Sherritt Finalizes Transformative Five-Year Payment Agreements with its Cuban Partners to Settle $362 million of Outstanding Receivables
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Sherritt Finalizes Transformative Five-Year Payment
Agreements with its Cuban Partners to Settle $362 million of
Outstanding Receivables
TORONTO, October 13, 2022 – 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, announced today it has signed agreements with its Cuban partners to settle its total
outstanding Cuban receivables over five years, beginning January 1, 2023 . Under the
agreements, the Moa Joint Venture (Moa JV) will prioritize payment of dividends in the form of
finished cobalt to each partner, up to an annual maximum volume of cobalt, with any additional
dividends in a given year to be distributed in cash. All of the Cuban partner’s share of these cobalt
dividends, and potentially additional cash dividends, will be redirected to Sherritt as pay ment to
settle the receivables until an annual dollar limit, including the collection of any prior year
shortfalls, has been reached. All amounts are in Canadian currency unless otherwise noted.
“This agreement represents a testament to the strong working relationship we have with our
Cuban partners. We have been able to negotiate agreements that establish an effective schedule
for the full repayment of the outstanding receivables by our Cuban partners within five years, and
we believe this brings an end to the historical repayment uncertainty . Combined with Sherritt’s
portion of the dividends, this is expected to provide significant cash flow to deliver on our strategic
priorities to reduce debt and aggressively expand our business,” said Leon Binedell, President
and CEO of Sherritt. “The strong fundamentals for both the nickel and cobalt markets, primarily
driven by the strength of the electric vehicle battery market , make this an opportune time for
completing these agreements and ensuring that each of the partners benefit from it. We want to
thank our Cuban partners for their continued support and we appreciate their efforts in bringing
this innovative agreement to completion during these continued difficult times.”
Under the terms of the agreements (the cobalt swap), General Nickel Company (GNC), Sherritt’s
Moa JV partner, has agreed to assume certain liabilities of amounts owed to Sherritt by Union
Cubapetroleo (CUPET) and Energas S.A. (Energas) in order to fully repay outstanding amounts
over a five-year period.
The irrevocable cobalt swap supports Sherritt’s strategic objective of strengthening its ba lance
sheet by reducing reliance on its Cuban partners’ ability to access foreign currency to repay
amounts owed to Sherritt. For our Cuban partners, no interest will accrue on the Energas
conditional sales agreement to ensure repayment within the five -year period, and as a result of
the suspension of interest, Sherritt expects to recognize a non-cash loss on revaluatio n of
allowances for expected credit losses on the Cuban receivables during the third quarter of 2022.
In the event that the total outstanding receivables are not fully repaid by December 31, 2027,
interest will accrue retroactively at 8% from January 1, 2023 on the unpaid principal amount, and
the unpaid principal and interest amounts will become due and payable by GNC to Sherritt.
On January 1, 2023, the outstanding receivable amounts owing to Sherritt from Energas and
CUPET – estimated to total $361.9 million – will be assumed by GNC, who in turn will enter into
payment agreements of an equivalent amount , denominated in local Cuban currency with
Energas and CUPET. This amount includes the Energas conditional sales agreement (Energas
CSA) receivable of $332.4 million and trade accounts receivable from CUPET of $29.5 million
(collectively, Energas/CUPET liabilities). As a result of the exchange, Sherritt will no longer have
the responsibility for collection on the amounts solely from Energas and CUPET. Energas and
CUPET will remain liable for payment of the Energas/CUPET liabilities, as applicable, only to the
extent not satisfied by GNC. On distribution of any redirected amounts from GNC in cobalt or cash
to Sherritt, GNC will receive an equivalent payment from Energas or CUPET denominated in
Cuban pesos.
Cobalt Swap
Under the cobalt swap, over the five years beginning January 1, 2023, t he Moa J V expects to
distribute a maximum of 2,082 tonnes or approximately 60% of current production (100% basis),
of finished cobalt annually to the joint venture partners (finished cobalt dividends). Accordingly,
Sherritt expects to receive a maximum of 1,041 tonnes of finished cobalt dividends per year in
respect of its 50% share of the Moa JV . GNC will redirect its 50% share of the total Moa JV
dividends, up to 1,041 tonnes of finished cobalt per year, to Sherritt as repayment towards the
outstanding receivables, provided that the total cobalt volume redirected has a value of at least
US$57 million, subject to the following:
if the total annual finished cobalt dividend redirected by GNC has a value of less than
US$57 million, GNC’s share of any cash distributions from the Moa JV in such year will
be redirected to Sherritt until the value of physical cobalt and cash distributions in the
aggregate totals US$57 million;
if the maximum cobalt volume distributed (1,041 tonnes) is not met in a given year, the
volume deficit will be added to the threshold in the following year; and
any shortfall in the annual minimum payment will also be added to the following year, such
that the full repayment is expected to be made within five years.
Upon receipt of the finished cobalt dividends, the title to both Sherritt and its partner’s redirected
share of the finished cobalt will be transferred immediately to Sherritt and the physical product
will be moved to a Sherritt warehouse in Fort S askatchewan, from which Sherritt will sell the
finished cobalt in the open market.
Moa Swap
An extension to the Energas Payment Agreement (Moa Swap) will also be executed to fund the
operating and maintenance costs of Energas, as well as to cover future payments that would be
owed to Sherritt . Sherritt expects to continue to receive approximately US$4. 2 million (C$5.6
million) per month under a payment agreement between Sherritt, Moa JV and Energas, whereby
Moa JV converts foreign currency to Cuban pesos through Energas to support Moa JV’s local
Cuban operating activities. These funds are then paid to Sherritt primarily to facilitate foreign
currency payments for the Energas operations.
Extension of Energas’ Power Generation Contract
In addition to the above, o n October 12, 2022, Cuba’s Executive Council approved the twenty -
year extension of the economically beneficial Energas’ power generation contract with the Cuban
government to March 2043, which was set to expire in March 2023. The Energas facilities, which
have an electrical generating capacity of 50 6 MW from two combined cycle plants at Varadero
and Boca de Jaruco, produce electricity using natural gas and steam generated from the waste
heat captured from the gas turbines. This electricity represents a cleaner alternative to electricity
produced from the combustion of crude oil, which occurs elsewhere on the island. The extension
of this economically beneficial power generation contract supports Sherritt's on-going investments
in Cuba, helps facilitate the cobalt and Moa swaps, and supports Cuba’s long -term energy
security.
Background
In 2008, Sherritt entered into the Energas CSA with Energas (of which Sherritt is a 1/3 joint venture
partner) to construct additional elec trical energy capacity in Cuba. Under the terms of the
transaction, Energas was required to repay amounts advanced under the Energas CSA in
accordance with the agreement. Electricity provided by Energas is for local Cuban use and the
sale of power is denominated in Cuban pesos.
As a result of a number of events, including periods of low commodity prices, increased sanctions
by the United States government , and the COVID -19 pandemic, access to foreign currency in
Cuba to make payments on the CSA liability has been significantly restricted.
Similarly, in regards to the trade receivable from CUPET, the lack of access to foreign currency
has limited CUPET’s ability to pay amounts owing to Sherritt.
The cobalt swap provides a mutually ben eficial arrangement to pay down th e outstanding
receivables in a reasonable timeline without relying on Cuba’s ability to access foreign currency.
About Sherritt
Sherritt is a world leader in using hydrometallurgical process to mine and refine nickel and cobalt
– metals essential for an electric future. Its Technologies Group creates innovative, proprietary
solutions for natural resource -based industries around the world to improve environmental
performance and increase economic value. Sherritt has embarke d on a multi -pronged growth
strategy focused on expanding nickel and cobalt production by up to 20% from 2021 and
extending the life of mine at Moa beyond 2040. The Corporation is also the largest independent
energy producer in Cuba. Sherritt’s common shar es are listed on the Toronto Stock Exchange
under the symbol “S”.
For more information, please contact:
Lucy Chitilian, Investor Relations Sherritt International Corporation
Telephone: 416-935-2457 Bay Adelaide Centre, East Tower
Email: [email protected] 22 Adelaide Street West, Suite 4220
www.sherritt.com Toronto, ON M5H 4E3
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. All statements in this press
release, other than those relating to historical information, are forward -looking statements,
including, but not limited to statements regarding the liability amounts at the implementation date;
the intention to settle outstanding receivables, the anticipated end of historical repayment
uncertainty, the anticipated repayment of all outstanding receivables through dividends, including
in the form of finished cobalt; and the timing , and amount of cobalt dividend distributions .
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; global demand for electric vehicles and the
anticipated corresponding demand for cobalt and nickel; the commercialization of certain
proprietary technologies and services; advancements in environmental and greenhouse gas
(GHG) reduction technology; GHG emissions reduction goal s and the anticipated timing of
achieving such goals, if at all; environmental rehabilitation provisions; environmental risks and
liabilities; compliance with applicable environmental laws and regulations risks related to the U.S.
government policy toward Cuba; and certain corporate objectives, goals and plans for 2022. 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, forec asts,
conclusions or projections will not prove to be accurate, that the 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 pr ess 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, the impact of infectious diseases (including the COVID -19 pandemic), the
impact of global conflicts, changes in the global price for nickel, cobalt, oil, gas, fertilizers or certain
other commodities; price volatility; level of liquidity and the related ability of the Moa JV to pay
dividends; access to capital; access to financing; the risk to Sherritt’s entitlements to future
distributions (including pursuant to the cobalt swap) from the Moa Joint Venture; the fact that the
boards of directors of the Moa JV companies are comprised of directors nominated by both
Sherritt and GNC and the payment of dividends is therefore not within Sherritt’s sole discret ion;
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; identification and
management of growth opportunities ; risk of future non -compliance with debt restrictions and
covenants; the ability to replace depleted mineral reserves; risks associated with the
Corporation’s joint venture partners; variability in production at Sherritt’s operations in Cuba; risks
associated with mining, processing and refining activities; potential interruptions in transportation;
uncertainty of gas supply for electrical generation; reliance on key personnel and skilled workers;
growth opportunity risks; the possibility of equipment and other failures; uncertainty of resources
and reserve estimates; the potential for shortages of equipment and supplies, including diesel;
supplies quality issues; 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 associated with the
operation of large projects generally; risks related to the accuracy of capital and operating co st
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; maintaining social license
to grow and operate; risks relating to community relations; credit risks; shortage of equipment and
supplies; competition in product markets; future market access; interest rate changes; risks in
obtaining insurance; uncertainties in labour relations; uncertainty in the ability of the Corporation
to enforce legal rights in foreign jurisdictions; uncertainty regarding the interpretation and/or
application of the applicable laws in foreign jurisdictions; legal contingencies; risks related to the
Corporation’s accounting policies; 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 applicable local anti -corruption law; the ability to accomplish
corporate objectives, goals and plans for 2022; and the ability to meet other factors listed from
time to time in the Corporation’s continuous disclosure documents.
The Corporation, together with its Moa Joint Venture is pursuing a range of growth and expansion
opportunities, including without limitation, process technology solutions, development projects,
commercial implementation opportunities, life of mine extension opportunities and the conversion
of mineral resources to reserves. In addition to the risks noted above, factors that could, alone or
in combination, prevent the Corporation from successfully achieving these opportuni ties may
include, without limitation: identifying suitable commercialization and other partners; successfully
advancing discussions and successfully concluding applicable agreements with external parties
and/or partners; successfully attracting required fi nancing; successfully developing and proving
technology required for the potential opportunity; successfully overcoming technical and
technological challenges; successful environmental assessment and stakeholder engagement;
successfully obtaining intellect ual property protection; successfully completing test work and
engineering studies, prefeasibility and feasibility studies, piloting, scaling from small scale to large
scale production, commissioning, procurement, construction, ramp -up to commercial scale
production and completion; and securing regulatory and government approvals. There can be no
assurance that any opportunity will be successful, commercially viable, completed on time or on
budget, or will generate any meaningful revenues, savings or earnin gs, as the case may be, for
the Corporation. In addition, the Corporation will incur costs in pursuing any particular opportunity,
which may be significant.
Readers are cautioned that the foregoing list of factors is not exhaustive and should be considered
in conjunction with the risk factors described in the Corporation’s other documents filed with the
Canadian securities authorities, including without limitation the “Managing Risk” section of the
Management’s Discussion and Analysis for the three and si x months ended June 30, 2022 and
the Annual Information Form of the Corporation dated March 24, 2022 for the period ending
December 31, 2021, 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 t he 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.