Sherritt Reports Record First Quarter Nickel and Cobalt Production at Moa JV

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED STATES

TORONTO–(BUSINESS WIRE)–
Sherritt International Corporation (“Sherritt” or the “Corporation”)
(TSX: S), a world leader in the mining and hydrometallurgical refining
of nickel and cobalt from lateritic ores, today reported its financial
results for the three months ended March 31, 2019. All amounts are in
Canadian currency unless otherwise noted.

CEO COMMENTARY

“Initiatives launched in 2018 to improve operational effectiveness,
increase mining equipment availability, and improve ore access paved the
way for the Moa JV’s highest ever first quarter nickel and cobalt
production total,” said David Pathe, President and CEO of Sherritt
International. “Our record production results in Q1 2019 were negatively
impacted, however, by the dramatic 70% decline in realized cobalt
prices, contributing to considerably lower by-product revenue and higher
NDCC than we have experienced in recent quarters. Our Q1 progress was
also impeded by the disappointing collections on our Cuban overdue
receivables.”

Mr. Pathe added, “Since the start of Q2 2019, we have seen a number of
positive developments, including the resumption of drilling on Block 10,
the recovery of cobalt prices by more than 15%, and the continued draw
down of Class 1 nickel inventories. Combined, these trends signal a more
favorable outlook for our prospects for the balance of 2019 and beyond.”

Q1 HIGHLIGHTS

  • Sherritt’s share of finished nickel production at the Moa Joint
    Venture (“Moa JV”) in Q1 2019 was 4,397 tonnes, up 54% from last year,
    while finished cobalt was 426 tonnes, up 27%. The combined nickel and
    cobalt total for Q1 2019 marks the Moa JV’s highest ever first quarter
    production results.
  • Q1 2019 Adjusted EBITDA(1) was negative $1.2 million, down
    from positive Adjusted EBITDA of $35.5 million in Q1 2018. The
    decrease was due to a number of factors, including a 70%
    year-over-year decline in realized cobalt prices and lower
    contributions from the Oil and Gas business as a result of decreased
    net working-interest production stemming from maturing oil fields and
    a lower profit share.
  • Net direct cash cost (NDCC)(1) at the Moa JV for Q1 2019
    was US$4.53 per pound of finished nickel sold, up from US$2.06 per
    pound for Q1 2018. The increase reflects the negative impact that
    sharply declining cobalt prices had on by-product credits, including
    the settlement of approximately 200 tonnes of provisionally-priced
    cobalt sales (100% basis) from Q4 2018. The variance between Q1 2019
    cobalt reference and realized prices that resulted from provisional
    pricing adjustments negatively impacted NDCC by approximately US$0.40
    per pound.
  • Sherritt ended Q1 2019 with cash, cash equivalents and short-term
    investments of $177.3 million, down from $207.0 million at the end of
    2018. The decrease was due to the timing of capital expenditures,
    interest paid on outstanding debentures and changes to working
    capital, including lower than expected Cuban energy receipts.
  • Reached an agreement in principle, subject to final approvals, with
    its Cuban partners on a payment plan to reduce overdue energy
    receivables. Final approval of the agreement and payment schedule is
    expected shortly.
  • Consistent with its previously announced strategy to no longer fund
    the Ambatovy Joint Venture (“Ambatovy JV”), Sherritt elected to not
    fund its share of a US$45 million cash call and became a defaulting
    shareholder with reduced local influence and authority. As a result,
    the Ambatovy JV is no longer considered an operating segment, and its
    financial performance is not included in Sherritt’s combined or
    adjusted financial results.

DEVELOPMENTS SUBSEQUENT TO THE QUARTER END

  • Resumed drilling on Block 10 on April 1 using updated drilling
    parameters developed with the assistance of third-party experts and
    the results of detailed lab analysis of rock cuttings collected
    previously. The adoption of new drilling parameters will not result in
    any increases to planned capital spending previously disclosed for the
    Oil and Gas business. Any incremental capital spend at the Oil and Gas
    business in 2019 will be predicated on successful drill results on
    Block 10 and collections on overdue receivables. Sherritt intends to
    explore partnerships for further investment in Block 10 following
    completion of the current drilling, which is expected in the second
    quarter of 2019.
  • On April 17, the U.S. State Department announced that effective May 2,
    2019 it will implement Title III of the Helms-Burton Act, allowing
    U.S. citizens to bring lawsuits against foreign companies for using
    property that was nationalized by the Cuban government beginning in
    1959. Sherritt has been working with its partners in Cuba since 1994
    producing nickel, cobalt, oil and gas, and electricity, and plans to
    continue to operate business as usual. More details on Title III and
    its potential risks and uncertainties can be found in Sherritt’s
    Annual Information Form dated February 13, 2019. See “Risk Factors –
    Risks Related to U.S. Government Policy Towards Cuba” for additional
    information.

(1) For additional information see the Non-GAAP measures
section of this press release.

Q1 2019 FINANCIAL HIGHLIGHTS
(1)

$ millions, except as otherwise noted, for the three months ended
March 31
  2019   2018   Change
         
Revenue $ 31.9 $ 39.4 (19%)
Combined Revenue(2) 124.6 129.1 (3%)
Net loss for the period (61.8) (0.6) nm(3)
Adjusted EBITDA(2) (1.2) 35.5 (103%)
Cash (used) provided by continuing operations (34.6) 11.1 (412%)
Combined adjusted operating cash flow (2) (9.9) 6.7 (248%)
Combined free cash flow(2) (44.0) 15.0 (393%)
Average Exchange Rate (CAD/US$) 1.330 1.265 N/A
Net earnings (loss) from continuing operations per share       $   (0.16)   $

0.00

 

(1) The financial results for the Ambatovy JV are only
discussed as part of share of earnings in associate based on financial
statement amounts. Prior period non-GAAP measures have been revised to
exclude the Ambatovy JV performance.
(2) For additional
information see the Non-GAAP measures section.
(3) Not
meaningful (nm).

                      2019   2018  
$ millions, as at               March 31   December 31   Change
   
Cash, cash equivalents and short term investments $ 177.3 $ 207.0 (14%)
Loans and borrowings                           704.4       705.7  

Cash, cash equivalents and short-term investments at March 31, 2019 were
$177.3 million, down from $207.0 million at December 31, 2018. The
reduction in cash is largely as a result of negative changes to working
capital totaling $26.8 million, $7.8 million in interest payments on
outstanding debentures, and $7.8 million in capital expenditures
principally earmarked for resumption of drilling on Block 10. These
outflows were partly offset by a $3.3 million dividend received from the
Moa JV.

During Q1 2019, Sherritt received US$5.7 million on its Cuban overdue
receivables. At March 31, 2019 total overdue energy receivables were
US$171.6 million, up from US$152.5 million at December 31, 2018.
Sherritt continues to work with its Cuban partners to finalize a payment
plan to reduce the amount of overdue energy receivables. Sherritt has
experienced variability in its Cuban overdue energy receivables over the
years but has not incurred any losses.

Adjusted net earnings (loss)

(1)

Net loss for Q1 2019 was $61.8 million, or $0.16 per share, compared to
a loss of $0.6 million, or nil per share, for the same period of last
year. The net loss for Q1 2019 was principally due to a 4% and 70%
decline in realized prices, respectively, for nickel and cobalt at the
Moa JV. Other contributing factors included a $5.7 million loss from the
Oil and Gas business due to reduced production and a lower profit share,
and a $26.8 million share of loss for the Ambatovy JV. Adjusted net loss
is summarized below:

      2019       2018
For the three months ended March 31   $ millions   $/share   $ millions   $/share
           
Net loss (61.8) (0.16) (0.6)
 
Adjusting items:
Unrealized foreign exchange (gain) loss 5.8 0.01 (7.7) (0.02)
Other       1.1       0.01       (6.5)       (0.02)
Adjusted net loss       (54.9)       (0.14)       (14.8)       (0.04)

(1) For additional information see the Non-GAAP measures
section.

METAL MARKETS

Nickel

Nickel was the best performing base metal in Q1 2019, closing at
US$5.90/lb on March 29, up almost 25% from the start of the year. The
recovery was driven by a number of factors, including optimism that an
international trade agreement between the U.S. and China would soon be
reached. Underlying market fundamentals also contributed to the price
recovery.

Combined nickel inventories on the London Metals Exchange (LME) and the
Shanghai Futures Exchange at the end of Q1 2019 totaled 191,292 tonnes,
down 13% from the combined total of 219,804 tonnes at the end of Q4
2018. Since the end of Q1 2018, combined Class 1 nickel inventories have
declined by approximately 50%. As demand continues to exceed available
supply, the nickel market is anticipated to be in a structural deficit
in the coming years.

Despite the recovery of prices since the start of 2019, the average
reference price for nickel in Q1 2019 was down 7% from last year,
declining from US$6.03/lb to US$5.62/lb. Nickel prices in April 2019
have averaged at US$5.85/lb and are currently trading on the LME at
US$5.56/lb.

Demand for nickel will continue to be driven by the stainless steel
sector. According to market research by CRU, stainless steel demand is
expected to grow at an average annual rate of approximately 4% through
2022 with production emanating largely from China and Indonesia. Demand
for nickel – particularly Class 1 nickel – from non-stainless steel
sectors is also expected to accelerate given the growth of the electric
vehicle battery market. Class I nickel, along with cobalt, are key
metals needed to manufacture electric vehicle batteries.

Beyond 2019, a shortage of Class 1 nickel is anticipated over the coming
years since current market prices are below incentive levels needed to
develop new nickel projects. As a result, no new Class 1 nickel supply
is expected to come on stream in the near term.

Cobalt

Cobalt prices and demand experienced considerable softness and
volatility in Q1 2019. The reference price for Q1 2019 was US$18.53/lb,
down 52% from US$39.01/lb for the same period of 2018. Consistent with
trends over the past several months, the price decline was driven by
increased supply of intermediate product from the Democratic Republic of
Congo as well as by the destocking of inventory by Chinese consumers.

Abundant available supply has recently resulted in cobalt producers
selling product at significant discount to prevailing reference prices.
During the run-up in prices from late 2017 through 2018, cobalt
producers often sold cobalt at a premium to reference prices as
consumers looked to lock supply.

Since the start of April, however, cobalt prices have risen by
approximately 15% as consumers renew purchasing activities. The recent
increase in cobalt prices is expected to be sustained through the
balance of 2019 albeit with some volatility due to increased speculative
interest, growing demand from the electric vehicle battery market and
persistent supply risk concerns linked to the Democratic Republic of
Congo, which is currently the world’s largest source of cobalt supply.

REVIEW OF OPERATIONS

Moa Joint Venture (50% interest) and Fort Site (100%)

$ millions, except as otherwise noted, for the three months ended
March 31
          2019   2018   Change
                         
FINANCIAL HIGHLIGHTS
Revenue $ 102.3 $ 96.3 6%
(Loss) earnings from operations (9.5) 16.3 (158%)
Adjusted EBITDA(1) 4.2 27.1 (85%)
 
CASH FLOW
Cash (used) provided by operations $ (4.1) $ 18.1 (123%)
Adjusted operating cash flow(1) 2.8 26.8 (90%)
Free cash flow(1) (10.4) 13.6 (176%)
 
PRODUCTION VOLUMES (tonnes)
Mixed Sulphides 4,336 3,882 12%
Finished Nickel 4,397 2,854 54%
Finished Cobalt 426 336 27%
Fertilizer 66,962 52,440 28%
 
NICKEL RECOVERY (%) 84% 79% 6%
 
SALES VOLUMES (tonnes)
Finished Nickel 4,391 2,910 51%
Finished Cobalt 460 325 42%
Fertilizer 26,957 25,472 6%
 
AVERAGE-REFERENCE PRICES (US$ per pound)
Nickel $ 5.62 $ 6.03 (7%)
Cobalt(2) 18.53 39.01 (52%)
 
AVERAGE REALIZED PRICE
Nickel ($ per pound) 7.51 7.80 (4%)
Cobalt ($ per pound) 14.62 48.47 (70%)
Fertilizer ($ per tonne) 418 358 17%
 
UNIT OPERATING COSTS
(1) (US$ per pound)
Nickel – net direct cash cost 4.53 2.06 120%
 
SPENDING ON CAPITAL
(3)
Sustaining 14.0 4.5 211%
Expansion                                  
                            14.0       4.5   211%

(1) For additional information see the Non-GAAP measures
section.
(2) Average low-grade cobalt published price
per Fastmarkets MB (formerly Metals Bulletin).
(3)
Excludes right of use assets recognized on adoption of IFRS 16. Refer to
note 4 of the condensed consolidated financial statements for additional
information.

The Moa JV produced 4,397 tonnes of finished nickel in Q1 2019, up 54%
from 2,854 tonnes produced in Q1 2018. Growth was largely driven by the
deployment of new mining equipment acquired throughout 2018 that
resulted in improved ore access and reduced equipment downtime compared
to the same period of last year. In Q1 2018, the Moa JV’s results were
impacted by the highest level of rainfall at Moa in more than 20 years
and by transportation delays to the refinery in Fort Saskatchewan by the
railway service provider. Efforts at improving ore access and mining
equipment reliability at Moa have been instrumental in increasing
inventory stockpiles and reducing the impact that adverse weather
conditions may have on future production.

Finished cobalt production for Q1 2019 was 426 tonnes, up 27% from Q1
2018 due to higher mixed sulphides availability. The ratio of finished
nickel production to cobalt production was higher in Q1 2019 compared to
last year as a result of a higher nickel to cobalt ratio in mixed
sulphides produced at Moa. Despite the change, which is due to ore grade
variability, the nickel to cobalt ratio is consistent with historical
norms.

Combined nickel and cobalt production totals for Q1 2019 represent the
Moa JV’s highest ever first quarter production results. Second quarter
production will be impacted, however, by the annual maintenance shutdown
of the refinery in Fort Saskatchewan. This year’s shutdown is expected
to be similar in duration to the prior years.

Revenue for Q1 2019 totaled $102.3 million, up 6% from last year. The
increase was largely due to higher sales volume of nickel and cobalt,
offset, however, by a 70% decline in the cobalt realized price over Q1
2018. The realized price decline in Q1 2019 was driven by lower consumer
demand and the settlement of provisional Q4 2018 pricing. The
average-realized price for nickel in Q1 2019 was $7.51/lb, down 4% from
last year.

Mining, processing and refining (MPR) costs for Q1 2019 were US$5.59/lb,
up 6% from US$5.26/lb for Q1 2018 due to the impacts of higher energy
prices and higher utilization of Moa mixed sulphides relative to
third-party feeds although partly offset by the impact of higher sales
volume.

NDCC in Q1 2019 was US$4.53/lb, up from US$2.06/lb for the same period
last year. The increase was largely due to lower by-product revenue
stemming from lower cobalt prices and the settlement of approximately
200 tonnes of provisionally-priced cobalt sales (100% basis) from Q4
2018. The variance between Q1 2019 cobalt reference and realized prices
that resulted from provisional pricing adjustments negatively impacted
NDCC by approximately $0.40 per pound. The decrease in cobalt by-product
revenue was partly offset by lower third-party feed costs and a higher
contribution from fertilizer sales.

Sustaining capital spending in Q1 2019 was $14.0 million, up from $4.5
million in Q1 2018 as the Moa JV continued its new mining equipment
initiative aimed at improving equipment reliability, reducing
maintenance costs and improving ore accessibility.

Consistent with its efforts to improve operational effectiveness, the
Moa JV also commissioned a new slurry preparation plant dump pocket at
Moa in Q1 2019 that is designed to improve ore screening and processing.

The Moa JV contributed a dividend distribution of $3.3 million in Q1
2019.

Oil and Gas

$ millions, except as otherwise noted, for the three months ended
March 31
      2019   2018   Change
                   
FINANCIAL HIGHLIGHTS
Revenue $ 9.0 $ 18.1 (50%)
(Loss) earnings from operations (5.7) 1.7 (435%)
Adjusted EBITDA(1) (2.7) 4.6 (159%)
 
CASH FLOW
Cash (used) provided by operations (8.0) 7.3 (210%)
Adjusted operating cash flow(1) (2.2) (7.7) 71%
Free cash flow(1) (14.9) 4.2 (455%)
 
PRODUCTION AND SALES (boepd)
Gross working-interest (GWI) – Cuba 4,443 5,572 (20%)
Total net working-interest (NWI) 1,776 3,916 (55%)
 
AVERAGE-REFERENCE PRICE (US$ per barrel)
West Texas Intermediate (WTI) $ 54.79 $ 62.85 (13%)
U.S. Gulf Coast High Sulphur Fuel Oil (USGC HSFO) 61.04 55.13 11%
Brent 62.96 66.88 (6%)
 
AVERAGE-REALIZED PRICE
(1)
(NWI)
Cuba ($ per barrel) 59.13 $ 51.11 16%
 
UNIT OPERATING COSTS
(1)
(GWI)
Cuba ($ per barrel) 21.19 $ 20.83 2%
 
SPENDING ON CAPITAL
(2)
Development, facilities and other $ 1.5 $ (0.3) 600%
Exploration                   4.2       2.6   62%
$ 5.7 $ 2.3 148%

(1) For additional information see the Non-GAAP measures
section.
(2) Excludes right of use assets recognized on
adoption of IFRS 16. Refer to note 4 of the condensed consolidated
financial statements for additional information.

Gross working-interest oil production in Cuba in Q1 2019 was 4,443
barrels of oil per day (“bopd”), down 20% from 5,572 bopd for Q1 2018.
Lower production in 2019 was primarily due to natural reservoir declines
and the absence of new development drilling.

Revenue in Q1 2019 was $9.0 million, down 50% when compared to last
year. The decline was attributable to lower total net working-interest
production due to the impact of the decrease in profit oil percentage to
6% from 45% with the renewal of the Puerto Escondido/Yumuri PSC starting
in Q2 2018. The decline was partially offset by a higher USGC HSFO
reference oil price and by a weaker Canadian dollar relative to the U.S.
currency.

Unit operating costs in Cuba in Q1 2019 were $21.19 per barrel, up 2%
from Q1 2018, driven largely by reduced production. Costs were also
negatively impacted by a stronger U.S. dollar relative to the Canadian
currency. Expenses in Cuba are generally denominated in U.S. currency.

Capital spending in Q1 2019 was $5.7 million, up 148% from Q1 2018.
Exploration capital spending was higher in Q1 2019 as a result of the
sourcing of materials and supplies in advance of resumed drilling on
Block 10.

Free cash flow for Q1 2019 was impacted by the timing of capital
expenditures and negative changes to working capital.

Drilling on Block 10 resumed on April 1, 2019 using updated drilling
parameters developed with the assistance of third-party experts and the
results of detailed lab analysis of rock cuttings collected previously.
The adoption of new drilling parameters will not result in any increases
to planned capital spending previously disclosed for the Oil and Gas
business. Any incremental capital spend at the Oil and Gas business in
2019 will be predicated on successful drill results on Block 10 and
collections on overdue receivables. Sherritt intends to explore
partnerships for further investment in Block 10 following completion of
the current drilling, which is expected in the second quarter of 2019.

Power

$ millions (33⅓% basis), except as otherwise noted, for the three
months ended March 31
2019   2018   Change
               
FINANCIAL HIGHLIGHTS
Revenue $ 10.7 $ 11.9 (10%)
Earnings from operations 0.9 1.8 (50%)
Adjusted EBITDA(1) 7.2 7.8 (8%)
 
FINANCIAL HIGHLIGHTS
Cash provided by operations 3.6 11.2 (68%)
Adjusted operating cash flow(1) 6.3 7.5 (16%)
Free cash flow(1) 3.1 11.1 (72%)
 
PRODUCTION AND SALES
Electricity (GWh) 173 202 (14%)
 
AVERAGE-REALIZED PRICE
(1)
Electricity ($/MWh) $ 55.74 $ 53.24 5%
 
UNIT OPERATING COSTS
(1) ($/MWh)
Base 19.83 14.44 37%
Non-base(2)               0.45       2.78   (84%)
20.28 17.22 18%
 
NET CAPACITY FACTOR (%) 54 63 (14%)
 
SPENDING ON CAPITAL
(3)
Sustaining           $   0.5   $   0.1   400%
$ 0.5 $ 0.1 400%

(1) For additional information see the Non-GAAP measures
section.
(2) Costs incurred at the Boca de Jaruco and
Puerto Escondido facilities that otherwise would have been capitalized
if these facilities were not accounted or as service concession
arrangements.
(3) Excludes right of use assets
recognized on adoption of IFRS 16. Refer to note 4 of the condensed
consolidated financial statements for additional information.

Power production in Q1 2019 was 173 gigawatt hours (“GWh”) of
electricity, down 14% from 202 GWh for the comparable period of 2018.
The decline was due to reduced gas supply and to scheduled maintenance
activity on the steam turbine at Varadero.

Average-realized prices in Q1 2019 were $55.74, up 5% from $53.24 from
last year. The increase was due to the depreciation of the Canadian
dollar relative the U.S. currency.

Revenue in Q1 2019 totaled $10.7 million, down 10% from $11.9 million
for last year. The decline was due to lower power production, partially
offset by higher realized prices.

Unit operating costs in Q1 2019 were $20.28, up 18% from $17.22 for last
year. The increase was attributable to lower sales volume and the impact
of a weaker Canadian dollar in Q1 2019 as Power business costs are
generally denominated in U.S. currency.

Total capital spending in Q1 2019 was negligible.

INVESTMENT IN AMBATOVY JOINT VENTURE (12% interest)

$ millions, except as otherwise noted, for the three months ended
March 31
    2019   2018   Change
             
PRODUCTION VOLUMES (tonnes)
Mixed Sulphides 992 675 47%
Finished Nickel 920 668 38%
Finished Cobalt 81 49 65%
Fertilizer 2,957 1,989 49%
 
UNIT OPERATING COSTS
(1)
NDCC (US$ per pound of nickel) $ 5.70 $ 5.34 7%
 
SPENDING ON CAPITAL
(2)
($ millions)
Sustaining 2.2 2.5 (12%)
Expansion                      
                2.2       2.5   (12%)

(1) For additional information, see the Non-GAAP measures
section of this release.
(2) Excludes right of use
assets recognized on adoption of IFRS 16. Refer to note 4 of the
condensed consolidated financial statements for additional information.

Consistent with previous disclosure, Sherritt announced on March 6, 2019
that it would not fund a cash call requested by the Ambatovy JV. As a
result of this decision, Sherritt became a defaulting shareholder,
losing its voting rights at the Ambatovy JV board level and incurring a
reduction in influence and authority at the local level. Given these
developments, Sherritt no longer considers the Ambatovy JV as an
operating segment for accounting purposes, and will no longer present
Ambatovy’s financial results as part of Sherritt’s combined financial
results, including combined revenue, Adjusted EBITDA and combined cash
flow. The accounting treatment for the Ambatovy JV for financial
statement purposes has not changed.

Finished nickel production in Q1 2019 was 920 tonnes and finished cobalt
production was 81 tonnes, up 38% and 65%, respectively, from Q1 2018.
Production in Q1 2019 was impacted by an accident and fatality in the
hydrogen plant that resulted in a full shutdown of the Ambatovy plant
for a period of 10 days to undertake safety reviews and complete
repairs. Production in Q1 2019 was also impacted by unplanned
maintenance activities in the acid plants as well as by equipment
reliability issues. In Q1 2018, production was impacted by Cyclone Ava
that necessitated a plant shutdown of approximately one month due to
damage to equipment and facilities.

NDCC in Q1 2019 was US$5.70/lb, up 7% from Q1 2018. The increase was
attributable to lower cobalt by-product credits resulting from lower
cobalt prices, which more than offset the impact of higher nickel and
cobalt sales volumes.

Capital spend at Ambatovy based on Sherritt’s ownership interest was
$2.2 million in Q1 2019. Capital spending in 2019 will be largely aimed
at improving the reliability of the acid plants, replacement of mobile
equipment at the plant site, fixing corroded equipment and restoring
general plant and equipment.

2019 REVIEW OF STRATEGIC PRIORITIES

The table below lists Sherritt’s Strategic Priorities for 2019, and
summarizes how the Corporation has performed against those priorities on
a year to date basis.

Strategic Priorities       2019 Actions       Status    
PRESERVE LIQUIDITY AND BUILD BALANCE SHEET STRENGTH       Continue to emphasize de-leveraging of the balance sheet within the
context of a low commodity price environment.
      Sherritt’s net debt at the end of Q1 2019 was $560 million, down
from almost $2 billion at the end of 2016. The reduction was driven
by the restructuring of Sherritt’s ownership interest in the
Ambatovy JV at the end of 2017 and the purchase of more than $130
million of debentures in 2018.
Optimize working capital and receivables collection Management continues to take action to expedite Cuban energy
receipts and has reached an agreement in principle subject to final
approvals, with its Cuban partners on a payment plan to reduce
overdue receivables. Overdue receivables at quarter end were
US$171.6 million.
Operate the Metals businesses to maintain a leadership position as a
low-cost producer of finished nickel and cobalt while maximizing
Free Cash Flow
The Moa JV and Fort Site generated $2.8 million of adjusted
operating cash flow in Q1 2019 despite the negative impact of
volatile nickel and cobalt prices.
UPHOLD GLOBAL OPERATIONAL LEADERSHIP IN FINISHED NICKEL LATERITE
PRODUCTION
Further reduce NDCC towards the goal of being consistently in the
lowest cost quartile.
NDCC at the Moa JV was US$4.53/lb in Q1 2019, reflecting the
negative impact that the dramatic decline in cobalt prices had on
by-product credits, including the settlement of provisionally-priced
sales from Q4 2018.
Maximize production of finished nickel and cobalt and improve
predictability over 2018 results
The Moa JV produced 9,646 tonnes of finished nickel and cobalt in Q1
2019 (100% basis), marking the highest combined total ever produced
in the first quarter. The new record was driven by initiatives aimed
at improving operational effectiveness, ore access and mining
equipment reliability.
Achieve peer leading performance in environmental, health, safety
and sustainability
Sherritt’s operations at Moa, Fort Site, Oil & Gas and Power had
zero work-related fatalities and zero lost time incidents. In Q1
2019, Moa/Fort Site had a recordable injury frequency rate of 0.19
and a lost time injury frequency rate of 0.11 while the Oil and Gas
business had a recordable injury frequency rate of 0.49 and a lost
time injury rate of 0.00 while the Power business had a recordable
injury frequency rate of 1.66 and a lost time injury frequency rate
of 0.24. Sherritt is in the lowest quartile of benchmark peer set of
data.
OPTIMIZE OPPORTUNITIES IN CUBAN ENERGY BUSINESS Successfully execute Block 10 drilling program Drilling on Block 10 resumed on April 1 using updated drilling
parameters developed with the assistance of third-party experts who
completed an analysis of geological conditions and rock cuttings
from previous drilling. Drilling on Block 10 is expected to be
completed in Q2 2019 with no increase to planned capital spend for
the year. Any incremental capital spend at the Oil and Gas business
in 2019 will be predicated on successful Block 10 drill results and
collections of receivables. The company intends to explore potential
partnerships on Block 10 pending completion of current drilling.
Review opportunities to leverage Oil and Gas experience and
relationships
The Production Sharing Contract at Puerto Escondido/ Yumuri was
extended in 2018 for three years to 2021.

OUTLOOK

2019 Production, unit operating cost and capital spending guidance

The guidance for 2019 reflects Sherritt’s targets for production, unit
costs and capital spending announced on January 28, 2019.

    Year-to-date   Updated
Guidance for actual for the Guidance for
Production volumes, unit operating costs and spending on capital   2019   March 31, 2019   2019
 
Production volumes
Moa Joint Venture (tonnes, 100% basis)
Nickel, finished 31,000 – 33,000 8,794 No change
Cobalt, finished 3,300 – 3,600 852 No change
Ambatovy Joint Venture (tonnes, 100% basis)
Nickel, finished 40,000 – 45,000 7,667 No change
Cobalt, finished 3,500 – 4,000 675 No change
Oil – Cuba (gross working-interest, bopd) 3,800 – 4,100 4,443 No change
Oil and Gas – All operations (net working-interest, boepd) 1,800 – 2,100 1,776 No change
Electricity (GWh, 33⅓% basis) 650 – 700 173 No change
 
Unit operating costs
NDCC (US$ per pound)
Moa Joint Venture $3.40 – $3.90 $4.53 No change
Ambatovy Joint Venture $3.80 – $4.30 $5.70 No change
Oil and Gas – Cuba (unit operating costs, $ per barrel) $25.00 – $26.50 $21.19 No change
Electricity (unit operating cost, $ per MWh) $25.25 – $26.75 $20.28 No change
 
Spending on capital
(1)
Moa Joint Venture (50% basis), Fort Site (100% basis)(2) US$40 (CDN$54) US$11 (CDN$14) No change
Ambatovy Joint Venture (12% basis) US$10 (CDN$14) US$2 (CDN$2) No change
Oil and Gas US$21 (CDN$28) US$5 (CDN$6) No change
Power (33⅓% basis)   US$1 (CDN$1)   US$1 (CDN$1)   No change
Spending on capital (excluding Corporate)   US$72 (CDN$94)   US$19 (CDN$23)   No change

(1) Excludes right of use assets recognized on adoption of
IFRS 16. Refer to note 4 of the condensed consolidated financial
statements for additional information.
(2) Spending is
50% of US$ expenditures for the Moa JV and 100% expenditures for Fort
Site fertilizer and utilities.

NON-GAAP MEASURES

The Corporation uses combined results, Adjusted EBITDA, average-realized
price, unit operating cost, adjusted operating cash flow and free cash
flow to monitor the performance of the Corporation and its operating
divisions. Management believes these measures enable investors and
analysts to compare the Corporation’s financial performance with its
competitors and/or 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. See Sherritt’s Management’s
Discussion and Analysis for the three months ended March 31, 2019 for
further information and reconciliation of non-GAAP measures to the most
directly comparable IFRS measure.

CONFERENCE CALL AND WEBCAST

Sherritt will hold its conference call and webcast April 26th,
2019 at 9:00 a.m. Eastern Time to review its Q1 2019 results. Dial-in
and webcast details are as follows:

North American callers, please dial:       1-866-521-4909
International callers, please dial: 647-427-2311
Live webcast:

www.sherritt.com

Please dial-in 15 minutes before the start of the call to secure a line.
The conference call discussion will include a presentation that will be
available from Sherritt’s website.

An archive of the webcast and replay of the conference call will also be
available on the website.

COMPLETE FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS

Sherritt’s complete condensed consolidated financial statements and MD&A
for the three months ended March 31, 2019 are available at www.sherritt.com
and should be read in conjunction with this news release. Financial and
operating data can also viewed in the investor relations section of
Sherritt’s website.

ABOUT SHERRITT

Sherritt is a world leader in the mining and refining of nickel and
cobalt from lateritic ores with projects and operations in Canada, Cuba
and Madagascar. The Corporation is the largest independent energy
producer in Cuba, with extensive oil and power operations across the
island. Sherritt licenses its proprietary technologies and provides
metallurgical services to mining and refining operations worldwide. The
Corporation’s common shares are listed on the Toronto Stock Exchange
under the symbol “S”.

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”, “potential”, “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” section of this press release and certain expectations
regarding production volumes, operating costs and capital spending;
supply, demand and pricing outlook in the nickel and cobalt markets;
demand in the stainless steel and electric vehicle battery markets;
anticipated payments of outstanding receivables; future distributions
from the Moa Joint Venture, funding of future Ambatovy cash calls, drill
plans and results on exploration wells; the impact of Title III of the
Helms-Burton Act on operations; and amounts of certain other commitments.

Forward looking statements are not based on historical facts, but rather
on current expectations, assumptions and projections about future
events, including commodity and product prices and demand; the level of
liquidity and access to funding; share price volatility; production
results; realized prices for production; earnings and revenues;
development and exploration wells and enhanced oil recovery in Cuba;
environmental rehabilitation provisions; availability of regulatory
approvals; compliance with applicable environmental laws and
regulations; debt repayments; collection of accounts receivable; and
certain corporate objectives, goals and plans. By their nature, forward
looking statements require the Corporation to make assumptions and are
subject to inherent risks and uncertainties. There is significant risk
that predictions, forecasts, conclusions or projections will not prove
to be accurate, that those assumptions may not be correct and that
actual results may differ materially from such predictions, forecasts,
conclusions or projections.

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. These risks,
uncertainties and other factors include, but are not limited to, changes
in the global price for nickel, cobalt, oil and gas, fertilizers or
certain other commodities; security market fluctuations and price
volatility; level of liquidity; access to capital; access to financing;
risks related to the liquidity and funding of the Ambatovy Joint
Venture; the risk to Sherritt’s entitlements to future distributions
from the Moa and Ambatovy joint ventures; risk of future non-compliance
with debt restrictions and covenants and mandatory repayments;
uncertainty of exploration results and Sherritt’s ability to replace
depleted mineral and oil and gas reserves; risks associated with the
Corporation’s joint venture partners; variability in production at
Sherritt’s operations in Cuba and Madagascar; risks related to
Sherritt’s operations in Cuba; risks related to the U.S. government
policy toward Cuba, including the U.S. embargo on Cuba and the
Helms-Burton legislation; potential interruptions in transportation;
uncertainty of gas supply for electrical generation; the Corporation’s
reliance on key personnel and skilled workers; the possibility of
equipment and other failures; risks associated with mining, processing
and refining activities; uncertainty of resources and reserve estimates;
the potential for shortages of equipment and supplies; risks related to
environmental liabilities including liability for reclamation costs,
tailings facility failures and toxic gas releases; risks related to the
Corporation’s corporate structure; political, economic and other risks
of foreign operations; risks related to Sherritt’s operations in
Madagascar; risks associated with Sherritt’s operation of large projects
generally; risks related to the accuracy of capital and operating cost
estimates; foreign exchange and pricing risks; compliance with
applicable environment, health and safety legislation and other
associated matters; risks associated with governmental regulations
regarding climate change and greenhouse gas emissions; risks relating to
community relations and maintaining the Corporation’s social license to
grow and operate; credit risks; 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; identification and
management of growth opportunities; uncertainty in the ability of the
Corporation to obtain government permits; risks to information
technologies systems and cybersecurity; 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; the ability to
accomplish corporate objectives, goals and plans for 2019; 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, including without limitation the Annual
Information Form of the Corporation dated February 13, 2019 for the
period ending December 31, 2018, which is available on SEDAR at www.sedar.com.

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 should be
read for a description of certain factors that could cause the actual
results of the Corporation to differ materially from those in the oral
forward-looking statements. The forward-looking information and
statements contained in this press release are made as of the date
hereof and the Corporation undertakes no obligation to update publicly
or revise any oral or written forward-looking information or statements,
whether as a result of new information, future events or otherwise,
except as required by applicable securities laws. The forward-looking
information and statements contained herein are expressly qualified in
their entirety by this cautionary statement.


For further investor information contact:
Joe Racanelli, Director
of Investor Relations
Telephone: (416) 935-2457
Toll-free: 1
(800) 704-6698
E-mail: investor@sherritt.com
www.sherritt.com

Source: Sherritt International Corporation