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Stornoway Diamond Corporation (SWY - TSX)

Stornoway Announces 2016 Production Results and 2017 Guidance

LONGUEUIL, Québec, Feb. 06, 2017 (GLOBE NEWSWIRE) -- Stornoway Diamond Corporation (TSX:SWY) (the “Corporation” or “Stornoway”) is pleased to announce 2016 production results for the Renard Diamond Mine and 2017 guidance.

Highlights are as follows:

  • 2,074,827 tonnes of open pit ore mined and 399,162 tonnes processed, increases of +136% and +77% respectively over plan;
  • 448,887 carats recovered at an attributable grade of 112 carats per hundred tonnes (“cpht”), increases of +106% and +15% respectively over the 2016 plan of 218,400 carats at 97 cpht;
  • 38,913 carats sold for gross proceeds of US$7.6 million, representing un-budgeted pre-production revenue;
  • Commercial production declared on January 1st, 2017;
  • 2017 production guidance of 1.7 million carats produced and 1.8 million carats sold, at an average diamond price between US$100 and US$132 per carat;
  • 2017 operating cost guidance of C$59.68 per tonne processed (C$66.49 per carat sold); and,
  • 2017 sustaining and deferred capital cost guidance of $C78.7 million.

Matt Manson, President and CEO commented: “In 2016 we completed construction of the Renard Diamond Mine ahead of schedule and below budget, achieving commercial production at year end. Today’s press release highlights an operating performance that was similarly strong, with better than expected production in the open pits, and development of the underground mine proceeding comfortably on-schedule. Our ability to bring the project into production early resulted in significantly higher carat production than planned for the year, and an earlier than expected first sale that gave us unbudgeted pre-production revenue. With the first few months of ore processing behind us, we are pleased with the performance of the project’s Mineral Resource, with better than expected grades reflecting better than expected geology at the top of the Renard 2 and Renard 3 ore bodies. For 2017 we are being cautious with our diamond price forecasting, due to uncertain market conditions and a reduction in pricing for smaller and certain lower quality items. This trend began earlier in 2016, deepened with the Indian de-monetization events, and was reflected in the results of our first two diamond sales. Our price forecasting further reflects higher than expected levels of diamond breakage that we are experiencing in the process plant and which is influencing our initial diamond recovery profile. The source of this breakage is evident to us and a mitigation plan is underway to reduce it to acceptable levels. Our focus in 2017 is the maintenance of our good operating performance and the progressive improvement in the quality of our recoveries as our plant ramp-up continues. At year end, our (preliminary, unaudited) total financial liquidity stood at C$159 million1, comprised of cash and cash equivalents, expected receivables, and undrawn debt facilities.”

1 Excludes an undrawn C$48 million project cost-overrun facility.

2016 Production Results

For the year ended December 31, 2016, Stornoway extracted a total of 7,840,130 tonnes of ore, waste and overburden from the Renard 2- Renard 3 and Renard 65 open pits, compared to a plan of 6,339,501 tonnes (+24%). 2,074,827 tonnes of ore were mined compared to a plan of 879,641 tonnes (+136%). At the end of the year the ore stockpile stood at 1,842,068 tonnes, excluding an additional 63,243 tonnes of non-resource Renard 3 material.

A total of 399,162 tonnes of ore were processed with carat production of 448,887 carats, compared to a plan of 218,400 carats (+106%), with an attributable grade of 112 cpht compared to a plan of 97 cpht (+15%). The higher tonnage of ore processed was due to the earlier than expected availability of the plant, and the higher grade was due to a better than expected mix of ore units available in the Renard 2-3 open pit.

One diamond sale was completed during the year, being 38,913 carats sold for gross proceeds of US$7.6 million, representing un-budgeted pre-production revenue.

2,729 meters of development was completed in the underground mine, compared to a plan of 2,768 meters (-1%). There has been no recurrence of the water inflow issues that slowed ramp development towards the end of 2015. The Renard 2 kimberlite was intersected at the 160 meter level on December 4, 2016 and by year end 117 meters of development within ore had been completed in good ground conditions.

Stornoway’s lost time incident frequency rate for the year was 1.55, with zero incidents of environmental non-compliance. During the year, the proportion of Stornoway employees and contractors who were Crees of the Eeyou Istchee averaged 19%.

2017 Guidance

Mining, Processing and Sales

In 2017 Stornoway plans to mine 4.4 million tonnes of ore and waste from the open pits and 0.5 million tonnes from the underground mine. 2 million tonnes of ore will be processed for a planned recovery of 1.7 million carats at a grade of 86 cpht. Full name-plate capacity of 6,000 tonnes per day, based on 73% plant utilization, is scheduled to be achieved by the end of the second quarter.

2,300 meters of underground development and 2,600 meters of production stope development is planned in the underground mine.

Diamond sales of 1.8 million carats are planned in ten tender sales in Antwerp, Belgium.

Capital and Operating Costs

Operating costs for 2017 are forecast at C$59.68 per tonne processed, being C$70.41 per carat processed and C$66.49 per carat sold.

Capital costs are forecast at C$78.7 million. This includes scheduled cap-ex of $45.5 million for the underground mine, and sustaining capital items associated with the project’s process plant, power plant, and processed kimberlite containment facility. The capital cost estimate includes $11.8 million of site service costs associated with capital items but previously shown as operating general and administrative costs, and $1.7 million of costs deferred from 2016.

Diamond Pricing and Revenue

Based on the profile of diamonds recovered to date, market conditions, and the results of early sales and valuations, Stornoway forecasts average diamond pricing during 2017 of between US$100 and US$132 per carat. This yields a gross revenue forecast of US$180 million to US$230 million based on planned diamond sales.

Compared to previous estimates, the 2017 pricing guidance incorporates reduced pricing for smaller and certain lower quality rough diamond categories seen during the course of 2016 and confirmed in the first two Renard sales. This trend, already underway, was exacerbated by the Indian de-monetization event of late 2016 which has prompted many diamond producers, including Stornoway, to temporarily withhold this material from sale. Stornoway’s 2017 price guidance assumes stabilization of the Indian currency market and the beginning of price recovery prior to the end of the second quarter of 2017.

2017 pricing guidance further reflects the profile of diamonds recovered at Renard in the initial ramp-up period. During the first few months of operation, the Renard diamond process plant has liberated a higher proportion of small diamonds than expected, and has induced higher levels of diamond breakage than expected. Both of these factors have a strong influence on average run-of-mine pricing. Diamond breakage occurs in all diamond process plants, and is measurable and remediable. Stornoway is undertaking a breakage mitigation plan in conjunction with 3rd party experts and equipment vendors. This work will be ongoing through the first half of 2017. Achieved diamond pricing will continue to be influenced by this breakage until it is resolved.

Mineral Reserves and Mineral Resources

Year-end Mineral Reserves have been updated based on mining depletion.

PROVEN MINERAL RESERVES(1,2)
Stockpile(4)
Carats
(millions)
Tonnes
(millions)
Grade
(cpht)(3)
Renard 2, All Units0.551.3142
Renard 20.290.2998
CRB-2A0.030.1133
CRB0.230.9125
Renard 30.230.2881
Renard 650.090.2535
Reload0.0030.00476
Renard 2 UG0.0040.00752
Total Stockpile Proven Mineral Reserves0.871.8547


PROBABLE MINERAL RESERVES(1,2)
Open Pit
Carats
(millions)
Tonnes
(millions)
Grade
(cpht)(3)
Renard 2, All Units1.061.9355
Renard 20.820.9091
CRB-2A0.100.3332
CRB0.140.6920
Renard 30.560.5897
Renard 651.284.3030
Total OP Probable Mineral Reserves2.906.8043
PROBABLE MINERAL RESERVES(1,2)
Underground
Carats
(millions)
Tonnes
(millions)
Grade
(cpht)(3)
Renard 215.6519.6780
Renard 30.861.2270
Renard 41.673.4648
Total UG Probable Mineral Reserves18.1824.3575
Total Proven and Probable Mineral Reserves(5)21.95
(-0.31)
33.00
(-0.42)
67
(--)
Notes
1 Reserve categories follow the CIM Standards for Mineral Resources and Mineral Reserves.
2 Totals may not add due to rounding.
3 Carats per hundred tonnes. Estimated at a +1 DTC sieve size cut-off.
4 Represents mine and stockpiled ore as of December 31, 2016
5 Changes from March 2016 Mineral Reserve estimate shown in italics

Exclusive of the Mineral Reserves, the Renard Diamond Mine includes additional Indicated Mineral Resources of 0.9 million carats (3.4 million tonnes at 27 cpht), Inferred Mineral Resources of 13.4 million carats (24.5 million tonnes at 54 cpht), and 33.0 to 71.1 million carats of non-resource exploration upside (76.2 to 113.2 million tonnes at grades ranging from 25 to 168 cpht). All kimberlites remain open at depth. Readers are cautioned that the potential quantity and grade of any such exploration target is conceptual in nature, there has been insufficient exploration to define a mineral resource, and it is uncertain if further exploration will result in the target being delineated as a mineral resource.

Conference Call Details

The Corporation’s senior management will host a conference call on Tuesday February 7, 2017 at 8:30am Eastern Time to discuss the 2016 results and 2017 guidance.

Participants in Canada may join the call by dialling 416-340-2216 or 1-800-377-0758 for calls outside of Canada. A live webcast of the conference call, with guidance support materials, will be available on the company’s website; www.stornowaydiamonds.com. The conference call will be archived on the Company’s website until March 31, 2017.

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 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, both “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 (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 **

This press release contains "forward-looking information" within the meaning of Canadian securities legislation. This information and these statements, referred to herein as “forward-looking statements”, are made as of the date of this press release 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 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 beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

Forward-looking statements relate to future events or future performance and 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 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, operating cash flow and other revenue metrics set out in the 2016 Technical Report; (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 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, 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.

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