SECOND QUARTER RESULTSAugust 14, 2017 STORNOWAY ANNOUNCES FY2017 SECOND QUARTER RESULTS Stornoway Diamond Corporation (TSX-SWY; the “Corporation” or “Stornoway”) announced today its results for the quarter ended June 30, 2017. Quarter ended June 30, 2017 Highlights (All quoted figures in CAD$ unless otherwise noted)
• Net income of $2.3 million or $Nil per share on a basic and fully diluted basis.
• During the course of the quarter, the Corporation achieved the milestone of one million carats of diamonds produced and attained nameplate processing capacity, on schedule.
• 417,362 carats recovered during the quarter from the processing of 512,005 tonnes of ore compared to a plan of 486,591 carats from 513,000 tonnes, due to the processing of lower grade ore (at 82 cpht compared to a plan of 95 cpht).
• Mining in the Renard 2-3 and Renard 65 open pits comprised 1,328,580 tonnes, or 129% of plan, with 500,473 tonnes of ore extracted. Underground mine development at the end of June comprised 2,746 meters, or 103% of plan.
• Diamond sales of 350,159 carats were completed with proceeds of $40.9 million. Adjusted EBITDA1 of $15.1 million, or 35.6% of sales.
• Average diamond pricing achieved at sale of US$87 per carat ($117 per carat1-2 ), compared to US$81 per carat in the first quarter. An additional 151,135 carats were sold subsequent to quarter end for proceeds of $19.8 million, at an average price of US$101 per carat ($128 per carat3 ). Overall, pricing for Renard diamonds has increased +19% since sales began (expressed in real terms after accounting for size distribution and quality variations).
• Cash operating costs per tonne processed1 of $54.12 per tonne ($66.39 per carat) and capital expenditures1 of $24.0 million in the quarter, both within plan.
• Subsequent to the quarter end, a program of plant modification measures aimed at reducing breakage and producing a higher quality diamond product approved by the Board of Directors, with an expected capital cost of $22 million to be funded from existing financial resources.
• At quarter end, cash, cash equivalents and short-term investments stood at $60.4 million. Available liquidity1 to the Corporation, comprising of cash and cash equivalents and available credit facilities, stood at $168.1 million. 1 Refer to “Non-IFRS Financial Measures” section of the MD&A for further discussion of these matters. 2 Based on an average C$: US$ conversion rate of $1.34. 3 Based on an average C$: US$ conversion rate of $1.26. Matt Manson, president and CEO commented: “Our second quarter saw the attainment of full nameplate processing capacity at Renard, achieved by the end of June on schedule. Capital and operating costs continue within plan, and our business has again demonstrated a strong cash operating margin. Grade and carats produced for the quarter reflect the processing of a higher proportion of lower grade ore from our stockpiles. However, we continue to see good overall productivity in mining and processing, and development of the underground mine, which will be the principal source of ore to the plant starting next year, is proceeding comfortably within schedule.” Matt Manson continued: “We are particularly encouraged by the steady increase in pricing for Renard diamonds as the market familiarizes itself with our production. Pricing continues to be impacted by high levels of diamond breakage, and our work to date on this issue has shown that reducing the proportion of hard, country rock waste in the ore feed will have a meaningful impact on our recoveries. To this end the Stornoway board has approved additional capital expenditures of C$22 million, from existing funds, to add a waste sorting circuit to our process plant. This work, within an overall diamond value improvement action plan, will be conducted over the next three quarters, and is expected to contribute significantly to the volume, quality and value of our diamond production.” Financial Summary Revenues during the quarter totalled $42.6 million. This was the second quarter after the declaration of commercial production, and there were no sales in the comparable period. Revenue includes $5.1 million related to the amortization of upfront proceeds received by the Corporation under the Stream agreement in consideration for future commitments to deliver diamonds at contracted prices. The Corporation’s cost of sales were $33.9 million related to mining, processing, rough diamond sorting activities, site services and depreciation, with adjusted EBITDA of $15.1 million, or 35.6% of sales. The increase in adjusted EBITDA as compared to prior years was due to two tender sales in the second quarter of 2017 and none for the second three months of 2016, as the Renard Diamond Mine was in the construction phase. Financial expenses for the second quarter were $2.2 million. During the quarter, the Corporation recorded interest expense of $6.8 million which was partially offset by an unrealized gain on the fair value of derivatives embedded in the Corporation’s convertible debentures of $4.9 million. Revenue during the six months ended June 30, 2017, totalled $91.0 million. Financial Highlights (expressed in thousands of Canadian dollars, except otherwise noted) Three months ended Six months ended June 30, 2017 June 30, 2016 June 30, 2017 June 30, 2016 Revenues 42,550 91,042 Cost of goods sold 33,893 70,313 Selling, general and administrative expenses 4,203 3,252 9,323 5,660 Exploration expenses 935 1,300 1,581 1,909 Gain on sale of interests in exploration properties (400) Financial (income) expenses 2,211 (11,801) (519) 14,392 Foreign exchange gain (3,241) 1,470 (4,260) 5,130 Net (loss) income before tax 4,549 5,779 15,004 (16,831) Income tax expense 2,211 15,641 Net loss 2,338 5,779 (637) (16,831) Loss Per Share – Basic Nil (0,01) Nil (0.02) Loss per share – Diluted Nil Nil Nil (0.02) Adjusted EBITDA 15,143 (4,552) 34,838 (7,569) Adjusted EBITDA margin (%) 35.6% N/A 38.3% N/A Capital expenditures 23,975 N/A 41,058 N/A Environment, Health, Safety and Communities No lost time incident (“LTI”) were recorded during the quarter, for a year to date LTI rate of 1.0 for contractors and zero for Stornoway employees. No incidents of environmental non-compliance were recorded during the quarter. Daily manpower at site in June averaged 310 workers, of which 19.5% were Crees of the Eeyou Istchee. Stornoway employees stood at 493 as at June 30, 2017, including 438 at the mine site, of which 15% were Crees, 24% were from Chibougamau and Chapais, and 61% were from outside the region. Mining and Processing During the second quarter 1,328,580 tonnes were mined from the Renard 2-3 and Renard 65 open pits, compared to a plan of 1,033,459 tonnes (+29%), with 500,473 tonnes of ore extracted. 512,005 tonnes of ore were processed with a diamond recovery of 417,362 carats at 82cpht, compared to a plan of 513,000 tonnes and 486,591 carats at 95cpht (-0.1%, -14% and-14% respectively). Ore processed comprised primarily of lower grade Renard 2 material, sourced from both the open pit and the ore stockpile. Processing rates during the quarter averaged 5,626 tonnes per day compared to a nameplate capacity of 6,000 tonnes per day. In the month of June, the company achieved an average daily processing rate of 6,149 tonnes, representing the successful completion of the project’s production ramp-up on schedule. Development of the underground mine in the second quarter was 2,746 meters compared to a plan of 2,642 meters (+3%). Work has focussed on lateral development in kimberlite at the 160 meter level, development of the production drifts at the 270 and 290 meter levels, and on the fresh air raise. Ground conditions have been good and 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 $54.12 per tonne1 ($66.39 per carat processed1 compared to a plan of $52.19 per tonne1 ($55.02 per carat processed1 ). Cash costs per tonne were in line with plan, with costs per carat processed and per carat sold reflecting the lower volume of carats recovered and sold during the quarter compared to plan. Capital expenditures1 were $24.0 million, primarily related to the development of the underground mine. Process Plant Modifications for Diamond Value Improvement Since ore processing at Renard began, the project has experienced high levels of diamond breakage. This is manifested most directly in the proportion of larger diamonds recovered, and in the average quality profile. Both factors negatively impact the achieved average diamond price at sale. During the first half of the year, steps have been undertaken to understand the cause of the breakage and to mitigate it to acceptable levels, with attention focussed on crusher operating settings, material balancing in the plant, screen changes, diamond breakage studies and simulant testing. With the insight gained from the work completed in the first half of 2017, Stornoway’s board of directors has approved a program of plant modifications and operational refinements designed to reduce the breakage to a more acceptable level and produce a higher quality diamond product. Central to this plan is the introduction of waste sorting. High levels of internal country rock dilution is a distinguishing feature of the Renard kimberlites. Total levels of internal and external dilution from hard, gneissic country rock typically exceeds more than 50% of the ore feed to the process plant. The high content of waste in the ore is preventing the correct conditions of diamond liberation to be achieved in the plant’s secondary and tertiary crushers, and the concentration of the hard waste alongside free diamonds in the crushers and recovery circuits is a principal cause of the breakage. As part of the first half program of work, Stornoway has conducted trials on a spectral waste sorting technology and achieved promising results in the segregation of the white and pink, quartz and feldspar dominated gneissic and granitoid waste from the darker coloured, olivine rich kimberlite. A waste sorting circuit rated at 7,000 tonnes of ore per day, and expandable, will be added to the Renard process plant immediately after the primary jaw crusher and before the secondary cone crusher to extract waste in the +30mm-200mm size range. Extracted waste will be trucked for disposal, and the concentrated, less-dilute kimberlite will be re-introduced to the plant for crushing. An extraordinary capital budget of $22 million has been allocated for this work, to be funded from existing financial resources. The addition of this circuit is expected to add $1 per tonne to operating costs, and will have the ancillary benefit of reducing load on the rest of the Renard process plant, allowing future potential plant expansion. Commissioning of the new circuit is scheduled for the first quarter of 2018. Diamond Sales Stornoway sold a total of 350,159 carats during the quarter in 2 tender sales (2017 sales #4 and #5) at an average price of US$87 per carat ($117 per carat1-2 ). The sales represent run of mine production and at quarter-end the company held no excess diamond inventory other than normal course goods in progress. Subsequent to the quarter end, the company completed a sale of an additional 151,135 carats (2017 sale #6) for proceeds of $19.8 million at an average price of US$101 per carat ($128 per carat3 ). This result was achieved with a standard run of mine sales mix within Stornoway’s FY2017 pricing guidance of US$100 to US$132 per carat. The average pricing achieved to date from the sales of Renard diamonds has been significantly impacted by the ongoing issues of diamond breakage in the process plant, which has reduced the proportion of larger diamonds available for sale, and increased the proportion of small diamonds in the sales mix. Small diamonds continue to achieve substantially lower market pricing than was being achieved prior to the Indian de-monetization events of late 2016. However, the average run of mine pricing for Renard diamonds, after accounting for size distribution and quality variations, has increased in real terms by 19% since the first sale was completed in November 2016. While the rough market has strengthened modestly during this period, the size of the increase reflects the growing acceptance of the Renard diamond production by Stornoway’s tender sale clientele. Stornoway expects to conclude one additional sale in the third quarter and two in the fourth quarter. Exploration Update Exploration activities by the Corporation are ongoing, including the acquisition, by staking, of three new 100% owned diamond properties targeting specific features of interest identified from a review of proprietary databases (Wabi, CYP and MET). The select properties total about 4,538 hectares, and additional landholdings may be acquired. Applications for access permits are in preparation, and the Company anticipates conducting work programs later this season. Drilling activities completed in April 2017 on the 28,171 hectare Adamantin property (located approximately 100 km south of the Renard Diamond Mine and 25 km west of the Route 167 Extension road) resulted in the discovery of two new kimberlite occurrences. Diamond results are still pending for these discoveries. 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, but no diamonds were recovered from these samples, leaving the source of the diamond in till currently unexplained. Conference Call and Webcast Stornoway will host a second quarter earnings conference call for analysts and investors on August 14, 2017 at 1100am 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 58480597. A live webcast of the call will be available at https://edge.media-server.com/m/p/mvni9egd. A replay of the call, and a copy of the earnings presentation, will be made available on the Stornoway website at 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 Qubec. Construction on the project commenced on July 10, 2014, and commercial production was declared on January 1, 2017. Average annual diamond production is forecasted 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. (Qubec), Chief Operating Officer. Stornoway’s exploration programs are supervised by Robin Hopkins, P.Geol. (NT/NU), Vice President, Exploration. Each of M. Godin 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 Longueuil. Our flagship asset is the 100% owned Renard Diamond Mine, Qubec’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 Officer 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 C