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Stornoway Reports First Quarter 2019 Financial Results

by pnationtalk on May 14, 201923 Views

LONGUEUIL, Québec, May 13, 2019 — 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 **

NT4

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