Sherritt Reports Higher Nickel and Cobalt Production Results at Moa JV in Q2 2020
Sherritt International Corporation 1
For immediate release
Sherritt Reports Higher Nickel and Cobalt Production Results at
Moa JV in Q2 2020
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED
STATES
Toronto – July 29, 2020 – Sherritt International Corporation (“Sherritt”, the “Corporation”, the “Company”) (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, 2020. All amounts are in Canadian currency unless otherwise noted.
CEO COMMENTARY
“As a result of additional health and safety practices and new work processes implemented in early March, our mine operations
at Moa and at our refinery in Fort Saskatchewan were largely unaffected by the spread of COVID-19 and delivered strong
finished nickel and cobalt production results in Q2,” said David Pathe, President and CEO of Sherritt International. “We expect
to build on this momentum through the end of the year and forecast producing between 32,000 and 33,000 tonnes of finished
nickel and between 3,300 and 3,400 tonnes of finished cobalt on a 100% basis for 2020 in line with our original guidance for the
year.”
Mr. Pathe added, “Also in Q2, we implemented further austerity measures designed to reduce costs, preserve liquidity and defer
budgeted expenditures for 2020 in the face of uncertainty caused by the global pandemic to near-term economic and market
conditions and, more particularly, on our ability to collect on overdue amounts owed to us by our Cuban energy partners.
“Subsequent to quarter-end, we received stakeholder approval for our balance sheet initiative. Pending court approval and final
closing expected by the end of the coming month, the transaction will result in the reduction of our total debt by approximately
$305 million, annual savings of $16 million in cash interest payments, resolution to our Ambatovy investment legacy, and position
us without any debt maturity until November 2026. Completion of the balance sheet initiative and ongoing austerity measures
will help us weather near-term uncertainty in advance of the recovery of nickel and cobalt markets expected over the longer
term.”
SUMMARY OF KEY Q2 DEVELOPMENTS
Sherritt’s share of finished nickel production at the Moa Joint Venture (Moa JV) in Q2 2020 was 4,147 tonnes, up 4%
from last year, while finished cobalt was 425 tonnes, up 2% from last year. Higher production totals were largely driven
by the decision to delay the annual shutdown of the refinery for planned maintenance as a safety measure to prevent
the spread of COVID-19. Annual maintenance shutdown activities were completed subsequent to the start of Q3 2020.
Sherritt ended Q2 2020 with cash and cash equivalents of $172.4 million of which $82.2 million of cash and cash
equivalents was held by Energas in Cuba. The $21 million decrease in Sherritt’s liquidity from $193.4 million at the end
of Q1 2020 was largely due to the timing of working capital receipts , capital expenditures totaling $3.6 million and the
impact of changes to foreign exchange rates, partially offset by interest received on the Energas conditional sales
agreement and the deferral of $15.5 million of interest payments due to the launch of the previously announced balance
sheet initiative.
Sherritt received US$11.6 million in Cuban energy payments as part of the overdue receivables agreement with its
Cuban partners. Payments, which included US$9.3 million received in Canada and US $2.3 million accepted in Cuba
to support local costs for Sherritt’s Oil and Gas operations, were lower than expected as the spread of COVID-19 and
the ongoing impact of U.S. sanctions limited Cuba’s access to foreign currency in Q2 2020.
Sherritt agreed to an extension for the maturity of its $70 million credit facility from its senior lenders to September 30,
2020 to allow for completion of the balance sheet initiative launched in Q1 2020. As part of the extension, the lenders
agreed to a reduction in the monthly minimum net available cash requirement to $65 million from $70 million starting in
April. In addition, $47 million of letters of credit related to reclamation costs associated with Sherritt’s Spanish oil assets
were not renewed at June 30 as the Corporation is in discussions with its Spanish partners on a potential alternative
arrangement.
Sherritt reinstated its production, unit cost and capital spend guidance for 2020, reflecting the minimal impact that
COVID-19 has had to date on production and the implementation of austerity measures designed to preserve liquidity
in the face of near-term uncertainty caused by the global pandemic on market conditions.
2020 Second Quarter Report
Press Release
2 Sherritt International Corporation
DEVELOPMENTS SUBSEQUENT TO THE QUARTER END
Sherritt received stakeholder approval for its previously announced balance sheet initiative designed to improve its
capital structure and preserve liquidity. Pending court approval of the transaction and final closing, which is expected
by August 31 subject to the satisfaction or waiver of the applicable conditions to the transaction, Sherritt will reduce its
total debt by approximately $305 million, save approximately $16 million in annual cash interest payments, address its
Ambatovy investment legacy and have no debt maturities until November 2026 as a result of the transaction. Also
pending close of the transaction, Sherritt will no longer be operator of Ambatovy, and focus its mining activities through
the Moa JV.
Sherritt completed a preliminary analy sis of Block 10 test samples. The analysis, which was delayed by two months
due to cargo travel restrictions imposed by Cuba due to COVID-19, was inconclusive. Sherritt plans to collect new test
samples to analyze in the coming weeks now that cargo travel restrictions have been lifted.
(1) For additional information see the Non-GAAP measures section of this press release.
Q2 2020 FINANCIAL HIGHLIGHTS(1)
For the three months ended For the six months ended
2020 2019 2020 2019
$ millions, except per share amount June 30 June 30 Change June 30 June 30 Change
Revenue 40.9 46.5 (12%) $ 67.6 $ 78.4 (14%)
Combined revenue(2) 134.0 144.3 (7%) 246.7 268.9 (8%)
Net earnings (loss) for the period (114.5) (90.4) (27%) (156.7) (152.2) (3%)
Adjusted EBITDA(2) 8.9 9.5 (6%) 13.6 8.3 64%
Cash provided (used) by continuing operations (12.6) 14.9 (185%) 10.0 (19.7) 151%
Combined adjusted operating cash flow(2) 17.5 (8.2) 313% 24.4 (18.1) 235%
Combined free cash flow(2) (0.6) 4.0 (115%) 2.4 (40.0) 106%
Average exchange rate (CAD/US$) 1.385 1.338 - 1.365 1.334 -
Net earnings (loss) from continuing operations per share (0.29) (0.23) (26%) (0.39) (0.38) (3%)
(1) The financial results for the Ambatovy JV are only discussed as part of Sherritt’s share of earnings in associate based on financial statement amounts. All non-GAAP
measures exclude the Ambatovy JV performance.
(2) For additional information see the Non-GAAP measures section.
2020 2019
$ millions, as at June 30 December 31 Change
Cash, cash equivalents and short term investments $ 172.4 $ 166.1 4%
Loans and borrowings 727.6 713.6 2%
Cash, cash equivalents and short -term investments at June 30, 2020 were $172.4 million, down from $193.4 million at March
31, 2020. The decrease was due to a number of factors including, negative working capital changes primarily relating to the
timing of fertilizer pre-sales receipts and deliveries, capital expenditures totaling $3.6 million and lower than expected Cuban
energy payments. These factors were partially offset, however, by the deferral of $15.5 million in interest payments as a result
of the launch of the balance sheet initiative in Q1 2020 and by the timing of changes in inventory.
Sherritt r eceived US$11.6 million in Cuban energy payments as part of its overdue receivables agreement with its Cuban
partners. Payments, which included US$9.3 million received in Canada and US$2.3 million accepted in Cuba to support local
costs relating to Sherritt’s Oil and Gas operations, were lower than expected as the spread of COVID-19 and the ongoing impact
of U.S. sanctions limited Cuba’s access to foreign currency in Q2 2020. Sherritt did not receive any payments on its Oil and Gas
receivables in Q2 2020. Total overdue scheduled receivables at June 30, 2020 were US$159.1 million, up from US$154.0 million
at March 31, 2020.
As at June 30, 2020, $82.2 million of Sherritt’s cash and cash equivalents was held by Energas in Cuba, down from $86.3 million
at the end of Q1 2020.
Sherritt agreed to an extension for the maturity of its $70 million credit facility from its senior lenders to September 30, 2020 to
allow for completion of the balance sheet initiative launched in Q1 2020. As part of the extension, the lenders agreed to a
reduction in the monthly minimum net available cash requirement to $65 million from $70 million starting in April. In addition,
$47 million of letters of credit related to reclamation costs associated with Sherritt’s Spanish oil assets were not renewed at June
30, 2020 as the Corporation is in discussions with its Spanish partners on a potential alternative arrangement.
Sherritt anticipates that its liquidity position through the end of 2020 will largely be dependent on its ability to collect on amounts
owed to it by its Cuban energy partners.
Sherritt International Corporation 3
Adjusted net loss(1)
2020 2019
For the three months ended June 30 $ millions $/share $ millions $/share
Net earnings (loss) from continuing operations (114.5) (0.29) (90.4) (0.23)
Adjusting items:
Unrealized foreign exchange (gain) loss 13.1 0.03 8.0 0.02
Ambatovy loans recievable ACL revaluation 74.4 0.19 53.6 0.13
Moa JV expansion loans ACL revaluation (23.6) (0.06) - -
Other 0.8 - (12.5) (0.02)
Adjusted net loss from continuing operations (49.8) (0.13) (41.3) (0.10)
2020 2019
For the six months ended June 30 $ millions $/share $ millions $/share
Net earnings (loss) from continuing operations (156.7) (0.39) (152.2) (0.38)
Adjusting items:
Unrealized foreign exchange (gain) loss (10.4) (0.02) 13.8 0.03
Ambatovy loans receivable ACL revaluation 74.4 0.19 54.6 0.14
Moa JV expansion loans ACL revaluation (6.4) (0.02) - -
Other 2.8 - (12.4) (0.03)
Adjusted net loss from continuing operations (96.3) (0.24) (96.2) (0.24)
(1) For additional information see the Non-GAAP measures section.
Net loss from continuing operations for Q2 2020 was $114.5 million, or $0.29 per share, compared to a net loss of $90.4 million,
or $0.23 per share, for the same period last year.
Net loss for Q2 2020 includes non-cash adjustments of $74.4 million related to revaluation of allowances for expected credit loss
(ACL) on Ambatovy Joint Venture loans receivable and a $23.6 million revaluation gain on the Moa JV expansion loans under
IFRS 9.
Adjusted net loss from continuing operations was $49.8 million, or $0.13 per share, for the three months ended June 30, 2020
compared to an adjusted net loss from continuing operations of $41.3 million, or $0.10 per share, for Q2 2019.
2020 Second Quarter Report
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4 Sherritt International Corporation
METALS MARKET
Nickel
Nickel market conditions improved throughout the second quarter of 2020 in concert with the restart of economic and
manufacturing activities in China and Europe following the outbreak of the COVID-19 pandemic in the first quarter of the year.
Nickel prices on the London Metals Exchange (LME) started Q2 at US$5.12/lb and closed on June 30 at US$5.81/lb.
Although nickel prices showed signs of recovery, nickel inventory levels on the London Metals Exchange (LME) and the
Shanghai Future Exchange (SHFE) remained relatively flat. Combined inventory levels at June 30 totaled approximately
262,000 tonnes, up from approximately 256,000 at April 1.
Nickel inventories on the LME and SHFE have not increased significantly despite the reduced production of stainless steel
over the past several months largely because a number of nickel mines around the world have significantly reduced production
or have gone into care and maintenance as a result of the spread of COVID-19.
In the near term, nickel prices are expected to be volatile given the ongoing economic uncertainty caused by the pandemic.
As mining operations resume production activities, nickel inventory levels may rise given that supply could exceed demand as
a number of industries that are large consumers of stainless steel, such as food and hospitality sector, will experience a delayed
or slower economic recovery.
In light of this uncertainty, a number of industry experts have lowered their forecasts for nickel demand, reflecting negative
market sentiment through end of 2020. Previously, demand for nickel through 2025 was expected to grow by approximately
3% per year to 2.8 million tonnes according to market research by Wood Mackenzie. Recovery of demand is expected to
return in 2021.
Nickel pig iron production has increased substantially, and some industry analysts are predicting an oversupplied nickel market
in the near term as a result. This development is putting additional pressure on producers of lower-grade material such as
ferronickel, which is currently selling at significant discount.
Over the longer term, demand for nickel is expected to increase with the increased adoption of electric vehicles since nickel –
along with cobalt – is a key metal needed to manufacture assorted energy storage batteries.
A shortage of nickel is anticipated over the coming years since current market prices are below incentive levels needed to
develop new nickel projects.
Cobalt
In contrast to the slow recovery of nickel prices and demand in Q2 2020, cobalt prices and demand experienced considerable
softness. Cobalt prices, in fact, decreased by 8% in Q2, reversing the upward trend experienced in Q1.
Standard grade cobalt prices on June 30 closed at US$14.88/lb, down from $16.18/lb at the start of the quarter according to
data collected by Fastmarkets MB. Cobalt prices since the start of Q3 have extended this downward trend as consumer
purchasing has continued to soften.
Market conditions have deteriorated because of the impact that the spread of COVID-19 is having on several industries, such
as the aerospace sector, that make extensive use of cobalt as a key component to manufacturing activities as a super alloy.
With recovery of these sectors expected to be slow or delayed, it is anticipated that cobalt market demand and prices will
continue to be soft in the near term.
Over the longer term, the outlook for cobalt remains strong given the accelerated growth of electric vehicle demand expected
in the coming years. Cobalt, in particular, is a key component of rechargeable batteries providing energy density and stability.
Sherritt International Corporation 5
REVIEW OF OPERATIONS
Moa Joint Venture (50% interest) and Fort Site (100%)
For the three months ended For the six months ended
2020 2019 2020 2019
$ millions, except as otherwise noted June 30 June 30 Change June 30 June 30 Change
FINANCIAL HIGHLIGHTS
Revenue $ 115.5 $ 123.1 (6%) $ 209.0 $ 225.4 (7%)
(Loss) earnings from operations 1.2 (0.4) 400% (3.5) (9.9) 65%
Adjusted EBITDA(1) 16.4 14.2 15% 26.5 18.4 44%
CASH FLOW
Cash provided by operations $ 12.7 $ 7.7 65% $ 17.2 $ 3.6 378%
Adjusted operating cash flow(1) 15.6 14.8 5% 22.8 17.6 30%
Free cash flow(1) 6.2 (0.1) 6300% 4.1 (10.5) 139%
Distributions and repayments to Sherritt from the Moa JV - 13.5 (100%) 13.3 16.8 (21%)
PRODUCTION VOLUMES (tonnes)
Mixed Sulphides 4,323 4,306 - 8,337 8,642 (4%)
Finished Nickel 4,147 3,969 4% 7,983 8,366 (5%)
Finished Cobalt 425 415 2% 825 841 (2%)
Fertilizer 69,777 59,665 17% 125,866 126,627 (1%)
NICKEL RECOVERY (%) 86% 86% - 84% 85% (1%)
SALES VOLUMES (tonnes)
Finished Nickel 4,169 4,073 2% 7,942 8,464 (6%)
Finished Cobalt 353 429 (18%) 734 889 (17%)
Fertilizer 72,071 66,552 8% 103,211 93,509 10%
AVERAGE-REFERENCE PRICES (US$ per pound)
Nickel $ 5.54 $ 5.56 - $ 5.66 $ 5.59 1%
Cobalt(2) 15.19 15.64 (3%) 15.89 17.09 (7%)
AVERAGE REALIZED PRICE(1)
Nickel ($ per pound) $ 7.51 $ 7.52 - $ 7.55 $ 7.51 1%
Cobalt ($ per pound) 18.39 19.56 (6%) 18.79 17.00 11%
Fertilizer ($ per tonne) 399 491 (19%) 384 470 (18%)
UNIT OPERATING COSTS(1) (US$ per pound)
Nickel - net direct cash cost $ 3.92 $ 3.83 2% $ 4.10 $ 4.19 (2%)
SPENDING ON CAPITAL(3)
Sustaining $ 9.5 $ 7.8 22% $ 16.1 $ 21.8 (26%)
$ 9.5 $ 7.8 22% $ 16.1 $ 21.8 (26%)
(1) For additional information see the Non-GAAP measures section.
(2) Average standard grade cobalt published price per Fastmarkets MB.
(3) Spending on capital for the six months ended June 30, 2019 excludes right of use assets recognized on adoption of IFRS 16. Refer to note 4 of the audited consolidated
financial statements for the year ended December 31, 2019 for additional information.
The Moa JV produced 4,147 tonnes of finished nickel, up 4% from 3,969 tonnes produced in Q2 2019. Finished cobalt production
for Q2 2020 was 425 tonnes, up 2% from 415 tonnes produced in Q2 2019.
Higher finished production totals were largely driven by the decision to delay the annual shutdown of the refinery in Fort
Saskatchewan for planned maintenance as a safety measure to prevent the spread of COVID-19. Annual maintenance shutdown
activities were completed subsequent to the start of Q3 2020 with the duration extending by four days when compared to plan
and the annual shutdown of the prior year. The shutdown extension was due to limited local contractor availability and additional
repair scope identified. Shutdown costs for 2020 were consistent with plan and costs incurred in 2019. Increased finished
production stemming from the re-scheduling of the planned annual maintenance shutdown and operational excellence initiatives
helped to offset the impact of transportation delays of mixed sulphides to the refinery from Moa experienced in April.
Mixed sulphides production at Moa in Q2 2020 of 4,323 tonnes was largely unchanged from Q2 2019. Like finished production
at the refinery in Fort Saskatchewan, COVID-19 had minimal impact on mixed sulphides production as a result of new safety
protocols and work processes introduced at Moa in March 2020.
2020 Second Quarter Report
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6 Sherritt International Corporation
Despite higher finished production, revenue declined by 6% to $115.5 million in Q2 2020 when compared to $123.1 million for
Q2 2019. The revenue decrease was driven by a number of factors, including lower cobalt sales volumes and lower realized
prices for cobalt and fertilizer of 6% and 19%, respectively. Softer cobalt demand and reference prices are particularly being
driven by the impact COVID-19 is having on the aerospace industry, which uses cobalt in super alloys in the production of
multiple aircraft engine parts. Fertilizer prices declined largely due to increased competition.
Mining, processing and refining (MPR) costs for Q2 2020 were US$4.78/lb, down 16% from US$5.71/lb for Q2 2019. MPR costs
declined primarily due to lower input costs related to sulphur and fuel oil as well as due to austerity measures undertaken to
reduce operating expenses.
NDCC in Q2 2020 was US$3.92/lb, up 2% from US$3.83/lb for the same period last year. Despite the decline in MPR costs by
16%, NDCC rose as result of lower cobalt by-product credits of 27% due to reduced cobalt product sales and lower realized
cobalt prices as well as lower realized fertilizer prices.
Sustaining capital spending in Q2 2020 was $9.5 million, up 22% from $7.8 million in Q2 2019. The year-over-year increase is
due primarily to the timing of delivery for mining equipment previously purchased.
As part of austerity measures implemented in Q2, the Moa JV will defer a number capital spend projects. Planned capital spend
for 2020 is now expected to be US$22 million (on a 50% basis), down from US$34 million initially forecasted at the start of the
year.
Oil and Gas
For the three months ended For the six months ended
2020 2019 2020 2019
$ millions, except as otherwise noted June 30 June 30 Change June 30 June 30 Change
FINANCIAL HIGHLIGHTS
Revenue $ 6.0 $ 7.5 (20%) $ 13.1 $ 16.5 (21%)
Earnings (loss) from operations (4.5) (5.4) 17% (10.1) (11.1) 9%
Adjusted EBITDA(1) (3.1) (2.7) (15%) (6.7) (5.4) (24%)
CASH FLOW
Cash (used) provided by operations (8.6) 21.5 (140%) (16.0) 13.5 (219%)
Adjusted operating cash flow(1) (3.8) (4.6) 17% (7.4) (6.8) (9%)
Free cash flow(1) (10.5) 11.2 (194%) (19.6) (3.7) nm(3)
PRODUCTION AND SALES (bopd)
Gross working-interest (GWI) – Cuba 3,029 4,420 (31%) 3,153 4,432 (29%)
Total net working-interest (NWI) 1,931 1,523 27% 1,841 1,648 12%
AVERAGE REFERENCE PRICE (US$ per barrel)
U.S. Gulf Coast High Sulphur Fuel Oil (USGC HSFO) 24.86 61.26 (59%) 30.99 61.15 (49%)
AVERAGE-REALIZED PRICE(1) (NWI)
Cuba ($ per barrel) $ 29.82 $ 62.11 (52%) $ 32.27 $ 60.47 (47%)
UNIT OPERATING COSTS(1) (GWI)
Cuba ($ per barrel) $ 26.92 $ 19.93 35% $ 27.11 $ 20.56 32%
SPENDING ON CAPITAL(2)
Development, facilities and other $ (0.1) $ (0.5) 80% $ - $ 1.0 (100%)
Exploration 1.2 11.8 (90%) 2.8 16.0 (83%)
$ 1.1 $ 11.3 (90%) $ 2.8 $ 17.0 (84%)
(1) For additional information see the Non-GAAP measures section.
(2) Spending on capital for the six months ended June 30, 2019 excludes right of use assets recognized on adoption of IFRS 16. Refer to note 4 of the audited consolidated
financial statements for the year ended December 31, 2019 for additional information.
Gross working-interest oil production in Cuba in Q2 2020 was 3,029 barrels of oil per day (bopd) , down 31% from 4,420 bopd
for Q2 2019. Lower production in the current year period was primarily due to natural reservoir declines and the absence of new
development drilling.
Revenue in Q2 2020 was $6.0 million, down 20% when compared to Q2 2019 due to lower realized prices in Cuba, but partially
offset by a weaker Canadian dollar relative to the U.S. dollar.
Sherritt International Corporation 7
Unit operating costs in Cuba in Q2 2020 were $26.92 per barrel, up 35% when compared to Q2 2019 as a result of lower GWI
production and the impact of a weaker Canadian dollar relative to the U.S. dollar. Costs in Cuba are generally denominated in
U.S. currency. Spending on equipment has been deferred until the test results of Block 10 can be finalized.
Capital spending in Q2 2020 of $1.1 million was 90% lower as drilling on Block 10 was completed in late 2019. Q2 2020 costs
include Block 10 carrying costs.
Subsequent to quarter end, Sherritt completed a preliminary analysis of Block 10 test samples. The analysis, which was delayed
by two months due to cargo travel restrictions imposed by Cuba due to COVID -19, was inconclusive. Sherritt plans to collect
new test samples to analyze in the coming weeks now that cargo travel restrictions have been lifted.
Power
For the three months ended For the six months ended
2020 2019 2020 2019
$ millions (33 ⅓% basis), except as otherwise noted June 30 June 30 Change June 30 June 30 Change
FINANCIAL HIGHLIGHTS
Revenue $ 9.6 $ 11.1 (14%) $ 19.0 $ 21.8 (13%)
Earnings from operations 1.6 0.8 nm(4) 2.9 1.7 71%
Adjusted EBITDA(1) 7.0 7.1 (1%) 13.5 14.3 (6%)
CASH FLOW
Cash provided by operations 8.3 11.6 (28%) 26.7 15.2 76%
Adjusted operating cash flow(1) 15.7 7.0 124% 28.9 13.3 117%
Free cash flow(1) 8.3 11.5 (28%) 26.7 14.6 83%
PRODUCTION AND SALES
Electricity (GWh) 153 180 (15%) 306 353 (13%)
AVERAGE-REALIZED PRICE(1)
Electricity ($/MWh) $ 58.48 $ 56.20 4% $ 57.73 $ 55.97 3%
UNIT OPERATING COSTS(1) ($/MWh)
Base 14.12 16.24 (13%) 14.09 18.00 (22%)
Non-base(2) - 0.11 (100%) 0.25 0.27 (7%)
14.12 16.35 (14%) 14.34 18.27 (22%)
NET CAPACITY FACTOR (%) 49 57 (14%) 48 56 (14%)
SPENDING ON CAPITAL(3)
Sustaining $ - $ 0.1 (100%) $ - $ 0.6 (100%)
$ - $ 0.1 (100%) $ - $ 0.6 (100%)
(1) For additional information see the Non-GAAP measures section.
(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 or as service
concession arrangements.
(3) Spending on capital for the six months ended June 30, 2019 excludes right of use assets recognized on adoption of IFRS 16. Refer to note 4 of the audited consolidated
financial statements for the year ended December 31, 2019 for additional information.
Power production in Q2 2020 was 153 gigawatt hours (GWh) of electricity, down 15% from 180 GWh for the comparable period
of 2019 as a result of a decline in gas supply.
Average-realized prices in Q2 2020 were $58.48, up 4% from $56.20 last year. The increase was due to the depreciation of the
Canadian dollar relative to the U.S. currency.
Revenue in Q2 2020 totaled $9.6 million, down 14% from $11.1 million for last year. The decrease was primarily due to lower
power production.
Unit operating costs in Q2 2020 were $14.12/MWh, down 14% from $16.35/MWh for last year. Sherritt continues to limit
operational spending in relation to the receipt of funds under its Cuban energy agreements. Unit operating costs for Q2 2020
were also impacted by a lower production and a weakening of the Canadian dollar relative to the U.S. dollar as Power operating
costs are generally denominated in U.S. currency.
2020 Second Quarter Report
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8 Sherritt International Corporation
2020 REVIEW OF STRATEGIC PRIORITIES
The table below lists Sherritt’s Strategic Priorities for 2020, and summarizes how the Corporation has performed against those priorities.
Strategic Priorities 2020 Actions Status
PRESERVE LIQUIDITY AND BUILD
BALANCE SHEET STRENGTH
Continue to emphasize de-leveraging of the
balance sheet within the context of a low
commodity price environment.
Sherritt launched a balance sheet initiative in Q1 2020 aimed
at strengthening the Corporation’s capital structure. In Q2,
Sherritt announced amended terms that received
overwhelming support from stakeholders. Pending court
approval of the transaction and closing which, subject to the
satisfaction or waiver of the applicable conditions to the
transaction, is expected by August 31, the transaction will
result in the elimination of approximately $305 million in total
debt and annual interest savings of up to $16 million. In
response to the economic uncertainty caused by the spread of
COVID-19, Sherritt has implemented a number of austerity
measures and identified opportunities to save or defer
approximately $90 million of capital spend, operating and
administrative expenses. These austerity measures will be
applied against 2020 budgeted expenditures for Sherritt’s
operations and corporate office as well as the Moa JV (100%
basis). In Q2 2020, Sherritt reduced its administrative
expenses by $1 million when compared to Q2 2019 (excluding
stock-based compensation, depreciation and costs associated
with the balance sheet initiative).
Optimize working capital and receivables
collection
Largely as a result of Cuba’s reduced access to foreign
currency due to the impacts of COVID -19 and ongoing US
sanctions, Sherritt received US$11.6 million of an expected
US$22.5 million in Cuban energy payments in Q2 2020 .
Sherritt anticipates variability in the timing and the amount of
energy payments through 2020.
Operate the Metals business to maintain a
leadership position as a low-cost producer
of finished nickel and cobalt while
maximizing Free Cash Flow
The Moa JV reduced mining, processing and refining (MPR)
costs in Q2 2020 by 16% from last year through a combination
of factors, including lower input commodity prices, the benefits
of ongoing operational excellence initiatives and the
implementation of austerity measures.
UPHOLD GLOBAL OPERATIONAL
LEADERSHIP IN FINISHED NICKEL
LATERITE PRODUCTION
Further reduce NDCC towards the goal of
being consistently in the lowest cost
quartile.
NDCC in Q2 2020 increased by 2 % to US$3.92/lb from
US$3.83/lb last year despite lower MPR costs. The increase
was attributable to lower cobalt by-product credits as result of
softer cobalt prices and demand since the start of global
pandemic and also due to lower fertilizer prices.
Maximize production of finished nickel and
cobalt and improve predictability over 2019
results
Based on production results on a year-to-date basis, the Moa
JV is on track to produce between 32,000 and 33,000 tonnes
of finished nickel and between 3,300 tonnes and 3,400 tonnes
of finished cobalt in 2020.
Achieve peer leading performance in
environmental, health, safety and
sustainability
In Q2 2020, Sherritt experienced one recordable and one lost
time incident at the Moa nickel site.
Up to June 30th 2020, the Moa Joint Venture (Moa Nickel Site
and Fort Site) had a total recordable incident frequency rate
(TRIFR) of 0.22 and a lost time incident frequency rate (LTIFR)
of 0.09; the Oil and Gas business had a TRIFR of 0.26 and a
LTIFR of 0.00; and the P ower business had a TRIFR and
LTIFR of 0.00.
Overall Sherritt had TRIFR of 0.20 and a LTIFR rate of 0.07.
Sherritt remains in the lowest quartile of its benchmark peer
set of data.
OPTIMIZE OPPORTUNITIES IN
CUBAN ENERGY BUSINESS
Successfully execute Block 10 drilling
program
Following preliminary analysis of Block 10 samples that were
inconclusive, testing is slated to resume now that cargo travel
restrictions due to COVID-19 have been lifted.