Sherritt reports strong third quarter results and provides details of its Moa JV expansion program
Sherritt International Corporation 1
For immediate release
Sherritt reports strong third quarter results and provides details of its
Moa JV expansion program
NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE U.S.
Toronto – November 2, 2022 – Sherritt International Corporation (“Sherritt”, the “Corpora tion”, the “Company”) (TSX: S), a
world leader in the mining and hydrometallurgical refining of n ickel and cobalt from lateritic ores, today reported its financ ial
results for the three and nine months ended September 30, 2022. All amounts are in Canadian currency unless otherwise noted.
“We are very pleased with the progress we have made in meeting key strategic priorities for the year. With the signing of the
agreement to address our Cuban receivables, we are pleased to a nnounce that Sherritt’s Board has approved the next phase
of our expansion plans at the M oa Joint Venture. We narrowed th e scope of our expansion investment to the most critical
components resulting in an estimated cost of US$50 million on a 100% basis. This demonstrates our capital discipline in pursuing
our most valuable brownfields growth objectives,” said Leon Bin edell, President and CEO of Sherritt International Corporation.
“Reaching agreement on our Cuban receivables ahead of defining the expansion scope supports our sound capital and joint
venture management. The investment, which builds on our previou sly approved SPP project, will expand mixed sulphide
intermediate production by 6,500 tonnes of contained nickel and cobalt at Moa at a low capital intensity of approximately
US$13,200 per annual tonne of contained nickel.”
“We continue to be encouraged by strong market fundamentals for our nickel, cobalt and fertilizer products which we expect will
continue into Q4,” continued Mr. Binedell. “Equally important, after months of effort and negotiations, we have finalized an
agreement with our Cuban partners on what we believe is a mutually beneficial, innovative arrangement to address our Cuban
receivables over five years. This arrangement provides the cash we need to pursue our strategic objectives, and continue to
fund our growth initiatives and debt obligations. In addition to the receivables agreement, we received government approval for
the extension of our power generation contract for an additional 20 years. Concurrently, we finalized an extension to our “Moa
swap” payment agreement, thus ensuring that we maintain our int erest in this economically beneficial business while ensuring
we have access to foreign currency from our Power business on a timely basis.”
SELECTED Q3 2022 DEVELOPMENTS
Sherritt had earnings from operations and joint venture for th e quarter of $21.3 million, compared to a loss of
$10.8 million in the same period in the prior year driven by higher nickel and fertilizer sales volume and realized prices
and by the timing of maintenance between the two periods. Our annual maintenance shutdown occurred in the second
quarter of this year versus the third quarter last year. Net loss from continuing operations was $26.9 million, or $(0.07)
per share, compared to a net loss from continuing operations of $15.5 million, or $(0.04) per share, in Q3 2021. The
current period net loss was largely as a result of the recognition of a $48.5 million non-cash loss on revaluation of the
allowances for expected credit losses (ACL) on the cobalt swap agreement (the Cobalt Swap) entered into subsequent
to the quarter-end related to the repayment of the Energas cond itional sales agreement (CSA) receivable as outlined
below.
Sherritt’s adjusted net earning s from continuing operations (1) was $13.9 million, or $0.03 per share for the quarter
compared to an adjusted net loss from continuing operations of $13.4 million, or $(0.03) per share in Q3 2021. Similarly,
for the nine months ended September 30, 2022 adjusted net earnings from continuing operations was $95.0 million, or
$0.24 per share compared to an adjusted net loss from continuin g operations of $28.7 million, or $(0.07) per share in
the same period in the prior year.
Adjusted EBITDA (1) in the quarter was $37.4 million compared to $17.6 million in Q3 2021. The improved Adjusted
EBITDA was driven by higher nickel and fertilizer sales volume and realized prices and by the timing of maintenance
between the two periods. The increase in sales volume was primarily as a result of increased production related to the
timing of maintenance activities in the comparative quarters. For the nine months ended September 30, 2022 Adjusted
EBITDA was $197.9 million compared to $65.8 million, or 201%, higher than the same period in the prior year.
2022 Third Quarter Report
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2 Sherritt International Corporation
Sherritt’s share of finished nickel and cobalt production at t he Moa Joint Venture (Moa JV) was 4,443 tonnes and
419 tonnes, respectively. Finished production was higher in the current quarter primarily due to timing of the planned
annual maintenance shutdown. Our annual maintenance shutdown occurred in the second quarter of this year versus
the third quarter of last year. For the first three quarters of this year, nickel production was 6% higher than the same
period last year, while cobalt production was marginally lower primarily due to the higher nickel to cobalt ratio in the
mixed sulphides from Moa.
Finished nickel sales for the three months ended September 30, 2022 exceeded production volumes while finished
nickel sales for the nine months ended September 30, 2022 were lower than production primarily due to logistics-
related challenges in transporting finished product to customers experienced late in the second quarter and throughout
the third quarter. The temporary order deferrals generally reconciled throughout the third quarter. The order deferrals
were largely related to a more cautious restocking approach taken by consumers after resumption of economic activity
in China following an easing of zero-COVID policies. The positive consumer sentiment of increasing economic activity
in China was tempered by continued recessionary and global infl ation fears as well as the reduction of steel
manufacturing in Europe due to significantly increased energy c osts and energy supply uncertainty. Affected sales
orders were partially offset by higher netback sales to other markets and sales to new customers. Finished cobalt sales
volumes for both three months and nine months ended September 30, 2022 continued lower than production volumes
in Q3 2022, with a contraction in the consumer electronics sector compared with 2021 contributing to reduced lithium
cobalt oxide demand.
The Corporation anticipates inventory levels for nickel will reduce to more typical levels by the end of 2022; however,
given current market conditions, cobalt inventory levels are expected to reduce to more typical levels in the first quarter
of 2023.
Net direct cash cost (NDCC) (1) at the Moa JV was US$6.76/lb compared to US$4.53/lb in Q3 2021. NDCC was higher
in the current year quarter due to higher input commodity costs, including a 131% increase in global sulphur prices, a
46% increase in fuel oil prices and a 156% increase in diesel prices, alongside lower cobalt by-product credit, primarily
due to lower cobalt sales relative to the higher nickel sales volume as a result of delayed cobalt sales. Year-to-date to
September 30, 2022, NDCC was US$4 .39/lb compared to US$4.30/lb in the comparable 2021 period despite the
increase in input commodity prices which were largely offset by higher by-product credits.
In light of lower than expected sales in late Q2 and early Q3 and shipping delays, Sherritt did not receive any
distributions from the Moa JV in Q3. Subsequent to the quarter, Sherritt received $20.6 million (US$15.0 million) as its
share of distributions from the Moa JV. Given prevailing nickel and cobalt prices, planned spending on capital, including
growth capital, working capital needs, and other expected liquidity requirements, Sherritt continues to anticipate higher
distributions in the second half of 2022 compared to the first half.
(1) Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release.
EXPANSION PROJECT UPDATE
With the signing of the Cuban receivables agreements, Sherritt ’s Board approved US$50 million (100% basis) as the
next phase of the Moa JV expans ion plan. The scope of Sherritt’ s expansion investment was narrowed to the most
critical components and reflect the evolving market for nickel and cobalt. With a market focus on electric vehicle (EV)
batteries, Sherritt sees an opportunity to focus its strategy o n increasing production of intermediary products that will
enable it to fully utilize existing capacity at the refinery an d also consider direct sales of intermediate product into the
EV battery supply chain.
With the previously approved Slurry Preparation Plant (SPP) project, the estimated total cost of the two phases of the
expansion is approximately US$77 million (100% basis).
The second phase will focus on expanding mixed sulphide precipi tate (MSP) intermediate production and consist of
the completion of the Leach Plant Sixth Train and Fifth Sulphide Precipitation Train, and construction of additional acid
storage capacity at Moa.
Sherritt International Corporation 3
Upon completion of the SPP, which is still expected in early 2024, and the second expansion phase at the end of 2024,
the total increase in MSP is est imated at 20% of current production or 6,500 tonnes of contained metal, resulting in a
total capital intensity of approximately US$13,200 per annual tonne of contained nickel.
Sherritt estimates that two thirds of the increased production will be processed into finished nickel and cobalt fully utilizing
the current refinery capacity to process the Moa feed, and the remaining could be sold as MSP.
LIFE OF MINE/UPDATED 43-101 TECHNICAL REPORT
The work to complete the Economic Cut-Off Grade (ECOG) and Life of Mine (LOM) development continues at the Moa mine.
In Q3, resource model classifications and pit optimization act ivities were completed. The final development of the LOM
is in progress with expectation of mine plan sequencing and reserves estimates to be completed during Q4.
ECOG and LOM analysis using the latest methodologies are expected to extend the current LOM beyond 2040.
Continued engagement with the Oficina Nacional de Recursos Min erales (ONRM), Cuba’s Natural Resources Agency,
and alignment on the mine execution plan using the new methodologies is expected in Q4.
Development of the NI 43-101 and peer review will occur during Q4 and early Q1 2023. The final draft of the 43-101
is expected to be released by the end of Q1 2023.
DEVELOPMENTS SUBSEQUENT TO QUARTER END
Sherritt issued its 2021 sustainability, climate, and tailings management reports as well as its sustainability scorecard
outlining the Corporation’s perf ormance on environmental, socia l, and governance (ESG) matters. Sherritt continues
to progress on its commitments to achieving net zero greenhouse emissions by 2050, obtaining 15% of overall energy
from renewable sources by 2030, reducing nitrogen oxide emissio n intensity by 10% by 2024, and increasing the
number of women in the workforce to 36% by 2030.
Sherritt finalized the Cobalt Swap agreement with its Cuban pa rtners to settle its total outstanding Cuban receivables
over five years, beginning Januar y 1, 2023. Under this agreemen t, the Moa JV will prioritize payment of dividends in
the form of finished cobalt to each partner, up to an annual ma ximum volume of cobalt, with any additional dividends
in a given year to be distributed in cash. All of the Cuban par tner’s share of these cobalt dividends, and potentially
additional cash dividends, will be redirected to Sherritt as payment to settle the receivables until the annual maximum
cobalt volume and dollar amount limits, including the collection of any prior year shortfalls, has been reached.
Sherritt and its Cuban partners finalized an extension to the Energas Payment Agreement (the Moa Swap) to fund the
operating and maintenance costs of Energas, as well as cover future payments that would be owed to Sherritt. Sherritt
expects to continue to receive approximately US$4.2 million ($5 .6 million) per month under a payment agreement
between Sherritt, Moa JV and Energas. The Moa JV converts forei gn currency to Cuban pesos through Energas to
support Moa JV’s local Cuban operating activities. The foreign currency is then paid to Sherritt primarily to facilitate
foreign currency payments for the Energas operations and to fund dividend repatriations to Sherritt.
Cuba’s Executive Council of Min isters approved the twenty-year extension of Energas’ power generation contract with
the Cuban government to March 20 43. The extension of this econo mically beneficial contract supports Sherritt's on-
going investments in Cuba, helps facilitate the Cobalt and Moa Swaps, and supports Cuba’s long-term energy security.
The Corporation paid interest o f $13.2 million on the 8.50% se cond lien secured notes at the end of October. There
were no mandatory redemptions on these notes for the two-quarte r period ended June 30, 2022 as the conditions
pursuant to the redemption provis ions of the indenture agreemen t were not met. While 50% of the excess cash flow,
as defined in the indenture agreement, for this period was $5.5 million, the Corporation did not meet minimum liquidity
condition at the interest payment date.
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4 Sherritt International Corporation
Q3 2022 FINANCIAL HIGHLIGHTS
For the three months ended For the nine months ended
2022 2021 2022 2021
$ millions, except per share amount September 30 September 30 Change September 30 September 30 Change
Revenue $ 30.2 $ 20.7 46% $ 130.2 $ 73.6 77%
Combined revenue(1) 190.1 120.2 58% 613.8 414.2 48%
Earnings (loss) from operations and joint venture 21.3 (10.8) 297% 118.8 (12.0) nm (2)
Net (loss) earnings from continuing operations (26.9) (15.5) (74%) 71.0 (27.8) 355%
Net (loss) earnings for the period (26.3) (16.2) (62%) 70.5 (32.5) 317%
Adjusted EBITDA(1) 37.4 17.6 113% 197.9 65.8 201%
Net (loss) earnings from continuing operations ($ per share) (0.07) (0.04) (75%) 0.18 (0.07) 357%
Cash provided by continuing operations for operating
activities 18.8 16.2 16% 50.0 14.7 240%
Combined free cash flow(1) 0.1 19.3 (99%) 21.9 40.9 (46%)
Average exchange rate (CAD/US$) 1.306 1.260 4% 1.283 1.251 3%
(1) Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release.
(2) Not meaningful (nm).
2022 2021
$ millions, as at September 30 December 31 Change
Cash and cash equivalents $ 137.6 $ 145.6 (5%)
Loans and borrowings 398.6 444.5 (10%)
Cash and cash equivalents at September 30, 2022 were $137.6 million, up from $124.6 million at June 30, 2022. The increase
in cash was primarily due to continued strong fertilizer pre-buys for fall season sales as a result of a generally successful harvest
in western Canada, partly offset by the lack of distributions f rom the Moa JV during the quarter, and $10.4 million of capital
expenditures.
Despite not receiving distributions from the Moa JV in the thir d quarter of 2022, distributions to the end of the quarter tota led
$43.4 million (US$34 million). Distributions from the Moa JV ar e determined based on available cash in excess of liquidity
requirements, including antici pated nickel and cobalt prices, p lanned spending on capital, working capital needs, and other
expected liquidity requirements. Sherritt continues to expect d istributions in the second hal f of 2022 to exceed the amount
received in the first half of the year. To date in Q4, Sherritt has received $20.6 million (US$15 million) as its share of distributions
from the Moa JV.
Sherritt also received US$12.5 million ($16.2 million) from Energas in Q3 which was used to facilitate foreign currency payments
for the Energas operations. Concurrent with the finalization of the Cobalt Swap, Sherritt and its Cuban partners agreed to extend
the Energas Payment Agreement to fund the operating and maintenance costs of Energas, as well as to cover future payments
that would be owed to Sherritt. S herritt expects to continue to receive approximately US$4.2 million ($5.6 million) per month
under the agreement.
Of the $137.6 million of cash and cash equivalents, $36.9 million was held in Canada, up from $28.6 million as at June 30, 2022,
and $95.8 million was held at Energas, up from $91.8 million as at June 30, 2022. The remaining amounts were held in Cuba
and other countries.
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The Cobalt Swap agreement
As announced on October 13, Sherritt finalized an agreement wit h its Cuban partners to settle the total outstanding Cuban
receivables over five years, beginning January 1, 2023. Under the agreement, the Moa JV will prioritize payment of dividends in
the form of finished cobalt to each partner, up to an annual maximum volume of cobalt, with any additional dividends in a given
year to be distributed in cash. All of the Cuban partner’s shar e of these cobalt dividends, and potentially additional cash
dividends, will be redirected to Sherritt as payment to settle the receivables until the annua l minimum payment amount and
cobalt dividend volume, including the collection of any prior year shortfalls, has been reached.
On January 1, 2023, the outstanding receivable amounts owing to Sherritt from Energas S.A. (Energas) and Union Cuba-
Petroleo (CUPET) – estimated to total $362 million – will be as sumed by General Nickel Company (GNC), Sherritt’s Moa JV
partner, who in turn will enter into payment agreements of an e quivalent amount, denominated in Cuban pesos, with Energas
and CUPET. This amount includes the Energas conditional sales a greement (Energas CSA) receiva ble of $332.4 million and
trade accounts receivables from CUPET of $29.5 million. This re flects the total amount owing to Sherritt from Energas and
CUPET rather than only the overdu e amounts (US$153.2 million at September 30, 2022) based on scheduled payments. The
Energas CSA balance includes the total amount owing, excluding the 33 1/3% elimination reporte d in Sherritt’s consolidated
financial statements.
No interest will accrue on the Energas CSA to ensure repayment within five years; however, in the event that the total outstanding
receivables are not fully repaid by December 31, 2027, interest will accrue retroactively at 8% per annum from January 1, 2023
on the unpaid principal amount, and the unpaid principal and interest amounts will become due and payable to Sherritt by GNC.
Over the five-year period beginning January 1, 2023, the Moa JV expects to distribute a maximum of 2,082 tonnes, or
approximately 60% of current production (100% basis), of finish ed cobalt annually to the joint venture partners (finished cobalt
dividends). Accordingly, Sherritt expects to receive a maximum of 1,041 tonnes of the finished cobalt dividends per year in
respect of its 50% share of the Moa JV. GNC will redirect its 50% share of the finished cobalt dividends, up to 1,041 tonnes per
year, to Sherritt as repayment towards the outstanding receivables, provided that the total cobalt volume redirected has a value
of at least US$57 million. Any shortfall in the annual minimum payment amount and cobalt dividend volume, will be carried
forward to the subsequent year such that full repayment is expected to be made within five years.
Upon receipt of the finished cobalt dividends, the title to both Sherritt and its partner’s redirected cobalt share will be transferred
immediately to a Sherritt warehouse in Fort Saskatchewan, from which Sherritt will sell the finished cobalt in the market.
This transaction represents a significant milestone for Sherritt and is expected to provide significant cash flow to deliver o n the
Corporation’s strategic priorities to reduce debt and actively expand its business through:
reasonable certainty the amount will be paid over the five yea r term of the loan as it is independent of Sherritt’s Cuban
partner’s ability to access foreign currency;
a reasonably certain cash flow to Sherritt of US$114 million a nnually through the sale of cobalt, half of which will be
used to repay the amounts receivable;
the receipt of the majority of t he payments prior to the maturity of the second lien notes in November 2026; and
an opportunity for early settlement of the receivables through enhanced repayment if the market value of the cobalt
increases.
2022 Third Quarter Report
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6 Sherritt International Corporation
The diagram below summarizes the key components of the Cobalt Swap:
Sherritt International Corporation 7
Adjusted net earnings (loss) from continuing operations(1)
2022 2021
For the three months ended September 30 $ millions $/share $ millions $/share
Net (loss) earnings from continuing operations $ (26.9) $ (0.07) $ (15.5) $ (0.04)
Adjusting items:
Sherritt - Unrealized foreign exchange (gain) loss - continuing operations (4.6) (0.01) 7.9 0.02
Corporate - Severance and other contractual benefits expense -- 3.1 0.01
Corporate - Unrealized losses on commodity put options - - (1.3) -
Corporate - Realized loss on commodity put options - - 1.7 0.01
Moa Joint Venture - Inventory obsolescence 0 . 1 - 1.3 -
Fort Site - Inventory obsolescence - - 1.0 -
Oil and Gas - Gain on disposal of property, plant and equipment - - (1.2) -
Oil and Gas - Realized foreign exchange gain due to Cuban currency
unification - - (10.0) (0.03)
Oil and Gas and Power - trade accounts receivable, net ACL revaluation (1.1) - (1.4) -
Power - Energas conditional sales agreement ACL revaluation(2) 48.5 0.12 - -
Other(3) - - 0.7 -
Total adjustments, before tax $ 42.9 $ 0.11 $ 1.8 $ 0.01
Tax adjustments (2.1) (0.01) 0 . 3 -
Adjusted net earnings (loss) from continuing operations $ 13.9 $ 0 .03 $ (13.4) $ (0.03)
2022 2021
For the nine months ended September 30 $ millions $/share $ millions $/share
Net earnings (loss) from continuing operations $ 71.0 $ 0.18 $ (27.8) $ (0.07)
Adjusting items:
Sherritt - Unrealized foreign exchange gain - continuing operations (9.5) (0.02) (3.3) (0.01)
Corporate - Gain on repurchase of notes (13.8) (0.03) (2.1) (0.01)
Corporate - Transaction finance charges on repurchase of notes 1 . 2 - - -
Corporate - Severance and other contractual benefits expense -- 5.5 0.02
Corporate - Unrealized losses on commodity put options (0.9) - 3.0 0.01
Corporate - Realized losses on commodity put options 0 . 9 - 2.5 0.01
Moa Joint Venture - Inventory obsolescence 0 . 5 - 1.3 -
Fort Site - Inventory obsolescence - - 1.2 -
Oil and Gas - Gain on disposal of property, plant and equipment (1.3) - (1.2) -
Oil and Gas - Realized foreign exchange gain due to Cuban currency
unification - - (10.0) (0.03)
Oil and Gas and Power - trade accounts receivable, net ACL revaluation 0 . 4 - 0.1 -
Power - Energas conditional sales agreement ACL revaluation(2) 49.0 0.12 2.7 0.01
Other(3) - - (0.4) -
Total adjustments, before tax $ 26.5 $ 0.07 $ (0.7) $ -
Tax adjustments (2.5) (0.01) (0.2) -
Adjusted net earnings (loss) from continuing operations $ 95.0 $ 0 .24 $ (28.7) $ (0.07)
(1) A non-GAAP financial measure. For additional information see the Non-GAAP and other financial measures section of this press release.
(2) Primarily related to the recognition of a $48.5 million non-cash loss on the revaluation of the ACL on the Energas CSA receivable related to the signing of the Cobalt
Swap subsequent to period end and in part as a result of the suspension of interest on the Energas CSA over the five-year period of the agreement.
(3) Other items primarily relate to losses in net finance (expense) income.
In the three and nine months ended September 30, 2022, the net loss and net earnings from continuing operations, respectively,
include the recognition of a $48.5 million non-cash loss on the revaluation of the ACL on the Energas CSA receivable related to
the signing of the Cobalt Swap subsequent to period end and in part as a result of the suspension of interest on the Energas
CSA over the five-year period of the agreement.
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8 Sherritt International Corporation
Additionally, net loss and net earnings from continuing operations include unrealized foreign exchange gains of $4.6 million and
$9.5 million in the three and nine months ended September 30, 2 022, respectively, which compares to an unrealized foreign
exchange loss of $7.9 million and unrealized foreign exchange g ain of $3.3 million, in the corre sponding periods of the prior
years, respectively.
METALS MARKET
Nickel
Nickel prices remained relatively constant during the third quarter, with prices ending at US$10.11/lb, down from US$10.48/lb at
the end of Q2. The average reference price during Q3 was US$10.01/lb, compared to US$13.13/lb for Q2. Reduced volatility on
the London Metal Exchange (LME), continuing COVID-19 restrictio ns in China, high energy prices and supply concerns in
Europe, along with inflationary pressures, and global economic recession concerns have all played a role in tempering the nickel
price. The nickel price fluctuated in a relatively narrow range during much of the quarter – reaching a high of US$11.28/lb in
September and a low of US$8.66/ lb in July for one trading sessi on when all metals dipped. However, in general, the price
remained in the US$9.50/lb and US$10.50/lb range for most of the quarter.
Total inventory levels on the LME and Shanghai Futures Exchange (SHFE) continued to decline in Q3 with the total LME and
SHFE inventory falling from 66,780 tonnes at the end of Q2 to 54,444 tonnes at the end of Q3.
Near-term market fundamentals are complex, and in some cases juxtaposed, given the uncertainty in the markets as related to
declining inventory levels, the slower than expected economic r ecovery in China, the potential for increasing sanctions on
Russian nickel and the possibility of self-sanctioning behaviours, the stronger U.S. dollar against most other currencies, projected
nickel supply surpluses, primarily in Class II and particularly NPI, continued global logistics issues, inflationary pressures , and
global economic recession concerns.
The long-term outlook for nickel remains positive on account of the strong demand expected from the stainless steel sector, the
current largest market for nickel, and the rapidly growing EV b attery market. Significant medium-term deficits are projected o n
continued growth in stainless steel and the exponential growth projected in the EV battery market as countries and automobile
manufacturers implement climate change and net-zero strategies. The deficit is expected to be most impactful in the supply of
Class I nickel for the EV market, which Sherritt produces.
In September 2022, Wood Mackenzie estimated nickel demand to in crease by 43% from 2021 to 2026 and 163% to 2040.
Growth to 2040 represents a compound annual growth rate (CAGR) of 4%, with EV battery and storage during the same period
increasing at a 11% CAGR offsetting slower growth in stainless steel demand.
Cobalt
Cobalt prices continued their st eady decline which started in m id-Q2 to mid-Q3 before increasing thereafter to settle near
US$26.00/lb(1) through September after reaching a low of US$24.13/lb in Augus t. The average price for cobalt in Q3 was
US$26.57/lb compared to US$37.87/lb in Q2. Cobalt price started the quarter at US$32/lb and closed at $25.90/lb.
Cobalt prices continue to show near-term weakness for much the same reasons as nickel and due to increased supply from the
Democratic Republic of Congo (DRC). Ongoing logistics issues relating to the transportation of cobalt hydroxide from the DRC,
the world’s largest supply market, recovered somewhat in Q3 and a contraction of the consumer electronics industry compared
with 2021 has led to reduced lithium cobalt oxide demand, both contributing to weaker prices.
The expected proliferation of EV’ s provides a positive longer-t erm outlook for demand, which is expected to increase despite
the EV industry’s efforts to minimize cobalt content to reduce battery cost and supply risk. According to CRU in September 2022,
global cobalt demand is expected to increase at a 13% CAGR to 2 027 (from 173 thousand tonnes in 2021 to 369 thousand
tonnes in 2027), with EV battery consumption driving much of th is increase, at a forecasted 22% CAGR. The cobalt market is
much more levered to the EV growth sector providing strong medi um-term demand for cobalt and supporting Sherritt’s growth
strategy as a reliable top ten cobalt producer over the past decade.
(1) In August 2022 the Corporation changed its cobalt reference prices from the standard-grade cobalt published price per Fastmarket MB to the “minimum 99.8%
chemical grade – Rotterdam” per Argus Metals. All spot and average cobalt prices for 2022 reflect the Argus Metals Price.