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“Our focus remains steadfast on maintaining liquidity and enforcing strict cost discipline and smart capital allocation across our business,” said
Q1 HIGHLIGHTS
(1)
- Nickel and oil prices made new multi-year lows in the quarter, although prices for both commodities rallied somewhat in April, with WTI crude trading in a volatile fashion. The nickel price rally has been more cautious, with recent
US$4 /lb nickel up roughly 15% from the low in Feburary. Strong cobalt and fertilizer production provided some support to mitigate the first quarter impact of the lower nickel production and lower nickel and oil average realized prices.
- Net direct cash costs of
US$4.41 /lb at Ambatovy andUS$3.34 /lb at the Moa JV remain well below the 50th percentile of C1 costs tracked by Wood Mackenzie, and on average are down 24% from the year ago quarter.
- Finished nickel production was down 4% from the year ago quarter, as Ambatovy’s process plant experienced a number of unrelated reliability issues that increased downtime. Although this affected first quarter production by approximately 1,000 tonnes (100% basis), replacement components have been installed or other mitigation has occurred. Production guidance for Ambatovy remains at 48,000 – 50,000 tonnes finished nickel (100% basis).
- Cash, cash equivalents and short-term investments ended the first quarter at
$370 million , after repaying and terminating the$35 million line of credit and making a$10 million repayment on the revolving term credit facility.
OUTLOOK AND SIGNIFICANT ITEMS
- Production guidance remains unchanged for all operations.
- Capital spending guidance has been reduced by
US$9 million , attributable to lower spending in Oil & Gas as only one well will be drilled in Block 10 this year.
All amounts are Canadian dollars unless otherwise indicated.
(1) For additional information see the Non-GAAP measures section of this press release.
| Q1 2016 FINANCIAL HIGHLIGHTS | |||||||||
| $ millions, except as otherwise noted, for the three months ended March 31 | 2016 | 2015 | Change | ||||||
| Combined Revenue(1) | 191.3 | 278.3 | (31%) | ||||||
| Adjusted EBITDA(1) | (9.1) | 44.2 | (121%) | ||||||
| Combined Free Cash Flow (1) | (31.4) | 11.2 | (380%) | ||||||
| Net (loss) earnings from continuing operations per share | (0.16) | (0.19) | 16% | ||||||
| Combined Adjusted continuing operating cash flow per share ($ per share)(1) | (0.08) | 0.19 | (142%) | ||||||
| (1) For additional information, see the Non-GAAP measures section of this release. | |||||||||
| 2016 | 2015 | ||||||||
| $ millions, except as noted, as at | March 31 | December 31 | Change | ||||||
| Cash, cash equivalents and short term investments | 369.9 | 435.4 | (15%) | ||||||
| Total loans and borrowings | 2,128.1 | 2,263.1 | (6%) | ||||||
|
Adjusted earnings (loss) from continuing operations (1) |
|||||||||
| For the three months ended March 31 | 2016 | 2015 | |||||||
| $ millions | $/share | $ millions | $/share | ||||||
| Net (loss) from continuing operations | (47.8) | (0.16) | (56.8) | (0.19) | |||||
| Adjusting Items, net of tax | (79.1) | (0.27) | (14.2) | (0.05) | |||||
| Adjusted net (loss) from continuing operations | (126.9) | (0.43) | (71.0) | (0.24) | |||||
| (1) For additional information, see the Non-GAAP measures section of this release. | |||||||||
During the first quarter,
REVIEW OF OPERATIONS
METALS
| $ millions except as otherwise noted, for the three months ended March 31 | 2016 | 2015 | |||||||||||||||||||||||||||||||
| Moa JV and | Ambatovy | Moa JV and | Ambatov | ||||||||||||||||||||||||||||||
|
Fort Site (1) |
JV |
Other (2) |
Total | Fort Site(1) | JV | Other(2) | Total | Change | |||||||||||||||||||||||||
| (50%) | (40%) | (50%) | (40%) | ||||||||||||||||||||||||||||||
| FINANCIAL HIGHLIGHTS | |||||||||||||||||||||||||||||||||
| Revenue | $ | 76.7 | $ | 65.1 | $ | 11.2 | $ | 153.0 | $ | 104.5 | $ | 100.7 | $ | 18.5 | $ | 223.7 | (32 | %) | |||||||||||||||
| Adjusted EBITDA(3) | (0.2 | ) | (12.8 | ) | 0.3 | (12.7 | ) | 18.3 | 4.3 | 0.1 | 22.7 | (156 | %) | ||||||||||||||||||||
| Cash provided (used) by operations | (3.0 | ) | (5.5 | ) | 4.2 | (4.3 | ) | 30.2 | 12.6 | (0.5 | ) | 42.3 | (110 | %) | |||||||||||||||||||
| Spending on Capital(4) | 7.8 | 1.7 | – | 9.5 | 8.1 | 6.4 | – | 14.5 | (34 | %) | |||||||||||||||||||||||
| Free cash flow(3) | (10.6 | ) | (5.5 | ) | 4.2 | (11.9 | ) | 22.4 | 9.9 | (0.5 | ) | 31.8 | (137 | %) | |||||||||||||||||||
| PRODUCTION VOLUMES (tonnes) | |||||||||||||||||||||||||||||||||
| Mixed Sulphides | 4,321 | 4,571 | – | 8,892 | 4,876 | 5,522 | – | 10,398 | (14 | %) | |||||||||||||||||||||||
| Finished Nickel | 4,242 | 4,442 | – | 8,684 | 4,357 | 4,656 | – | 9,013 | (4 | %) | |||||||||||||||||||||||
| Finished Cobalt | 499 | 365 | – | 864 | 426 | 344 | – | 770 | 12 | % | |||||||||||||||||||||||
| Fertilizer | 70,907 | 14,355 | – | 85,262 | 60,529 | 11,662 | – | 72,191 | 18 | % | |||||||||||||||||||||||
| NICKEL RECOVERY (%) | 88 | % | 87 | % | 88 | % | 85 | % | |||||||||||||||||||||||||
| SALES VOLUMES (tonnes) | |||||||||||||||||||||||||||||||||
| Finished Nickel | 4,141 | 4,491 | – | 8,632 | 4,275 | 4,944 | – | 9,219 | (6 | %) | |||||||||||||||||||||||
| Finished Cobalt | 468 | 332 | – | 800 | 409 | 342 | – | 751 | 7 | % | |||||||||||||||||||||||
| Fertilizer | 31,713 | 14,107 | – | 45,820 | 30,842 | 13,127 | – | 43,969 | 4 | % | |||||||||||||||||||||||
| AVERAGE REFERENCE PRICES (US$ per pound)(3) | |||||||||||||||||||||||||||||||||
| Nickel | $ | 3.86 | $ | 6.50 | (41 | %) | |||||||||||||||||||||||||||
| Cobalt | 10.70 | 13.73 | (22 | %) | |||||||||||||||||||||||||||||
|
AVERAGE-REALIZED PRICES (3) |
|||||||||||||||||||||||||||||||||
| Nickel ($ per pound) | $ | 5.17 | $ | 5.15 | $ | 5.16 | $ | 7.91 | $ | 7.95 | $ | 7.93 | (35 | %) | |||||||||||||||||||
| Cobalt ($ per pound) | 13.84 | 15.39 | 14.52 | 16.23 | 14.42 | 15.41 | (6 | %) | |||||||||||||||||||||||||
| Fertilizer ($ per tonne) | 391 | 186 | 327 | 375 | 190 | 318 | 3 | % | |||||||||||||||||||||||||
|
UNIT OPERATING COSTS (3) (US$ per pound) |
|||||||||||||||||||||||||||||||||
| Nickel – net direct cash cost | $ | 3.34 | $ | 4.41 | 3.90 | $ | 4.36 | $ | 5.74 | 5.10 | (24 | %) | |||||||||||||||||||||
| (1) | Includes results for certain 100% owned assets at Fort Saskatchewan plant. | |
| (2) | Includes results for Sherritt’s marketing organization for certain Ambatovy sales. | |
| (3) | For additional information, see the Non-GAAP measures section of this release. | |
| (4) | Spending on capital includes accruals. | |
METAL MARKETS
Although nickel prices continued their decline to lows not experienced in the past decade, Sherritt customer demand has been firm with demand from
Cobalt demand and pricing have been rising slowly, as cobalt supply suffers when nickel and copper production are cut back, and we are beginning to see evidence of supply cuts in these commodities. Cobalt is a smaller market, with most production occurring as by-products of copper or nickel production. Demand growth has come from battery manufacturers shifting from small consumer batteries (laptops, cell phones, etc.) to larger storage applications such as automotive, power tools and industrial/household storage. Sherritt’s high grade cobalt remains well positioned to meet the demand for these applications as it is approved by the majority of major rechargeable battery manufacturers and recognized for its high purity.
Adjusted EBITDA of
Finished nickel production of 4,242 tonnes (50% basis) in the first quarter of 2016 was down marginally from the comparable quarter in 2015, although above planned levels. Mixed sulphide production was down 11%, which could have an impact on finished nickel production in the second quarter. Heavy rainfall in the first quarter limited access to planned mining faces, which impacted ore grade and was the primary cause for the lower production of mixed sulphides in the quarter. Refinery production remained relatively strong despite the limited mixed sulphide availability because of third party feed usage and a drawdown of mixed sulphides inventory.
Finished cobalt production of 499 tonnes (50% basis) in the first quarter was up 17% from last year’s comparable quarter, reflecting stable plant operation.
The nickel recovery was 88% in the first quarter of 2016, consistent with the first quarter of last year.
The NDCC of
Continuing cost discipline is evident, as the first quarter 2016 NDCC is comparable to the fourth quarter 2015 NDCC of
Capital spending of
Ambatovy Joint Venture (40% interest)
Adjusted EBITDA in the first quarter of 2016 was
First quarter finished cobalt production of 365 tonnes was also impacted by the unplanned downtime events, although cobalt revenue benefited from timing of sales as the average reference price of cobalt was approximately 6% higher in the fourth quarter of 2015.
Port operations at Ambatovy were interrupted for 21 days during the quarter while Sherritt confirmed Ambatovy’s status regarding the Government of
Despite the lower first quarter production results, the trend in NDCC continues to be positive, as NDCC of
Ambatovy Funding
As Sherritt announced in its fourth quarter and 2015 year end results disclosure, Ambatovy cash calls due in January this year amounted to
Sherritt continues not to fund further cash calls at this time due to the structure of the Ambatovy partner loans, which, at current nickel prices, effectively reduce Sherritt’s 40% interest in Ambatovy to a 12% economic interest (1). Sherritt continues to serve as operator, as constructive discussions are ongoing between partners and senior lenders regarding future funding of Ambatovy and modifications to the principal amortization on the existing senior loan.
| (1) | 70% of Sherritt’s distributable cash flow from Ambatovy (after opex, capex and project debt service) goes to Partner Loan repayment, leaving Sherritt with 30%; 30% of Sherritt’s 40% ownership = 12%. |
| OIL AND GAS | |||||||||||
| 2016 | 2015 | ||||||||||
| $ millions, except as otherwise noted, for the three months ended | March 31 | March 31 | Change | ||||||||
| Financial Highlights | |||||||||||
| Revenue | $ | 22.4 | $ | 42.3 | (47 | %) | |||||
| Adjusted EBITDA(1) | 4.0 | 21.5 | (81 | %) | |||||||
| Cash provided by operations | 2.6 | 6.6 | (61 | %) | |||||||
| Spending on Capital(2) | 4.7 | 27.0 | (83 | %) | |||||||
| Free cash flow(1) | (2.4 | ) | (14.0 | ) | 83 | % | |||||
| Production and sales (boepd) | |||||||||||
| Gross working-interest (GWI) – Cuba | 16,449 | 19,719 | (17 | %) | |||||||
| Total net working-interest (NWI) | 10,504 | 10,938 | (4 | %) | |||||||
| Average reference price (US$ per barrel) | |||||||||||
| Gulf Coast Fuel Oil No. 6 | $ | 21.13 | $ | 44.32 | (52 | %) | |||||
| Brent | 33.64 | 53.88 | (38 | %) | |||||||
|
Average-realized price (1) (NWI) |
|||||||||||
| Cuba ($ per barrel) | 21.80 | $ | 41.44 | (47 | %) | ||||||
|
Unit operating costs (1)(3) (GWI) |
|||||||||||
| Cuba ($ per barrel) | 9.53 | $ | 8.26 | 15 | % | ||||||
| (1) | For additional information, see the Non-GAAP measures section of this release. | |
| (2) | Spending on capital includes accruals. | |
| (3) | Average unit operating costs are calculated by dividing operating costs incurred by gross working-interest production. | |
Adjusted EBITDA in the first quarter of
Unit operating costs are higher on the lower production base and a lower Canadian dollar, but are lower than fourth quarter 2015 unit operating costs, and will fluctuate during the year, with the amount of workover activity and changes in the exchange rate.
First quarter GWI oil production in
Quarterly free cash flow of
Block 10 is one of two new PSC’s which Sherritt signed in 2014 with the Cuban agency, covering 261 square kilometres for a 25-year term. Sherritt originally held Block 10 in the Bay of Cardenas, and drilled one well in
| POWER | |||||||||
| 2016 | 2015 | ||||||||
| $ millions (33?% basis), except as otherwise noted, for the three months ended | March 31 | March 31 | Change | ||||||
| Financial Highlights | |||||||||
| Revenue | $ | 15.6 | $ | 11.8 | 32 | % | |||
| Adjusted EBITDA(1) | 8.7 | 7.3 | 19 | % | |||||
| Cash provided by operations | 0.9 | 24.1 | (96 | %) | |||||
| Spending on Capital(2) | 2.0 | 0.4 | 400 | % | |||||
| Free cash flow(1) | 0.8 | 23.7 | (97 | %) | |||||
| Production and sales | |||||||||
| Electricity (GWh) | 217 | 210 | 3 | % | |||||
|
Average-realized price (1) |
|||||||||
| Electricity ($/MWh) | $ | 58.27 | $ | 52.63 | 11 | % | |||
|
Total unit operating costs (1) |
|||||||||
| Electricity ($/MWh) | 16.86 | 15.64 | 8 | % | |||||
| Net capacity factor (%) | 67 | 66 | 2 | % | |||||
| (1) | For additional information see the Non-GAAP measures section of this release. | |
| (2) | Includes service concession arrangements and accruals. | |
Quarterly Adjusted EBITDA of
The increase in operating costs on a year over year basis reflects mainly the weaker Canadian dollar; however, the first quarter of 2016 unit operating costs have reverted back to more normal ranges following the anomaly that existed in the fourth quarter of 2015 when a number of large maintenance activities occurred which had a disproportionate impact on the quarterly results.
Free cash flow generation of
STRATEGIC PRIORITIES
The table below lists Sherritt’s strategic priorities for 2016. The 2016 Strategic Priorities reflect the continuing depressed commodity outlook and the Corporation’s responsibility to preserve liquidity, continue to drive down costs, and execute rational capital allocation plans. Sherritt’s purpose, originally communicated in 2014, continues to be a low-cost nickel producer that creates sustainable prosperity for our employees, investors and communities.
| Strategic Priorities | 2016 Targets |
Status |
||
| 1 UPHOLD GLOBAL OPERATIONAL LEADERSHIP IN FINISHED NICKEL LATERITE PRODUCTION | Complete and commission the acid plant at Moa in the second half of 2016 | Acid plant on track to complete in Q2 with full operation in Q3 this year | ||
| Further reduce NDCC costs at Moa and Ambatovy towards the goal of being in the lowest quartile | Q1 NDCC of US$3.90/lb (avg between both operations) was down 24% over Q1 2015 | |||
| Increase Ambatovy production over 2015, despite the major maintenance work scheduled for Q3 | Ambatovy production was lower in the first quarter, but expected to recover in the second quarter with no change to guidance | |||
| Maintain peer leading performance in environmental, health, safety and sustainability | Performance on track | |||
| 2 EXTEND THE LIFE OF OUR CUBAN ENERGY BUSINESS | Allocate capital to new drilling on Block 10, with future drilling to be contingent on results from 2016 activity | Capital allocation has been reduced in Q1, as drilling is expected to take place in the second half. Results from the first well will dictate next steps | ||
| 3 PRESERVE LIQUIDITY AND BUILD BALANCE SHEET STRENGTH | Protect Sherritt’s balance sheet and preserve cash | Cash position declined by approximately $66 million since year end, with $45 million being repayment of credit facilities | ||
| Establish clarity on long-term funding of Ambatovy | ||||
| Run business units to be free cash flow neutral, and continue to optimize administrative costs | Ceased funding Ambatovy cash calls due to the “40 for 12” issue | |||
OUTLOOK
2016 PRODUCTION AND CAPITAL SPENDING GUIDANCE
In 2016, Sherritt has made certain modifications to how guidance is presented. For example, capital spending estimates are presented in US dollars. In the quarterly reporting, actual capital spending is presented in Canadian dollars consistent with Sherritt’s reporting currency, but estimates and forward looking information continue to be provided in US dollars. This change in presentation is intended to align with Sherritt’s capital budgeting practices, and to mitigate the change to capital spending that arises from translation to the Canadian dollar reporting currency. In Sherritt’s full year and Q4 2015 reporting, when guidance was first presented, the forecast exchange rate was
| Guidance at | Actual | Revised Projected | |||||
| 2015 | 2016 | 2016 | |||||
| Production volumes and spending on capital | December 31 | March 31 | |||||
| Production volumes | |||||||
| Nickel, finished (tonnes, 100% basis) | |||||||
| Moa Joint Venture | 33,500-34,500 | 8,484 | No change | ||||
| Ambatovy Joint Venture | 48,000-50,000 | 11,105 | No change | ||||
| Total | 81,500-84,500 | 19,589 | No change | ||||
| Cobalt, finished (tonnes, 100% basis) | |||||||
| Moa Joint Venture | 3,300-3,800 | 998 | No change | ||||
| Ambatovy Joint Venture | 3,300-3,800 | 913 | No change | ||||
| Total | 6,600-7,600 | 1,911 | No change | ||||
| Oil – Cuba (gross working-interest, bopd) | 14,500 | 16,449 | No change | ||||
| Oil and Gas – All operations (net working-interest, boepd) | 8,900 | 10,504 | No change | ||||
| Electricity (GWh, 100% basis) | 860 | 217 | No change | ||||
| Spending on capital (US$ millions) | |||||||
| Metals – Moa Joint Venture (50% basis), Fort Site (100% basis) | US$38 | US$6 | No change | ||||
| Metals – Ambatovy Joint Venture (40% basis) | US$25 | US$1 | No change | ||||
| Oil and Gas | US$43 | US$3 | US$34 | ||||
| Power (33?% basis) Pipeline Construction on Service Concession Agreements | US$4 | US$2 | No change | ||||
| Power (33?% basis) | US$1 | – | No change | ||||
| Spending on capital (excluding Corporate) | US$111 | US$12 | US$102 | ||||
NON-GAAP MEASURES
The Corporation uses combined results, Adjusted EBITDA, average-realized price, unit operating cost, and adjusted operating cash flow to monitor the performance of the Corporation and its operating divisions and believes these measures enable investors and analysts to compare the Corporation’s financial performance with its competitors and evaluate the results of its underlying business. These measures do not have a standard definition under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. As these measures do not have a standardized meaning, they may not be comparable to similar measures provided by other companies.
CONFERENCE CALL AND WEBCAST
Sherritt will hold its quarterly conference call and webcast tomorrow at
| Conference Call and Webcast: | April 27, 2016, 10:00 a.m. ET |
| North American callers, please | 1-866-530-1553 |
| dial: | |
| International callers, please dial: | 416-847-6330 |
| Live webcast: | www.sherritt.com |
An archive of the webcast will also be available on the website. The conference call will be available for replay until
COMPLETE FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS
Sherritt’s complete interim condensed consolidated financial statements and MD&A for the three months ended
ABOUT SHERRITT
Sherritt is the world leader in the mining and refining of nickel from lateritic ores with operations in
Source: Sherritt Investor Relations
FORWARD-LOOKING STATEMENTS
This press release contains certain forward-looking statements. Forward-looking statements can generally be identified by the use of statements that include such words as “believe”, “expect”, “anticipate”, “intend”, “plan”, “forecast”, “likely”, “may”, “will”, “could”, “should”, “suspect”, “outlook”, “projected”, “continue” or other similar words or phrases. Specifically, forward-looking statements in this document include, but are not limited to, statements set out in the “Outlook” sections of this press release and certain expectations about capital costs and expenditures; capital project completion dates; production volumes; and amounts of certain joint venture commitments.
Forward-looking statements are not based on historic facts, but rather on current expectations, assumptions and projections about future events, including commodity and product prices and demand; share price volatility realized prices for production; earnings and revenues; development and exploratory wells and enhanced oil recovery in
The Corporation cautions readers of this press release not to place undue reliance on any forward – looking statement as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. This risks, uncertainties and other factors include, but are not limited to changes in the global price for nickel, cobalt, oil and gas or certain other commodities, share-price volatility, level of liquidity and access to capital resources, access to financing, risk of future non – compliance with debt restrictions and covenant, risks associated with the Corporation’s joint venture partners; discrepancies between actual and estimated production; variability in production at Sherritt’s operations in
Corporation’s social license to grow and operate; risks relating to community relations; credit risks; shortage of equipment and supplies; competition in product markets; future market access; interest rate changes; risks in obtaining insurance; uncertainties in labour relations; uncertainty in the ability of the Corporation to enforce legal rights in foreign jurisdictions; uncertainty regarding the interpretation and/or application of the applicable laws in foreign jurisdictions; legal contingencies; risks related to the Corporation’s accounting policies; risks associated with future acquisitions; uncertainty in the ability of the Corporation to obtain government permits; failure to comply with, or changes to, applicable government regulations; bribery and corruption risks, including failure to comply with the Corruption of Foreign Public Officials Act or applicable local anti-corruption law; uncertainties in growth management; and certain corporate objectives, goals and plans for 2016; and the Corporation’s ability to meet other factors listed from time to time in the Corporation’s continuous disclosure documents. Readers are cautioned that the foregoing list of factors is not exhaustive and should be considered in conjunction with the risk factors described in this press release and in the Corporation’s other documents filed with the Canadian securities authorities.
The Corporation may, from time to time, make oral forward-looking statements. The Corporation advises that the above paragraph and the risk factors described in this press release and in the Corporation’s other documents filed with the Canadian securities authorities including, but not limited to, the Corporation’s Management’s Discussion and Analysis for the year ended
For further investor information contact:
Investor Relations
Telephone: 416.935.2451
Toll-free: 1.800.704.6698
E-mail: investor@sherritt.com
www.sherritt.com