement; (xvi) the foreign exchange rate between the US dollar and the Canadian dollar; and (xvii) the anticipated benefits from recently approved plant modification measures and the anticipated timeframe and expected capital cost thereof. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects”, “anticipates”, “plans”, “projects”, “estimates”, “assumes”, “intends”, “strategy”, “goals”, “objectives”, “schedule” or variations thereof or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking statements.

Forward-looking statements are made based upon certain assumptions by Stornoway or its consultants and other important factors that, if untrue, could cause the actual results, performances or achievements of Stornoway to be materially different from future results, performances or achievements expressed or implied by such statements. Such statements and information are based on numerous assumptions regarding present and future business prospects and strategies and the environment in which Stornoway will operate in the future, including the recovered grade, size distribution and quality of diamonds, average ore recovery, internal dilution, and levels of diamond breakage, the price of diamonds, anticipated costs and Stornoway’s ability to achieve its goals, anticipated financial performance, regulatory developments, development plans, exploration, development and mining activities and commitments, and the foreign exchange rate between the US and Canadian dollars. Although management considers its assumptions on such matters to be reasonable based on information currently available to it, they may prove to be incorrect. Certain important assumptions by Stornoway or its consultants in making forward-looking statements include, but are not limited to: (i) the accuracy of our estimates regarding capital and estimated workforce requirements; (ii) estimates of net present value and internal rates of return; (iii) recovered grade, size distribution and quality of diamonds, average ore recovery, carats recovered, carats sold, internal dilution, mining dilution and other mining parameters set out in the 2016 Technical Report as well as levels of diamond breakage; (iv) the expected mix of diamonds sold, and successful mitigation of ongoing issues of diamond breakage in the Renard Diamond Mine process plant and realization of the anticipated benefits from plant modification measures within the anticipated timeframe and expected capital cost; (v) the stabilization of the Indian currency market and full recovery of prices; (vi) receipt of regulatory approvals on acceptable terms within commonly experienced time frames and absence of adverse regulatory developments; (vii) anticipated timelines for the development of an open pit and underground mine at the Renard Diamond Mine;‎ (viii) anticipated geological formations; (ix) continued market acceptance of the Renard diamond production, conservative forecasting of future market prices for rough diamonds and impact of the foregoing on various Renard financial metrics and diamond production; (x) the timeline, progress and costs of future exploration, development, production and mining activities, plans, commitments and objectives; (xi) the availability of existing credit facilities and any required future financing on favorable terms and the satisfaction of all covenants and conditions precedent relating to future funding commitments; (xii) the ability to meet Subject Diamonds Interest delivery obligations under the Purchase and Sale Agreement; (xiii) Stornoway’s interpretation of the geological drill data collected and its potential impact on stated Mineral Resources and mine life; (xiv) the continued strength of the US dollar against the Canadian dollar and absence of significant variability in interest rates; (xv) improvement of long-term diamond industry fundamentals and absence of material deterioration in general business and economic conditions; and absence of significant variability in interest rates; (xvi) increasing carat recoveries with progressively increasing grade in LOM plan; (xvii) estimated incremental ore recovery, revenue and other mining parameters from potential additional mine life extension with minimal capital expenditures; (xviii) availability of skilled employees and maintenance of key relationships with financing partners, local communities and other stakeholders; (xix) long-term positive demand trends and rough diamond demand meaningfully exceeding supply; (xx) high depletion rates from existing diamond mines; (xxi) global rough diamond production remaining stable; (xxii) modest capital requirements post-2018 with significant resource expansion available at marginal cost; (xxiii) substantial resource upside within scope of mine plan; (xxiv) opportunities for high grade ore acceleration and processing expansion and realization of anticipated benefits therefrom; (xxv) significant potential upside from targets identified for further exploration; and (xxvi) limited cash income taxes payable over the medium term.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that estimates, forecasts, projections and other forward-looking statements will not be achieved or that assumptions do not reflect future experience. We caution readers not to place undue reliance on these forward- looking statements as a number of important risk factors could cause the actual outcomes to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates, assumptions and intentions expressed in such forward-looking statements. These risk factors may be generally stated as the risk that the assumptions and estimates expressed above do not occur, including the assumption in many forward-looking statements that other forward-looking statements will be correct, but specifically include, without limitation: (i) risks relating to variations in the grade, size distribution and quality of diamonds, kimberlite lithologies and country rock content within the material identified as Mineral Resources from that predicted; (ii) variations in rates of recovery and levels of diamond breakage; (iii) the uncertainty as to whether further exploration of exploration targets will result in the targets being delineated as Mineral Resources; (iv) risks associated with our dependence on the Renard Diamond Mine and the limited operating history thereof; (v) unfavorable developments in general economic conditions and in world diamond markets; (vi) variations in diamond valuations and fluctuations in diamond prices from those assumed; (vii) insufficient demand and market acceptance of our diamonds; (viii) risks associated with the production and increased consumer demand for synthetic gem-quality diamonds; (ix) risks relating to fluctuations in the Canadian dollar and other currencies relative to the US dollar and variability in interest rates; (x) inaccuracy of our estimates regarding future financing and capital requirements and expenditures, significant additional future capital needs and unavailability of additional financing and capital, on reasonable terms, or at all; (xi) uncertainties related to forecasts, costs and timing of the Corporation’s future development plans, exploration, processing, production and mining activities; (xii) increases in the costs of proposed capital, operating and sustainable capital expenditures; (xiii) increases in financing costs or adverse changes to the terms of available financing, if any; (xiv) tax rates or royalties being greater than assumed; (xv) uncertainty of mine life extension potential and results of exploration in areas of potential expansion of resources; (xvi) changes in development or mining plans due to changes in other factors or exploration results; (xvii) risks relating to the receipt of regulatory approvals or the implementation of the existing Impact and Benefits Agreement with aboriginal communities; (xviii) the failure to secure and maintain skilled employees and maintain key relationships with financing partners, local communities and other stakeholders; (xix) risks associated with ongoing issues of diamond breakage in the Renard Diamond Mine process plant and the failure to realize the anticipated benefits from plant modification measures within the anticipated timeframe and expected capital cost, or at all; (xx) the negative market effects of recent Indian demonetization and continued impact on pricing and demand; (xxi) the effects of competition in the markets in which Stornoway operates; (xxii) operational and infrastructure risks; (xxiii) execution risk relating to the development of an operating mine at the Renard Diamond Mine; (xxiv) the Corporation being unable to meet its Subject Diamonds Interest delivery obligations under the Purchase and Sale Agreement; (xxv) future sales or issuances of Common Shares lowering the Common Share price and diluting the interest of existing shareholders; (xxvi) the risk of failure of information systems; (xxvii) the risk that our insurance does not cover all potential risks; (xxviii) the risks associated with our substantial indebtedness and the failure to meet our debt service obligations; and (xxix) the additional risk factors described herein and in Stornoway’s annual and interim MD&A, its other disclosure documents and Stornoway’s anticipation of and success in managing the foregoing risks. Stornoway cautions that the foregoing list of factors that may affect future results is not exhaustive and new, unforeseeable risks may arise from time to time.

____________________

¹ Before stream and royalty.

² Based on an average $: US$ conversion rate of $1.30

³ Based on an average $: US$ conversion rate of $1.26

⁴ Based on an average $: US$ conversion rate of $1.33

⁵ See “Non-IFRS Financial Measures” section