Stornoway Diamond Corporation entered into a $20 million unsecured debt facility with lenders, the Fonds de solidarité FTQ, the Fonds régional de solidarité FTQ Nord-du-Québec, S.E.C. and Investissement Québec, through its indirect wholly-owned subsidiary Diaquem Inc. Proceeds from this facility will be used to finance pre-development work at the Renard diamond project, including the initiation of detailed engineering, the ordering of long-lead mining equipment and the expansion of Stornoway's mining team.
Matt Manson, Stornoway's president, explained, ''This financing announcement is another important milestone in the development of Quebec's first diamond mine. This loan will provide Stornoway with good funding flexibility as we begin the ramp-up to the capital programs anticipated at Renard in 2013 and 2014.
''We are particularly pleased to be able to announce the support of the Fonds in the development of the project, and the continued support of our major shareholder, Investissement Québec. Combined with our recent equity financings, Stornoway has now raised a total of $40 million since March in difficult market conditions,'' Manson said. ''These funds have been raised in a ratio of 50 percent debt and 50 percent equity that is respectful of shareholder value. Our objective is to continue to move Renard ahead on schedule as we work to complete project permitting and senior project financing.''
The loan was backed 75 percent by the Fonds and 25 percent by Diaquem. Stornoway granted the lenders, on a proportionate basis, a total of 15 million share purchase warrants, each of which entitles the holder to acquire one common share in the share capital of Stornoway at a price of $1.21 for a period of 5 years following closing. The share price represents a 40 percent premium to the 20-day volume weighted average price of Stornoway common shares on the Toronto Stock Exchange prior to the May 3 closing date.
The loan will bear an interest rate of 12 percent per annum, payable 100 percent in cash or 50 percent in cash and 50 percent in Stornoway shares prior to commencement of commercial production, and 100 percent in cash thereafter. The principal is to be repaid in equal monthly installments commencing approximately one month following the date of commercial production at Renard, but not before May 3, 2016 and not later than May 3, 2017. The final maturity is May 3, 2021.
In connection with the loan, Stornoway's subsidiary has granted the lenders a 1 percent contingent secured royalty interest in the Renard project, which is only triggered upon the occurrence of certain specified events, such as a default following a change of control of Stornoway, in each case capped at an amount equal to the aggregate value of the principal and interest then outstanding on the loan.