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Stornoway Diamond Fears for Its Future

Aug 15, 2019 10:31 AM   By Rapaport News
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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)
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Tags: Rapaport News, renard, Renard mine, stornoway, Stornoway Diamond Corporation, Toronto Stock Exchange
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