Sherritt Announces Q2 2016 Results
For immediate release
Sherritt Announces Q2 2016 Results
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
Toronto, Ontario – July 25, 2016 – Sherritt International Corporation (“Sherritt” or the “Corporation”) (TSX: S), the world leader in the mining and refining of nickel from lateritic ores, today reported its financial results for the three and six months ended June 30, 2016.
“Our Moa JV operations performed well in the quarter with a Net Direct Cash Cost (NDCC) of US$2.94/lb, making Moa one of the few HPAL operations globally to perform near the lowest quartile of cash cost,” said David Pathe, President and CEO, Sherritt International. “We are encouraged by the recent strengthening of the nickel price and continue to believe that having more than 60% of global nickel production underwater on a cash margin basis is not sustainable in the long term.”
“We also made significant progress in the quarter in protecting our balance sheet as we reduced recourse debt levels and made progress on extending our bond maturities.”
Q2 HIGHLIGHTS(1)
- Nickel prices remained under pressure in the quarter, with reference prices averaging US$4.00/lb. Signs of a rally are emerging with news of Philippine mine shutdowns in process or expected with the new government environmental regulation. LME nickel prices have averaged US$4.60 per pound in July to date, up 30% from the low of US$3.50/lb in the first quarter. Gulf Coast Fuel Oil 6 prices increased by 47% from the average reference price in the first quarter this year.
- Net direct cash costs (NDCC) of US$2.94/lb at the Moa JV and US$5.12/lb at Ambatovy are both improvements on a year over year basis, despite Ambatovy’s lower production.
- Cash, cash equivalents and short-term investments at the end of the second quarter were $312.6 million, a drop of $57.3 million from the end of the first quarter. The main drivers were $17.4 million expended to repurchase debentures, $20 million in interest payments on the debentures, and lower than expected receipts from the Cuban energy business.
- Sherritt is in the process of extending the maturities of its debentures by three years to 2021, 2023, and 2025. The noteholder meeting to approve the transaction was held earlier today, and received the support of over 94% of noteholders, being more than 99% of votes cast as announced previously. A final court hearing for approval of the transaction pursuant to the CBCA proceedings is scheduled for July 27, 2016 and the transaction is expected to close on or about July 29, 2016.
- In July, the Moa JV commenced operation of the third acid plant, which is expected to further reduce NDCC by approximately US$0.50/lb starting in the fourth quarter this year, with the full benefit anticipated in 2017.
OUTLOOK AND SIGNIFICANT ITEMS
- With better than expected Cuban oil production in the first half of this year, and the results of a successful workover in the second quarter, Cuba oil production guidance has been increased on both a Gross Working Interest (GWI) and Net Working Interest (NWI) basis, to 15,000 bopd and 9,200 bopd respectively.
- Production guidance for Ambatovy has been reduced to a range of 42,000 – 45,000 tonnes finished nickel and 2,900 – 3,300 tonnes finished cobalt (100% basis), in light of year to date production.
- Capital spending guidance has been reduced by US$7 million, as seismic processing activity in Oil & Gas that was originally expected to be performed on Block 8A has been deferred to 2017, while the focus remains on drilling the first well in Block 10 this year.
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All amounts are Canadian dollars unless otherwise indicated.
(1) For additional information see the Non-GAAP measures section of this press release.
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Q2 2016 FINANCIAL HIGHLIGHTS
For the three months ended For the six months ended
| 2016 | 2015 | 2016 | 2015 | |||
| $ millions, except per share amount | June 30 | June 30 | Change | June 30 | June 30 | Change |
| Combined Revenue(1) | 204.1 | 268.4 | (24%) $ | 395.4 $ | 546.7 | (28%) |
| Adjusted EBITDA(1) | 0.2 | 40.2 | (100%) | (8.9) | 84.4 | (111%) |
| Combined free cash flow(1) | (55.3) | (67.0) | 17% | (86.7) | (55.8) | (55%) |
| Net loss from continuing operations per share | (0.35) | (0.16) | (119%) | (0.52) | (0.36) | (44%) |
| Combined adjusted operating cash flow per share(1) | (0.12) | 0.09 | (233%) | (0.20) | 0.28 | (171%) |
(1) For additional information, see the Non-GAAP measures section of this release.
2016 2015
| $ millions, except as noted, as at | June 30 | December 31 | Change |
|---|---|---|---|
| Cash, cash equivalents and short term investments | 312.6 | 435.4 | (28%) |
| Non-recourse loans and borrowings | 1,273.3 | 1,303.2 | (2%) |
| Other loans and borrowings | 878.8 | 959.9 | (8%) |
Sherritt has expended $62.4 million this year in repurchasing debt and repaying credit facilities. This is the main use of cash year to date. In addition, the cash balance has been reduced for negative working capital changes. Cuban overdue oil receivables have increased from approximately US$50 million at the end of 2015 to US$70 million at the end of June 2016, and discussions are underway regarding payment.
Payments from Energas year-to-date have been allocated to repayment of cost incurred by Sherritt at the end of 2015 and current year pipeline construction. Interest and principal repayments on the outstanding CSA receivable in the Power business unit were a significant source of cash last year, and are expected to resume in the second half of 2016. The payment schedule, as disclosed previously, contemplates $34 million in principal and interest payments in 2016.
Fertilizer cash flows tend to be weighted toward the second half of the year, when prepayments are received in advance of fertilizer deliveries (and revenue recognition) for the following year.
Adjusted earnings (loss) from continuing operations(1)
2016 2015
| For the three months ended June 30 | June 30 | June 30 | ||
|---|---|---|---|---|
| $ millions | $/share | $ millions | $/share | |
| Net loss from continuing operations | (103.6) | (0.35) | (47.6) | (0.16) |
| Adjusting Items, net of tax | (12.5) | (0.04) | (27.6) | (0.09) |
| Adjusted net loss from continuing operations | (116.1) | (0.39) | (75.2) | (0.25) |
2016 2015
| For the six months ended June 30 | June 30 | June 30 | ||
|---|---|---|---|---|
| $ millions | $/share | $ millions | $/share | |
| Net loss from continuing operations | (151.4) | (0.52) | (104.4) | (0.36) |
| Adjusting Items, net of tax | (92.3) | (0.31) | (41.8) | (0.14) |
| Adjusted net loss from continuing operations | (243.7) | (0.83) | (146.2) | (0.50) |
(1) For additional information, see the Non-GAAP measures section of this release.
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During the second quarter, $(12.5) million $(0.04) per share in adjusting items occurred, primarily a $12.6 million gain on the repurchase of $30 million principal value of 2018 debentures. This gain plus adjustments for Ambatovy VAT collected and $2.7 million in deferred consideration received in oil and gas pursuant to last year’s North Sea asset sale was offset by a small unrealized foreign exchange loss and tax adjustments of $7.7 million, relating to the writedown of loss carry-forwards that are no longer usable at Moa Nickel.
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REVIEW OF OPERATIONS
METALS
| $ millions except as otherwise noted, for the three months ended June 30 | 2016 | 2015 | |||
| Moa JV & | Ambatovy | Moa JV and | Ambatovy | ||
| Fort Site(1) | JV Other(2) | Total | Fort Site(1) | JV Other(2) | Total Change |
| (50%) | (40%) | (50%) | (40%) |
FINANCIAL HIGHLIGHTS
| Revenue | $ 89.5 $ | 60.5 $ | 10.5 $ | 160.5 $ | 109.4 $ | 80.6 $ | 14.2 $ 204.2 (21%) | ||
|---|---|---|---|---|---|---|---|---|---|
| Adjusted EBITDA(3) | 6.7 | (14.1) | - | (7.4) | 14.2 | (1.7) | - | 12.5 (159%) | |
| Cash provided (used) by operations | (8.4) | (16.9) | 1.0 | (24.3) | (11.4) | 7.3 | (0.7) | (4.8) (406%) | |
| Spending on capital | 11.4 | 2.9 | - | 14.3 | 15.9 | 9.2 | - | 25.1 (43%) | |
| Free cash flow(3) | (20.0) | (18.0) | 1.0 | (37.0) | (26.9) | 5.1 | (0.7) | (22.5) (64%) |
PRODUCTION VOLUMES (tonnes)
| Mixed Sulphides | 4,432 | 3,843 | - | 8,275 | 4,702 | 4,533 | - | 9,235 (10%) | |
| Finished Nickel | 4,145 | 3,620 | - | 7,765 | 3,877 | 4,158 | - | 8,035 | (3%) |
| Finished Cobalt | 477 | 270 | - | 747 | 429 | 264 | - | 693 | 8% |
| Fertilizer | 57,552 | 10,797 | - | 68,349 | 58,977 12,028 | - 71,005 | (4%) | ||
| NICKEL RECOVERY(%) | 87% | 83% | 89% | 86% |
SALES VOLUMES (tonnes)
| Finished Nickel | 4,068 | 4,251 | - | 8,319 | 3,919 | 4,271 | - | 8,190 | 2% |
| Finished Cobalt | 473 | 361 | - | 834 | 411 | 279 | - | 690 | 21% |
| Fertilizer | 59,947 | 13,764 | - | 73,711 | 57,870 12,260 | - 70,130 | 5% |
AVERAGE REFERENCE PRICES (US$ per pound)
Nickel $ 4.00 $ 5.90 (32%) Cobalt 10.85 13.61 (20%)
AVERAGE-REALIZED PRICES(3)
| Nickel ($ per pound) | $ 5.06 $ | 5.08 | $ 5.07 $ | 7.16 $ | 7.10 | $ 7.13 (29%) |
| Cobalt ($ per pound) | 13.37 | 13.46 | 13.38 | 16.40 | 18.08 | 17.10 (22%) |
| Fertilizer ($ per tonne) | 455 | 146 | 396 | 503 | 194 | 449 (12%) |
UNIT OPERATING COSTS(3) (US$ per pound)
Nickel - net direct cash cost $ 2.94 $ 5.12 4.05 $ 4.12 $ 5.48 4.83 (16%)
(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.
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| $ millions, except as otherwise noted, for the six months ended June 30 | 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 | $ 166.2 $ | 125.6 $ | 21.7 $ | 313.5 $ 213.9 $ 181.3 $ | 32.7 $ 427.9 | (27%) | |||
| Adjusted EBITDA(3) | 6.5 | (26.9) | 0.3 | (20.1) | 32.5 | 2.6 | 0.1 | 35.2 (157%) | |
| Cash provided (used) by operations | (11.4) | (22.4) | 5.2 | (28.6) | 18.8 | 19.8 | (1.2) | 37.4 (176%) | |
| Spending on Capital(4) | 19.2 | 4.6 | - | 23.8 | 24.0 | 15.6 | - | 39.6 | (40%) |
| Free cash flow(3) | (30.6) | (23.5) | 5.2 | (48.9) | (4.6) | 15.0 | (1.2) | 9.2 (632%) |
PRODUCTION VOLUMES (tonnes)
| Mixed Sulphides | 8,753 | 8,413 | - | 17,166 | 9,578 | 8,932 | - 18,510 | (7%) |
| Finished Nickel | 8,387 | 8,062 | - | 16,449 | 8,234 | 8,814 | - 17,048 | (4%) |
| Finished Cobalt | 976 | 635 | - | 1,611 | 855 | 608 | - 1,463 | 10% |
| Fertilizer | 128,459 | 25,152 | - 153,611 119,506 23,690 | - 143,196 | 7% | |||
| NICKEL RECOVERY(%) | 87% | 85% | 89% | 86% |
SALES VOLUMES (tonnes)
| Finished Nickel | 8,209 | 8,742 | - | 16,951 | 8,194 | 9,215 | - 17,409 | (3%) |
| Finished Cobalt | 941 | 693 | - | 1,634 | 820 | 620 | - 1,440 | 13% |
| Fertilizer | 91,660 | 27,871 | - 119,531 | 88,712 25,387 | - 114,099 | 5% |
AVERAGE REFERENCE PRICES (US$ per pound)(3)
Nickel $ 3.93 $ 6.21 (37%) Cobalt 10.78 13.67 (21%)
AVERAGE-REALIZED PRICES(3)
| Nickel ($ per pound) | $ 5.11 $ | 5.12 | $ 5.12 $ | 7.55 $ | 7.56 | $ 7.55 | (32%) |
| Cobalt ($ per pound) | 13.60 | 14.38 | 13.93 | 16.32 | 16.06 | 16.22 | (14%) |
| Fertilizer ($ per tonne) | 433 | 166 | 370 | 459 | 192 | 399 | (7%) |
UNIT OPERATING COSTS(3) (US$ per pound)
Nickel - net direct cash cost $ 3.15 $ 4.75 3.98 $ 4.24 $ 5.63 4.98 (20%)
(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.
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METAL MARKETS
Nickel
Recent market activity has been bullish as market analysts have increased their projected deficits and forecast higher prices for 2016 and 2017 due in part to fundamental supply challenges that have emerged with the Philippines beginning environmental audits on all mining operations in the country. Prices have recovered significantly from the lows of US$3.50/lb reached in the first quarter this year, but the price recovery has not been enough to change the fundamental problem of more than 60% of the world’s nickel production being underwater on a cash margin basis. There are reports of nickel ore operations in the Philippines being shut down for violations, with potential further shutdowns in the coming quarter. As the Philippines has replaced Indonesia as the largest supplier of ore to the Chinese NPI industry, any reduction in ore shipments would be expected to directly impact NPI production, and the overall nickel supply.
Cobalt
Cobalt is marketed in two distinct forms, being metal (cathode, metal powders or briquettes) or chemical (cobalt hydroxide, cobalt sulphate, or intermediates). Cobalt metal supply has contracted in 2016 with the announced suspension of production from Votorantim (Tocantins) in Brazil. Indications are that the metal market is approaching balance or slight deficit, which has resulted in stabilized prices, with average reference prices in the second quarter this year being US$10.85/lb, a slight improvement over the US$10.70/lb of the first quarter. Overall cobalt demand is supported by the longer term outlook for cobalt in rechargeable batteries, a market that will utilize either metal or chemical forms of cobalt, with purity being an important factor in the decision-making. Superalloy demand also remains strong, along with other applications such as magnets, diamond cutting tools, soaps and paint driers which are growing but at a slower rate. As a result of the positive medium term outlook for cobalt, speculative interest has picked up adding to improved pricing.
Moa Joint Venture (50% interest) and Fort Site (100%)
Adjusted EBITDA of $6.7 million in the quarter is an improvement from the breakeven result in first quarter this year, but cash used by operations was negative $8.4 million in the second quarter, mainly due to seasonality and timing of cash received versus revenue recognized in the fertilizer business. Cash prepayments for fertilizer sales were received in the fourth quarter last year and to a lesser extent, the first quarter this year.
Finished nickel production of 4,145 tonnes (50% basis) in the second quarter of 2016 was up from the comparable quarter a year ago reflecting a shorter planned annual refinery shutdown. The annual refinery shutdown also resulted in marginally lower finished nickel production than in the first quarter of 2016. Lower quality ore at Moa (increased deleterious elements in new mining concessions)
coupled with some equipment reliability issues was the main cause of the lower mixed sulphide production in the first half this year. The impact of the lower mixed sulphides production in the first half was offset by processing third party feeds, which have been more cobalt-rich, and explain the 14% increase in cobalt production year over year.
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The NDCC of US$2.94 per pound of nickel in the second quarter of 2016 was a significant improvement over last year’s comparable quarter, and reflects mainly lower mining, processing and refining costs (driven by lower fuel oil, sulphuric acid and sulphur prices) and a higher fertilizer credit. The fertilizer credit of $0.77/lb is significantly higher than the $0.42/lb credit in the second quarter of 2015, mainly due to the lower planned maintenance costs in fertilizer production as the annual shutdown this year was less extensive than last year’s shutdown.
Capital spending of $11.4 million in the quarter is down from its level a year ago consistent with plans to reduce spending. The expansion capital of $4.1 million (US$3 million) refers to the 50% share of the new Moa Nickel acid plant. Construction was completed in June, and commissioning activities have commenced, with first acid produced as announced last week. The acid plant was completed within the budgeted completion amount of US$65 million (100% basis).
Ambatovy Joint Venture (40% interest)
The Ambatovy Joint Venture senior debt financing of US$1.6 billion (100% basis) is non-recourse to the Joint Venture partners as a result of achieving financial completion in September 2015. As announced June 15, 2016, the Ambatovy Joint Venture financing lenders and the Ambatovy Joint Venture have entered into a temporary deferral agreement to defer the June 15, 2016 principal repayment due date to August 5, 2016. An agreement in principle has been reached on future principal payment deferrals. A semi-annual interest payment of US$28.0 million was made to the lenders during the three months ended June 30, 2016.
Total cash funding provided by Sumitomo and KORES was US$21 million and US$72 million for the three and six months ended June 30, 2016, respectively, pursuant to total cash calls of US$35 million and US$120 million for the same periods. Sherritt has not funded any portion of these cash calls, and continues not to fund. By agreement amongst the partners, Sherritt has not been considered to be a defaulting shareholder under the Ambatovy Joint Venture Shareholders Agreement as a consequence of such non-funding to date. However, new cash calls have been received for payment in early August and, while constructive discussions amongst the partners continue, in the event that a waiver is not agreed before the cash call due date, Sherritt would become a defaulting shareholder. Sherritt’s unfunded amounts remain payable with accrued interest at LIBOR +3%. These amounts will be subtracted from future Ambatovy Joint Venture distributions, or may be set off against other amounts owed to Sherritt. Sherritt also has the option to pay the amounts in cash at any time, at Sherritt’s election. Until the funding deficit is addressed, and subject to continued discussions with the Ambatovy partners, Sherritt will not exercise its Ambatovy voting rights.
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. Sherritt continues to serve as operator, as constructive discussions are ongoing between partners.
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Ambatovy production in the second quarter of 2016 was 9,050 tonnes finished nickel (100% basis), or 60% of design capacity, with PAL throughput in the same quarter of 976,765 tonnes or 67% of design capacity. Production was impacted by a tailings pipe blockage and subsequent decision to bring forward the planned third quarter total plant shutdown, as announced by press release June 24, 2016. This pipeline is a five kilometre span that transports tailings material from the plant to the tailings management facility. The blockage happened when thickened tailings slurry mixed with high concentrations of flocculent and lime and was then allowed to harden when an unplanned maintenance issue required a rapid shutdown of the tailings pumps. The blockage was cleared during the total shutdown, and preventive measures put in place to address any potential future process control events of this nature.
In addition to this event, plant equipment reliability issues that characterized the first quarter 2016 operations also affected second quarter production. Some of these issues were addressed during the total plant shutdown and further capital projects and asset management processes are currently underway to further improve plant reliability.
The total plant shutdown, originally planned for August this year, was brought forward in order to perform the required work on the air separation unit and hydrogen plant, along with inspections of pressure vessels in accordance with statutory engineering codes. These statutory inspections are required every three years, which eliminates the need for another total plant shutdown in the next three years, barring unexpected events. Other activities that were originally scheduled for the August planned shutdown will be postponed to 2017, but are expected to be performed during normal run time.
Nickel production is ramping up since the re-start of operations, with July finished nickel production expected to be approximately 1,500 tonnes (100% basis).
Taking into account year to date production, offset to some degree by no further planned major shutdowns for the balance of the year, production guidance has been reduced to 42,000-45,000 tonnes finished nickel (100% basis) and 2,900-3,300 tonnes finished cobalt (100% basis).
Adjusted EBITDA in the second quarter of 2016 was $(14.1) million compared to Adjusted EBITDA of $(1.7) million in the same quarter last year, due to the production shortfall and lower nickel prices.
Even with the production shortfall in the second quarter, the second quarter 2016 NDCC of US$5.12 was an improvement year over year, largely due to sales out of inventory in the quarter which did not get shipped in the first quarter this year. Finished nickel sales in the second quarter were down only 0.5% from last year, compared to production being down 13%.
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OIL AND GAS
For the three months ended For the six months ended 2016 2015 2016 2015 $ millions, except as otherwise noted June 30 June 30 Change June 30 June 30 Change
FINANCIAL HIGHLIGHTS
| Revenue | $ 28.3 $ | 51.3 | (45%) $ | 50.7 $ | 93.6 | (46%) |
| Adjusted EBITDA(1) | 8.9 | 29.9 | (70%) | 12.9 | 51.4 | (75%) |
| Cash provided by operations | 7.9 | 6.4 | 10.5 | 13.0 |
23% (19%) Spending on Capital(2) 4.9 16.5 (70%) 9.6 43.5 (78%) Free cash Flow(1) 3.0 (13.9) 122% 0.6 (27.9) 102%
PRODUCTION AND SALES (bopd)
Gross working-interest (GWI) - Cuba 16,200 18,607 (13%) 16,324 19,160 (15%) Total net working-interest (NWI) 10,567 11,948 (12%) 10,537 11,445 (8%)
AVERAGE REFERENCE PRICE (US$ per barrel)
Gulf Coast Fuel Oil No. 6 $ 31.02 $ 50.92 (39%) $ 26.19 $ 47.67 (45%) Brent 45.29 61.17 (26%) 39.51 57.47 (31%)
AVERAGE-REALIZED PRICE(1) (NWI)
Cuba ($ per barrel) $ 28.16 $ 45.71 (38%) $ 24.98 $ 43.69 (43%)
UNIT OPERATING COSTS(1) (GWI)
Cuba ($ per barrel) $ 9.30 $ 10.13 (8%) $ 9.42 $ 9.17 3%
(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 second quarter of $8.9 million and $12.9 million in the first half of the year demonstrates the ability of the oil and gas operations to generate earnings even with Gulf Coast Fuel Oil 6 prices averaging US$26.19/barrel in the six month period.
The quarterly average Gulf Coast Fuel Oil 6 prices improved by 47% from US$21.13 per barrel in the first quarter to US$31.02 per barrel in the second quarter this year, although a stronger Canadian dollar this quarter mitigated the impact to average realized prices reported in Canadian dollars. Both WTI and Gulf Coast Fuel Oil 6 prices remain weak, with second quarter 2016 WTI average prices down 21% from their comparable quarter last year, and Gulf Coast Fuel Oil 6 prices down 39%. The spread between Gulf Coast Fuel Oil 6 and WTI prices has narrowed modestly since the first quarter this year, when Gulf Coast Fuel Oil 6 prices averaged only 63% of WTI. In the second quarter, the spread narrowed, with Gulf Coast Fuel Oil 6 averaging to 68% of WTI, which is still historically low compared to average ranges between 70 – 85%.
Gross working-interest (GWI) production in Cuba was a better than expected 16,200 bopd in the second quarter of 2016, down only marginally from first quarter 2016 production, due to better than expected performance from existing wells, helped by a successful workover in the quarter. GWI production is down 13% compared to the same period last year. With the better than expected production and a revaluation of the balance of the year, the Outlook for Cuba GWI production has been increased to 15,000 bopd from the original guidance of 14,500 bopd. Cuba net working-interest (NWI) production was 9,933 bopd in the second quarter this year, which was consistent with Cuba NWI production in the first quarter. Cuba NWI production guidance has been increased to 9,200 bopd from the original guidance of 8,900 bopd.
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Unit operating costs continue to be competitive, at $10.57 on a weighted average basis (boepd, all ops) and $9.30 per barrel on a Cuba GWI basis in the second quarter. On a three and six month basis, the oil business has been free cash flow neutral even in the current oil price environment; however, most of the capital expenditure this year is expected to fall in the second half as Block 10 drilling is expected to commence in the third quarter. The outlook for capital spending in 2016 has been reduced to the current US$27 million from US$34 million at the end of the first quarter, as exploration spending on future development outside of Block 10 has been deferred.
POWER
For the three months ended For the six months ended 2016 2015 2016 2015 $ millions (33 ⅓% basis), except as otherwise noted June 30 June 30 Change June 30 June 30 Change
FINANCIAL HIGHLIGHTS
| Revenue | $ 14.9 $ | 12.7 | 17%$ | 30.5 $ | 24.5 | 24% |
| Adjusted EBITDA(1) | 6.8 | 7.6 | (11%) | 15.5 | 14.9 | 4% |
| Cash provided by operations | 4.9 | 10.6 | (54%) | 5.8 | 34.7 | (83%) |
| Spending on Capital(2) | 1.9 | 0.8 | 138% | 3.9 | 1.2 | 225% |
| Free cash flow(1) | 4.8 | 9.6 | (50%) | 5.6 | 33.3 | (83%) |
PRODUCTION AND SALES
Electricity (GWh) 227 224 1% 444 434 2%
AVERAGE-REALIZED PRICE(1)
Electricity ($/MWh) $ 54.51 $ 52.17 4% $ 56.35 $ 52.39 8%
UNIT OPERATING COSTS(1) ($/MWh)
| Base | 15.64 | 15.60 | - | 15.26 | 15.68 | (3%) |
| Non-base(3) | 8.76 | 1.26 | 595% | 5.45 | 0.59 | 824% |
| 24.40 | 16.86 | 45% | 20.71 | 16.27 | 27% | |
| NET CAPACITY FACTOR (%) | 69 | 69 | - | 70 | 68 | 3% |
(1) For additional information see the Non-GAAP measures section of this release.
(2) Includes service concession arrangements and accruals.
(3) 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.
Quarterly Adjusted EBITDA of $6.8 million in the second quarter this year is down from its comparable period last year. Unit operating costs increased significantly, due to the major inspection on a gas turbine at Boca de Jaruco that occurred in the second quarter this year. No gas turbine major inspections are planned for the second half of this year, although other scheduled major maintenance expenditures will impact unit operating costs in the second half this year. Quarterly unit operating costs fluctuate significantly between quarters, although the full year average unit operating costs for 2016 are expected to be similar to the full year average in 2015 of $21.00 per MWh.
Production has been consistent on both a quarter over quarter basis, and year over year basis, and average realized prices are also consistent, excluding the impact of a weaker Canadian dollar in the first half of this year compared to last year.
Spending on capital and service concession agreements so far this year relates to the construction of a new pipeline that will conserve gas that is currently being flared, which will be processed at the Puerto Escondido facility. The pipeline is scheduled to be operational in the fourth quarter this year.
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Free cash flow generation of $4.8 million in the quarter is low compared to its comparable quarter last year. The main difference in the quarter and in the first half this year is the absence of principal repayments and interest repayments received on the Energas conditional sales agreement. As disclosed previously, 2016 repayments are expected to be lower than 2015 due to higher capital spending while the pipeline is being constructed. Repayment in 2016 is expected to be $34 million based on a payment schedule that Energas provided at the beginning of the year. Discussions continue to address ongoing payments given the current liquidity concerns in Cuba.
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