Stornoway Diamonds Achieves Robust Operational Performance and Positive Initial Sales from Renard Mine in Q1 2017

Stornoway Diamonds Corporation, a significant player in the global diamond industry, recently unveiled the financial and operational results for the First Quarter of Fiscal Year 2017, concluding on March 31, 2017. This announcement marks a pivotal moment for the company, as the Renard Diamond Mine officially commenced commercial production on January 1, 2017, making this quarter its inaugural full operating period. The results underscore the successful transition from development to production, highlighting strong operational metrics and a promising entry into the rough diamond market.

Renard Diamond Mine: Setting New Benchmarks in Production

The Renard Diamond Mine, Canada’s newest and Quebec’s first primary diamond mine, demonstrated exceptional performance during its initial full quarter of commercial operations. Stornoway reported the recovery of an impressive 385,151 carats of diamonds. This significant yield was achieved from the processing of 419,233 tonnes of ore, resulting in an attributable grade of 92 carats per hundred tonnes (cpht). This figure not only represents a strong start but also comfortably exceeded the initial production plan, which projected 369,307 carats at a grade of 91 cpht. Such an overperformance in a ramp-up phase is a testament to the efficiency and effectiveness of the mining and processing operations at Renard, indicating a well-executed strategy and robust infrastructure.

Exceeding production targets during the initial phases of commercial operation is a critical indicator of a mine’s potential and the operational team’s capabilities. The grade of 92 cpht signifies the concentration of diamonds within the processed ore, a key metric for evaluating the economic viability of a diamond mine. By surpassing its planned grade and carat recovery, Stornoway Diamonds has laid a solid foundation for consistent and growing production, reinforcing its position as a key supplier in the global rough diamond market. This initial success is particularly encouraging given the complexities involved in bringing a new, large-scale mining operation online.

Strong Sales Performance and Emerging Profitability

During the first quarter of FY 2017, Stornoway Diamonds successfully sold a total of 459,126 carats of diamonds, generating substantial proceeds of C$ 48.5 million. This robust sales volume and revenue stream are indicative of strong market interest in Renard diamonds and effective sales strategies implemented by the corporation. Furthermore, the company reported an adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of C$ 15.0 million. This represents a healthy 35.9% of total sales, showcasing a commendable level of operational profitability even during the initial ramp-up period. Adjusted EBITDA is a crucial financial metric that provides insight into a company’s core operational performance, excluding non-cash expenses and financing costs, thereby offering a clearer picture of the mine’s ability to generate cash from its operations.

Looking at the broader picture, cumulative diamond sales since the project’s inception have reached 498,039 carats. These sales were achieved at an average price of US$ 83 per carat, which translates to approximately C$ 110 per carat. Stornoway noted that this pricing reflects a combination of factors, including higher than expected efficiencies in the recovery of small diamonds and, conversely, higher than anticipated diamond breakage experienced during the processing ramp-up phase. These insights are vital for continuous improvement in recovery processes and for optimizing the overall value proposition of the diamonds produced. The company’s ability to generate significant revenue and maintain a positive adjusted EBITDA so early in its commercial lifespan positions it favorably for future growth and sustained profitability.

Disciplined Cost Management and Strategic Capital Allocation

Maintaining financial discipline is paramount for any major mining operation, especially during its formative years. Stornoway Diamonds demonstrated exemplary cost control during Q1 2017. The cash operating costs per tonne processed amounted to C$ 57.86 per tonne, which translates to C$ 62.99 per carat. These figures were well within the company’s planned budget, indicating efficient resource management and effective operational planning. Furthermore, capital expenditures for the quarter stood at C$ 17.1 million, a figure that also aligned perfectly with the company’s financial projections. The ability to keep both operating costs and capital expenditures within budget during a crucial ramp-up phase speaks volumes about Stornoway’s commitment to fiscal responsibility and its robust financial governance.

Effective cost management is not just about cutting expenses; it is about optimizing processes to achieve maximum output with minimal waste. The consistent adherence to budgetary plans for both operational and capital outlays provides stakeholders with confidence in Stornoway’s management capabilities. These controlled expenditures are crucial for supporting the long-term sustainability of the Renard Mine and ensuring that the project remains economically viable throughout its projected lifespan. Such prudence also allows for future strategic investments aimed at enhancing productivity and extending mine life, ultimately creating greater shareholder value.

Optimized Mining Operations Driving Efficiency and Growth

Beyond the impressive production and financial figures, the underlying mining operations at Renard showcased significant efficiency and progress. In the open pit operations, specifically in the Renard 2-3 and Renard 65 pits, a remarkable 1,245,021 tonnes of material were mined. This volume represented 112% of the planned target, with 625,576 tonnes of ore successfully extracted. The overachievement in open pit mining underscores the effective deployment of equipment and personnel, ensuring a steady supply of ore for processing.

Parallel to the open pit success, the underground mine development also made substantial strides. Stornoway reported the completion of 1,459 meters of underground development, exceeding the planned target by 13% (113% of plan). This accelerated development is critical for accessing deeper ore bodies and expanding the mine’s operational footprint, securing future production capacity. The continuous progress in both open pit and underground mining aspects highlights a comprehensive and well-coordinated operational strategy, essential for maximizing the value and longevity of the Renard asset. These advancements are not merely numerical achievements but represent tangible steps towards ensuring sustained, high-volume diamond production for years to come.

Navigating Initial Financial Challenges with Strong Liquidity

While operational and sales figures painted a largely positive picture, Stornoway Diamonds reported a net loss of C$ 3.0 million for the quarter. On a basic per share basis, this amounted to C$ Nil, and on a fully diluted basis, a loss of C$ 0.01 per share. It is important to contextualize this net loss within the framework of a new mine’s ramp-up phase. During the initial periods of commercial production, it is common for large-scale mining projects to report net losses as they incur significant start-up costs, depreciation, and interest expenses before reaching full operational maturity and optimal economies of scale. These early-stage losses are often anticipated and managed within broader financial strategies.

Crucially, Stornoway maintained a robust liquidity position, with total liquidity from various sources amounting to C$ 153 million at the end of the first quarter. This substantial cash reserve and access to credit facilities provide a vital buffer, ensuring the company has ample financial flexibility to cover ongoing operational costs, fund future capital expenditures, and navigate any unforeseen challenges that may arise during the continued ramp-up of the Renard Mine. A strong liquidity position is a key indicator of a company’s financial health and its ability to withstand market fluctuations, underscoring Stornoway’s prudent financial management.

CEO’s Vision: Addressing Market Dynamics and Future Prospects

Matt Manson, Stornoway’s President and CEO, expressed overall satisfaction with the corporation’s progress during this inaugural full operating period for the Renard Mine. He highlighted several key achievements: “Mining rates, development progress in the underground mine, and carat production all continue to exceed plan. Mining costs and capital expenditures are tracking within budget.” These remarks reinforce the operational excellence demonstrated by the team on the ground, delivering superior results against carefully laid plans.

Understanding Diamond Pricing in a Dynamic Market

Manson also provided valuable insights into the dynamics of diamond pricing during the quarter. He acknowledged that achieved pricing in Stornoway’s first tender sales reflected “higher than normal levels of diamond breakage that we have been experiencing during the first months of processing ramp up.” Diamond breakage, often a characteristic of initial processing phases in new mines, can impact the average size and quality of recovered diamonds, thereby affecting their market value. He further explained, “Pricing has also been impacted by a better than expected liberation of small diamonds and the market effects of Indian demonetization.” The liberation of more small diamonds, while contributing to higher carat volume, can also dilute the average price per carat if the market demand for larger, higher-value stones is stronger. Furthermore, the Indian demonetization policy, an external macroeconomic event, significantly affected the global rough diamond market, particularly impacting demand and pricing for smaller rough diamonds, which are often cut and polished in India.

The Uniqueness of Quebec Diamonds and Market Reception

Despite these initial pricing challenges, Manson conveyed a strong sense of optimism, stating, “Nevertheless, we are seeing positive trends in both the quality of our diamond production and in rough market pricing. We are particularly encouraged by the market’s reception for Quebec’s first diamond production.” The introduction of diamonds from Quebec represents a new origin in the global supply chain, and the market’s positive reception is a crucial validation of their quality and appeal. He added that “Yields of polished from the rough are reported as high, with good performance during manufacturing.” This indicates that Renard diamonds are suitable for efficient cutting and polishing, a key factor for buyers and manufacturers in the downstream diamond industry. The CEO also noted that “Achieved pricing in the tender sales has been progressively higher compared to our reserve pricing as the market gains an understanding of the production, and tender participation has been strong.” This upward trend in pricing and robust participation in tenders signal growing market confidence and a deeper appreciation for the unique characteristics and quality of Renard diamonds. This positive momentum continued into the first sale of the second quarter, completed in April, further cementing the strong market position.

Strategic Focus on Quality and Growth

Looking ahead, Stornoway’s strategic focus remains clear. As the production ramp-up at the Renard Mine continues to mature, Manson emphasized, “our focus remains the quality of our diamond recovery profile and the continued growth of our diamond sales.” This commitment to optimizing the quality of diamonds recovered, alongside expanding sales volumes, is essential for maximizing long-term value. By continuously refining their processing techniques and understanding market preferences, Stornoway aims to establish Renard diamonds as a highly desirable and consistent source in the international diamond trade. This strategic direction positions the company for sustained success and reinforces its role as an innovator in the Canadian mining landscape.

Conclusion: A Promising Future for Renard Diamond Mine

The First Quarter of Fiscal Year 2017 represents a remarkable start for Stornoway Diamonds Corporation and its flagship Renard Diamond Mine. Exceeding production targets, demonstrating strong operational efficiency, and maintaining disciplined cost controls underscore the company’s robust capabilities. While navigating initial pricing complexities common to a mine in its ramp-up phase, the positive market reception for Quebec’s first diamond production, coupled with increasing tender prices, points towards a promising future. With a strategic focus on enhancing diamond recovery quality and fostering sales growth, Stornoway is well-positioned to leverage the full potential of the Renard asset, contributing significantly to the global diamond supply and delivering long-term value to its shareholders. The company’s performance in this inaugural quarter sets a confident trajectory for its continued success in the dynamic world of diamond mining.