Stornoway mulls restructuring options after Q1 loss

Stornoway Diamond’s Renard diamond mine in north-central Quebec. Source: Stornoway Diamond Corp.

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Stornoway Diamonds Corp.  [SWY-TSX; SWYDF-OTC] has formally launched a strategic review and is also discussing further financing and restructuring options with its creditors and other financial partners.

“A continued downward pressure on the market for rough diamonds has inhibited the corporation’s ability to generate positive free cash flow in 2019,” the company said in a press release that was issued after the close of trading on May 13, 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-$20 million that will be implemented over the course of fiscal 2019.

Meanwhile, Stornoway said it has taken the decision to temporarily suspend open pit mining operations at its Renard diamond mine in Quebec.

The announcement comes after Stornoway released first quarter 2019 financial results that included a net loss of $48.4 million or $0.05 per share. The adjusted loss released after the close of trading on May 13, 2019 was $51 million or $0.05 per share on revenue of $53.3 million.

On Tuesday, Stornoway shares were unchanged at $0.06 on an active volume of 1.23 million, and now trade in a 52-week range of $0.057 and 57 cents.

The strategic review has been confirmed just weeks after Scotiabank warned that Stornoway was facing a liquidity shortfall this year unless diamond prices recover from current levels.

Stornoway’s 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 the Chibougamau in the James Bay region of north-central Quebec.

Construction on the project commenced on July 10, 2014 and commercial production was declared on January 1, 2017.  Average annual diamond production was forecast at 1.8 million carats per year over the first 10 years of mining.

In a March 28, 2019 press release that contained the company’s fourth quarter and 2018 financial results, Stornoway President and CEO Patrick Godin said the company had faced a challenging transition from open pit mining to primarily underground mining.

Stornoway sells its diamond production in an open market tender, and, other than in exceptional circumstances, is a market price-taker.  The company said the second half of 2018 saw a significant rough market price correction that resulted in a price index decrease of 13% as compared to June, 2018.

During the first quarter of 2019, Stornoway said two tender sales totalling 429,506 carats were completed for gross proceeds of $47.3 million at an average price of US$83 per carat.

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. Carat 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.

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