Stornoway Diamond Fears for Its Future

RAPAPORT… Stornoway Diamond Corporation has given a stern warning
about its ability to remain in business, after failing to find a buyer for the company.

The miner had until July 15 to find an investor for its Renard operation as part of a bridge-loan agreement it signed. While lenders extended the deadline to September 16, the company has been unable to find an interested party, and feels it’s unlikely to do so, it said in a second-quarter earnings release on Wednesday. It is also unlikely that any deal
would result in Stornoway shares having any recoverable value, the company
cautioned.

The stock fell 9% Wednesday following the announcement, with shares trading at 0.025 cents on the Toronto Stock Exchange.

Stornoway warned that it does not have the required cash to continue operations for another year. 

“Management estimates that the working capital as at June 30, 2019, and forecasted cash flows, will not be sufficient to meet the corporation’s obligations, commitments and budgeted expenditures through June 30, 2020, in the current diamond-market conditions,” the company said. 

“Furthermore,
there can be no assurance that the corporation’s common shares…will continue to
trade on the Toronto Stock Exchange or on any other trading platform,” it added. 

The bank will consider the company to have defaulted on its
CAD 11.7 million ($8.8 million) bridge loan if no one comes forward to acquire
the business by the new deadline. The miner cannot rule out filing for
protection from creditors, it cautioned. 

Stornoway, which launched commercial production at its
Renard mine in Canada in January 2017, has incurred losses due to delays transitioning
the deposit from open-pit to underground operations. It has also suffered from low-quality
production resulting from bad weather, as well as prolonged weakness in the
small-stone market.

Revenue more than tripled to CAD 189.4 million ($142.2 million) in the second
quarter ending June 30, versus CAD 56.9 million ($42.7 million) a year ago, the company reported. Of the total, diamond sales amounted to CAD 47 million ($35.3 million) during the period, according to a July 10 press release.

However, its net loss deepened
to CAD 346.3 million ($259.9 million), compared with a loss of CAD 35.9 million
($26.9 million) during the same period last year. The deterioration stemmed from a
drop in diamond prices, which resulted in a devaluation of its assets. While
sales volume jumped, the average value declined amid weak market conditions.

“Management is aware…of material uncertainties related to
events and conditions that may cast significant doubt upon the corporation’s
ability to continue as a going concern,” the company added.

Image: Workers in the underground portion of Renard. (Stronoway Diamond Corporation)