Stornoway Diamond Corporation (TSX-SWY; the “Corporation” or “Stornoway”) announced today its results for the quarter ended March 31, 2017.
Quarter ended March 31, 2017 Highlights
(All quoted figures in CAD$ unless otherwise noted)
- Commercial production at the Renard Diamond Mine formally declared, effective January 1, 2017, marking the end of the project's initial capital expense period.
- 385,151 carats recovered during the quarter from the processing of 419,233 tonnes of ore, for an attributable grade of 92 cpht, compared to a plan of 369,307 carats at 91 cpht.
- Diamond sales of 459,126 carats were completed for proceeds of $48.5 million. Adjusted EBITDA1 of $15.0 million, or 35.9% of sales.
- Total diamond sales since the project began now stand at 498,039 carats at an average price of US$83 per carat ($110 per carat2), reflecting higher than expected efficiencies in the recovery of small diamonds and higher than expected diamond breakage experienced during processing ramp-up.
- Cash operating costs per tonne processed1 of $57.86 per tonne ($62.99 per carat) and capital expenditures1 of $17.1 million, both well within plan.
- Mining in the Renard 2-3 and Renard 65 open pits comprised 1,245,021 tonnes, or 112% of plan, with 625,576 tonnes of ore extracted. Underground mine development comprised 1,459 meters, or 113% of plan.
- Reported a net loss of $3.0 million or $Nil per share on a basic basis and a loss of $0.01 per share on a fully diluted basis.
- At quarter end, cash, cash equivalents and short-term investments stood at $72.1 million.
- Available liquidity1 to the Corporation, comprising cash and cash equivalents and available credit facilities, net of payables and receivables, stood at $153 million.
Matt Manson, President and CEO, commented: “This quarter represents the first full operating period for the Renard Mine. 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. Achieved pricing in our first tender sales reflects the higher than normal levels of diamond breakage that we have been experiencing during the first months of processing ramp up. Pricing has also been impacted by a better than expected liberation of small diamonds and the market effects of Indian demonetization. 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. Yields of polished from the rough are reported as high, with good performance during manufacturing. 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 trend has continued into the first sale of the second quarter, which was completed in April. As our production ramp-up continues, our focus remains the quality of our diamond recovery profile and the continued growth of our diamond sales.”
Financial Summary
Sales proceeds during the quarter totalled $48.5 million. This was the first quarter after the declaration of commercial production, and there were no sales in the comparable period. Sales include $6.8 million of deferred revenue relating to prior payments received by the Corporation under its streaming agreement. Total cost of sales were $36.4 million, with adjusted EBITDA1 of $15.0 million, or 35.9% of total sales. Net loss was $3.0 million, or $Nil per share and $0.01 loss per share fully diluted. Income during the quarter was impacted, amongst other things, by a gain in the fair value of an embedded derivative, interest charges relating to the company’s borrowings, and inventory variations relating to the accumulation of the project’s ore stockpile. Stornoway ended the quarter with cash, cash equivalents and short-term investments of $72.1 million, compared with $86.0 million at the end of the previous quarter. At quarter end, total financial liquidity, comprising cash and cash equivalents, receivables and available credit facilities stood at $153 million.
Financial Highlights
(expressed in thousands of Canadian dollars , except otherwise noted)
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|
Three months ended
|
|
|
|
Mar. 31,
2017
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Mar. 31,
2016
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|
Revenues
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48,492
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─
|
|
Cost of goods sold
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36,420
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─
|
|
Selling, general and administrative expenses
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5,120
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2,408
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|
Exploration expenses
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646
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609
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Gain on sale of interests in exploration properties
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(400)
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─
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|
Financial (income) expenses
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(2,730)
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26,193
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|
Foreign exchange gain
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(1,019)
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(6,600)
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|
Net (loss) income before tax
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10,455
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(22,610)
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Income tax expense
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13,430
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─
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Net loss
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(2,975)
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(22,610)
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Loss Per Share - Basic
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Nil
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(0.03)
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|
Loss per share - Diluted
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(0.01)
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(0.03)
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Adjusted EBITDA1
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14,963
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(2,300)
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Adjusted EBITDA margin (%)1
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35.9%
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N/A
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|
Capital expenditures1
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17,083
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N/A
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Environment, Health, Safety and Communities
One lost time incident (“LTI”) was recorded during the quarter, for a year to date LTI rate of 2.3 for contractors and zero for Stornoway employees. No incidents of environmental non-compliance were recorded during the quarter. Daily manpower at site in March averaged 272 workers, of which 19.5% were Crees of the Eeyou Istchee. Stornoway employees stood at 451 as at March 31, 2017, including 395 at the mine site, of which 14% were Crees, 25% were from Chibougamau and Chapais, and 61% were from outside the region.
Mining and Processing
Commercial Production at the Renard Mine was officially declared on January 1, 2017, marking the end of the project’s initial capital expense period. During the first quarter 1,245,021 tonnes were mined from the Renard 2-3 and Renard 65 open pits, compared to a plan of 1,108,149 tonnes, with 625,576 tonnes of ore extracted. 419,233 tonnes of ore were processed with a diamond recovery of 385,151 carats at 92 cpht, compared to a plan of 406,000 tonnes and 369,307 carats at 91 cpht (increases of 3%, 4% and 1% respectively). Ore processed comprised primarily Renard 2 material, and was derived from both the working open pit and the ore stockpile. Processing rates during the quarter averaged 4,279 tonnes per day compared to a nameplate capacity of 6,000 tonnes per day as the project ramp-up continued.
Elevated levels of diamond breakage in the process plant continues to influence the quality and size distribution of diamond recoveries. Mitigation activities are ongoing, and are focussed on achieving optimal crushing conditions in the Cone Crusher and High Pressure Grinding Roll, reducing the waste content in the ore-feed, and in minimizing re-circulation within the plant, particularly of free diamonds and waste. Initial progress has been encouraging.
Development of the underground mine was 1,459 meters compared to a plan of 1,295 meters, and is now comfortably ahead of schedule. Development within ore at the 160 meters level is well advanced and ground conditions remain excellent. There has been no recurrence of the water inflow issues that affected ramp development in late 2015 and early 2016.
Cash operating costs per tonne processed were $57.86 per tonne1 ($62.99 per carat) compared to a plan for the quarter of $60.14 per tonne ($66.12 per carat). Capital expenditures1 were $17.1 million, primarily related to the development of the underground mine.
Diamond Sales
Stornoway sold a total of 459,126 carats during the quarter in 3 tender sales and 4 out-of-tender sales. All parcels of smaller and lower quality items that had been withdrawn from sale in the first Renard tender in November 2016 have now been sold, and the Corporation ended the quarter with no carried inventory other than normal mine production as goods in progress.
Total sales recorded to the end of March 2017 have been 498,039 carats sold for proceeds of $54.5 million, or US$83 per carat ($110 per carat). These sales represent diamonds recovered between July 2016 and January 2017, during which the Corporation was experiencing high levels of diamond breakage in its process plant, and a higher recovery of small diamonds compared to plan. Realised prices in certain product categories were also impacted by the recent demonetization events in India. Pricing is expected to increase during the course of the year as breakage mitigation efforts continue and pricing for smaller and lower quality items recovers. Adjustments have also been made to the plant’s bottom screen cut-off to reduce the proportion of fines recovered, bringing it into compliance with the bottom size cut-off defined in the Mineral Resource and allowing higher future plant capacity. This will have the effect of reducing the proportion of small diamonds recovered, with a commensurate increase in average diamond pricing. Stornoway expects to achieve an annual average sales price in FY2017 of between US$100 and US$132 per carat, as per previous guidance.
Stornoway expects to conduct two tender sales in the second quarter, three in the third, and two again in the fourth quarter.
Exploration Update
Exploration programs are ongoing on the Corporation’s 100% owned generative Canadian diamond projects, including the Adamantin property located approximately 100 km south of the Renard Diamond Project and 25 km west of the Route 167 Extension road. Adamantin now comprises 28,171 hectares of claims in three blocks, following recent additional land acquisitions. Till sampling at Adamantin during 2015 confirmed the presence of indicator mineral anomalies interpreted to be sourced from undiscovered kimberlites with diamond potential, with one till sample having a diamond in the +0.25mm-0.50mm size fraction. Drilling during March and April of 2016 resulted in the discovery of 11 distinct kimberlite bodies, as announced on May 5, 2016. As announced September 1, 2016, no diamonds were recovered from these samples, leaving the source of the diamond in till unexplained. Further till sampling and geophysical surveys undertaken in 2016, have identified additional targets of interest. Drilling activities commenced before the end of the current quarter and were completed in April 2017. Two new kimberlites have been discovered and sampled for their potential diamond content. These results are not yet available.
Conference Call and Webcast
Stornoway will host a first quarter earnings conference call for analysts and investors on May 10, 2017 at 8:30am EST. This call may be accessed by calling 1-844-215-3287 toll free in North America, of 1-209-905-5939 from international locations, with Conference ID 13010334. A live webcast of the call will be available at http://edge.media-server.com/m/p/5bzg2zeu . A replay of the call, and a copy of the earnings presentation, will be made available on the Stornoway website at www.stornowaydiamonds.com.
Non-IFRS Financial Measures
This press release refers to certain financial measures, such as EBITDA, Adjusted EBITDA, Cash Operating Cost per Tonne Ore Processed, Capital Expenditures and Available Liquidity, which are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. Please refer to the interim management and discussion analysis of the current quarter for more details about calculation of these financial measures in the “Non IFRS Financial Measures” section.
“EBITDA” is the term the Corporation uses as an approximate measure of pre-tax operating cash flow and is generally used to better measure performance and evaluate trends of individual assets. EBITDA comprises earnings before deducting interest and other financial charges, income taxes and depreciation.
“Adjusted EBITDA” is the calculation of EBITDA adjusted by all the non-cash items that are included in the EBITDA calculation. These items are share based compensation and the depreciation of deferred revenue. Also, exploration costs do not reflect the operating performance of the Corporation and are not indicative of future operating results. “Adjusted EBITDA Margin” is the calculation of Adjusted EBITDA divided by total revenues less amortization of deferred revenue from the Renard Stream.
“Cash Operating Cost per Tonne Processed” is the term the Corporation uses to describe operating expenses (including inventory variation which includes depreciation) per tonne processed on a cash basis. This is calculated as cash operating cost divided by tonnes of ore processed for the period. This ratio provides the user with the total cash costs incurred by the mine during the period per tonne of ore processed, including mobilization costs. The most directly comparable measure calculated in accordance with IFRS is operating expenses. “Cash Operating Cost per Carats Recovered” is the total cash operating cost divided by carats recovered.
“Capital Expenditure” is the term used to describe cash capital expenditure incurred. This measure is consistent with that used in the $78.7M capital cost estimate previously provided as guidance for the fiscal year 2017.
“Available Liquidity” comprises cash and cash equivalents, short-term investments and available credit facilities (less related upfront fees), net of payables and receivables.
About the Renard Diamond Project
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 Persons
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, and Mr. David Farrow, Pr.Sci.Nat (South Africa) and P.Geo. (BC), Vice President Diamonds. Stornoway’s exploration programs are supervised by Robin Hopkins, P.Geol. (NT/NU), Vice President, Exploration. Each of M. Godin, Mr. Farrow and Mr. Hopkins are “qualified persons” under NI 43-101.
About Stornoway Diamond Corporation
Stornoway is a leading Canadian diamond exploration and development company listed on the Toronto Stock Exchange under the symbol SWY and headquartered in Montreal. Our flagship asset is the 100% owned Renard Diamond Project, Québec’s first diamond mine. Stornoway is a growth oriented company with a world-class asset, in one of the world’s best mining jurisdictions, in one of the world’s great mining businesses.
On behalf of the Board
STORNOWAY DIAMOND CORPORATION
/s/ “Matt Manson”
Matt Manson
President and Chief Executive
For more information, please contact Matt Manson (President and CEO) at 416-304-1026 x2101
or Orin Baranowsky (Interim CFO and Vice President, Investor Relations and Corporate Development) at 416-304-1026 x2103
or toll free at 1-877-331-2232
Pour plus d’information, veuillez contacter M. Ghislain Poirier, Vice-président Affaires publiques de Stornoway au 418-254-6550, gpoirier@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 made in this document include, but are not limited to, statements with respect to: (i) the amount of Mineral Reserves, Mineral Resources and exploration targets; (ii) the amount of future production over any period; (iii) net present value and internal rates of return of the mining operation; (iv) assumptions relating to recovered grade, size distribution and quality of diamonds, average ore recovery, internal dilution, mining dilution and other mining parameters set out in the 2016 Technical Report as well as levels of diamond breakage; (v) assumptions relating to gross revenues, cost of sales, cash cost of production, gross margins estimates, planned and projected capital expenditure, liquidity and working capital requirements; (vi) mine expansion potential and expected mine life; (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 time frames for the ramp-up and achievement of plant nameplate capacity of the Renard Diamond Mine (x) the expected financial obligations or costs incurred by Stornoway in connection with the ongoing development of the Renard Diamond Mine; (xi) future exploration plans; (xii) future market prices for rough diamonds; (xiii) the economic benefits of using liquefied natural gas rather than diesel for power generation; (xiv) sources of and anticipated financing requirements; (xv) the effectiveness, funding or availability, as the case may require, of the Senior Secured Loan and the remaining Equipment Facility and the use of proceeds therefrom; (xvi) the Corporation’s ability to meet its Subject Diamonds Interest delivery obligations under the Purchase and Sale Agreement; (xvii) the impact of the Financing Transactions on the Corporation’s operations, infrastructure, opportunities, financial condition, access to capital and overall strategy; (xviii) the foreign exchange rate between the US dollar and the Canadian dollar; and (xix) the availability of excess funding for the operation of the Renard Diamond Mine. 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) required capital investment 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, internal dilution, mining dilution and other mining parameters set out in the 2016 Technical Report as well as levels of diamond breakage, (iv) receipt of regulatory approvals on acceptable terms within commonly experienced time frames; (v) anticipated timelines for ramp-up and achievement of nameplate capacity at the Renard Diamond Mine, (vi) anticipated timelines for the development of an open pit and underground mine at the Renard Diamond Mine; (vii) anticipated geological formations; (viii) market prices for rough diamonds and their potential impact on the Renard Diamond Mine; (ix) the satisfaction or waiver of all conditions under the Senior Secured Loan and the remaining Equipment Facility to allow the Corporation to draw on the funding available under those financing elements; (x) Stornoway’s interpretation of the geological drill data collected and its potential impact on stated Mineral Resources and mine life; (xi) future exploration plans and objectives; (xii) the Corporation’s ability to meet its Subject Diamonds Interest delivery obligations under the Purchase and Sale Agreement; and (xiii) the continued strength of the US dollar against the Canadian dollar.
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) developments in world diamond markets; (v) slower increases in diamond valuations than assumed; (vi) risks relating to fluctuations in the Canadian dollar and other currencies relative to the US dollar; (vii) increases in the costs of proposed capital, operating and sustainable capital expenditures; (viii) increases in financing costs or adverse changes to the terms of available financing, if any; (ix) tax rates or royalties being greater than assumed; (x) uncertainty of results of exploration in areas of potential expansion of resources; (xi) changes in development or mining plans due to changes in other factors or exploration results; (xii) risks relating to the receipt of regulatory approvals or the implementation of the existing Impact and Benefits Agreement with aboriginal communities; (xiii) the effects of competition in the markets in which Stornoway operates; (xiv) operational and infrastructure risks; (xv) execution risk relating to the development of an operating mine at the Renard Diamond Mine; (xvi) failure to satisfy the conditions to the funding or availability, as the case may require, of the Senior Secured Loan and the Equipment Facility; (xvii) changes in the terms of the Forward Sale of Diamonds, the Senior Secured Loan or the Equipment Facility; (xviii) the funds of the Senior Secured Loan or the Equipment Facility not being available to the Corporation; (xix) the Corporation being unable to meet its Subject Diamonds Interest delivery obligations under the Purchase and Sale Agreement; (xx) future sales or issuances of Common Shares lowering the Common Share price and diluting the interest of existing shareholders; and (xxi) the additional risk factors described herein and in Stornoway’s annual and interim MD&A’s, most recently filed AIF, 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. and (xxi) the additional risk factors described herein and in Stornoway’s annual and interim MD&A’s, most recently filed AIF, 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.
1See “Non-IFRS Financial Measures” section.
2Based on an average C$: US$ conversion rate of $1.33.