Sherritt Reports Q3 2017 Results
Sherritt International Corporation 1
For immediate release
Sherritt Reports Q3 2017 Results
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED
STATES
Toronto, Ontario – October 24, 2017 – Sherritt International Corporation (“Sherritt” or the “Corporation”) (TSX: S), the world
leader in the mining and hydrometallurgical refining of nickel from lateritic ores, today reported its financial results for the three
and nine months ended September 30, 2017. All amounts are in Canadian currency unless noted.
CEO COMMENTARY
“Q3 was marked by progress across a number of key financial and operating metrics,” said David Pathe, President and CEO
of Sherritt International. “Against a backdrop of improving commodity prices, we achieved the lowest net direct cash cost(1) at
Moa since 2004 with a cost of $1.94 per pound of nickel, produced 799 tonnes of finished cobalt at a realized price of $35.44
per pound and ended the quarter with a higher cash balance totaling $291.3 million.”
Mr. Pathe added, “Backed by a strong market outlook for nickel and cobalt, we expect to sustain this momentum through the
completion of a number of near-term milestones, including the restructuring of our Ambatovy joint venture, completing the
drilling of the second well on Block 10 and achieving our production targets for 2017.”
Q3 2017 HIGHLIGHTS
Sherritt ended the quarter with cash, cash equivalents and short-term investments of $291.3 million, up $17.1 million
from June 30, 2017.
Sherritt and its Ambatovy Joint Ve nture partners continue to work towards implementation of the previously
announced Agreement in Principle that will result in the re -structuring of the Joint Venture and the elimination of
approximately $1.3 billion of non-recourse debt. Closing of the transaction is expected to occur in Q4 of this year.
Sherritt’s operations in Cuba incurred minimal damages as a result of Hurricane Ir ma; nickel, cobalt, power, oil and
gas production were only moderately impacted due to hurricane readiness and shutdown procedures.
Moa JV Net Direct Cash Cost (NDCC) for nickel was US$1.94/lb, representing the lowest total since the fourth
quarter of 2004. The decline was driven primarily by high cobalt prices and the US$0.50/lb cost savings achieved with
the commissioning of the third acid plant at Moa in 2016.
Unit operating costs in Cuba were $8.98 per barrel of oil, down 4% from $9.31 in Q3 2016.
Unit operating costs for power production were $16.59 per megawatt hour, down 35% from $25.55 for last year.
Sherritt’s share of production totals from its operations were: 4,049 tonnes of finished nickel at the Moa JV; 3,247
tonnes of finished nickel at Ambatovy; 464 to nnes of finished cobalt at the Moa JV; 335 tonnes of finished cobalt at
Ambatovy; 7,658 net working interest barrels of oil equivalent per day and 210 gigawatt hours of electricity.
Adjusted EBITDA was $33.8 million, up 194% from $11.5 million in Q3 2016.
Sherritt received US$32.6 million of Cuban energy payments, including US$15.6 million rece ived by Sherritt’s Oil and
Gas division and US$17.0 million received by the Power division from Energas.
Net loss was $69.5 million, or $0.24 per share outstanding, down from a net loss of $120.8 million, or $0.41 per share
outstanding, in Q3 2016.
(1) For additional information see the Non-GAAP measures section of this press release.
2017 Third Quarter Report
Press Release
2 Sherritt International Corporation
Q3 2017 FINANCIAL HIGHLIGHTS
For the three months ended For the nine months ended
2017 2016 2017 2016
$ millions, except per share amount September 30 September 30 Change September 30 September 30 Change
Revenue 63.3 58.5 8% $ 212.5 $ 191.8 11%
Combined Revenue(1) 234.7 184.5 27% 693.7 579.9 20%
Net loss for the period (69.5) (120.8) 42% (244.0) (272.2) 10%
Adjusted EBITDA(1) 33.8 11.5 194% 100.2 2.6 3,754%
Cash provided (used) by continuing operations 28.7 60.3 (52%) 24.3 24.2 -
Combined free cash flow (1) 7.3 20.3 (64%) (20.9) (66.4) 69%
Net loss from continuing operations per share (0.24) (0.41) 41% (0.83) (0.93) 11%
(1) For additional information, see the Non-GAAP measures section of this release.
2017 2016
$ millions, except as otherwise noted, as at September 30 December 31 Change
Cash, cash equivalents and short term investments $ 291.3 $ 309.6 (6%)
Non-recourse loans and borrowings 1,324.6 1,367.5 (3%)
Other loans and borrowings 828.8 860.7 (4%)
In Q3 2017, Sherritt generated $28.7 million in cash flow from operations. The consolidated total included $17.6 million in
contributions from the Moa JV and Fort Site, $7.9 million from the Oil and Gas division and $18.4 million from the Power
division. The consolidated total was partially offset by $9.6 million in interest payments on debentures and $5.2 million in
payments relating to the previously-owned Obed mine.
Cash, cash equivalents and short-term investments at the end of the third quarter were $291.3 million, up $17.1 million from
their level at June, 2017.
During the quarter, US$32.6 million of Cuban energy payments were received compared to US$28.8 million in the second
quarter of 2017. Included in this amount was US$15.6 million received by the Oil and Gas division and US$17.0 million received
from Energas in the Power division. Total Cuban overdue receivables were US$100.5 million at September 30, 2017 compared
to US$90.2 million at June 30, 2017.
Adjusted earnings (loss) from continuing operations(1)
2017 2016
For the three months ended September 30 $ millions $/share $ millions $/share
Net loss from continuing operations (69.5) (0.24) (120.8) (0.41)
Adjusting items, net of tax:
Unrealized foreign exchange (gain) loss (13.5) (0.05) 12.8 0.04
Other (1.4) (0.00) 3.7 0.01
Adjusted net loss from continuing operations (84.4) (0.29) (104.3) (0.34)
2017 2016
For the nine months ended September 30 $ millions $/share $ millions $/share
Net loss from continuing operations (244.0) (0.83) (272.2) (0.93)
Adjusting items, net of tax:
Impairments - - 8.5 -
Unrealized foreign exchange (gain) loss (16.4) (0.06) (61.6) (0.21)
Other (6.5) (0.02) (22.7) (0.08)
Adjusted net loss from continuing operations (266.9) (0.90) (348.0) (1.21)
(1) For additional information, see the Non-GAAP measures section of this release.
Sherritt International Corporation 3
The adjusted net loss from continuing operations in the third quarter of 2017 was $84.4 million, or $0.29 per share outstanding,
and included a $13.5 million unrealized foreign exchange loss. In the same period of 2016, Sherritt incurred an adjusted net
loss of $104.3 million or $0.34 per share outstanding. The improvement was largely due to higher realized prices for nickel,
cobalt and oil and lower unit operating costs, primarily for nickel and electricity.
2017 Third Quarter Report
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4 Sherritt International Corporation
REVIEW OF OPERATIONS
METALS
$ millions except as otherwise noted, for the three months ended September 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 $ 100.7 $ 78.0 $ 14.1 $ 192.8 $ 80.6 $ 51.0 $ 11.4 $ 143.0 35%
Earnings (loss) from operations 12.8 (34.2) 0.2 (21.2) (4.0) (38.5) 0.3 (42.2) 50%
Adjusted EBITDA(3) 23.9 1.3 0.2 25.4 7.5 (4.5) 0.3 3.3 670%
Cash provided (used) by operations 17.6 (8.9) (1.7) 7.0 25.6 (11.4) (5.4) 8.8 (20%)
Free cash flow(3) 14.5 (13.8) (1.7) (1.0) 17.3 (21.8) (5.4) (9.9) 90%
PRODUCTION VOLUMES (tonnes)
Mixed Sulphides 4,555 3,406 - 7,961 4,496 3,821 - 8,317 (4%)
Finished Nickel 4,049 3,247 - 7,296 4,295 3,669 - 7,964 (8%)
Finished Cobalt 464 335 - 799 489 270 - 759 5%
Fertilizer 60,033 10,407 - 70,440 66,893 12,106 - 78,999 (11%)
NICKEL RECOVERY (%) 87% 77% 89% 81%
SALES VOLUMES (tonnes)
Finished Nickel 4,018 3,817 - 7,835 4,218 3,167 - 7,385 6%
Finished Cobalt 447 344 - 791 418 229 - 647 22%
Fertilizer 32,080 11,120 - 43,200 30,167 9,126 - 39,293 10%
AVERAGE EXCHANGE RATE (CAD/US) 1.253 1.305 (4%)
AVERAGE REFERENCE PRICES (US$ per pound)
Nickel $ 4.78 $ 4.66 3%
Cobalt 28.84 12.33 134%
AVERAGE-REALIZED PRICES(3)
Nickel ($ per pound) $ 6.02 $ 5.77 $ - $ 5.90 $ 5.91 $ 5.85 $ - $ 5.88 -
Cobalt ($ per pound) 34.89 36.16 - 35.44 15.20 17.04 - 15.78 125%
Fertilizer ($ per tonne) 309 160 - 269 288 161 - 260 3%
UNIT OPERATING COSTS(3) (US$ per pound)
Nickel - net direct cash cost $ 1.94 $ 4.27 - 3.08 $ 3.55 $ 4.67 - 4.03 (24%)
SPENDING ON CAPITAL
Sustaining $ 3.0 $ 13.0 $ - $ 16.0 $ 6.9 $ 9.5 $ - $ 16.4 (2%)
Expansion - - - - 4.3 - - 4.3 (100%)
$ 3.0 $ 13.0 $ - $ 16.0 $ 11.2 $ 9.5 $ - $ 20.7 (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.
Sherritt International Corporation 5
$ millions, except as otherwise noted, for the nine months ended September 30 2017 2016
Moa JV and Ambatovy 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 $ 294.1 $ 221.1 $ 40.1 $ 555.3 $ 246.8 $ 176.6 $ 33.1 $ 456.5 22%
Earnings (loss) from operations 11.4 (101.8) 0.9 (89.5) (20.8) (135.9) 0.6 (156.1) 43%
Adjusted EBITDA(3) 48.4 7.9 0.9 57.2 14.0 (31.4) 0.6 (16.8) 440%
Cash provided (used) by operations 25.8 (23.3) 3.5 6.0 14.2 (33.8) (0.2) (19.8) 130%
Free cash flow(3) 12.5 (34.9) 3.5 (18.9) (13.3) (45.3) (0.2) (58.8) 68%
PRODUCTION VOLUMES (tonnes)
Mixed Sulphides 13,207 11,507 - 24,714 13,249 12,235 - 25,484 (3%)
Finished Nickel 11,628 10,507 - 22,135 12,682 11,731 - 24,413 (9%)
Finished Cobalt 1,336 928 - 2,264 1,465 905 - 2,370 (4%)
Fertilizer 181,759 33,107 - 214,866 195,352 37,258 - 232,610 (8%)
NICKEL RECOVERY (%) 87% 82% 88% 86%
SALES VOLUMES (tonnes)
Finished Nickel 11,550 11,092 - 22,642 12,427 11,909 - 24,336 (7%)
Finished Cobalt 1,303 995 - 2,298 1,359 921 - 2,280 1%
Fertilizer 127,350 33,902 - 161,252 121,827 36,997 - 158,824 2%
AVERAGE EXCHANGE RATE (CAD/USD) 1.307 1.322 (1%)
AVERAGE REFERENCE PRICES (US$ per pound)(3)
Nickel $ 4.55 $ 4.18 9%
Cobalt 24.84 11.39 118%
AVERAGE-REALIZED PRICES(3)
Nickel ($ per pound) $ 5.94 $ 5.92 $ - $ 5.93 $ 5.38 $ 5.31 $ - $ 5.35 11%
Cobalt ($ per pound) 30.85 31.89 - 31.30 14.09 15.04 - 14.47 116%
Fertilizer ($ per tonne) 367 166 - 324 397 165 - 343 (6%)
UNIT OPERATING COSTS (US$ per pound)(3)
Nickel - net direct cash cost $ 2.53 $ 3.96 $ - $ 3.23 $ 3.30 $ 4.79 $ - $ 4.03 (20%)
SPENDING ON CAPITAL
Sustaining $ 13.2 $ 34.2 $ - $ 47.4 $ 17.9 $ 14.1 $ - $ 32.0 48%
Expansion - - - - 12.4 - - 12.4 (100%)
$ 13.2 $ 34.2 $ - $ 47.4 $ 30.3 $ 14.1 $ - $ 44.4 (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.
2017 Third Quarter Report
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6 Sherritt International Corporation
METAL MARKETS
Nickel
Q3 2017 saw a nickel price rally for much of the quarter. Starting at US$4.25/lb at the beginning of May, nickel prices
increased to a peak of US$5.51/lb on September 5th and then began a slow decline for the balance of the month.
Q3’s average nickel reference price of US$4.78/lb was up by 14% when compared to the second quarter reference price of
US$4.18/lb.
The recent increase in nickel prices has been driven by a number of factors affecting both supply and demand market
conditions. Most significant are the strong demand for Chinese stainless steel and growing concerns on the supply side due to
the announced shutdown of a major laterite nickel operation in Western Australia.
Global finished nickel stocks continued to slowly contract in Q3 and the refined nickel market is expected to be in deficit in
2017. A consistent decline in both LME and SHFE stocks is needed, however, for a sustained recovery of nickel prices.
In the short-term, uncertain geopolitical conditions in Indonesia and the Philippines may impact short-term supply conditions
and result in nickel price volatility. Over the longer term, market fundamentals remain strong, particularly for high quality, LME
briquettes and other forms of refined nickel suitable for battery manufacturing given the expected growing demand for electric
vehicles.
Cobalt
Cobalt prices experienced continued growth in the third quarter with the Metal Bulletin Low Grade Mean averaging at
US$28.84/lb, up 12% from US$25.87/lb in the second quarter.
Tight supply conditions and rising demand for battery materials led by the electric vehicle industry continue to drive cobalt
prices upward.
In the short term, the risk of cobalt substitution in battery production is considered low given its unique energy transference
properities. While battery manufacturers are exploring alternatives to cobalt, the likely beneficiary of any substitution is
expected to be nickel.
The strength in cobalt pricing is further supported by the limited number of copper and nickel projects with significant cobalt by-
products and the political risks in the Democratic Republic of Congo, the world’s largest country source of cobalt.
Overall, deficits are expected to continue in the cobalt market for next few years. In addition to demand from the industrial end
users, financial investors are also driving the bullish trend in cobalt pricing by stockpiling inventory, further impacting the
expected supply deficit.
Moa Joint Venture (50% interest) and Fort Site (100%)
The Moa JV produced 4,049 tonnes of finished nickel in Q3 2017, down from 4,295 tonnes produced in Q3 last year even
though mixed sulphides production was higher this year by 59 tonnes. The decline was largely due to shipment delays of
mixed sulphides to the refinery in Fort Saskatchewan, Alberta that were primarily caused by the impact of Hurricane Irma.
The nickel to cobalt ratio of mixed sulphides produced at Moa in Q3 was strong and comparable to the ratio produced in Q2 of
this year. This high ratio is expected to be consistent for the balance of the year based on the current mine plan sequencing.
Q3 2017 revenue for the Moa JV and the Fort Site totaled $100.7 million, up 25% from last year. The growth was driven by
higher realized prices for nickel and cobalt. Nickel sales represented 53% of total Q3 2017 revenue while cobalt sales
represented 34%. Fertilizer sales in Q3 2017 were up 14% from last year, reflecting stronger demand ahead of the fall harvest
season.
Sherritt International Corporation 7
Moa’s NDCC of US$1.94/lb of nickel produced in Q3 2017 was the lowest experienced since Q4 2004. The cobalt credit of
US$3.10/lb reflects Moa’s high cobalt to nickel production ratio as well as the 129% growth in realized prices since Q3 2016.
NDCC improvement was also due to the benefit from the commissioning of a third sulphuric acid plant at Moa in 2016 that
generated approximate savings of US$0.50/lb.
Cash provided by operations in Q3 2017 totaled $17.6 million, down from $25.6 million for Q3 last year. The decline was
primarily due to working capital changes, including the impact of reference pricing changes on accounts receivable and the
impact of shipping delays on mixed sulphides feed inventory volumes.
Moa’s sustaining capital spending in Q3 2017 was $3.0 million, down from $6.9 million in Q3 last year, reflecting the timing of
expenditures.
Based on year-to-date performance and near-term visibility, the Moa JV is expected to reach its production targets for 2017
but has lowered its estimated NDCC for nickel to between US$2.50 and US$2.75 per pound of nickel from between US$2.80
and US$3.30 per pound of nickel to reflect higher cobalt prices.
Ambatovy Joint Venture (40% interest)
Finished nickel production at Ambatovy in Q3 2017 was 3,247 tonnes, down 12% from the comparable period of 2016. The
decline was due to a number of developments that impacted asset plant reliability. Among these were the poor reliability of the
pressure acid leach circuit, an unplanned shutdown to address hydrogen sulphide emissions from the sulphide precipitation
circuits and unplanned maintenance of the counter current decantation circuit. Finished nickel production was also impacted
by a scheduled full asset plant shutdown in September and lower nickel recoveries initiated by a change in ore composition.
Maintenance activities completed in Q3 as well as replacement of equipment, including rubber-lined spools, are expected to
improve asset plant reliability and production stability over time.
Finished cobalt production in Q3 2017 was 335 tonnes, up 24% from 270 tonnes for the same period of 2016. The increase
was largely due to a higher cobalt to nickel ratio in the ore processed.
Despite lower production volumes, NDCC for nickel at Ambatovy in Q3 2017 declined by 9% to US$4.27/lb from US$4.67/lb
for the comparable period of 2016. The decline was largely due to higher cobalt prices.
Spending on sustaining capital in Q3 2017 was $13.0 million, up from $9.5 million for last year. The increase was largely due
to scheduled maintenance activities. Capital spending is focused on improving plant reliability and for mining and production
equipment, including mine development, tailings management facility construction and the purchase of heavy mine equipment.
Based on production totals on a year to date basis and near-term visibility, Ambatovy has updated its production targets for
2017, and expects to produce between 36,000 and 39,000 tonnes of finished nickel and between 3,300 and 3,600 tonnes of
finished cobalt. Its estimated NDCC for nickel remains unchanged at between US$3.10 and US$3.70 per pound of nickel as
higher cobalt prices are expected to offset reduced production.
Status of Ambatovy Joint Venture Restructuring
The Ambatovy Joint Venture partners continue to work towards implementation of the previously announced Agreement in
Principle, with closing expected to occur in Q4 of this year.
2017 Third Quarter Report
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8 Sherritt International Corporation
OIL AND GAS
For the three months ended For the nine months ended
2017 2016 2017 2016
$ millions, except as otherwise noted September 30 September 30 Change September 30 September 30 Change
FINANCIAL HIGHLIGHTS
Revenue $ 29.9 $ 27.3 10% $ 99.3 $ 78.0 27%
Earnings (loss) from operations 5.8 (7.4) 178% 25.7 (19.1) 235%
Adjusted EBITDA(1) 14.0 11.1 26% 51.4 24.0 114%
Cash provided by operations 7.9 54.5 (86%) 33.1 65.0 (49%)
Free cash flow(1) 0.7 46.5 (98%) 18.8 47.1 (60%)
PRODUCTION AND SALES (bopd)
Gross working-interest (GWI) - Cuba 13,831 14,709 (6%) 14,524 15,782 (8%)
Total net working-interest (NWI) 7,658 8,719 (12%) 8,446 9,925 (15%)
AVERAGE EXCHANGE RATE (CAD/USD) 1.253 1.305 (4%) 1.307 1.322 (1%)
AVERAGE REFERENCE PRICE (US$ per barrel)
West Texas Intermediate (WTI) $ 48.21 $ 44.90 7% $ 49.29 $ 41.42 19%
Gulf Coast Fuel Oil No. 6 46.42 34.88 33% 45.10 29.13 55%
Brent 52.51 45.57 15% 51.66 41.58 24%
AVERAGE-REALIZED PRICE(1) (NWI)
Cuba ($ per barrel) $ 42.10 $ 32.88 28% $ 42.63 $ 27.28 56%
UNIT OPERATING COSTS(1) (GWI)
Cuba ($ per barrel) $ 8.98 $ 9.31 (4%) $ 9.19 $ 9.39 (2%)
SPENDING ON CAPITAL(2)
Development, facilities and other $ 0.9 $ 0.8 13% $ (0.3) $ 8.5 (104%)
Exploration 6.6 7.3 (10%) 12.5 9.2 36%
$ 7.5 $ 8.1 (7%) $ 12.2 $ 17.7 (31%)
(1) For additional information, see the Non-GAAP measures section of this release.
(2) Spending on capital includes accruals.
Gross working-interest oil production in Q3 2017 was 13,831 barrels of oil per day, down from 14,709 barrels of oil per day
(bopd) for the comparable period of 2016. The decrease was primarily due to natural reservoir declines, the absence of new
development drilling and the impact of Hurricane Irma, which temporarily curtailed production due to standard storm safety and
shutdown procedures.
Revenue in Q3 2017 was $29.9 million, up 10% from $27.3 million for last year. The growth was due to an increase in realized
prices of 28% to $42.10 per barrel in Cuba, though partially offset by the negative impact of a stronger Canadian dollar.
Cost-recovery oil production in Cuba for Q3 2017 was lower when compared to the same period of 2016. The decline was due
to lower cost-recovery spending and the impact of higher oil prices in the current year period.
Unit operating costs in Q3 2017 in Cuba were $8.98 per barrel, down 4% from $9.31 in Q3 2016, driven largely by lower
labour, treatment and transportation costs. Unit operating costs also improved due to the strengthening of the Canadian dollar.
Capital spending in Q3 2017 totaled $7.5 million and was largely focused on Block 10 drilling activities. Drilling of the second
development well began in August. Drilling results for the second well on Block 10 are expected in December of 2017.