From yesterday’s Will P Stockwatch Patrick Godin's Stornoway Diamond Corp. (SWY: $0.02), now just a cadaver awaiting delisting and burial, heard today that a Quebec court has approved the "purchase agreement," by which its secured creditors will acquire, through an entity to be formed for the purpose, substantially all of the assets and properties of the company, and assume the debts and liabilities owing to the secured creditors, as well as the ongoing obligations relating to the operation of the Renard Mine, subject to certain limited exceptions.
Stripped of that lawyer-speak, the secured creditors, mainly Osisko Gold Royalties Ltd. (OR: 12.69) and Investissement Quebec, a mineral exploration and development arm of the Quebec government, will take over operation of the Renard mine and attempt to keep it running in the hope of recouping a portion of the hundreds of millions of dollars they lent to and invested in Stornoway over the past several years, all to put the $800-million mine into operation.
The transaction does not say what the creditors are paying Stornoway for Renard, mainly because the answer is nothing. Indeed, Stornoway began warning the market in increasingly dire terms during the summer that it -- and therefore, they -- were nearing the end of the road. In fact, in mid-August, Mr. Godin, who replaced Matt Manson as president and chief executive officer at the start of the year, said that his company's shares bore "little or no relationship to the actual realization of value."
Mr. Godin clearly was not suggesting that Stornoway's stock was undervalued, yet, despite the plain-as-day warning, 127 million shares traded at an average of nearly two cents per share between mid-August and when the company filed for bankruptcy protection in early September. Investors caught long by a CCAA filing usually hope to get a few pennies on the dollar through some restructuring, but Mr. Godin and the secured creditors slammed the door on that longshot chance, stating that "there will be no recoverable or residual value" in Stornoway's stock, or, for that matter, in its convertible debentures.
It is unclear yet who will be running Renard in its post-Stornoway days, other than it will be held by some new entity. The challenge for whoever takes on the task will be trying to eke out a profit from a mine that racked up over $675-million in losses in 2018 and the first two quarters of 2019. Most of that loss came from writedowns and other non-cash hits, so Renard may have a shot at being cash flow positive under the new regime.
None of that will be of any solace to Stornoway's former shareholders, who saw their company's market value drop from over $1.1-billion in the summer of 2016 to less than $20-million when its stock was halted, nor will it cheer those left holding the bag as the final $20-million in market value went poof.