Sherritt Reports Second Quarter 2018 Results
Sherritt International Corporation 1
For immediate release
Sherritt Reports Second Quarter 2018 Results
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED
STATES
Toronto, Ontario – July 31, 2018 – 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.”
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 lowe st
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 an d
the timing of interest payments on debentures. In addition, Sherritt purchased $10.7 million of the Corporatio n’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.
2018 Second Quarter Report
Press Release
2 Sherritt International Corporation
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.
Sherritt International Corporation 3
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, Sheritt 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.
2018 Second Quarter Report
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4 Sherritt International Corporation
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.
Sherritt International Corporation 5
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.
2018 Second Quarter Report
Press Release
6 Sherritt International Corporation
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 r 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.
Sherritt International Corporation 7
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. Gu lf 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.
2018 Second Quarter Report
Press Release
8 Sherritt International Corporation
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 faci lities were not accounted for as service
concession arrangements.