Osisko signs LOI acquire Stornoway Diamond assets

Osisko Gold Royalties Ltd. [OR-TSX, NYSE] said Monday September 9 it has signed a letter of intent with Stornoway Diamond Corp. [SWY-TSX; SWYDF-OTC] and other secured creditors of the company that will allow them to acquire substantially all of Stornoway’s assets and properties. The move comes as Stornoway filed for court protection from its creditors.

Under the terms of the LOI, Osisko and the secured creditors have confirmed their intention to form an entity that will acquire the assets and assume the debts and liabilities owed to secured Stornoway creditors, including ongoing obligations related to the operation of the Renard diamond mine in Quebec.

Pursuant to the credit bid transaction, Osisko will maintain its 9.6% diamond stream on the Renard Mine and will continue to receive stream deliveries. Osisko said it has agreed to reinvest its proceeds from the stream for one year from the date of closing of the credit bid transaction.

In connection with the transaction, Osisko said Stornoway has applied to the Superior Court of Quebec (Commercial Division) for protection under the Companies’ Creditors Arrangement Act in order to allow it to restructure its business and financial affairs. Stornoway will continue to operate during the restructuring process.

Meanwhile, Osisko and certain of the secured creditors have agreed to provide a $20 million working capital facility that will be secured by a priority charge over the assets of Stornoway. The facility aims to provide the financing and liquidity required to ensure that the Renard Mine continues to operate in an uninterrupted manner.

Osisko said its attributable portion of the working capital facility will be approximately $7 million, of which $2.46 million is expected to be advanced Monday.

The Renard Mine is located in the James Bay region of Quebec and ranks as that province’s first diamond mine. It began commercial production in 2017, producing about 1.6 million carats per year.

Stornoway recently reported a second quarter net loss of $346.3 million due primarily to a non-cash impairment charge of $442.7 million that stemmed from the decreasing price of rough diamonds, resulting in a write-down of property plant and equipment, right-of-use assets, and deferred transaction costs.

Back in June, 2019, Stornoway announced that it had arranged a bridge loan facility with secured lenders and key stakeholders, in which Diaquem Inc., an affiliate of Investissement Quebec agreed to advance $11.7 million to ensure that Stornoway could continue to operate.

Stornoway said the bridge facility was secured by a first-ranking security interest over all present and after-acquired assets and property of Stornoway and would accrue interest at a rate of 8.25% annually.

Osisko Gold Royalties holds a portfolio of over 135 royalties, streams and precious metal offtakes. Its portfolio is anchored by its 5% NSR royalty on the Canadian Malartic Mine in Quebec, which ranks as the largest gold mine in Canada.

Osisko shares eased 2.6% or 42.5 cents Monday to $16.15. The shares are trading in a 52-week range of $9.27 and $17.47.