Stornoway Diamond Corp (TSX: SWY), a Montréal-based diamond explorer and developer, has entered into a series of financing deals of up to $129 million.
The deals include a loan principal repayment deferral agreement with Investissement Québec (IQ) and Fonds de solidarité FTQ.
They also include amendments to a streaming agreement involving Osisko Gold Royalties Ltd, Caisse de dépôt et placement du Québec, Triple Flag Mining Finance, Albion Exploration Fund and Washington State Investment Board.
Additionally, the Caisse agreed to invest $20 million in Stornoway, giving it an 11.4 percent interest and board representation.
An IQ affiliate also agreed to invest $10 million.
Stornoway, which owns Québec’s Renard Diamond Mine, said the transactions will provide it with financial and operational flexibility.
Stornoway Announces Comprehensive Financing Agreements Valued at Up To $129 M
Strengthens Balance Sheet and Provides Greater Operational Flexibility
LONGUEUIL, Quebec, Oct. 02, 2018 (GLOBE NEWSWIRE) — Stornoway Diamond Corporation (TSX-SWY; the “Corporation” or “Stornoway”) is pleased to announce the entering into a series of financing transactions with lenders and key stakeholders designed to provide the Corporation greater financial and operational flexibility (the “Financing Package”). In total, the Financing Package represents additional consideration and liquidity for the Corporation of up to $129 million by way of:
The deferral of certain loan principal repayments for a 24 month period, representing debt service cost deferral of up to $54 million;
Amendments to the Renard diamond streaming agreement comprising a supplementary up front deposit of the US dollar equivalent of $45 million in cash and certain sales and pricing changes;
A private placement of units consisting of common shares and warrants for approximately $20 million, with an additional amount of up to approximately $10 million, subscribed by existing shareholders.
All quoted figures in CAD, unless otherwise noted.
Matt Manson, President and CEO, stated “The multiple financing transactions announced today demonstrate once again the strong support Stornoway has from its stakeholders, and their positive outlook on the Renard asset and the diamond mining sector. The combination of reduced debt costs and new capital has been designed to greatly strengthen our balance sheet for the long term, while at the same time being sensitive to shareholder value. With major capital expenditures at Renard behind us and our underground mine now fully ramped up, this comprehensive deal allows our team to now focus fully on bringing forward the operating and cash flow potential of the business.”
A summary of the key terms of the various elements of the Financing Package follows, which are described in greater detail in the agreements that will be available on the SEDAR website maintained by the Canadian securities administrators at www.SEDAR.com. Stornoway’s board of directors determined that the Financing Package is in Stornoway’s best interests in that it will allow Stornoway to fund the working capital requirements of the Renard Diamond Mine. The agreements referred to below have been entered into by the parties and Stornoway anticipates the transactions to be formally completed upon receipt of all funds thereunder.
Amended Loan Agreements
Stornoway has entered into agreements with certain lenders on the terms described below.
The Corporation and Diaquem inc. (“Diaquem”), an affiliate of Investissement Québec (“IQ”) have agreed to amend certain terms of the Credit Agreement dated July 8, 2014 between the Corporation, as guarantor, its wholly-owned subsidiary Stornoway Diamonds (Canada) Inc. (“SDCI”), as borrower, and Diaquem as lender (the “Senior Secured Loan”) to provide for (i) a moratorium on principal repayments for the period from June 30, 2018 up to, but excluding, June 30, 2020, (ii) amendments to SDCI’s obligation to make mandatory repayments (currently required at 50% of excess cash flow) and to the historical and projected debt service coverage ratios and (iii) acceleration of the maturity of the Senior Secured Loan to June 30, 2021.
Concurrently, Corporation has also agreed with Fonds de solidarité FTQ, Fonds régionaux de solidarité FTQ Nord-du-Québec and IQ to amend certain terms of the Convention de prêt dated as of May 3, 2012 (the “Fonds Loan”) to provide for (i) a moratorium on principal repayments for the period from June 30, 2018 up to, but excluding, June 30, 2020 and (ii) the extension of the maturity date from May 3, 2021 to July 1, 2021.
The Corporation has also requested a moratorium on principal repayments from one of its lenders for a period of 24 months commencing as of June 30, 2018. The moratorium is subject to formal approval by such lender, which is expected to be obtained no earlier than the second half of November 2018. When combined with the amendments to the Senior Secured Loan and the Fonds Loan, these debt service deferral arrangements represent additional liquidity of $54 million in the aggregate to the Corporation.
Diaquem and IQ are related parties of Stornoway under Multilateral Instrument 61-101 Protection of Minority Security holders in Special Transactions (“MI 61-101”) by virtue of IQ’s shareholding being in excess of 10% of Stornoway’ issued and outstanding share capital. Accordingly, the amendments to the Senior Secured Loan and the Fonds Loan each constitute a “related party transaction” under MI 61-101. The amendments are not subject to the formal valuation requirements because pursuant to section 5.4 of MI 61-101, the formal valuation requirement does not apply to related party transactions described in paragraph (l) of the definition of “related party transaction” under MI 61-101. The amendments were exempt from the minority approval requirement pursuant to section 5.7(1)(f) of MI 61-101, on the basis that such transactions are each a loan that is obtained from a related party on reasonable commercial terms that are not less advantageous to the Corporation than if the loan were obtained from a person dealing at arm’s length with the Corporation, and each of the loans is not (a) convertible, directly or indirectly, into equity or voting securities of the Corporation or a subsidiary entity of the Corporation, or otherwise participating in nature, or (b) repayable as to principal or interest, directly or indirectly, in equity or voting securities of the Corporation or a subsidiary entity of the Corporation.
Amended Renard Streaming Agreement
Stornoway has entered into an amended and restated Purchase and Sale Agreement (the “AmendedRenard Streaming Agreement”) with Osisko Gold Royalties Ltd, Caisse de dépôt et placement du Québec (“laCaisse”), Triple Flag Mining Finance Bermuda Ltd., Albion Exploration Fund LLC and Washington State Investment Board, as buyers (collectively, the “Buyers”) pursuant to which the Buyers have paid Stornoway the US dollar equivalent of $45 million in gross cash proceeds as an additional up front deposit to Stornoway’s subsidiary, FCDC Sales and Marketing Inc. The terms of the Amended Renard Streaming Agreement provide that the Buyers will continue to purchase a 20% undivided interest in all diamonds produced from the Renard mining property for the life of the mine and, upon the completion of a permitted sale of diamonds, the Buyers will remit to Stornoway, in cash, the lesser of 40% of achieved sales price or US$40 per carat, with the balance of purchase price payable by the Buyers, if any, being paid by way of offset against the up-front deposits. Previously, the Renard Stream provided for a sale of an undivided interest in 20% of all diamonds produced from the first 5 project kimberlites to be mined at Renard for the life of mine, and the first 30 million carats from the property overall, with the Buyers remitting to Stornoway, in cash, US$50 per carat escalating at 1% per annum, with the balance of purchase price payable by the Buyers, if any, being paid by way of offset against the up-front deposits. Stornoway will continue as the appointed marketing agent for 100% of the Renard diamond production. For the purpose of calculating remittances, the Amended Renard Streaming Agreement will apply separately to Run of Mine (“ROM”) diamonds sold at tender, and any diamonds smaller than the +7 DTC sieve size that are recovered in excess of agreed upon proportions within a run of mine diamond sale. In this manner, Stornoway will undertake to cap the proportion of small diamonds contained in a ROM sale such that the Buyers and Stornoway will be fully aligned on upside price exposure with downside protection on price and product mix.
Private Placement of Units
Stornoway is carrying out a treasury offering of 57,142,858 units of the Corporation (“Units”) with la Caisse on a private placement basis, for gross proceeds of approximately $20 million, at a price of $0.35 per Unit, with each unit comprised of one common share of the Corporation and one-half of a common share purchase warrant, with each whole warrant exercisable until October 2, 2023 for one common share of the Corporation at an exercise price of $0.455, subject to certain adjustments. In addition, Stornoway’s largest shareholder, Ressources Québec (an affiliate of IQ) (“RQ”), has expressed the intent to subscribe for up to approximately $10 million in aggregate amount of Units on the same terms as the private placement with la Caisse, subject to RQ obtaining all necessary consent and approvals, including formal ministerial approval, which is expected no earlier than mid-November 2018. As a result of la Caisse’s subscription, la Caisse became an insider of the Corporation and now holds 11.4% of Stornoway’s issued and outstanding common shares. Assuming completion of RQ’s subscription on the above terms, IQ and la Caisse (together with their respective affiliates) would hold approximately 25.8% and 11.0%, respectively, of Stornoway’s issued and outstanding common shares.
Pursuant to the Financing Package announced today, Stornoway has granted the right to nominate one member of the Stornoway Board of Directors to la Caisse, based on its exclusive shareholding in Stornoway remaining above 5%, and a further right to the Buyers to nominate an additional member to the Board, based on their collective shareholding in Stornoway remaining above 5%.
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 km north of the Cree community of Mistissini and 350 km north of Chibougamau in the James Bay region of north-central Québec. Construction on the project commenced on July 10, 2014, and commercial production was declared on January 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 January 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.
ABOUT STORNOWAY DIAMOND CORPORATION
Stornoway is a leading Canadian diamond exploration and production company listed on the Toronto Stock Exchange under the symbol SWY and headquartered in Montreal. A growth oriented company, Stornoway owns a 100% interest in the world-class Renard Mine, Québec’s first diamond mine.
On behalf of the Board
STORNOWAY DIAMOND CORPORATION
/s/ “Matt Manson”
President and Chief Executive Officer
For more information, please contact Matt Manson (President and CEO) at 416-304-1026 x2101
or Orin Baranowsky (CFO) at 416-304-1026 x2103 or Alexandre Burelle (Manager, Investor Relations and Business Development) at 450-616-5555 x2264
or toll free at 1-877-331-2232
** Website: www.stornowaydiamonds.com Email: firstname.lastname@example.org **