Sherritt Announces Q2 2017 Results
Sherritt International Corporation 1
For immediate release
Sherritt Announces Q2 2017 Results
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED
STATES
Toronto, Ontario – July 26, 2017 – 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, 2017.
David Pathe, President and CEO of Sherritt International, commented “Despite a persistently weak nickel price environment,
our Moa JV was able to generate close to $12 million of Adjusted EBITDA(1) in the quarter, driven by cobalt prices which are
the highest experienced since 2008, and have greatly enhanced our cost profile.”
Q2 2017 HIGHLIGHTS
Second quarter 2017 Net Direct Cash Costs (NDCC) of US$2.55/lb at the Moa Joint Venture (Moa JV) and
US$3.66/lb at the Ambatovy Joint Venture (Ambatovy JV) are both improvements over their prior year comparables
of US$2.94/lb and US$5.12/lb. Moa’s second quarter NDCC is the lowest experienced since the second quarter of
2008, when the average reference cobalt price was US$45.93/lb and nickel wa s US$11.67/lb. Moa’s NDCC this
quarter falls within the lowest quartile of nickel production tracked by Wood Mackenzie. The high cobalt:nickel ratio at
Moa combined with historically high cobalt prices provided a cobalt credit of US$2.92/lb in the second quarter.
Sherritt ended the second quarter with cash, cash equivalents and short -term investments of $274.2 million, down
$26.5 million from their levels at the end of the first quarter. This is mainly attributable to normal seasonality in the
fertilizer business impacting working capital, higher interest payments on the corporate debentures in Q2, lower
Cuban energy receipts (US$8.8 million difference from Q1 2017), and continued debt repayment of $6.5 million.
Sherritt received $8.6 million from the Moa JV as repayment on its working capital facility in the second quarter.
Second quarter 2017 production at the Moa JV was 3,739 tonnes finished nickel (50% basis) and 436 tonnes finished
cobalt (50% basis). The main impacts to Moa’s second quarter production were carryover from the Q4 2016 and Q1
2017 issues impacting mixed sulphides production and a longer than usual annual shutdown, which reduced refinery
availability. The Moa JV has at times supplemented mixed sulphides production by purchasing third -party feed, but
has decided not to add an additional nickel-rich feed source as current pricing terms have made additional purchases
uneconomical due to tightness in the market.
Second quarter 2017 production at the Ambatovy JV was 3,443 tonnes finished nickel (40% basis) and 270 tonnes
finished cobalt (40% basis), as the Ambatovy JV continued to experience lower PAL production due largely to the
effects of acid plant equipment failures.
Production and cash provided by operations at both the Oil and Power operat ions were strong, and relatively
consistent with Q1 2017 results. On a year -to-date basis, the Oil operations have provided $18.1 million in free cash
flow(1) and Power operations have provided $19.5 million in free cash flow. Drilling of the second well i n Block 10 is
expected to commence in August with first results expected in Q4 2017.
The net loss of $101.9 million for the quarter ended June 30, 2017 compares to a net loss of $72.6 million in the first
quarter of 2017 and $ 103.6 million in the second q uarter of 2016. The net loss is driven largely by Ambatovy’s
performance, as the share of loss of an associate, net of tax, was $64.2 million in the second quarter.
The Ambatovy Joint Venture partners continue to work towards implementation of the previously a nnounced
Agreement in Principle, with closing expected to occur in late Q3 or Q4 this year.
All amounts are Canadian dollars unless otherwise indicated.
(1) For additional information see the Non-GAAP measures section of this press release.
2017 Second Quarter Report
Press Release
2 Sherritt International Corporation
SIGNIFICANT ITEMS
Production, capital spending and Unit Operating Cost guidance was released January 31, 2017 and is repeated in the
“Outlook” table on page 13 of this document. In light of the lower production year -to-date at both the Moa JV and the
Ambatovy JV, production guidance has been reduced as follows:
o Full year Moa nickel production guidance has been reduced by 1,500 tonnes to a range between 31,500 -
32,500 tonnes (100% basis) to reflect the lower production in the first two quarters, and ch anges to the
availability and economics of using additional third party feed. Finished cobalt production guidance remains
unchanged at 3,500 – 3,800 tonnes (100% basis).
o Full year Ambatovy nickel production guidance has been reduced to a range of 40,000 – 43,000 tonnes
(100% basis) from its former range of 48,000 – 52,000 tonnes to reflect the production shortfall experienced
in the first half. Finished cobalt production guidance has also been revised down to 3,600 – 3,900 tonnes
(100% basis) from 3,800 – 4,100 tonnes (100% basis). The cobalt reduction is less significant, as we expect
higher cobalt production in the second half of the year due to better cobalt grades and metallurgical
chemistry.
NDCC
o In light of the strong cobalt prices and their impact on NDCC, the Moa JV NDCC guidance range has been
reduced to US$2.80 – US$3.30/lb (from US$3.20 – US$3.70/lb) and the Ambatovy JV NDCC guidance
range has been narrowed to US$3.10 – US$3.40/lb (from US$3.10 – US$3.70).
CAPITAL EXPENDITURE
o Oil & Gas capital spending has been revised downward by US$20.0 million primarily due to a reduction in
drilling costs attributable to using part of the existing wellbore from the first well drilled on Block 10 in order
to drill the second well, as well as deferred spending on the Block 8A seismic program, now expected to
occur in Q1 2018.
Sherritt International Corporation 3
Q2 2017 FINANCIAL HIGHLIGHTS
For the three months ended For the six months ended
2017 2016 2017 2016
$ millions, except per share amount June 30 June 30 Change June 30 June 30 Change
Revenue 76.8 74.9 3% $ 149.2 $ 133.3 12%
Combined Revenue(1) 231.0 204.1 13% 459.0 395.4 16%
Net loss for the period (101.9) (103.6) 2% (174.5) (151.4) (15%)
Adjusted EBITDA(1) 29.2 0.2 14,500% 66.4 (8.9) 846%
Cash provided (used) by continuing operations (21.0) (26.4) 20% (4.4) (36.1) 88%
Combined free cash flow (1) (38.2) (55.3) 31% (28.2) (86.7) 67%
Net loss from continuing operations per share (0.35) (0.35) - (0.59) (0.52) (13%)
(1) For additional information, see the Non-GAAP measures section of this release.
2017 2016
$ millions, except as otherwise noted, as at June 30 December 31 Change
Cash, cash equivalents and short term investments $ 274.2 $ 309.6 (11%)
Non-recourse loans and borrowings 1,377.4 1,367.5 1%
Other loans and borrowings 832.8 860.7 (3%)
In the second quarter of 2017, $11.2 million operating cash flow was generated by the Oil and Gas and $7.9 million by the
Power operations. The Moa JV generated negative operating cash flow of $6.6 million largely due to negative changes in non-
cash working capital as a result of fertilizer deliveries that were prepurchased in previous quarters. Cash, cash equivalents
and short-term investments at the end of the second quarter were $274.2 million, down $26.5 million from their level at March
31, 2017, with the decline coming largely from $20.1 million in debenture interest payments and the repayment of $6.5 million
on the Corporation’s syndicated revolving-term credit facility.
During the quarter, US$28.8 million of Cuban energy payments were received compared to US$37.6 million in the first quarter of
2017. Included in this amount was US$19.0 million received by Oil and Gas and US$9.8 million received from Energas in
Power. No interest or principal was received on the Energas conditional sales agreement (CSA) in the quarter or on a year-to-
date period. Total Cuban overdue receivables were US$90.2 million at June 30, 2017 compared to US$79.1 million at March 31,
2017.
$8.6 million was received from the Moa JV representing a repayment of principal on the working capital facility.
Adjusted earnings (loss) from continuing operations(1)
2017 2016
For the three months ended June 30 $ millions $/share $ millions $/share
Net loss from continuing operations (101.9) (0.35) (103.6) (0.35)
Adjusting items, net of tax:
Unrealized foreign exchange (gain) loss 4.4 0.01 1.6 0.01
Other (2.3) (0.01) (14.1) (0.05)
Adjusted net loss from continuing operations (99.8) (0.34) (116.1) (0.39)
2017 2016
For the six months ended June 30 $ millions $/share $ millions $/share
Net loss from continuing operations (174.5) (0.59) (151.4) (0.52)
Adjusting items, net of tax:
Unrealized foreign exchange (gain) loss (2.9) (0.01) (74.4) (0.25)
Other (5.1) (0.02) (17.9) (0.06)
Adjusted net loss from continuing operations (182.5) (0.61) (243.7) (0.83)
(1) For additional information, see the Non-GAAP measures section of this release.
2017 Second Quarter Report
Press Release
4 Sherritt International Corporation
The adjusted net loss from continuing operations in the second quarter of 2017 was $99.8 million, which included a $4.4
million unrealized foreign exchange loss, and a $2.9 million offsetting gain relating to VAT adjustments.
Sherritt International Corporation 5
REVIEW OF OPERATIONS
METALS
$ millions except as otherwise noted, for the three months ended June 30 2017 2016
Moa JV & Ambatov
y
Moa JV and Ambatovy
Fort Site(1) JV Total Fort Site(1) JV
(50%) (40%) Other(2) (50%) (40%) Other(2) Total Change
FINANCIAL HIGHLIGHTS
Revenue $ 103.0 $ 68.3 $ 11.7 $ 183.0 $ 89.5 $ 60.5 $ 10.5 $ 160.5 14%
(Loss) earnings from operations (3.4) (38.6) 0.4 (41.6) (5.5) (47.5) - (53.0) 22%
Adjusted EBITDA(3) 11.7 (1.6) 0.4 10.5 6.7 (14.1) - (7.4) 242%
Cash provided (used) by operations (6.6) (12.1) 3.6 (15.1) (8.4) (16.9) 1.0 (24.3) 38%
Free cash flow(3) (14.6) (14.8) 3.6 (25.8) (20.0) (18.0) 1.0 (37.0) 30%
PRODUCTION VOLUMES (tonnes)
Mixed Sulphides 4,370 3,784 - 8,154 4,432 3,843 - 8,275 (1%)
Finished Nickel 3,739 3,443 - 7,182 4,145 3,620 - 7,765 (8%)
Finished Cobalt 436 270 - 706 477 270 - 747 (5%)
Fertilizer 62,858 10,904 - 73,762 57,552 10,797 - 68,349 8%
NICKEL RECOVERY (%) 88% 85% 87% 83%
SALES VOLUMES (tonnes)
Finished Nickel 3,670 3,465 - 7,135 4,068 4,251 - 8,319 (14%)
Finished Cobalt 435 297 - 732 473 361 - 834 (12%)
Fertilizer 57,816 10,335 - 68,151 59,947 13,764 - 73,711 (8%)
AVERAGE EXCHANGE RATE (CAD/US) 1.345 1.289 4%
AVERAGE REFERENCE PRICES (US$ per pound)
Nickel $ 4.18 $ 4.00 5%
Cobalt 25.87 10.85 138%
AVERAGE-REALIZED PRICES(3)
Nickel ($ per pound) $ 5.58 $ 5.83 - $ 5.70 $ 5.06 $ 5.08 - $ 5.07 12%
Cobalt ($ per pound) 33.12 33.07 - 33.10 13.37 13.46 - 13.38 147%
Fertilizer ($ per tonne) 414 176 - 380 455 146 - 396 (4%)
UNIT OPERATING COSTS(3) (US$ per pound)
Nickel - net direct cash cost $ 2.55 $ 3.66 - 3.09 $ 2.94 $ 5.12 - 4.05 (24%)
SPENDING ON CAPITAL
Sustaining $ 8.1 $ 12.8 $ - $ 20.9 $ 7.3 $ 2.9 $ - $ 10.2 105%
Expansion - - - - 4.1 - - 4.1 (100%)
$ 8.1 $ 12.8 $ - $ 20.9 $ 11.4 $ 2.9 $ - $ 14.3 (15%)
(1) Includes results for certain 100% owned assets at Fort Saskatchewan plant.
(2) Includes results for Sherritt’s marketing organizations for certain Ambatovy and Moa Joint Venture sales.
(3) For additional information, see the Non-GAAP measures section of this release.
2017 Second Quarter Report
Press Release
6 Sherritt International Corporation
$ millions, except as otherwise noted, for the six months months ended June 30 2017 2016
Moa JV and Ambatov
y
Moa JV and Ambatovy
Fort Site(1) JV Fort Site(1) JV
(50%) (40%) Other(2) Total (50%) (40%) Other(2) Total Change
FINANCIAL HIGHLIGHTS
Revenue $ 193.4 $ 143.1 $ 26.0 $ 362.5 $ 166.2 $ 125.6 $ 21.7 $ 313.5 16%
(Loss) earnings from operations (1.4) (67.6) 0.7 (68.3) (16.8) (97.4) 0.3 (113.9) 40%
Adjusted EBITDA(3) 24.5 6.6 0.7 31.8 6.5 (26.9) 0.3 (20.1) 258%
Cash provided (used) by operations 8.2 (14.4) 5.2 (1.0) (11.4) (22.4) 5.2 (28.6) 97%
Free cash flow(3) (2.0) (21.1) 5.2 (17.9) (30.6) (23.5) 5.2 (48.9) 63%
PRODUCTION VOLUMES (tonnes)
Mixed Sulphides 8,652 8,101 - 16,753 8,753 8,413 - 17,166 (2%)
Finished Nickel 7,579 7,260 - 14,839 8,387 8,062 - 16,449 (10%)
Finished Cobalt 872 593 - 1,465 976 635 - 1,611 (9%)
Fertilizer 121,726 22,700 - 144,426 128,459 25,152 - 153,611 (6%)
NICKEL RECOVERY (%) 87% 85% 87% 85%
SALES VOLUMES (tonnes)
Finished Nickel 7,532 7,275 - 14,807 8,209 8,742 - 16,951 (13%)
Finished Cobalt 856 651 - 1,507 941 693 - 1,634 (8%)
Fertilizer 95,270 22,782 - 118,052 91,660 27,871 - 119,531 (1%)
AVERAGE EXCHANGE RATE (CAD/USD) 1.334 1.330 -
AVERAGE REFERENCE PRICES (US$ per pound)(3)
Nickel $ 4.43 $ 3.93 13%
Cobalt 22.83 10.78 112%
AVERAGE-REALIZED PRICES(3)
Nickel ($ per pound) $ 5.89 $ 5.99 - $ 5.94 $ 5.11 $ 5.12 - $ 5.12 16%
Cobalt ($ per pound) 28.73 29.64 - 29.09 13.60 14.38 - 13.93 109%
Fertilizer ($ per tonne) 386 169 - 345 433 166 - 370 (7%)
UNIT OPERATING COSTS (US$ per pound)(3)
Nickel - net direct cash cost $ 2.86 $ 3.79 - $ 3.32 $ 3.15 $ 4.75 - $ 3.98 (17%)
SPENDING ON CAPITAL
Sustaining $ 10.2 $ 21.2 $ - $ 31.4 $ 11.1 $ 4.6 $ - $ 15.7 100%
Expansion - - - - 8.1 - - 8.1 (100%)
$ 10.2 $ 21.2 $ - $ 31.4 $ 19.2 $ 4.6 $ - $ 23.8 (25%)
(1) Includes results for certain 100% owned assets at Fort Saskatchewan plant.
(2) Includes results for Sherritt’s marketing organizations for certain Ambatovy and Moa Joint Venture sales.
(3) For additional information, see the Non-GAAP measures section of this release.
Sherritt International Corporation 7
METAL MARKETS
Nickel
The nickel average reference price of US$4.18/lb in the second quarter is only 5% above the average for the same period
last year, and 8% above the Q1 2016 historic low quarterly average of US$3.86/lb. This is after a rally in the latter half of
2016 that saw prices exceed US$5.25/lb for a period in November 2016 before selling off in December.
Although an intermediate rally in February briefly brought prices back to US$5.00/lb, nickel prices have since declined
steadily because of the growing uncertainty on the supply side following the announcement from Indonesia of the relaxation
to the export ban in Q1 and the dismissal of the Philippines environment minister Ms. Regina Lopez, who had introduced
strict closure regulations that would have curtailed production at multiple nickel mines producing low-grade ore for NPI
production. On the demand side, the Chinese demand forecasts have been revised down with weak stainless steel
consumption, contributing to the lower price recovery expected by the market in the short term. The nickel market remains in
deficit but the high level of LME and Shanghai warehouse stocks neutralizes any positive impact this may have on the nickel
price for now.
Fundamental long-term demand remains strong for high quality, LME deliverable nickel with a positive trend in the aerospace
and the electric vehicle sectors as nickel is one of the critical elements of the increasingly popular NMC cathodes but this is a
longer term phenomenon, with the short term being more difficult to predict until Indonesian and Philippines supply is
clarified. It is, however, important to note that neither the Indonesian nor the Philippines low-grade ore meets the demands of
high purity battery manufacturers, as the material is directed to the production of NPI.
Cobalt
Cobalt prices have continued to increase in Q2 2017; the cobalt reference price is up by 82% since the start of the year with
an average reference price at US$25.87/lb for the quarter versus an average reference price of US$10.85/lb in the same
period last year (+138%). Prices have been consistently over US$23/lb in the quarter with a minimum of US$23.59/lb and a
maximum of US$27.22/lb.
The low price elasticity and the rising demand for battery materials led by the electric vehicle industry continue to support the
upward trend in pricing. In the short term, the substitution risk seems fairly low in battery chemistry, given the unique chemical
properties of cobalt and the key beneficiary of a potential substitution in the longer term would be nickel. Due to the limited
number of copper and nickel projects with significant cobalt by-products and the political risks in the DRC, potential supply risk
is clearly motivating battery manufacturers, with announcements made by several battery manufacturers who have tried to
secure long term supply. Overall, deficits are expected in the cobalt market until 2025, with a shortage of over 15,000 tonnes
of cobalt in 2025 being predicted. In addition to the industrial player end users, financial investors are also driving the
continuing bullish trend in cobalt, further impacting the expected supply deficits.
Moa Joint Venture (50% interest) and Fort Site (100%)
The Moa JV finished nickel production of 3,739 tonnes (50% basis) in the second quarter is 101 tonnes lower than its level in
the first quarter this year despite better mixed sulphides production. Although the impacts from Hurricane Matthew ended in
the first quarter, second quarter production was impacted by a longer planned annual refinery shutdown (7 days compared to
3 days in Q2 2016), a higher cobalt:nickel ratio, and carryover impacts from the last two quarters that reduced mixed sulphides
availability. Although third party feed continues to be processed and mitigates lower mixed sulphides availability from Moa,
current pricing terms for an additional nickel-rich third party feed source are currently uneconomical. This condition is expected
to continue for the balance of the year, resulting in a 1,500 tonne reduction to Moa’s nickel production guidance for 2017. The
Moa mixed sulphide nickel to cobalt ratio in the second quarter was similar to the ratio in the first quarter this year, and is
expected to be similar for the balance of the year based on mine plan sequencing.
2017 Second Quarter Report
Press Release
8 Sherritt International Corporation
Revenue in the quarter is up 14% from Q1 2017, and up 15% from the comparable quarter of 2016. Cobalt made up 31% of
total revenue in the second quarter, with fertilizer accounting for another 23%. The higher cobalt and fertilizer prices in the
second quarter of 2017 compared to first quarter 2017 more than offset the lower nickel price, with the weaker Canadian dollar
also benefiting revenue. Fertilizer sales volumes were up 54% from first quarter volumes, but consistent with normal
seasonality and with the comparable quarter of 2016. Although fertilizer prices continued to climb, as they have since fourth
quarter 2016, they remained below the prices experienced last year, and margins were significantly lower in the second
quarter compared to the first quarter this year and to Q2 2016. Higher fertilizer cost of sales came from higher maintenance
costs associated with the longer planned annual refinery and bi-annual acid plant shutdowns.
The NDCC of US$2.55/lb of nickel in the second quarter is the lowest experienced since Q2 2008, and an improvement on the
year-ago level of US$2.94/lb despite lower levels of production and a lower net fertilizer credit. The cobalt credit of US$2.92/lb
demonstrates the value of Moa’s cobalt production. For the Moa JV’s cash contribution, an approximately US$8/lb change in
the cobalt price equals a US$1/lb change in the nickel price. Higher mining, processing & refining costs on a year-to-date basis
are mainly a function of lower production volumes, higher energy prices and costs associated with the longer annual planned
refinery maintenance shutdown.
Cash used by operations of $6.6 million in the second quarter despite positive Adjusted EBITDA of $11.7 million is mainly due
to negative working capital changes from delivery of fertilizer against pre-buys received in the last two quarters.
Capital spending of $8.1 million in the quarter is higher than the $2.1 million capital expenditure in the first quarter this year, as
was expected given the outlook for the year and the arrival of mining trucks at Moa. The Moa JV is expected to operate and to
fund capital expenditures through internally generated cash flow and/or external loans.
Ambatovy Joint Venture (40% interest)
Nickel production in the second quarter and year-to-date period this year was down 10% from first quarter 2017 levels, and
down 5% compared to its comparable level last year. Limited sulphuric acid production capacity was the main contributor to
lower production in Q2 with substantial unplanned maintenance required on an acid plant during a planned maintenance
outage on the second acid plant in April. Accordingly, PAL ore throughput was restricted to manage available acid supply and
low Ambatovy finished nickel production in the second quarter this year was caused primarily by the lower PAL ore throughput,
but also by lower than expected metal recoveries caused by inconsistent PAL operations and lower CCD (counter current
decantation) thickener availability. Taking into account the weaker first half of 2017, the Ambatovy production outlook has
been revised to a range of 40,000 – 43,000 tonnes (100% basis) nickel and 3,600 – 3,900 tonnes (100% basis) cobalt.
Despite the lower production in the first half, revenue on a six-month basis is up 14% compared to its comparable period last
year, due to a 13% change in nickel reference prices, and a 112% change in cobalt reference prices. Cobalt revenues
accounted for 32% of revenue in the second quarter this year compared to 18% in the comparable quarter last year.
The NDCC of US$3.66/lb for the second quarter is a 29% improvement over the comparable quarter last year, and a 7%
improvement over the first quarter 2017, again benefiting from a higher cobalt credit of US$2.44/lb. Taking into account
improving cobalt prices and a higher cobalt:nickel ratio expected in the second half of the year, the Ambatovy NDCC outlook
has been narrowed to a range of US$3.10 - US$3.40/lb.
Capital spending of $12.8 million in the second quarter and $21.2 million year-to-date is consistent with guidance for the year,
with all of the sustaining capital relating to mine development, tailings management facility construction and the purchase of
articulated dump trucks and new excavators.
Ambatovy Agreement in Principle
The Ambatovy Joint Venture partners continue to work towards implementation of the previously announced Agreement in
Principle, with closing expected to occur in late Q3 or Q4 this year.