Stornoway Diamond Files for Creditor Protection, Will Restructure

Quebec-based miner Stornoway Diamond (TSX:SWY,OTC Pink:SWYDF) will work on business and financial restructuring after applying for creditor protection.

Stornoway and its subsidiaries — Stornoway Diamonds (Canada), Ashton Mining of Canada and FCDC Sales and Marketing — have applied for and been granted an initial order under the Companies’ Creditors Arrangement Act from the Superior Court of Quebec during the streamlining process.

Shares of the gem company were down 91.67 percent year-to-date when they ceased trading on the TSX on Friday (September 6).

“The continued downward pressure on the market price for rough diamonds as well as a variety of other factors and circumstances, have contributed to the corporation’s inability to generate positive free cash flow in 2019, and to maintain an adequate level of working capital,” reads the statement.

“In addition, the SWY parties’ high level of indebtedness resulted in an inability to consistently meet their debt repayment obligations.”

As part of the reorganization effort, the miner has signed a letter of intent (LOI) with Osisko Gold Royalties (TSX:OR,NYSE:OR) and Diaquem under a previous bridge financing agreement penned in June.

Under the terms of the LOI, participating secured creditors will form a new entity and acquire all of Stornoway’s assets and properties while also assuming the company’s debts and liabilities.

The soon to be established company will take on obligations relating to the operation of the Renard mine. A working capital facility in an initial amount of C$20 million for the overhead and operations cost has been agreed upon.

A statement from Osisko reads: “Osisko will maintain its 9.6 percent diamond stream on the Renard mine and will continue to receive stream deliveries, and has agreed to reinvest its proceeds from the stream for a period of 1 year from the date of closing of the credit bid transaction.”

It has been a challenging year for Stornoway, which operates the Renard mine, Quebec’s only diamond mine. In April, production at a section of the project known as Renard 65 was halted.

The company also underwent a strategic review earlier this year in an attempt to reduce overhead and increase efficiency. At the end of the most recent quarter, Stornoway posted a net loss of C$346 million.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.