Mr. Matt Manson reports
STORNOWAY ANNOUNCES UPDATED RENARD MINE PLAN AND MINERAL RESERVE ESTIMATE
Stornoway Diamond Corp. has released the results of an updated mine plan and mineral reserve estimate for the Renard diamond project.
Highlights
(all quoted figures in Canadian dollars unless stated otherwise):
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A 25-per-cent increase in the probable mineral reserves from 17.9 million to 22.3 million carats (representing 33.4 million tonnes at an average grade of 67 carats per hundred tonnes (cpht));
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An increase in the mineral-reserve-based mine life from 11 years to 14 years;
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First ore processing forecast by the end of September, 2016, and commercial production by Dec. 31, 2016, a five-month improvement on the starting project execution schedule;
- Average diamond production in years one to 10 of 1.8 million carats per year compared with 1.6 million carats per year previously, with schedules of 1.9 million carats produced and 1.4 million carats sold to the end of 2017, increases of 24 per cent and 57 per cent, respectively, compared with the previous plan;
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A scheduled increase in processing rate from 2.2 million tonnes per annum (6,000 tonnes per day) to 2.5 million tonnes per annum (7,000 tonnes per day) starting in 2018;
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Initial capital cost estimate of $775-million within a life-of-mine capital cost estimate of $1,045-million;
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Life-of-mine average operating costs of $56.20 per tonne or $84.37 per carat;
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Net revenue of $4,555-million, yielding a real-term cash operating margin of $2,677-million or 59 per cent, or $120 per carat, after allowance for royalties, taxes and the Renard diamond streaming agreement;
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Unlevered, stream-affected, after-tax net present value (discounted at 7 per cent) of $974-million as of Jan. 1, 2016, calculated in real terms. NPV is calculated on probable mineral reserves only, excluding any resource upside, utilizing mark-to-market diamond price estimates and before consideration for potential large diamond recovery.
Matt Manson, president and chief executive officer, commented: "With six months remaining before the scheduled commencement of first diamond production at Renard, we are updating the project's mine plan to incorporate updates to the mineral resources completed in 2013 and 2015, and to capture opportunities that have developed in schedule, operating profile and processing capacity. The new plan shows incremental improvements in the project's cost to complete, average carat production, mine life and mineral reserves. All-important early carat production to the end of 2017 shows a substantial increase compared with the previous estimate. A reduction in the average grade of the new mineral reserves reflects the addition of new lower-grade material within the open-pit and underground mining envelopes rather than any material reduction in the grades of the ore units comprising the previous reserve statement. The project continues to demonstrate a robust valuation and a cash operating margin of 59 per cent after all taxes, royalties and the Renard diamond stream, despite the substantial recent reduction in rough diamond prices. We look forward to building on our track record to date of solid project execution as we bring Renard into production later this year."
Support materials that illustrate the updated Renard mine plan and mineral reserve estimate can be found on Stornoway's website. A technical report under National Instrument 43-101 -- Standards for Disclosure for Mineral Projects entitled, "Updated Renard Mine Plan and Mineral Reserve Estimate," has been filed on SEDAR concurrently with this press release.
March, 2016, mineral reserve estimate
Probable mineral reserves, as defined in National Instrument 43-101 -- Standards of Disclosure for Mineral Projects, are estimated at 22.3 million carats (33.4 million tonnes at an average grade of 67 cpht) compared with 17.9 million carats previously (23.8 million tonnes at an average grade of 75 cpht). The mineral reserves are derived from 30.2 million carats of indicated mineral resources (42.6 million tonnes at 71 cpht) as defined in the September, 2015, mineral resource estimate. The new mineral reserves are based on a mine call factor of one with respect to the processing of the mineral resources, and incorporate revised estimates of ore recovery, mining dilution and internal dilution from the updated mine plan.
RENARD NI 43-101 PROBABLE MINERAL RESERVES (1) (2) (4)
Carats Tonnes Grade
(millions) (millions) (cpht) (3)
Open pit
Renard 2, all units 1.85 3.54 52.2
Renard 2 1.38 1.49 92.7
CRB-2A 0.15 0.47 31.4
CRB 0.32 1.58 20.2
Renard 3 0.73 0.79 92.3
Renard 4 - - -
Renard 65 1.38 4.58 30.1
OP probable mineral reserves 3.96 8.91 44.4
Underground
Renard 2 15.65 19.68 79.6
Renard 3 0.86 1.22 70.2
Renard 4 1.67 3.46 48.3
Renard 65 - - -
UG probable mineral reserves 18.18 24.36 74.6
Stockpile (7)
Stockpile 0.11 0.15 73.9
Total probable mineral reserves 22.26 33.42 66.6
Mining Internal Mining
dilution (5) dilution (6) recovery
Open pit
Renard 2, all units 2.9% 0.0% 98%
Renard 2 1.7 0.0 98
CRB-2A 1.8 0.0 98
CRB 4.3 0.0 98
Renard 3 11.4 0.0 98
Renard 4 - - -
Renard 65 3.5 0.0 98
OP probable mineral reserves 3.9 0.0 98
Underground
Renard 2 20.2 6.4 82
Renard 3 14.0 29.8 85
Renard 4 14.0 2.2 78
Renard 65 - - -
UG probable mineral reserves 18.9 6.7 82
Stockpile (7)
Stockpile - - -
Total probable mineral reserves 14.8 4.9 86
(1) Reserve categories follow the CIM standards for mineral resources
and mineral reserves.
(2) Totals may not add due to rounding.
(3) Carats per hundred tonnes. Estimated at a plus-one-DTC-sieve-size
cut-off.
(4) Diamond valuation data utilized for the test of prospects of
reasonable economic extraction are derived from a diamond valuation
exercise undertaken in March, 2014 (see Stornoway annual information
form dated March, 2016).
(5) Represents the proportion of waste rock expected to be extracted
during mining. Mining dilution is assumed to have zero grade.
(6) Represents planned dilution of waste rock through stope design in
the underground mine.
(7) Represents mine and stockpiled ore as of Dec. 31, 2015.
Open-pit mineral reserves have increased 339 per cent in tonnage terms (to 8.91 million tonnes) and 107 per cent in carat terms (to 3.96 million carats), with a commensurate 53-per-cent reduction in average grade to 44 cpht. This is principally attributable to the addition of 4.58 million tonnes of Renard 65 ore at 30 cpht and over two million tonnes of Renard 2 CRB and CRB-2a ore at 20 and 31 cpht. Higher-grade Renard 2 and Renard 3 ore has also increased in tonnage terms by 14 per cent and 10 per cent, respectively (to 1.49 million and 790,000 tonnes), at 92.7 and 92.3 cpht, respectively, reflecting the deepening of the Renard 2-Renard 3 open pit.
The Renard project includes additional inferred mineral resources of 13.4 million carats (24.5 million tonnes at 54 cpht) and 33.0 million to 71.1 million carats of non-resource exploration upside (76.2 million to 113.2 million tonnes at grades ranging from 25 cpht to 168 cpht). All kimberlites remain open at depth. Readers are cautioned that the potential quantity and grade of any such exploration target are conceptual in nature, there has been insufficient exploration to define a mineral resource, and it is uncertain if further exploration will result in the target being delineated as a mineral resource.
March, 2016, updated mine plan
Compared with the January, 2013, Renard optimization study, the March, 2016, updated mine plan incorporates changes to Renard mineral resource estimate completed in 2013 and 2015, as well as a rebaselined cost and schedule to complete the project, a modified mine design for the Renard 2-Renard 3 open pit, a deepening of the Renard 2 underground mine, expanded processing starting in 2018, and updates to diamond price assumptions, exchange rates and consumables pricing.
RESULTS AND KEY ASSUMPTIONS
January, 2013, March, 2016,
optimization mine plan
study, before update, after
stream (1) stream (1) (2)
Mining
parameters
Reserve carats (M) 17.9 22.3
Tonnes processed (M) 23.8 33.4
Recovered grade (cpht) 75 67
Average ore recovery (%) 83 % 86 %
Average mining
dilution (%) 18 % 15 %
Processing rate
(Mt/annum) 2.2 2.2 to 2.5
Mine life (years) 11 14
Cost
parameters
Initial capex ($M) (3) 793 (811) (7) 775
LOM capex ($M) (3) 1,013 1,045
Diesel price ($/litre) 1.14 1.00
LOM opex ($/tonne) (4) 57.63 56.20
LOM opex ($/carat) (4) 76.63 84.37
Revenue
parameters (4)
Gross revenue ($M) 4,268 5,565
Net revenue ($M) 4,069 4,555
Marketing costs 2.70 % 1.80 %
Diaquem royalty 2.00 % 2.00 %
Cash operating
margin ($M) 2,693 2,677
Operating margin 67 % 59 %
Cash operating
margin ($/carat) 151 120
Income tax and mining
duties ($M) 625 698
After-tax net
cash flow ($M) 1,084 1,105
Diamond
price
parameters
Average price of mineral
reserve (U.S.$/carat) (5) 180 155
Diamond price escalation 2.50 % 2.50 %
Exchange rate $1 = $1 (U.S.) $1.35 = $1 (U.S.)
Schedule
parameters
Effective date for NPV
calculation Jan. 1, 2013 Jan. 1, 2016
Plant commissioning
commences Dec. 1, 2015 Oct. 1, 2016
Commercial production
declared June 1, 2016 Dec. 31, 2016
Valuation
parameters (6)
Pretax NPV7% ($M) 683 1,349
After-tax NPV7% ($M) 391 974
(1) January, 2013, optimization expressed in October, 2012, terms.
March, 2016, updated mine plan expressed in December, 2015, terms.
(2) March, 2016, study shown net of the July, 2014, Renard streaming
agreement, Diaquem royalty and marketing costs in terms of net
revenue, cash operating margin, and net present value. For further
information on the Renard streaming agreement, see the Stornoway
annual information form dated March 30, 2016.
(3) Expressed in nominal terms and excluding Renard mine road capital
of $69.4-million.
(4) Expressed in real terms.
(5) Represents the average price per carat of the mineral reserve
before escalation, comprising Renards 2, 3 and 4 expressed in May,
2011, terms in the case of the January, 2013, optimization study;
and Renards 2, 3, 4 and 65 expressed in March, 2016, terms in the
case of the March, 2016, mine plan update.
(6) Net present valuations are presented net of all royalties, costs
incurred under the Mecheshoo agreement and, in the case of the March,
2016, updated mine plan, the effective revenue impairment associated
with the Renard diamond streaming agreement, and on an unlevered basis.
(7) Initial capital cost in the January, 2013, optimization study was
estimated at $793-million based on $752-million of cost and contingency
plus $41-million escalation allowance. In April, 2014, prior to the
commencement of construction, initial capital was estimated at
$811-million based on $754-million of cost and contingency plus
$57-million of escalation. The estimate of $775-million of initial
capital in the March, 2016, updated mine plan includes all costs,
contingencies and escalation allowances, and represents a reduction of
$36-million on the April, 2014, estimate.
Mining and processing
Mining operations in the Renard 2-Renard 3 open pit, which commenced in 2015, are expected to provide the bulk of ore production until 2018 when production from the underground mine is expected to commence. The Renard 2-Renard 3 pit will be developed with a stripping ratio of 2.54 to a depth of 130 metres, a 17-metre deepening compared with the previous pit design.
Underground ore will be sourced from the Renard 2 kimberlite exclusively between 2018 and 2027, and Renard 3 and Renard 4 between 2027 and 2029. A blast-hole shrink stoppage method will be used with panel retreat, based on production levels at 290, 470, 590 and 710 metres depth. Long-hole stoping will be utilized at Renard 3, with one production level at 250 metres depth based on the current limit of indicated mineral resources. Blast-hole stoppage beneath a crown pillar will be employed at Renard 4.
Ore processing is scheduled to begin before the end of September, 2016, with commercial production (defined as 60 per cent of nameplate capacity) scheduled to be achieved by Dec. 31, 2016. Nameplate capacity is defined as 6,000 tonnes per day or 2.16 million tonnes per annum based on 78-per-cent plant utilization. One hundred per cent of nameplate capacity is scheduled to be achieved by June, 2017. An expansion to 7,000 tonnes per day, or 2.52 million tonnes per annum, is scheduled for 2018 based on achieving an 83.5-per-cent utilization and an additional 2-per-cent throughput increase. The additional ore feed will be derived from the Renard 65 kimberlite, where open-pit mining operations for sourcing construction aggregate have been under way since 2014. Renard 65 will provide supplementary ore feed from 2018 to 2029 from an open pit developed to a depth of 155 metres with a stripping ratio of 2.11. No underground mining is currently contemplated at Renard 65. Processing of low-grade stockpiles derived from the mining of CRB and CRB2a in the Renard 2-Renard 3 open pit will be available to extend the mine life to 2030, which would be expected to be deferred upon the addition of further mineral resources to the mine plan.
Capital and operating costs
The rebaselined cost-to-complete estimate is $775-million, including $36.6-million of uncommitted contingencies and escalation allowance as of Dec. 31, 2015, at which time total incurred costs and commitments stood at $548.5-million and construction progress stood at 63.3 per cent. Total life-of-mine capital, including initial capital, deferred and sustaining capital, is $1,045-million. This estimate includes the cost of underground mine development in 2017 and 2018, and the cost of major overhauls in the power plant and mobile mining fleet in 2024 and 2025 to allow mine life extension past 2029.
Life-of-mine operating cost is estimated at $56.20 per tonne, or $84.37 per carat, in real terms. This is forecasted to yield an after-tax, after-stream cash operating margin of 59 per cent, or $120 per carat, given the project's diamond revenue assumptions, marketing costs and tax schedule.
Diamond pricing and foreign exchange assumptions
Revenue forecasts in the March, 2016, updated mine plan utilize spot diamond valuation estimates for each orebody arrived at by applying a uniform market price adjustment to base-case diamond price models determined by WWW International Diamond Consultants for the Renard project in March, 2014. A 19-per-cent decrease in world average rough diamond prices between March, 2014, and March, 2016, is indicated by Rough Prices, an independent agency, based on a market assortments maintained by WWW. This results in an average diamond price estimate for the March, 2016, probable mineral reserves of $155 (U.S.) per carat in March, 2016, terms, compared with $190 (U.S.) per carat in March, 2014, terms. For comparison, the average diamond price of the January, 2013, probable mineral reserves in the January, 2013, optimization study was $180 (U.S.) per carat in May, 2011, terms.
Diamond prices are assumed to increase by 2.5 per cent per annum in real terms from March, 2016, until the end of 2028. A Canadian-dollar-to-U.S.-dollar exchange rate of $1.35 has been applied to U.S.-dollar-denominated diamond sales and consumable purchases. The depreciation of the Canadian dollar since 2014 has served to offset the decline in rough diamond prices over this period for revenue forecasting in Canadian-dollar terms.
Production schedule and fiscal year 2016 to fiscal year 2017 guidance
Commercial diamond production between 2017 and 2026 is expected to average 1.8 million carats per annum compared with 1.6 million carats per annum in the previous plan.
Diamond production is forecasted at 220,000 carats in 2016 (comprising 230,000 tonnes at 97 cpht from Renard 2) and 1.71 million carats in 2017 (comprising 1.57 million tonnes at 86 cpht in Renard 2 and 430,000 tonnes at 84 cpht from Renard 3). This is a 39-per-cent increase in the forecast of carats produced to the end of December, 2017, compared with the previous plan. Based on a 15-week schedule from production to sales, Stornoway currently forecasts 1.36 million carats of diamond sales in 2017, a 57-per-cent increase compared with the previous plan.
Qualified persons for the March, 2016, updated Renard mine plan and mineral reserve estimate
Patrick Godin, PEng (Quebec), chief operating officer of Stornoway, is the qualified person responsible for mine and infrastructure design, the operating and capital cost estimate, financial analysis, and risk management.
Robin Hopkins, PGeol (Northwest Territories/Nunavut), vice-president, exploration, of Stornoway, is the qualified person responsible for the 2015 mineral resource estimate and the diamond pricing assumptions.
Paul Bedell, PEng, of Golder Associates Ltd. is the independent qualified person responsible for geotechnical, water management and processed kimberlite containment facility design.
All of these qualified persons have reviewed and approved the contents of this press release for which they are responsible.
About the Renard diamond project
The Renard diamond project is located approximately 250 kilometres north of the Cree community of Mistissini and 350 km north of Chibougamau in the James Bay region of north-central Quebec. On July 8, 2014, Stornoway announced the completion of a $946-million project financing transaction to fully finance the project to production, and construction commenced on July 10, 2014. First ore is scheduled to be delivered to the plant at the end of September, 2016, with commercial production scheduled for Dec. 31, 2016.
In January, 2013, Stornoway released the results of an optimized feasibility study at Renard, with an updated mine plan and mineral reserve estimate in March, 2016. These studies highlight the potential of the project to become a significant producer of high-value rough diamonds over an initial 14-year mine life. Probable mineral reserves, as defined in National Instrument 43-101 -- Standards of Disclosure for Mineral Projects (NI 43-101), stand at 22.3 million carats. In accordance with the corporation's September, 2015, mineral resource estimate, total indicated mineral resources, inclusive of the mineral reserve, stand at 30.2 million carats, with a further 13.35 million carats classified as inferred mineral resources, and 33.0 million to 71.1 million carats classified as non-resource exploration upside. Average annual diamond production is forecast at 1.8 million carats per annum over the first 10 years of mining, at an average valuation of $155 (U.S.) per carat based on March, 2016, terms.
Readers are cautioned that the potential quality and grade of any target for further exploration are conceptual in nature, there has been insufficient exploration to define a mineral resource, and it is uncertain if further exploration will result in the target being delineated as a mineral resource. All kimberlites remain open at depth. Readers are referred to the technical report dated Feb. 28, 2013, in respect of the January, 2013, optimization study, the technical report dated Jan. 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.
We seek Safe Harbor.
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