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- and six-month periods ended June 30, 2018. All
amounts are in Canadian currency unless noted.
CEO COMMENTARY
“The effects of rising commodity prices and improved production at our
Moa Joint Venture combined to produce our strongest quarterly financial
results since Q1 2013,” said David Pathe, President and CEO of Sherritt
International.
“Although commodity prices are expected to remain volatile in the near
term due to the slower summer customer buying period and to speculation
about the impact of tariffs on international trade, our prospects over
the longer term are strong. With favorable supply-demand trends emerging
as a result of the expected growth of the electric vehicle battery
market, we are particularly encouraged by the positive outlook for
nickel and cobalt prices.” 2018 Second Quarter Report
Q2 2018 HIGHLIGHTS
-
Adjusted EBITDA was $49.5 million, up 70% from $29.2 million in Q2
2017. Growth was largely due to higher realized nickel and cobalt
prices, offsetting the impact of lower oil production due to the
expiration of a production sharing contract at Varadero West. -
Sherritt’s share of finished nickel production at the Moa Joint
Venture (“Moa JV”) was 3,749 tonnes while finished cobalt was 388
tonnes. Q2’s production totals, which are consistent with Sherritt’s
historical performance, indicate that the production challenges
experienced in Q1 2018 that limited the availability of mixed
sulphides due to the highest level of rainfall at Moa in more than 20
years and rail transportation delays to the refinery in Fort
Saskatchewan, Alberta have been resolved. -
Net direct cash cost (NDCC)(1) at the Moa JV was US$1.68
per pound of finished nickel sold, marking the lowest unit operating
cost since Q3 2004. Q2’s NDCC represents the fifth consecutive quarter
that the Moa JV is in the lowest cost quartile relative to other
nickel producers based on annualized information tracked by Wood
Mackenzie. -
Average-reference prices for nickel improved 57% from last year to
US$6.56/lb while average-reference prices for cobalt increased 66% to
US$42.93/lb. -
Received $9 million from the Moa JV as a final repayment on a $45
million working capital facility provided by Sherritt. This working
capital facility is now fully repaid and future available free cash
flow from the Moa JV is expected in the form of dividends commencing
in Q3 2018 -
Sherritt reduced its long-term debt to $730.5 million based on the
book value of outstanding debt by purchasing for cancellation $10.7
million of outstanding debentures in Q2 2018. Combined with the
results of its modified Dutch auction tender offer completed in Q1,
Sherritt has eliminated $131.9 million of indebtedness in 2018 and
approximately $2 billion since 2014. -
Sherritt ended the quarter with $197.2 million in cash, cash
equivalents and short-term investments, down from $237.3 million at
March 31, 2018. The decrease was due to a number of factors, including
the timing of fertilizer receipts and the timing of interest payments
on debentures. In addition, Sherritt purchased $10.7 million of the
Corporation’s debentures for cancellation during Q2 2018. -
Net earnings for Q2 2018 totaled $2.8 million or $0.01 on a per share
basis. In Q2 2017, Sherritt incurred a net loss of $101.9 million or
$0.35 per share -
Announced the successful completion of a pilot-scale test of a
proprietary process to upgrade Alberta bitumen at a lower cost. The
pilot-scale test was based on Sherritt’s 60 years of experience
developing hydrometallurgical processes and use of autoclaves.
HIGHLIGHTS SUBSEQUENT TO QUARTER END
-
Resumed drilling on the Block 10 concession through a sidetrack well
from the existing wellbore. The drilling is targeting the Lower Veloz
reservoir that previously tested at 3,750 barrels of oil per day in
1994, and will make use of additional technology specifically designed
for drilling wells in lost circulation zones. Preliminary drilling
results are anticipated when the Corporation reports its Q3 2018
results. Capital to complete the drilling is expected to be
approximately US$14 million.
(1) For additional information see the Non-GAAP measures section of
this press release.
Q2 2018 FINANCIAL HIGHLIGHTS
| For the three months ended | For the six months ended | |||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||
| $ millions, except per share amount | June 30 | June 30 | Change | June 30 | June 30 | Change | ||||||||
| Revenue | 46.5 | 76.8 | (39%) | $ | 85.9 | $ | 149.2 | (42%) | ||||||
| Combined Revenue(1) | 201.1 | 231.0 | (13%) | 348.0 | 459.0 | (24%) | ||||||||
| Net earnings (loss) for the period | 2.8 | (101.9) | 103% | 2.2 | (174.5) | 101% | ||||||||
| Adjusted EBITDA(1) | 49.5 | 29.2 | 70% | 85.9 | 66.4 | 29% | ||||||||
| Cash provided (used) by continuing operations | (30.4) | (21.0) | (45%) | (19.3) | (4.4) | (339%) | ||||||||
| Combined free cash flow (1) | (16.5) | (38.2) | 57% | (10.4) | (28.2) | 63% | ||||||||
| Net earnings (loss) from continuing operations per share | 0.01 | (0.35) | 103% | 0.01 | (0.59) | 102% | ||||||||
(1)
For additional information, see the Non-GAAP
measures section of this release.
(2) The amounts for the periods ended June 30, 2018 have been
prepared in accordance with IFRS 9 and IFRS 15; prior period amounts
have not been restated. Refer to note 4 in the condensed consolidated
financial statements for March 31, 2018 for more information.
| 2018 | 2017 | |||||||
| $ millions, except as otherwise noted, as at | June 30 | December 31 | Change | |||||
| Cash, cash equivalents and short term investments | $ | 197.2 | $ | 203.0 | (3%) | |||
| Loans and borrowings | 694.8 | 824.1 | (16%) | |||||
In Q2 2018, Sherritt used $30.4 million in cash flow from operations
largely as a result of non-cash working capital changes totaling
approximately $33 million related to the deliveries of fertilizer
product pre-purchased in previous quarters. The impact of the negative
working capital changes was partially offset by positive cash flow from
operations of $10.5 million from the Oil and Gas division and $8.1
million from the Power division.
Cash, cash equivalents and short-term investments at June 30, 2018 were
$197.2 million, down from $237.3 million at March 31, 2018. The decrease
was due to a number of items, including the purchase for cancellation of
$10.7 million of outstanding debentures, the timing of interest payments
totaling approximately $15.8 million related to outstanding debentures,
and working capital changes related to fertilizer sales from the Fort
Site.
Cuban overdue scheduled receivables at June 30 totaled US$136.9 million,
up from US$126.7 million at March 31, 2018. In Q2 Sherritt received
US$25.2 million of Cuban energy payments. Sherritt has experienced
variability in its Cuban receivables over the years but has not incurred
any losses related to any scheduled Cuban receivables.
Adjusted earnings (loss) from continuing operations
(1)
| 2018 | 2017 | ||||||||
| For the three months ended June 30 | $ millions | $/share | $ millions | $/share | |||||
| Net earnings (loss) from continuing operations | 2.8 | 0.01 | (101.9) | (0.35) | |||||
| Adjusting items, net of tax: | |||||||||
| Unrealized foreign exchange gain (loss) | (11.0) | (0.03) | 4.4 | 0.01 | |||||
| Other | (0.5) | – | (2.3) | (0.01) | |||||
| Adjusted net earnings (loss) from continuing operations | (8.7) | (0.02) | (99.8) | (0.34) | |||||
| 2017 | 2016 | ||||||||
| For the six months ended June 30 | $ millions | $/share | $ millions | $/share | |||||
| Net earnings (loss) from continuing operations | 2.2 | 0.01 | (174.5) | (0.59) | |||||
| Adjusting items, net of tax: | |||||||||
| Unrealized foreign exchange (gain) loss | (18.7) | (0.05) | (2.9) | (0.01) | |||||
| Other | (7.0) | (0.02) | (5.1) | (0.02) | |||||
| Adjusted net earnings (loss) from continuing operations | (23.5) | (0.06) | (182.5) | (0.62) | |||||
(1)
For additional information, see the Non-GAAP
measures section of this release.
Sherritt generated net earnings from continuing operations of $2.8
million, or $0.01 per share outstanding, in Q2 2018. These compare to a
net loss from operations of $101.9 million, or $0.35 per share, in Q2
2017.
On an adjusted basis, Sherritt incurred a net loss from operations of
$8.7 million, or $0.01 per share outstanding, in Q2 2018 after the
effect of an unrealized foreign exchange loss of $11.0 million. These
compare to an adjusted net loss of $99.8 million, or $0.34 per share,
for the same period of 2017. In Q2 2017, Sherritt recorded a foreign
exchange gain of $4.4 million.
METAL MARKETS
Nickel
Nickel prices extended their rally into Q2 2018, sustaining the momentum
established in the second half of 2017. The average reference price in
Q2 2018 was US$6.56/lb, up 57% from US$4.18lb in the second quarter of
2017. The average reference price for Q2 2018 was the highest since Q4
2014 when it was US$7.17/lb.
The continued increase in nickel prices is being driven by a number of
factors, including the ongoing drawdown of available inventory. Combined
LME and SHFE nickel inventories at the end of Q2 2018 totaled 298,803
tonnes, down 19% from 367,694 tonnes at the end of Q1 2018. As demand
continues to exceed available supply, the nickel market is expected to
be in a structural deficit in the coming years.
According to market research by CRU, stainless steel demand is expected
to grow at an average annual rate of 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 2018, a shortage of high purity nickel is anticipated over the
coming years since current market prices are below incentive levels
needed to develop new nickel projects.
Cobalt
Cobalt prices rose in Q2 2018, marking the eighth consecutive quarter of
higher reference prices. The average-reference price for Q2 2018 was
US$42.93/lb, up 66% from US$25.87/lb for Q2 2017.
Cobalt prices started to soften in Q2 due to a number of factors, the
most notable being increased availability of physical metal and growing
market sentiment that cobalt prices had risen prematurely in advance of
actual demand increases. As the prices started to decline in Q2,
consumers began to delay purchases waiting for prices to bottom. The
recent softening of prices is expected to be temporary due to the
growing demand emanating 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.
As cobalt prices have a limited impact on overall battery pack costs,
high prices are not expected to cause supply-chain disruptions or delay
the growth of the electric vehicle market. As a result, the risk of
cobalt substitution in electric vehicle battery production in the near
term is relatively low given cobalt’s unique energy transference
properties. While battery manufacturers continue to explore alternatives
to cobalt, the likely beneficiary of any substitution is expected to be
Class I nickel.
REVIEW OF OPERATIONS
Moa Joint Venture (50% interest) and Fort Site (100%)
| For the three months ended | For the six months ended | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||
| $ millions, except as otherwise noted | June 30 | June 30 | Change | June 30 | June 30 | Change | |||||||||||
| FINANCIAL HIGHLIGHTS | |||||||||||||||||
| Revenue | $ | 145.5 | $ | 103.0 | 41% | $ | 241.8 | $ | 193.4 | 25% | |||||||
| Earnings from operations | 32.1 | (3.4) | 1044% | 48.4 | (1.4) | 3557% | |||||||||||
| Adjusted EBITDA(1) | 44.4 | 11.7 | 279% | 71.5 | 24.5 | 192% | |||||||||||
| CASH FLOW | |||||||||||||||||
| Cash provided by operations | $ | 10.1 | $ | (6.6) | 253% | $ | 28.2 | $ | 8.2 | 244% | |||||||
| Free cash flow(1) | 1.1 | (14.6) | 108% | 14.7 | (2.0) | 835% | |||||||||||
| Adjusted operating cash flow(1) | 36.9 | 9.9 | 273% | 63.7 | 19.0 | 235% | |||||||||||
| PRODUCTION VOLUMES (tonnes) | |||||||||||||||||
| Mixed Sulphides | 4,226 | 4,370 | (3%) | 8,108 | 8,652 | (6%) | |||||||||||
| Finished Nickel | 3,749 | 3,739 | – | 6,603 | 7,579 | (13%) | |||||||||||
| Finished Cobalt | 388 | 436 | (11%) | 724 | 872 | (17%) | |||||||||||
| Fertilizer | 52,741 | 62,858 | (16%) | 105,181 | 121,726 | (14%) | |||||||||||
| NICKEL RECOVERY (%) | 80% | 88% | (9%) | 80% | 87% | (8%) | |||||||||||
| SALES VOLUMES (tonnes) | |||||||||||||||||
| Finished Nickel | 3,668 | 3,670 | – | 6,578 | 7,532 | (13%) | |||||||||||
| Finished Cobalt | 388 | 435 | (11%) | 713 | 856 | (17%) | |||||||||||
| Fertilizer | 63,735 | 57,816 | 10% | 89,207 | 95,270 | (6%) | |||||||||||
| AVERAGE-REFERENCE PRICES (US$ per pound) | |||||||||||||||||
| Nickel | $ | 6.56 | $ | 4.18 | 57% | $ | 6.29 | $ | 4.43 | 42% | |||||||
| Cobalt(2) | 42.93 | 25.87 | 66% | 40.97 | 22.83 | 79% | |||||||||||
| AVERAGE REALIZED PRICE | |||||||||||||||||
| Nickel ($ per pound) | $ | 8.50 | $ | 5.58 | 52% | $ | 8.19 | $ | 5.89 | 39% | |||||||
| Cobalt ($ per pound) | 54.01 | 33.12 | 63% | 51.49 | 28.73 | 79% | |||||||||||
| Fertilizer ($ per tonne) | 427 | 414 | 3% | 407 | 386 | 6% | |||||||||||
|
UNIT OPERATING COSTS (1) (US$ per pound) |
|||||||||||||||||
| Nickel – net direct cash cost | $ | 1.68 | $ | 2.55 | (34%) | $ | 1.84 | $ | 2.86 | (36%) | |||||||
| SPENDING ON CAPITAL | |||||||||||||||||
| Sustaining | $ | 13.1 | $ | 8.1 | 62% | $ | 13.1 | $ | 10.2 | 28% | |||||||
| $ | 13.1 | $ | 8.1 | 62% | $ | 13.1 | $ | 10.2 | 28% | ||||||||
(1) For additional information, see the Non-GAAP measures section
of this release.
(2) Average low-grade cobalt published price per Metals Bulletin.
The Moa JV produced 3,749 tonnes of finished nickel in Q2 2018,
relatively unchanged from 3,739 tonnes produced in Q2 2017. Although
production challenges experienced in Q1 2018 that limited the
availability of mixed sulphides due to highest levels of rainfall in
more than 20 years and rail transportation delays to the refinery in
Fort Saskatchewan, Alberta by the service provider were resolved,
production in Q2 2018 was impacted by the planned annual maintenance
refinery shutdown in June, consistent with previous years.
Finished cobalt production in Q2 2018 was 388 tonnes, down 11% from 436
tonnes produced in Q2 2017. The decline was due to a higher nickel to
cobalt ratio in the refinery feed when compared to Q2 2017. Moa’s nickel
to cobalt ratio in Q2 2018 was within range of historic norm.
Q2 2018 revenue for the Moa JV and the Fort Site totaled $145.4 million,
up 41% from $103.0 million for the comparable period of 2017. The growth
was driven by higher realized prices in 2018 for nickel (+52%), cobalt
(+63%) and fertilizer (+3%) although offset by a stronger Canadian
dollar relative to the U.S. dollar.
Nickel sales represented 47% of the Moa JV’s total Q2 2018 revenue while
cobalt sales represented 32%. Fertilizer sales in Q2 2018 were up 13%
from last year, reflecting higher demand for spring season fertilizer
application.
Mining, processing and refining (MPR) costs for Q2 2018 were US$5.62/lb,
up 12% from US$5.00/lb for Q2 2017. The increase was primarily due to
higher input costs largely from increased sulphur and energy prices.
Despite higher energy and sulphur input costs, Moa’s NDCC of US$1.68/lb
for Q2 2018 was the lowest since Q3 2004. Q2’s NDCC represents the fifth
consecutive quarter that the Moa JV is in the lowest cost quartile
relative to other nickel producers based on annualized information
tracked by Wood Mackenzie.
NDCC in Q2 2018 declined by 34% compared to the prior year period,
largely because of a higher cobalt by-product credit. The cobalt credit
of US$4.42/lb reflects Moa’s relatively high cobalt to nickel production
ratio as well as the 66% growth in cobalt reference prices since Q2 2017.
Given that production challenges of Q1 have been resolved and that the
Moa JV is currently deploying a new mining fleet and equipment to
address previous availability issues, Sherritt continues to expect that
its nickel and cobalt production will be near the lower range of
guidance provided at the start of the year.
Excluding the impact of non-cash working capital changes primarily
relating to the timing of fertilizer product deliveries, the Moa JV
generated adjusted operating cash flow of $36.9 million, up 273% from
$9.9 million in the same period of 2017. The increase was largely due to
the year-over-year improvement in commodity prices.
Moa’s sustaining capital spending in Q2 2018 was $13.1 million, up from
$8.1 million in Q2 2017. The increase was due to higher planned
spending, including the purchase of mining equipment and construction of
the new slurry preparation plant dump pocket at Moa. The Moa JV is
expected to continue to operate and fund capital expenditures through
cash flow generated by the joint venture or external loans without
shareholder funding.
Investment in Ambatovy Joint Venture (12% interest effective December
11, 2017)
| For the three months ended | For the six months ended | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||
| $ millions, except as otherwise noted | June 30 | June 30 | Change | June 30 | June 30 | Change | |||||||||||
| FINANCIAL HIGHLIGHTS | |||||||||||||||||
| Revenue | $ | 31.3 | $ | 68.3 | (54%) | $ | 49.1 | $ | 143.1 | (66%) | |||||||
| Earnings (loss) from operations | (1.5) | (38.6) | 96% | (10.5) | (67.6) | 84% | |||||||||||
| Adjusted EBITDA(2) | 8.9 | (1.6) | 656% | 9.8 | 6.6 | 48% | |||||||||||
| CASH FLOW | |||||||||||||||||
| Cash provided by operations | $ | 4.4 | $ | (12.1) | 136% | $ | (1.6) | $ | (14.4) | 89% | |||||||
| Free cash flow(2) | 1.8 | (14.8) | 112% | (7.1) | (21.1) | 66% | |||||||||||
| Adjusted operating cash flow(2) | 3.7 | (18.6) | 120% | 2.9 | (11.5) | 125% | |||||||||||
| PRODUCTION VOLUMES (tonnes)(3) | |||||||||||||||||
| Mixed Sulphides | 1,270 | 1,135 | 12% | 1,945 | 2,430 | (20%) | |||||||||||
| Finished Nickel | 1,147 | 1,033 | 11% | 1,815 | 2,178 | (17%) | |||||||||||
| Finished Cobalt | 99 | 81 | 22% | 148 | 178 | (17%) | |||||||||||
| Fertilizer | 3,762 | 3,271 | 15% | 5,751 | 6,810 | (16%) | |||||||||||
| NICKEL RECOVERY (%) | 88% | 85% | 4% | 87% | 85% | 2% | |||||||||||
| SALES VOLUMES (tonnes)(3) | |||||||||||||||||
| Finished Nickel | 1,184 | 1,040 | 14% | 1,849 | 2,183 | (15%) | |||||||||||
| Finished Cobalt | 95 | 89 | 6% | 147 | 195 | (25%) | |||||||||||
| Fertilizer | 2,658 | 3,101 | (14%) | 4,137 | 6,835 | (39%) | |||||||||||
| AVERAGE-REFERENCE PRICES (US$ per pound) | |||||||||||||||||
| Nickel | $ | 6.56 | $ | 4.18 | 57% | $ | 6.29 | $ | 4.43 | 42% | |||||||
| Cobalt(4) | 42.93 | 25.87 | 66% | 40.97 | 22.83 | 79% | |||||||||||
| AVERAGE-REALIZED PRICE | |||||||||||||||||
| Nickel ($ per pound) | $ | 8.39 | $ | 5.83 | 44% | $ | 7.93 | $ | 5.99 | 32% | |||||||
| Cobalt ($ per pound) | 45.01 | 33.07 | 36% | 51.68 | 29.64 | 74% | |||||||||||
| Fertilizer ($ per tonne) | 189.00 | 176 | 8% | 193.18 | 169 | 14% | |||||||||||
|
UNIT OPERATING COSTS (2) (US$ per pound) |
|||||||||||||||||
| Nickel – net direct cash cost | $ | 3.14 | $ | 3.66 | (14%) | $ | 3.85 | $ | 3.79 | 2% | |||||||
| SPENDING ON CAPITAL | |||||||||||||||||
| Sustaining | $ | 3.1 | $ | 12.8 | (76%) | $ | 5.6 | $ | 21.2 | (74%) | |||||||
| Expansion | – | – | – | – | – | – | |||||||||||
| $ | 3.1 | $ | 12.8 | (76%) | $ | 5.6 | $ | 21.2 | (74%) | ||||||||
(1)
Sherritt’s share for Ambatovy Joint Venture reflects
its interest at 40% through December 10, 2017 and 12% thereafter.
(2) For additional information, see the Non-GAAP measures section
of this release.
(3) To allow for easier comparison, Ambatovy production and sales
volume information for the periods ended June 30, 2017 is presented on a
12% basis.
(4) Average low-grade cobalt published price per Metals Bulletin.
Sherritt’s financial results at Ambatovy are presented on a 12% basis
for Q1 2018 and on a 40% basis for Q1 2017. Production totals are
presented on a 12% for both periods for better comparison purposes.
Along with its partners, Sherritt completed the restructuring of the
Ambatovy Joint Venture on December 11, 2017. The restructuring led to
Sherritt’s ownership interest being reduced to 12% in exchange for the
elimination of $1.4 billion of debt. Sherritt will continue to serve as
operator of Ambatovy at least through 2024, however, as a result of the
reduction in its ownership interest, Sherritt’s ability to direct local
decision-making at Ambatovy has diminished.
Finished nickel production at Ambatovy in Q2 2018 was 1,147 tonnes (12%
basis), up from 1,033 tonnes (12% basis) produced in Q2 2017. Finished
cobalt production in Q2 2018 was 99 tonnes (12% basis), up from 81
tonnes (12% basis) for Q2 2017. Despite the year-over-year nickel and
cobalt production increases, the Ambatovy JV was impacted in Q2 2018 by
a number of factors that affected performance, including reduced
sulphuric acid availability due to a failed economizer at Acid Plan 1
that has since been successfully replaced, ongoing repairs to equipment
damaged by Cyclone Ava in Q1, reduced autoclave availability and a
conveyor failure which reduced slurry deliveries.
The Ambatovy JV is currently implementing a number of initiatives aimed
at improving production and increasing the reliability of acid
production and PAL circuits. These initiatives will include the
replacement of an economizer on Acid Plant 2, which is expected for
completion in Q3. Based on production improvements in Q2 and the
progress of the initiatives to strengthen asset reliability, Sherritt
continues to expect that its nickel and cobalt production at Ambatovy in
the second half of 2018 will be greater than production through the
first six months of the year. Sherritt has, however, updated its
production and unit costs estimates for the year at Ambatovy to take
recent developments into account.
MPR costs for Q2 2018 were US$6.60/lb, up from US$6.14/lb in Q2 2017.
The year-over-year increase was largely due to the impact of higher
input costs, including sulphur and energy.
NDCC for finished nickel at Ambatovy in Q2 2018 was US$3.14/lb, down
from the US$3.66/lb for Q2 2017. The decrease was due to higher sales
volume and higher cobalt by-product credits, offset by higher energy and
sulphur input costs.
Spending on sustaining capital at Ambatovy on a 100% basis was
relatively unchanged in Q2 2018 from the same period last year. Capital
spend in Q2 2018 was approximately $26 million (100% basis) and was
largely allocated towards the replacement of the economizer at Acid
Plant 1, restoring the conditions of the acid plants, repairing corroded
equipment and improving plant reliability.
OIL AND GAS
| For the three months ended | For the six months ended | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||
| $ millions, except as otherwise noted | June 30 | June 30 | Change | June 30 | June 30 | Change | |||||||||||
| FINANCIAL HIGHLIGHTS | |||||||||||||||||
| Revenue | $ | 9.6 | $ | 34.1 | (72%) | $ | 27.7 | $ | 69.4 | (60%) | |||||||
| Earnings (loss) from operations | (3.1) | 8.9 | (135%) | (1.4) | 19.9 | (107%) | |||||||||||
| Adjusted EBITDA(1) | (0.6) | 17.8 | (103%) | 4.0 | 37.4 | (89%) | |||||||||||
| Cash provided by operations | 10.5 | 11.2 | (6%) | 17.8 | 25.2 | (29%) | |||||||||||
| Free cash flow(1) | 3.7 | 7.8 | (53%) | 7.9 | 18.1 | (56%) | |||||||||||
| PRODUCTION AND SALES (bopd) | |||||||||||||||||
| Gross working-interest (GWI) – Cuba | 4,689 | 14,545 | (68%) | 5,128 | 14,877 | (66%) | |||||||||||
| Total net working-interest (NWI) | 1,821 | 8,805 | (79%) | 2,862 | 8,848 | (68%) | |||||||||||
| AVERAGE EXCHANGE RATE (CAD/USD) | 1.291 | 1.345 | (4%) | 1.278 | 1.334 | (4%) | |||||||||||
| AVERAGE REFERENCE PRICE (US$ per barrel) | |||||||||||||||||
| West Texas Intermediate (WTI) | $ | 68.14 | $ | 48.06 | 42% | $ | 65.56 | $ | 49.83 | 32% | |||||||
| U.S. Gulf Coast High Sulpher Fuel Oil (USGC HSFO)(2) | 62.42 | 43.23 | 44% | 58.86 | 44.36 | 33% | |||||||||||
| Brent | 74.67 | 49.13 | 52% | 70.78 | 51.23 | 38% | |||||||||||
|
AVERAGE-REALIZED PRICE (1) (NWI) |
|||||||||||||||||
| Cuba ($ per barrel) | $ | 59.97 | $ | 42.10 | 42% | $ | 53.44 | $ | 42.86 | 25% | |||||||
|
UNIT OPERATING COSTS (1) (GWI) |
|||||||||||||||||
| Cuba ($ per barrel) | $ | 16.10 | $ | 9.95 | 62% | $ | 18.66 | $ | 9.29 | 101% | |||||||
| SPENDING ON CAPITAL | |||||||||||||||||
| Development, facilities and other | $ | 0.3 | $ | (0.4) | 175% | $ | – | $ | (1.2) | 100% | |||||||
| Exploration | 6.9 | 2.1 | 229% | 9.5 | 5.9 | 61% | |||||||||||
| $ | 7.2 | $ | 1.7 | 324% | $ | 9.5 | $ | 4.7 | 102% | ||||||||
(1) For additional information, see the Non-GAAP measures section
of this release.
(2) Starting in 2018, the Oil and Gas division uses U.S. Gulf Coast
High Sulphur Fuel Oil for pricing purposes, replacing U.S. Gulf Coast
Fuel Oil #6 used previously. The comparative period has been adjusted
accordingly.
Gross working-interest oil production in Q2 2018 in Cuba was 4,689
barrels of oil per day (“bopd”), down 68% from 14,545 bopd for the
comparable period of 2017. The decrease was primarily due to the
expiration of the Varadero West Production Sharing Contract (PSC) in
November 2017, natural reservoir declines and the absence of new
development drilling.
Revenue in Q2 2018 was $9.6 million, down 72% from $34.1 million for
last year. The decline was attributable to lowered production due to the
expiration of the Varadero West PSC and the reduction of Sherritt’s
profit oil percentage to 6% from 45% with the renewal of the Puerto
Escondido/Yumuri PSC. The revenue decline was partially offset by higher
realized oil prices of 42% to $59.97 per barrel in Cuba, though
partially offset by the negative impact of a stronger Canadian dollar.
Total net working-interest production for Q2 2018 was 1,821 barrels of
oil equivalent per day (“boepd”), down from 8,805 boepd in the same
period of 2017. The decline was due to the impact of the expiration of
the Varadero West PSC and decrease in profit oil percentage with the
renewal of the Puerto Escondido/Yumuri PSC already noted, and the impact
of higher oil prices in 2018.
Unit operating costs in Q2 2018 in Cuba were $16.10 per barrel, up 83%
from $9.95 in Q2 2017, driven largely by reduced production. Costs were
positively impacted by the strengthening Canadian dollar relative to the
U.S. dollar in Q2 2018.
Capital spending in Q2 2018 was $7.2 million, up from $1.7 million,
largely due to the purchase of drilling supplies and materials for Block
10.
Subsequent to quarter end, Sherritt resumed drilling on its Block 10
concession through a sidetrack well from the existing wellbore. The
drilling is targeting the Lower Veloz reservoir that previously tested
at 3,750 barrels of oil per day in 1994, and will make use of additional
technology specifically designed for drilling wells in lost circulation
zones. Preliminary drilling results are anticipated by the time Sherritt
reports its Q3 2018 results. Capital forecasted to complete the drilling
is expected to be approximately US$14 million.
Total estimated capital spend for the Oil and Gas division in 2018 has
been lowered to US$25 million from US$35 million to reflect deferral of
equipment purchases and drilling activities in anticipation of Block 10
results.
POWER
| For the three months ended | For the six months ended | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| $ millions (33 ⅓% basis), except as otherwise noted | June 30 | June 30 | Change | June 30 | June 30 | Change | ||||||||||
| FINANCIAL HIGHLIGHTS | ||||||||||||||||
| Revenue | $ | 12.4 | $ | 13.6 | (9%) | $ | 24.3 | $ | 27.0 | (10%) | ||||||
| Earnings (loss) from operations | 1.5 | 1.5 | – | 3.3 | 4.3 | (23%) | ||||||||||
| Adjusted EBITDA(1) | 7.6 | 7.9 | (4%) | 15.4 | 17.1 | (10%) | ||||||||||
| Cash provided by operations | 8.1 | 7.9 | 3% | 19.3 | 20.7 | (7%) | ||||||||||
| Free cash flow(1) | 7.9 | 7.5 | 5% | 19.0 | 19.5 | (3%) | ||||||||||
| PRODUCTION AND SALES | ||||||||||||||||
| Electricity (GWh) | 204 | 220 | (7%) | 406 | 437 | (7%) | ||||||||||
|
AVERAGE-REALIZED PRICE (1) |
||||||||||||||||
| Electricity ($/MWh) | $ | 54.18 | $ | 57.02 | (5%) | $ | 53.71 | $ | 56.66 | (5%) | ||||||
|
UNIT OPERATING COSTS (1) ($/MWh) |
||||||||||||||||
| Base | 15.63 | 15.80 | (1%) | 15.04 | 15.65 | (4%) | ||||||||||
| Non-base(2) | 2.94 | 5.56 | (47%) | 2.86 | 3.03 | (6%) | ||||||||||
| 18.57 | 21.36 | (13%) | 17.90 | 18.68 | (4%) | |||||||||||
| NET CAPACITY FACTOR (%) | 64 | 68 | (6%) | 63 | 68 | (7%) | ||||||||||
| SPENDING ON CAPITAL | ||||||||||||||||
| Sustaining | $ | 0.2 | $ | 0.4 | (50%) | $ | 0.3 | $ | 1.2 | (75%) | ||||||
| $ | 0.2 | $ | 0.4 | (50%) | $ | 0.3 | $ | 1.2 | (75%) | |||||||
(1) For additional information see the Non-GAAP measures section of
this release.
(2) Costs incurred at the Boca de Jaruco and Puerto Escondido
facilities that otherwise would have been capitalized if these
facilities were not accounted for as service concession arrangements.
Power production in Q2 2018 was 204 gigawatt hours (“GWh”) of
electricity, down 7% from 220 GWh for the comparable period of 2017. The
decline was largely due to reduced gas supply.
Average-realized prices in Q2 2018 declined to $54.18 per Megawatt hour
(“MWh’) of electricity from $57.02 per MWh in Q2 2017. The decline was
due to the appreciation of the Canadian dollar relative to the U.S.
currency.
Revenue in Q2 2018 totaled $12.4 million, down 9% from $13.6 million for
Q2 2017. The decrease is attributable to lower production and lower
realized prices.
Free cash flow in Q2 2018 increased by 3% to $7.9 million due to lower
operating costs, which were positively impacted by the appreciation of
the Canadian dollar relative to the U.S. currency.
Unit operating cost in Q2 2018 was $18.57 per MWh of electricity, down
13% from $21.36 per MWh for Q2 2017. The decline was mainly attributable
to the timing of planned maintenance activities.
Total capital spending in Q2 2018 was negligible and relatively
unchanged from last year.
2018 REVIEW OF STRATEGIC PRIORITIES
The table below lists Sherritt’s Strategic Priorities for 2018, and
summarizes how the Corporation has performed against those priorities on
a year to date basis.
| Strategic Priorities | 2018 Actions | Status | |||
| PRESERVE LIQUIDITY AND BUILD BALANCE SHEET STRENGTH | Continue to emphasize de-leveraging of the balance sheet |
Purchased $131.9 million of outstanding debentures through June 30, 2018, including $10.7 million in Q2. The debt reduction allows Sherritt to generate annual savings of approximately $11 million in interest expense. |
|||
| Optimize working capital and receivables collection |
Management continues to take action to expedite Cuban energy receipts and received US$25.2 million in payments in Q2 2018. Overdue scheduled receivables at quarter end were US$136.9 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 has generated $63.7 million of adjusted operating cash flow through the first half of 2018, up 235% from the same period in 2017. |
||||
|
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 in Q2 2018 was US$1.68/lb, down 34% from last year. Moa’s NDCC ranked it within the lowest cost quartile relative to other nickel producers for the fifth consecutive quarter. Ambatovy’s NDCC of US$3.14/lb in Q2 2018 improved by 14% from last year, largely as a result of efforts to increase production stability and acid plant reliability. |
|||
|
Maximize production of finished nickel and cobalt and improve predictability over 2017 results |
Combined nickel production at the Moa JV and the Ambatovy JV improved in Q2 2018 by 51% to 17,056 tonnes (100% basis) from 11,275 tonnes (100% basis) in Q1 2018. The improvement was due to efforts aimed at resolving production challenges experienced in Q1 relating to heavy rainfall, transportation delays, the impact of Cyclone Ava and acid plant reliability. Production at the Moa JV and Ambatovy is expected to be higher in the second half of 2018 when compared to the first six months of the current year. |
||||
|
Achieve peer leading performance in environmental, health, safety and sustainability |
In Q2, Sherritt published its 2017 Sustainability Report in |
||||
| OPTIMIZE OPPORTUNITIES IN CUBAN ENERGY BUSINESS |
Successfully execute Block 10 drilling program
|
Drilling on Block 10 resumed in July 2018 and will make use of
|
|||
|
Review opportunities to leverage Oil and Gas experience and |
The Production Sharing Contract at Puerto Escondido/Yumuri was |
OUTLOOK
2018 PRODUCTION, UNIT OPERATING COST AND CAPITAL SPENDING GUIDANCE
| 2018 Guidance | Year-to-date actual at | Updated Guidance at | |||||
| June 30, 2018 | June 30, 2018 | ||||||
| Production volumes, unit operating costs and spending on capital | |||||||
| Production volumes | |||||||
| Moa Joint Venture (tonnes, 100% basis) | |||||||
| Nickel, finished | 31,500 – 32,500 | 13,206 | Unchanged | ||||
| Cobalt, finished | 3,500 – 3,800 | 1,448 | Unchanged | ||||
| Ambatovy Joint Venture (tonnes, 100% basis) | |||||||
| Nickel, finished | 40,000 – 43,000 | 15,125 | 35,000 – 38,000 | ||||
| Cobalt, finished | 3,500 – 3,800(1) | 1,233 | 3,100 -3,400 | ||||
| Oil – Cuba (gross working-interest, bopd) | 4,300 – 4,800 | 5,128 | Unchanged | ||||
| Oil and Gas – All operations (net working-interest, boepd) | 2,300-2,600(1) | 2,862 | Unchanged | ||||
| Electricity (GWh, 33⅓% basis) | 750 – 800 | 406 | Unchanged | ||||
| Unit operating costs | |||||||
| NDCC (US$ per pound) | |||||||
| Moa Joint Venture | $1.75 – $2.25(1) | $1.84 | Unchanged | ||||
| Ambatovy Joint Venture | $2.50 – $3.00(1) | $3.85 | $3.00 – $3.50 | ||||
| Oil and Gas – Cuba (unit operating costs, $ per barrel) | $22.00 – $23.50 | $19.63 | Unchanged | ||||
| Electricity (unit operating cost, $ per MWh) | $20.75 – $21.50 | $17.90 | Unchanged | ||||
| Spending on capital (US$ millions) | |||||||
| Moa Joint Venture (50% basis), Fort Site (100% basis)(2) | US$41 (CDN$52) | US$13.8 (CDN$17.6) | Unchanged | ||||
| Ambatovy Joint Venture (12% basis)(3) | US$13 (CDN$17) | US$4.4 (CDN$5.6) | Unchanged | ||||
| Oil and Gas | US$39 (CDN$50) | US$7.5 (CDN$9.5) | US$25 (CDN$32) | ||||
| Power (33⅓% basis) | US$1 (CDN$1) | US$0.2 (CDN$0.3) | Unchanged | ||||
| Spending on capital (excluding Corporate) | US$94 (CDN$119) | US$25.2 (CDN$32.1) | US$80 (CDN$102) |
(1) Guidance updated March 31, 2018
(2)
Spending is 50% of US$ expenditures for Moa JV and
100% expenditures for Fort Site fertilizer and utilities.
(3)
Sherritt’s ownership interest at the Ambatovy Joint
Venture was reduced to 12% following a restructuring completed on
December 10, 2017.
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 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 period ended June 30, 2018 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 today at 9:00 a.m.
Eastern Time to review its Q2 and 2018 results.
| Conference Call and Webcast: | August 1, 2018, 9:00 a.m. ET | |
| North American callers, please dial: | 1-800-458-4121 | |
| International callers, please dial: | 647-484-0477 | |
| Live webcast: |
An archive of the webcast will also be available on the website. The
conference call will be available for replay until August 5, 2018 by
calling 647-436-0148 or 1-888-203-1112, access code 9065061#.
COMPLETE FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS
Sherritt’s complete condensed consolidated financial statements and MD&A
for the three and six months ended June 30, 2018 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” sections 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;
anticipated payments of outstanding receivables; future distributions
from the Moa Joint Venture, drill plans and results on exploration wells
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 or certain other
commodities; share 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; risks
associated with the Corporation’s joint venture partners; variability in
production at Sherritt’s operations in Madagascar and Cuba; potential
interruptions in transportation; uncertainty of gas supply for
electrical generation; uncertainty of exploration results and Sherritt’s
ability to replace depleted mineral and oil and gas reserves; the
Corporation’s reliance on key personnel and skilled workers; the
possibility of equipment and other failures; the potential for shortages
of equipment and supplies; risks associated with mining, processing and
refining activities; uncertainty of resources and reserve estimates;
environmental risks and risks related to rehabilitation provisions
estimates; risks related to the Corporation’s corporate structure;
political, economic and other risks of foreign operations; 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; risks related to Sherritt’s operations in
Madagascar; risks associated with Sherritt’s development, construction
and 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 greenhouse gas emissions; risks
relating to community relations and maintaining the Corporation’s social
license to grow and operate; 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; 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; uncertainties in growth management. 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 March 20, 2018 for the
period ending December 31, 2017, 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.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20180731005986/en/
Sherritt International Corporation
Joe Racanelli, 416.935.2457
Director
of Investor Relations
Toll-free: 1.800.704.6698
investor@sherritt.com
www.sherritt.com
Source: Sherritt International Corporation