Mr. Matt Manson reports

STORNOWAY ANNOUNCES 2016 FINANCIAL RESULTS

Stornoway Diamond Corp. has released its financial and operating results for the 12 months ended Dec. 31, 2016.

Year ended Dec. 31, 2016, highlights:

• The Renard diamond mine was officially opened on Oct. 19, 2016, at a ceremony held in the presence of local and regional dignitaries, current and former staff members, project stakeholders, and community members.
• Following the commencement of ore processing on July 15, 2016, commercial production was formally declared on Jan. 1, 2017. The attainment of commercial production marks the end of the project's initial capital expense period.
• Total project costs at Dec. 31, 2016, were $771.2-million, or 99 per cent of budget. A total of $2.8-million of costs has been deferred to 2017, giving a final cost to complete estimate of $774-million, $37-million below the initial capital budget established in July, 2014.
• As previously released on Feb. 6, 2017, 2,074,827 tonnes of open-pit ore were mined in full-year 2016, with 399,162 tonnes processed, increases of 136 per cent and 77 per cent, respectively, over plan. A total of 448,887 carats was recovered at an attributable grade of 112 carats per hundred tonnes, increases of 106 per cent and 15 per cent, respectively, over plan.
• The first sale of Renard diamonds was held during November in Antwerp in Belgium. In total, 38,913 carats were sold at an average price of $195 (U.S.) per carat, for proceeds of $10.2-million ($7.6-million (U.S.)), representing unbudgeted preproduction revenue.
• For the three months ended Dec. 31, 2016, the corporation reported a net income of $52-million, or six-cent earnings per share basic and five cents fully diluted, and, for the year ended Dec. 31, 2016, it reported net income of $19.6-million, or three-cent earnings per share basic and fully diluted.
• Cash, cash equivalents and short-term investments stood at $86-million. At the end of construction, total financial liquidity, comprising cash, receivables and expected mine tax credits, and available credit facilities, stood at $165-million, assuming the satisfaction of all covenants and conditions precedent relating to future financing commitments and a Canadian-dollar-U.S.-dollar conversion rate of $1.30. The above calculation excludes an additional $48-million of cost overrun facility that was terminated subsequent to the year-end.

Matt Manson, president and chief executive officer, commented: "Stornoway's [full-year] 2016 results confirm the final completion of the Renard mine well below our original budget estimates and ahead of schedule. With the capital period now over and the attainment of commercial production, we are continuing our processing ramp up and steadily increasing the volume of goods offered at our diamond sales. Two additional tenders have now been completed subsequent to the year-end, and while pricing continues to be impacted by Indian market conditions and our diamond recovery profile, we are seeing improvements in the market for the lower-quality items and strong premiums in larger, higher-quality goods. Stornoway will complete one additional sale prior to the end of the current quarter." Mr. Manson continued: "Our successful project build and earlier operational start-up has contributed to a greatly strengthened balance sheet compared to what was contemplated in our original July, 2014, project financing plan. With $165-million of total liquidity at year-end, including $100-million of undrawn senior debt, and our sales proceeding, we are in a strong position as we start 2017."

Financial summary

Stornoway ended the year with cash, cash equivalents and short-term investments of $86-million, compared with $150.9-million at the end of the previous quarter. All payment deposits under Stornoway's streaming agreement with Orion Mine Finance, the Caisse de depot et placement du Quebec and Blackstone Tactical Opportunities had been received at the end of the first quarter of 2016. No draw has been made under Stornoway's $100-million senior secured loan from Investissement Quebec, which remains available to the corporation.

As of Dec. 31, 2016, and the completion of project construction, total financial liquidity stood at $165-million comprising cash, undrawn debt facilities, receivables and expected mine tax credits net of payables. This calculation excludes an additional $48-million of available cost overrun facilities terminated subsequent to year-end. Capital expenditures incurred during year were of $278.2-million, with capital expenditures to date of $772.5-million having been incurred and committed against the total project cost. This cost estimate excludes any credit from preproduction revenue derived from the sale of diamonds in November, 2016.

Net income for the year ended Dec. 31, 2016, of $19.6-million increased compared with a $3.7-million net loss during the eight months ended Dec. 31, 2015, in large part due to a change of $46.4-million deferred tax asset recorded in the fourth quarter of 2016. Net income per share for the current year was three cents per share basic and diluted (comparative period -- income of nil per share for both basic and fully diluted).

                             KEY FINANCIAL AND OPERATING HIGHLIGHTS
                       (millions of dollars, except earnings per share)
                                                                     
                                                                   12 months ended   Eight months ended 
                                                                     Dec. 31, 2016        Dec. 31, 2015

Cash provided in operating activities                                        $74.8                $98.9 
Cash used in investing activities                                           (165.9)              (139.3)
Cash provided (used) in financing activities                                  77.3                 (2.4)
Effect of foreign exchange rate changes on cash and cash equivalents          (2.0)                11.4  
Increase (decrease) in cash and cash equivalents                             (15.8)               (31.4)
Net income (loss) for the year                                                19.6                 (3.7)
Earnings (loss) per share -- basic and diluted                                0.03                  Nil

Operational update

Declaration of commercial production and completion of construction

Commercial production at Renard is defined as an average processing rate of 60 per cent of plant nameplate capacity over a 30-day period. This was achieved on Dec. 3, 2016, with an average processing rate of 4,120 tonnes per day over the preceding 30-day period, compared with a nameplate capacity of 6,000 tonnes per day. Stornoway formally declared commercial production on the first day of the month following the month in which it is achieved, which was Jan. 1, 2017. The company expects to continue the ramp up of the process plant to full production over the next two quarters.

The attainment of commercial production marked the end of the project's initial capital expense period. Total project costs at Dec. 31, 2016, totalled $771.2-million, or 99 per cent of budget. A total of $2.8-million of costs related principally to the fresh air raise for the underground mine will be incurred in 2017, giving a final cost to complete estimate of $774-million, $37-million below the initial capital budget established in July, 2014.

Three lost-time incidents (LTI) were recorded during the quarter. The project lost-time incident rate for the full-year of 2016 was 1.5 for Stornoway employees and 1.7 for contractors. The project-to-date LTI rate stands at 0.9 for Stornoway employees and 1.8 for contractors.

No incidences of environmental non-compliance were recorded during the quarter and year to date. Two incidences of non-compliance have been recorded during the project to date.

Daily manpower at site in December averaged 278 workers, of which 19.1 per cent were Crees of the Eeyou Istchee. Stornoway employees stood at 429 as at Dec. 31, 2016, including 379 from the on-site development team, of which 16 per cent were Crees, 24 per cent were from Chibougamau and Chapais, and 60 per cent were from outside the region.

Mining and processing

For the year ended Dec. 31, 2016, Stornoway extracted a total of 7,840,130 tonnes of ore, waste and overburden from the Renard 2, Renard 3 and Renard 65 open pits, compared with a plan of 6,339,501 tonnes (plus 24 per cent). A total of 2,074,827 tonnes of ore was mined, compared with a plan of 879,641 tonnes (plus 136 per cent).

At year-end, a total of 1,842,068 tonnes of ore had been delivered to the stockpile, compared with a plan of 735,898 tonnes (plus 150 per cent), excluding an additional 63,243 tonnes of non-resource Renard 3 material.

During 2016, 2,729 metres of development was completed in the underground mine, compared with a plan of 2,768 meters (minus 1 per cent). At year-end total, development in the underground mine stood at 3,616 metres, or 99 per cent of the plan. There has been no recurrence of the water inflow issues that slowed ramp development toward the end of 2015. The Renard 2 kimberlite was intersected at the 160-metre level on Dec. 4, 2016, and, by year-end, 117 metres of development within ore had been completed in good ground conditions.

Ore processing commenced on July 15, 2016. By year-end, a total of 399,162 tonnes of ore had been processed with carat production of 448,887 carats, compared with a plan of 218,400 carats (plus 106 per cent). The attributable grade was 112 carats per hundred tonnes, compared with a plan of 97 carats per hundred tonnes (plus 15 per cent). The higher tonnage of ore processed was due to the earlier-than-expected availability of the plant, and the higher grade was due to a better-than-expected mix of ore units available in the Renard 2-3 open pit.

Sales

Stornoway's first diamond sale occurred between Nov. 14 and Nov. 23, 2016, in Antwerp, Belgium. In total, 38,913 carats were sold at an average price of $195 (U.S.) per carat for proceeds of $10.2-million ($7.6-million (U.S.)). The diamonds sold in this first sale represent a portion of the company's production recovered during the initial commissioning and ramp up of the Renard project during August and September, 2016. Recent events in India surrounding demonetization impacted pricing and demand for certain smaller and lower-quality items; as a result, a quantity of these were withdrawn from the sale. Because of this, and because of a higher-than-expected proportion of small diamonds recovered during the ramp up period, attributable, in part, to plant-induced diamond breakage, the result of this first sale cannot be taken as representative of the longer-term pricing profile of the project.

Two additional tender sales of Renard diamonds have occurred subsequent to the year-end, with a third scheduled prior to the end of the first quarter of 2017.

Mineral reserves and mineral resources

At Dec. 31, 2016, proven and probable mineral reserves for the Renard diamond mine were 33 million tonnes at a grade of 67 carats per hundred tonnes for 21.95 million attributable carats. Exclusive of mineral reserves, the Renard diamond mine includes an additional indicated mineral resource of 2.9 million carats (6.3 million tonnes at 46 carats per hundred tonnes), inferred mineral resources of 13.3 million carats (24.5 million tonnes at 54 carats per hundred tonnes) and 33 million to 71.1 million carats of non-resource exploration upside (76.2 million to 113.2 million tonnes at grades ranging from 25 carats per hundred tonnes to 168 carats per hundred tonnes) (1). Mineral resources that are not mineral reserves do not have demonstrated economic viability. Readers are cautioned that the potential quantity and grade of any 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.

(1) Indicated mineral resources have been adjusted by an additional 2.9 million tonnes of ore and two million carats previously excluded from the indicated mineral resources cited in the Feb. 6, 2017, press release of the corporation.

Exploration update

Stornoway conducts exploration programs on 100-per-cent-owned generative Canadian diamond projects and maintains a number of non-material, grassroots exploration properties, including the Adamantin project in Quebec. The Adamantin property comprises 28,169 hectares of claims in three blocks, located approximately 100 kilometres south of the Renard diamond mine and 25 kilometres west of the Route 167 extension road. Indicator mineral till sampling during 2015 identified promising results, including a diamond in the plus-0.25-millimetre-to-0.5-millimetre-size fraction. An initial exploratory drill program in March and April, 2016, discovered 11 discrete kimberlite bodies at Adamantin. No diamonds were recovered from available kimberlite material, and unsourced indicator mineral anomalies remain on the property. Further till sampling and geophysical surveys undertaken in 2016 have identified additional targets of interest. In January, 2017, Stornoway's board of directors approved a 2017 budget allocation of up to $2-million at the Adamantin project, including additional drilling. This work will commence in March, 2017.

Subsequent to the year-end, on Feb. 16, 2017, the corporation completed a property purchase agreement with North Arrow under which North Arrow has acquired the corporation's remaining interests in the Qilalugaq and Pikoo diamond projects in exchange for two million common shares of North Arrow. As additional consideration, the corporation will receive 0.5-per-cent and 1-per-cent gross overriding royalties on diamonds and 0.5-per-cent and 1-per-cent net smelter return royalties on base and precious royalties mine from the Qilalugaq and Pikoo projects, respectively. North Arrow will also make a $2.5-million and a $1.25-million cash payment to the corporation at the same time that first royalties payments relating to the Qilalugaq and Pikoo projects, respectively, are payable.

About the Renard diamond mine

The Renard diamond mine is Quebec's first producing diamond mine and Canada's sixth. It is located approximately 250 kilometres north of the Cree community of Mistissini and 350 kilometres north of Chibougamau in the James Bay region of north-central Quebec. Construction on the project commenced on July 10, 2014, and commercial production was declared on Jan. 1, 2017. Average annual diamond production is forecast at 1.8 million carats per annum over the first 10 years of mining. Readers are referred to 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.

Qualified persons

Disclosure of a scientific or technical nature in this press release was prepared under the supervision of M. Patrick Godin, PEng (Quebec), chief operating officer, and David Farrow, PrSciNat (South Africa), PGeo (B.C.), vice-president of diamonds, both qualified persons under National Instrument 43-101.

About Stornoway Diamond Corp.

Stornoway is a leading Canadian diamond exploration and development company. The company's flagship asset is the 100-per-cent-owned Renard diamond project, Quebec's first diamond mine.

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