Sherritt Ends 2020 With Strengthened Balance Sheet and Well- positioned to Capitalize on Electric Vehicle Market Growth
Sherritt International Corporation 1
For immediate release
Sherritt Ends 2020 With Strengthened Balance Sheet and Well-
positioned to Capitalize on Electric Vehicle Market Growth
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED
STATES
Toronto – February 10, 2021 – 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 finan cial
results for the three- and 12-month periods ended December 31, 2020. All amounts are in Canadian currency unless otherwise
noted.
CEO COMMENTARY
“With a significantly strengthened balance sheet, a considerably improved outlook for nickel and cobalt, and encouraging signs
for improved Cuban -U.S. relations, Sherritt ended 2020 in its strongest position in more than a decade,” said David Pathe,
President and CEO of Sherritt International. “Keys to our progress were completion of a debt restructuring initiative that resolved
our Ambatovy investment legacy while extending our debt maturities to the fourth quarter of 2026, ongoing commitments to
operational excellence and employee health and safety that contributed to production results largely in line with our guidanc e
for the year, and measures we took to preserve liquidity against a backdrop of a global pandemic and volatile commodity prices.”
Mr. Pathe added, “We plan to sustain our momentum into 2021 – even as we manage against the continuing global pandemic
– by capitalizing on the growing demand for high purity nickel a s the market adoption of electric ve hicles and requirement for
low-carbon emissions accelerate, and on the current nickel price nearly US$2 per pound higher than the average for 2020. We
will also be focused on our ESG commitments in 2021 and beyond. Over the longer term, we expect to fuel our growth through
an increased focus on commercializing the innovation and process development capabilities of our Technologies Group.”
SELECTED Q4 2020 HIGHLIGHTS
Sherritt’s share of finished nickel and cobalt production at the Moa Joint Venture (Moa JV) were 4,020 tonnes and 451
tonnes, respectively. Despite being impacted by unplanned autoclave repairs at the refinery in Fort Saskatchewan,
Alberta, Q4’s production totals helped to offset the negative effects of railway service disruptions in Q1 and an extended
plant shutdown in Q3 due to additional found work scope, and reduced contractor availability due to COVID-19, enabling
Sherritt to largely meet its production guidance at the Moa JV for the year.
Sherritt received US$20 million in distributions from the Moa JV, representing its 50% share of total dividends declared.
Sherritt also received an additional US$20 million, representing the 50% share of distributions of its Moa JV partner,
General Nickel Company (“GNC”) , pursuant to an overdue receivables agreement negotiated by Sherritt in 2019.
Distributions received in Q4 were indicative of improving nickel and cobalt prices and strong operational performance.
Sherritt received US$30.1 million in Cuban energy payments as part of the overdue receivables agreement with its
Cuban partners. Included in this amount was the aforementioned US$20 million re-directed to Sherritt by GNC to be
applied against amou nts owed by Energas. Total payments consisted of US$27.7 million received in Canada and
US$2.4 million accepted in Cuba to support local costs for Sherritt’s Oil and Gas operations.
Adjusted EBITDA was $10.7 million, down 34% from last year due to declining Oil and Gas contributions related to
maturing oil fields and a $ 7.2 million increase in non-cash share-based compensation as a result of the 116% rise in
Sherritt’s share price in Q4 2020.
Sherritt employee members of Unifor at the refinery in Fort Saskatchewan ratified a new collective agreement through
March 31, 2022. The new agreement extends Sherritt’s track record of no labour disruptions at the refinery since it
began operations in 1954.
Sherritt renewed and extended its $70 million credit f acility with its syndicate of lenders to April 30, 2022 , agreeing to
more flexible financial covenants. As at December 31, Sherritt had drawn $8 million against the facility.
2020 Fourth Quarter Report
Press Release
2 Sherritt International Corporation
Sherritt purchased two separate put nickel options, each on 25% of its share of attributable finished nickel production
from the Moa JV for 2021 . The first, at a strike price of US$6.50/lb for a total cost of $5.8 million, is in effect for a 12 -
month period starting January 1, 2021. The second, at a strike price of US$7.00/lb for a total of $3.5 million, is in effect
for a nine-month period starting April 1, 2021. Any cash settlements will be completed on a monthly basis against the
average monthly nickel price on the London Metal Exchange and will involve no physical delivery. The hedging strategy
is designed to provide Sherritt with cash flow security in 2021 against downward changes in nickel prices.
Sherritt announced that its CEO, David Pathe, plans to step down from his role in 2021. The Company has launched a
search for his suc cessor, and Mr. Pathe has agreed to stay on until a replacement is in place to ensure an orderly
transition.
SUMMARY OF KEY 2020 DEVELOPMENTS
Sherritt ended 2020 with cash and cash equivalents of $167.4 million ($75.0 million held by Energas in Cuba), up from
$166.1 million last year ($79.8 million held by Energas in Cuba). The higher cash position and increased amount held
in Canada were driven by the receipt of $39.6 million of dividend distributions from the Moa JV, receipt of US$77 million
of payments from Cuban energy partners, and lower interest payments of $5.0 million. The increased cash position
was offset by balance sheet transaction costs of $27.6 million , capital expenditures of $12.1 million, and nickel put
option purchase costs of $9.3 million.
Sherritt successfully completed a balance sheet initiative in Q3 that improved its capital structure and addressed its
Ambatovy investment legacy following stakeholder approval. As a result of the transaction, Sherritt reduced its
outstanding debt by a pproximately $301 million, extended the maturities of its note obligations to 2026 and 2029,
reduced annual interest payment s by more than $15 million, terminated its debt obligations relating to the Ambatovy
Joint Venture, and ended the cross-default risk of the Ambatovy shareholder agreement, all without any dilution of its
common shares.
Sherritt implemented a number of austerity measures that resulted in the reduction or deferral of more than $90 million
in budgeted expenditures for the Moa JV (100% basis), Sherritt’s Oil and Power operations, and Corporate office, and
reduced administrative expenses by $5.2 million (excluding non-cash share-based compensation and depreciation).
Sherritt’s share of production, unit costs, and capital spend for each of its business units in 2020 were largely in line
with guidance for the year, indicative of ongoing commitments to operational excellence and employee health and
safety, particularly in light of the COVID-19 global pandemic.
Net loss from continuing operati ons in FY2020 totaled $85.7 million or $0.22 per share. The amounts were an
improvement from the net loss of $142.4 million , or $0.36 per share, for FY2019. In FY2020 Sherritt recognized
earnings from discontinued operations of $107.9 million related to the disposition of its 12% ownership interest in the
Ambatovy Joint Venture as part of the balance sheet initiative and reclassification as discontinued operations.
Sherritt committed to identifying commercial applications for innovations developed by its Technologies Group aimed
at making next generation lateritic ore mining more economically viable and more sustainable.
Sherritt implemented a number of additional health and safety measures and work processes designed to protect
employees, suppliers and other stakeholders at its operations in response to the spread of COVID -19. As a result of
the additional measures, Sherritt had minimal impact to its nickel, cobalt, power, and oil production in 2020. The
additional measures will remain in effect through the duration of the pandemic.
Sherritt released its 2019 Sustainability Report showing progress against its Environmental, Social, and Governance
(ESG) targets, including efforts to reduce greenhouse emissions, maintain peer -leading safety metrics, and
commitments to doubling the number of female employees by 2030. Sherritt will continue to develop and reinforce its
ESG commitments in 2021 and beyond.
Sherritt signed the BlackNorth Initiative Pledge aimed at ending anti-Black systemic racism and creating opportunities
for the BIPOC community.
DEVELOPMENTS SUBSEQUENT TO THE YEAR END
Sherritt received a $20.3 million prepayment ag ainst nickel deliveries in 2021. The prepayment is consistent with
Sherritt’s efforts to enhance its liquidity.
Sherritt International Corporation 3
Sherritt’s refiner y in Fort Saskatchewan had its operating license renewed for 10 years by Alberta’s Ministry of
Environment and Parks.
(1) For additional information see the Non-GAAP measures section of this press release.
Q4 2020 FINANCIAL HIGHLIGHTS(1)
For the three months ended For the year ended
2020 2019 2020 2019
$ millions, except per share amount December 31 December 31 Change December 31 December 31 Change
Revenue 28.2 31.0 (9%) $ 119.8 $ 136.3 (12%)
Combined revenue(2) 135.9 143.0 (5%) 497.0 544.9 (9%)
Net earnings (loss) from continuing operations for the period (49.3) (65.6) 25% (85.7) (142.4) 40%
Net earnings (loss) for the period (49.6) (185.5) 73% 22.2 (367.7) 106%
Adjusted EBITDA(2) 10.7 17.5 (39%) 38.9 46.0 (15%)
Cash provided (used) by continuing operations 12.7 7.3 74% 48.0 (10.9) 540%
Combined adjusted operating cash flow(2) 25.8 (3.4) nm(3) 71.7 (6.1) nm
Combined free cash flow(2) (11.6) 28.1 (141%) 17.9 (24.2) 174%
Average exchange rate (CAD/US$) 1.303 1.320 - 1.341 1.327 -
Net earnings (loss) from continuing operations per share (0.12) (0.17) 29% (0.22) (0.36) 39%
(1) All non-GAAP measures exclude the Ambatovy Joint Venture performance. As a result of the transaction in Q3 2020, Ambatovy Joint Venture’s share of loss of an
associate and other statement of comprehensive income (loss) items related to the Ambatovy Joint Venture were reclassified to the loss on discontinued operations
in the current and comparative periods. The earnings on discontinued operations also includes the gain on disposal of Ambatovy Joint Venture Interests in the
current year period.
(2) For additional information see the Non-GAAP measures section.
(3) Not meaningful (nm)
$ millions, as at December 31 2020 2019 Change
Cash, cash equivalents and short-term investments 167.4 166.1 1%
Loans and borrowings 441.4 713.6 (38%)
Cash, cash equivalents , and short -term investments at December 31, 2020 were $167.4 million, up from $165.1 million at
September 30, 2020 . The increase was due to a number of factors including, receipt of more than US$30.1 million of Cuban
energy payments and $26.3 million of dividend distributions from the Moa Joint Venture, partly offset by negative cash flow at
Oil and Gas and the $9.3 million purchase of nickel put options.
As at December 31, 2020, $75.0 million of Sherritt’s cash and cash equivalents was held by Energas in Cuba, down from $82.1
million at the end of Q3 2020.
Sherritt received US$30.1 million in Cuban energy payments as part of its overdue receivables agreement wi th its Cuban
partners in Q4 2020. Payments, which included US$27.7 million received in Canada and US$2.4 million accepted in Cuba to
support local costs relating to Sherritt’s Oil and Gas operations, were higher than expected as Sherritt’s Moa Joint Venture
partner, GNC, redirected US$20.0 million of its share of dividends paid by the joint venture to Sherritt to reduce the overdue
receivables.
Total overdue scheduled receivables at December 31, 2020 were US$145.9 million, down from US$159.1 million at September
30, 2020 due to the timing of payments received and re-direction of Moa Joint Venture dividends.
Adjusted net loss(1)
2020 2019
For the three months ended December 31 $ millions $/share $ millions $/share
Net earnings (loss) from continuing operations (49.3) (0.12) (65.6) (0.17)
Adjusting items:
Unrealized foreign exchange (gain) loss 4.3 0.01 4.6 0.01
Moa JV expansion loans receivable revaluation - - 6.8 0.02
Impairment of Power intangible assets - - 20.3 0.05
Impairment of Power assets 9.4 0.02 1.4 -
Other 3.9 0.01 14.3 0.04
Adjusted net loss from continuing operations (31.7) (0.08) (18.2) (0.05)
2020 Fourth Quarter Report
Press Release
4 Sherritt International Corporation
2020 2019
For the year ended December 31 $ millions $/share $ millions $/share
Net earnings (loss) from continuing operations (85.7) (0.22) (142.4) (0.36)
Adjusting items:
Unrealized foreign exchange (gain) loss (4.4) (0.01) 3.8 0.01
Gain on debenture exchange (142.3) (0.36) - -
Moa JV expansion loans receivable revaluation (6.4) (0.02) 6.8 0.02
Impairment of Oil assets 115.6 0.29 - -
Impairment of Power intangible assets - - 20.3 0.05
Impairment of Power assets 9.4 0.02 1.4 -
Other 9.1 0.04 13.1 0.04
Adjusted net loss from continuing operations (104.7) (0.26) (97.0) (0.24)
(1) For additional information see the Non-GAAP measures section.
Net loss for FY2020 includes a gain of $142.3 million on the exchange of debentures as part of the balance sheet initiative offset
by an impairment loss recognized on the write down of exploration and evaluation assets and capitalized spare parts relating to
Block 10 drilling activities totaling $115.6 million and an impairment on Power assets of $9.4 million.
On the close of the balance sheet initiative in Q3 2020, Sherritt exchanged its 12% ownership interest and its loans and operator
fee receivables in the Ambatovy Joint Venture for $145.6 million owed to its partners. Consistent with IFRS standards, Sherritt’s
investment in the Ambatovy Joint Venture met the criteria to be classified and presented as discontinued operations for
accounting purposes. As a result, Sherritt’s share of loss of an associate, net of tax, and other components of comprehensive
income (loss) related to the Ambatovy Joint Venture were reclassified to the earnings (loss) on discontinued operations, net of
tax, in the current and comparative periods. For FY2020, Sherritt recognized earnings on the disposition and reclassification of
$107.9 million.
METALS MARKET
Nickel
Nickel market conditions continued to improve in the fourth quarter of 2020, sustaining the momentum triggered by the restart
of economic activities late in the second quarter, particularly in China, following the easing of restrictions caused by the COVID-
19 pandemic.
Market conditions in Q4 also benefited from renewed interest in electric vehicles, bullish forecasts by industry analysts for
accelerated demand growth, and multiple announcements from automakers indicating considerable investments to significantly
expand electric vehicle production capacity. High purity, or Class 1 nickel, as produced by Sherritt, will be the primary me tal in
battery chemistries most automakers have adopted.
Nickel prices on the London Metal Exchange opened at US$6.52/lb on October 1 and closed on December 31 at US$7.50/lb,
representing a growth of 15%. Nickel prices in 2020 experienced considerable volatilit y, ranging from a low of US$5.01/lb to a
high of US$8.07/lb. In 2020, nickel prices ended the year up 18% from the start of the year.
While nickel prices climbed during Q4, nickel inventory levels on the London Metal Exchange (LME) and the Shanghai Future
Exchange (SHFE) remained relatively flat. Combined inventory levels at December 31 totaled approximately 262,90 0 tonnes,
up from approximately 262,7 00 tonnes at September 30. Nickel inventories on the LME and SHFE have stayed relatively flat
despite the reduced production of stainless steel globally on a year to date basis largely because a number of nickel mines
around the world have either significantly reduced production or have gone into care and maintenance as a result of the spread
of COVID-19. Production at the Moa JV has largely been unaffected by the spread of COVID-19 in 2020.
The momentum of higher nickel prices has carried over into 2021, reaching US$8.38/lb on February 10, the highest price since
August 2019. Nevertheless, nickel prices are expected to be volatile over the near and medium term given the softening of
demand expected with the interruption of manufacturing activities in China caused by Lunar New Year celebrations in February,
and also by the ongoing economic uncertainty caused by the continued spread of the COVID-19 pandemic.
As mining operations resume production activities, nickel inven tory 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, particularly if the second wave of the pandemic is prolonged.
Sherritt International Corporation 5
Added to this uncertainty is the substantial increase expected in nickel pig iron production, leading some industry analysts to
predict an oversupplied nickel market in the near term. This development is putting additional press ure on producers of lower-
grade material such as ferronickel, which is currently selling at significant discount. Combined, these developments suggest
near-term nickel price fluctuations.
Over the longer term, as demand for nickel is expected to grow with the increased adoption of electric vehicles and requirement
for low-carbon emissions since nickel – along with cobalt – is a key metal needed to manufacture assorted energy storage
batteries, more favorable price conditions with less volatility are expected.
Cobalt
Cobalt prices remained relatively flat in the fourth quarter of 2020 according to data collected by Fastmarkets MB. Standard
grade cobalt prices on December 31 closed at US$15.60/lb, down from US$15.65/lb at the start of the quarter. Stable prices in
the fourth quarter suggest that soft market conditions experienced earlier in the year due the onset of the COVID -19 pandemic
have improved. Cobalt prices had declined to US$13.90/lb in July from U$15.53/lb at the start of 2020, largely due to red uced
demand emanating from markets, such as the aerospace sector, most impacted by the pandemic.
Since the start of 2021, cobalt prices have climbed to more than US$22.00/lb, largely on news reports that consumers in China
have started to stockpile inventory to take advantage of weak prices in anticipation of stronger demand expected with accelerated
growth of electric vehicle demand expected in the coming years. Cobalt is a key component of rechargeable batteries providing
energy density and stability.
2020 Fourth Quarter Report
Press Release
6 Sherritt International Corporation
REVIEW OF OPERATIONS
Moa Joint Venture (50% interest) and Fort Site (100%)
For the three months ended For the year ended
2020 2019 2020 2019
$ millions, except as otherwise noted December 31 December 31 Change December 31 December 31 Change
FINANCIAL HIGHLIGHTS
Revenue $ 118.8 $ 123.4 (4%) $ 425.5 $ 461.0 (8%)
Earnings from operations 4.4 8.7 (49%) 3.9 11.0 (65%)
Adjusted EBITDA(1) 24.8 26.2 (5%) 68.7 70.1 (2%)
CASH FLOW
Cash provided by operations $ 13.4 $ 51.6 (74%) $ 53.7 $ 59.6 (10%)
Adjusted operating cash flow(1) 24.9 24.0 4% 64.7 66.3 (2%)
Free cash flow(1) 4.1 44.7 (91%) 24.5 33.7 (27%)
Distributions and repayments to Sherritt from the Moa JV 26.3 14.9 77% 39.6 43.3 (9%)
PRODUCTION VOLUMES (tonnes)
Mixed Sulphides 4,421 4,203 5% 17,429 17,010 2%
Finished Nickel 4,020 4,049 (1%) 15,753 16,554 (5%)
Finished Cobalt 451 411 10% 1,685 1,688 -
Fertilizer 56,277 56,284 - 235,886 249,207 (5%)
NICKEL RECOVERY (%) 86% 80% 8% 86% 84% 2%
SALES VOLUMES (tonnes)
Finished Nickel 4,177 4,089 2% 15,687 16,698 (6%)
Finished Cobalt 443 437 1% 1,678 1,766 (5%)
Fertilizer 48,542 46,467 4% 187,922 165,162 14%
AVERAGE-REFERENCE PRICES (US$ per pound)
Nickel $ 7.23 $ 7.01 3% $ 6.25 $ 6.32 (1%)
Cobalt(2) 15.73 16.90 (7%) 15.58 16.57 (6%)
AVERAGE REALIZED PRICE(1)
Nickel ($ per pound) $ 9.13 $ 9.38 (3%) $ 8.16 $ 8.37 (3%)
Cobalt ($ per pound) 17.55 19.69 (11%) 17.84 17.80 -
Fertilizer ($ per tonne) 298 351 (15%) 343 417 (18%)
UNIT OPERATING COSTS(1) (US$ per pound)
Nickel - net direct cash cost $ 4.47 $ 3.75 19% $ 4.20 $ 4.14 1%
SPENDING ON CAPITAL(3)
Sustaining $ 9.3 $ 6.9 35% $ 32.2 $ 33.6 (4%)
$ 9.3 $ 6.9 35% $ 32.2 $ 33.6 (4%)
(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 year ended December 31, 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.
Mixed sulphides production at the Moa JV in Q4 2020 was 4,421 tonnes, up 5% from 4,203 tonnes produced in Q4 2019. The
increase in Q4 2020 was largely due to normalized availability of diesel fuel supply at Moa, resulting in the greater use of mining
equipment and better access to higher grade material compared to last year. Mixed sulphides production at Moa for much of the
second-half of 2019 was negatively impacted by diesel fuel conservation measures implemented in response to reduced diesel
fuel supply availability caused by economic and trade sanctions imposed on Venezuela, Cuba’s largest oil supplier. The diesel
conservation measures in 2019 included reduced use of mining equipment and increased draw down of lower grade ore
stockpiles.
Mixed suphides production for FY2020 was 17,429 tonnes, up 2% from FY2019. The growth was largely attributable to normalized
diesel supply in 2020, but also reflective of the ongoing benefits of operational excellence initiatives implemented over the past
24 months and Cuba’s success in limiting the spread of the COVID-19 virus in the country since the start of the global pandemic.
Sherritt International Corporation 7
Finished nickel production in Q4 2020 totaled 4,020 tonnes, largely flat with the 4,049 tonnes produced in Q4 2019 while finished
cobalt production for Q4 2020 was 451 tonnes, up 10% from the 411 tonnes produced in Q4 2019. Finished production totals in
Q4 2020 were negatively impacted by unplanned autoclave repairs at the refinery in Fort Saskatchewan. The repairs resulted in
a reduction of nickel and cobalt production to 50% of normal capacity for several days. Repairs were completed before the end of
Q4 2020, and finished production resumed to normal capacity.
Despite being impacted by unplanned repairs, Q4’s production totals helped to offset the negative effects of railway service
disruptions in Q1 and an extended plant shutdown in Q3 due to additional found work scope and reduced contractor availability
due to COVID-19, enabling the Moa JV to largely meet its production guidance of 32,000 to 33,000 tonnes on a 100% basis for
the year.
Sherritt’s share of finished nickel production for FY2020 was 15,753 tonnes, down 5% from 16,554 tonnes for FY2019. The
decline was largely attributable to the extension of the planned annual shutdown by four days due to additional repair scope
identified and reduced contractor availability on account of COVID-19.
Finished cobalt production for FY2020 was 1,685 tonnes, flat with the 1,688 tonnes produced in FY2019. Finished cobalt
production at the Moa JV for FY2020 on a 100% basis was in line with guidance for the year.
Sales volume for finished nickel and cobalt in Q4 2020 were up 2% and 1%, respectively, from last year. On a full-year basis,
sales volume for finished nickel and cobalt for FY2020 were down 6% and 5%, respectively from FY2019. The year-over-year
decline was largely due to the extended plant shutdown in Q3 and timing of deliveries.
Although nickel and cobalt sales volumes were higher in Q4 2020, revenue declined by 4% to $118.8 million from $123.4 million
for Q4 2019. The decline was attributable to a combination of factors, including a 7% decline in the cobalt reference price and
lower realized prices for nickel and cobalt of 3% and 11%, respectively, due to a weakened U.S. currency relative to Q4 2019.
Revenue in Q4 2020 was also impacted by a 15% decline in realized fertilizer prices as a result of increased competition, although
lower fertilizer prices were partially offset by higher sales volumes of 4%.
Mining, processing and refining (MPR) costs per pound of nickel sold for Q4 2020 and FY2020 were down 11% and 10% to
US$4.73/lb and US$4.93/lb, respectively. MPR costs declined primarily due to lower input costs related to sulphur and fuel oil as
well as to austerity measures undertaken to reduce operating expenses consistent with Sherritt’s efforts to preserve liquidity and
mitigate the effects of volatile commodity prices and the economic uncertainty caused by the global pandemic.
Despite a reduction in MPR costs, net direct cash cost (NDCC) per pound of nickel sold in Q4 2020 was up 19% to US$4.47/lb
from US$3.75/lb for the same period last year. The increase was attributable to a combination of factors, including lower cobalt
and fertilizer by-product credits due to lower realized prices and higher by-product costs primarily resulting from the planned bi-
annual acid plant maintenance shutdown at the refinery in Fort Saskatchewan.
NDCC for FY2020 was US$4.20/lb, up marginally from US$4.14/lb for FY2019. The increase was largely attributable to the
negative impact of US$0.66/lb relating to lower fertilizer by-product credits due to lower realized prices and higher by-product
costs primarily resulting from the planned bi-annual acid plant in Fort Saskatchewan. Developments that contributed to higher
NDCC were, however, largely offset by the reduction in MPR costs. NDCC for FY2020 was, nevertheless, well within the guidance
for the year.
Sustaining capital spending in Q4 2020 was $9.3 million, up 35% from $6.9 million in Q4 2019. The year-over-year increase was
due primarily to the timing of planned capital expenditures. Capital spending for FY2020 was $32.2 million, down 4% from last
year. Capital spending for FY2020 was largely in line with guidance for the year.
As previously disclosed, Sherritt and the General Nickel Company S.A., the two Moa JV shareholders, considered amendments
to the Moa JV expansion loans in 2020, and mutually agreed to convert $548.0 million (100% basis) of loans receivable into equity.
Based on Sherritt’s 50% equity interest in the Moa JV, the agreement resulted in a decrease of the Corporation’s expansion loans
receivable and a commensurate increase in Sherritt’s investment in the Moa JV. The conversion of the expansion loans into
equity, which did not result in any change to the ownership interest percentage of either Moa JV shareholder, results in a simpler
capital structure for the Moa JV, and results in all future distributions to shareholders being in the form of dividends.
2020 Fourth Quarter Report
Press Release
8 Sherritt International Corporation
Oil and Gas
For the three months ended For the year ended
2020 2019 2020 2019
$ millions, except as otherwise noted December 31 December 31 Change December 31 December 31 Change
FINANCIAL HIGHLIGHTS
Revenue $ 6.2 $ 6.3 (2%) $ 24.9 $ 29.7 (16%)
Earnings (loss) from operations (5.9) (7.1) 17% (136.4) (24.7) (452%)
Adjusted EBITDA(1) (3.8) (6.2) 39% (13.7) (15.4) 11%
CASH FLOW
Cash (used) provided by operations (5.3) 5.2 (202%) (26.5) 9.5 (379%)
Adjusted operating cash flow(1) (1.0) (8.0) 88% (11.1) (19.6) 43%
Free cash flow(1) (6.4) (1.2) (433%) (31.8) (18.6) (71%)
PRODUCTION AND SALES (bopd)
Gross working-interest (GWI) – Cuba 2,599 3,785 (31%) 2,947 4,175 (29%)
Total net working-interest (NWI) 1,518 1,182 28% 1,687 1,417 19%
AVERAGE REFERENCE PRICE (US$ per barrel)
U.S. Gulf Coast High Sulphur Fuel Oil (USGC HSFO) 40.56 40.76 - 35.15 53.58 (34%)
AVERAGE-REALIZED PRICE(1) (NWI)
Cuba ($ per barrel) $ 38.74 $ 42.07 (8%) $ 34.27 $ 53.67 (36%)
UNIT OPERATING COSTS(1) (GWI)
Cuba ($ per barrel) $ 23.13 $ 24.23 (5%) $ 27.17 $ 21.60 26%
SPENDING ON CAPITAL(2)
Development, facilities and other $ 0.3 $ (0.8) 138% $ (1.8) $ - -
Exploration 0.3 8.6 (97%) 3.4 29.7 (89%)
$ 0.6 $ 7.8 (92%) $ 1.6 $ 29.7 (95%)
(1) For additional information see the Non-GAAP measures section.
(2) Spending on capital for the year ended December 31, 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 Q4 2020 was 2,599 barrels of oil per day (BOPD), down 31% from 3,785 BOPD
produced in Q4 2019. Lower production was primarily due to natural reservoir declines at Puerto Escondido/Yumuri and the
absence of new development drilling.
Gross working-interest oil production in Cuba for FY2020 was 2,947 BOPD, largely in line with guidance for the year.
Revenue in Q4 2020 was relatively unchanged at $6.2 million when compared to $6.3 million for Q4 2019. The increase in cost
recovery production in Cuba helped to offset lower production from Spain.
Revenue for FY2020 was $24.9 million, down 16% from last year as lower realized prices in Cuba more than offset the higher
cost-recovery production in 2020.
Unit operating costs in Cuba in Q4 2020 were $23.13 per barrel, down 5% from Q4 2019 largely as a result of a stronger Canadian
dollar relative to the U.S. currency as operating costs are generally denominated in U.S. dollars.
Unit operating costs in Cuba for FY2020 were $27.17 per barrel, up 26% when compared to FY2019. The year-over-year increase
was largely due to lower production but offset by lower labour costs. Given the anticipated expiration of the production sharing
contract (PSC) at Puerto Escondido/Yumuri on March 20, 2021, Sherritt has not provided any production, unit costs or capital
spend guidance for its Oil and Gas business unit for 2021 as a result of limited performance visibility for the year.
Sherritt’s loss from operations in 2020 includes a total impairment loss of $115.6 million relating to Block 10 drilling activities as
previously disclosed. The impairment loss consists of a $95.0 million impairment on exploration and evaluation assets and a
$20.6 million impairment on capital spare parts included within property, plant and equipment. The impairment was determined
following the completion of an analysis of Block 10 drilling samples that confirmed that the existing well cannot be used for future
production purposes. Sherritt continues to evaluate its options with respect to Block 10, including seeking an earn -in partner.
Sherritt is not contemplating any further investments in Block 10 drilling without first securing an earn-in partner.