Sherritt Reports Strong 2022 Results, Improved Balance Sheet and Receipt of First Cobalt Swap Distribution
Sherritt International Corporation 1
For immediate release
Sherritt Reports Strong 2022 Results, Improved Balance Sheet and Receipt
of First Cobalt Swap Distribution
NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE U.S.
Toronto – February 8, 2023 – 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 months and year ended December 31, 2022. All amounts are in Canadian currency unless otherwise noted.
“2022 was a pivotal year for Sherritt. On the strength of higher nickel and fertilizer prices, we achieved strong operating a nd
financial results while delivering on each of our 2022 strategic priorities to set the stage for continued success in the future. We
were able to commence a low capital intensity expansion program, significantly deleverage our balance sheet, finalize
transformative payment agreements with our Cuban partners to recover $368 million of total outstanding receivables, advance
our portfolio of proprietary technologies, and meet our sustainability targets,” said Leon Binedell, President and CEO of Sherritt
International Corporation.
Mr. Binedell added, “We are encouraged by the progress we have made on these building blocks for the future while maintaining
sound operational focus and fiscal responsibility. Our Cobalt Swap agreement yielded its first distribution following the year-end,
demonstrating the significant value associated with our outstanding receivables, and will provide financial support to deliver on
our strategic priorities going forward. In addition, we set both our Metals and Power businesses up for the long -term, with on-
going work at the Moa mine to extend the mine life beyond 2040, and the 20-year extension to the Power production agreement.
Combined with the Moa Swap, it enables the Power business to run efficiently, including a mechanism to distribute funds to
Sherritt in the future.”
SELECTED Q4 2022 DEVELOPMENTS
Sherritt finalized an agreement with its Cuban partners to recover $368 million total outstanding Cuban receivables
over five years beginning January 1, 2023 (the Cobalt Swap). Under this agreement, the Moa JV will prioritize payment
of dividends in the form of finished cobalt to each partner, up to an annual maximum of cobalt, with any additional
dividends in a given year to be distributed in cash. All of the Cuban partner’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 repurchased an aggregate of almost $90 million in principal of its second lien secured notes and junior notes
at a discounted value of $80 million.
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, including
dividends. 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 foreign 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 capital as well as to fund dividend
repatriations to Sherritt. During the quarter Sherritt received $22.8 million (US$16.8 million) pursuant to this agreement.
Cuba’s Executive Committee of the Council of Ministers approved the twenty-year extension of the Energas Joint
Venture contract with the Cuban government to March 2043. The extension of this economically beneficial contract
supports Sherritt's on -going investments in Cuba, helps facilitate the Cobalt and Moa Swaps, and sup ports Cuba’s
long-term energy security.
Sherritt received distributions from the Moa JV of $57.2 million (US$42.5 million) which resulted in H2 distributions
exceeding those received in H1.
2022 Fourth Quarter Report
Press Release
2 Sherritt International Corporation
Net loss from continuing operations was $7.3 million, or $(0.02) per share in Q4 2022, compared to net earnings from
continuing operation of $14.4 million, or $0.04 per share, in Q4 2021 while Adjusted EBITDA(1) in the quarter was $19.7
million compared to $46.4 million in Q4 2021. Higher nickel and fertilizer sales volume and realized prices in the current-
year period were offset by lower cobalt sales volume and realized price and higher input commodity prices. In addition,
Sherritt recognized a $12.8 million environmental rehabilitation obligation (ERO) expense adjustment on legacy Oil and
Gas Spanish assets, and a $10.7 million share-based compensation expense. Net earnings from continuing operations
also includes a $7.1 million gain on the repurchase of notes.
Sherritt’s share of finished nickel and cobalt product ion at the Moa Joint Venture (Moa JV) was 4,112 tonnes and
423 tonnes, 4% and 11% lower, respectively, than the prior year periods. Lower finished nickel and cobalt production
was impacted by lower mixed sulphides availability at the refinery. The higher nickel-to-cobalt ratio in the feed from
Moa further contributed to lower cobalt production.
Net direct cash cost (NDCC)(1) at the Moa JV was US$7.00/lb in Q4 2022 compared to US$3.60/lb in Q4 2021. NDCC
was higher due to higher input commodity costs, including a 55% increase in global sulphur prices, 133% increase in
diesel prices, and a 15% increase in fuel oil prices, alongside lower cobalt by-product credit, partly offset by higher net
fertilizer by-product credit.
Sherritt issued its 2021 sustainability, climate, and tailings management reports as well as its sustainability scorecard
outlining the Corporation’s performance on environmental, social, and governance (ESG) matters. Sherritt continues
to progress on its commitments to achieving net zero greenhouse (GHG) emissions by 2050, obtaining 15% of overall
energy from renewable sources by 2030, reducing nitrogen oxide emission intensity by 10% by 2024, and increasing
the number of women in its workforce to 36% by 2030.
Technologies entered into an agreement with Open Mineral AG to jointly develop a business case in 2023 for the
hydrometallurgical treatment of complex precious metal concentrates. Sherritt will partner with Open Mineral to explore
the implementation of its proprietary technologies to solve ESG and precious metal concentrate market challenges
regarding arsenic pollution. Open Mineral is a physical commodity trader powered by technology and market
intelligence, enabling profitable and efficient trading of raw material commodities and has been recognized by the World
Economic Forum as a Technology Pioneer (2019) and was an S&P Global Metals Awards Winner as a Rising Star
Company (2020).
(1) Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release.
SELECTED FULL YEAR 2022 DEVELOPMENTS
Including the repurchase of notes in Q4, Sherritt repurchased an aggregate of almost $150 million in principal of its
second lien secured notes and junior notes at a 16 % discount, reducing its principal debt by 35% from the beginning
of the year and reducing its annual interest expense by approximately $13 million.
Sherritt received distributions from the Moa JV of $100.6 million (US$76.5 million) which were more than double those
received in each of the three prior years.
Net earnings from continuing operations was $63.7 million, or $0.16 per share in 2022, compared to a net loss from
continuing operations of $13.4 million, or $(0.03) per share, in 2021 while Adjusted EBITDA(1) for 2022 was $217.6
million compared to $112.2 million in 2021. Higher nickel and fertilizer sales volume and realized prices were partly
offset by higher input commodity prices, a $15.0 million ERO expense adjustment on legacy Oil and Gas Spanish
assets, and a $17.5 million share -based compensation expense. Net earnings from continuing operations were also
impacted by the recognition of a $49.0 million non-cash loss on revaluation of the allowances for expected credit losses
(ACL) related to the repayment of the Energas conditional sales agreement (CSA) receivable under the Cobalt Swap
agreement and a $20.9 million gain on the repurchase of notes.
Sherritt’s adjusted net earnings from continuing operations(1) was $88.4 million, or $0.22 per share, in 2022 compared
to an adjusted net loss from continuing operations of $13.9 million, or $(0.03) per share, in 2021.
Sherritt International Corporation 3
Finished nickel production was 32,268 tonnes (100% basis), in line with guidance, representing a 3% increase year -
over-year primarily due to increased refinery reliability, while finished cobalt production of 3,368 tonnes (100% basis)
was materially within guidance and 4% lower than the prior year as a result of the higher nickel -to-cobalt ratio in the
Moa mixed sulphide feed and lower availability of third-party feed.
NDCC(1) at the Moa JV was US$5.14/lb for 2022 compared to US$4.11/lb in 2021. NDCC was higher in the current
year due to higher input commodity costs, including a 119% increase in global sulphur prices, a 109% increase in diesel
prices, and a 40% increase in fuel oil prices. The Cobalt by-product credit was only 2% lower for 2022 compared to
2021 as the higher average-realized prices offset lower sales volume. Net fertilizer by-product credit increased by 210%
compared to 2021 on higher sales volume and average-realized prices. NDCC was slightly above guidance as a result
of higher input commodity prices and lower than anticipated cobalt prices and sales volume during the fourth quarter.
At the Power business unit, electricity production beat updated guidance and unit operating cost (1) was lower than
guidance, primarily as a r esult of higher equipment availability in 2022 as a result of the completion of maintenance
activities in the prior year and as a result of successful efforts to increase availability of gas.
Sherritt ended 2022 with cash and cash equivalents of $123.9 million, down from $145.6 million at the end of last year.
Of these amounts, $20.3 million was held in Canada, d own from $64.9 million as at December 31, 2021, and $96.7
million was held at Energas, up from $78.6 million as at December 31, 2021. Cash decreased primarily due to the use
of $125.2 million to repurchase approximately $150 million in principal of second lien secured notes and juni or notes,
$29.1 million of interest paid on the second lien secured notes, and $28.5 million of capital expendi tures, partly offset
by $100.6 million of distributions received from the Moa Joint Venture, $37.0 million draw n on the revolving credit
facility, and $31.3 million of cash provided by continuing operations at the Fort Site as a result of higher fertilizer sales.
(1) Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release.
MOA JV EXPANSION PROGRAM UPDATE
In 2022, Sherritt embarked on an expansion program focused on increasing annual mixed sulphide precipitate (MSP) production
by 20% or 6,500 tonnes of contained nickel and cobalt (100% basis). The program includes completion of the Slurry Preparation
Plant (SPP), Leach Plant Sixth Train and Fifth Sulphide Precipitation Train as well as construction of additional acid storag e
capacity at Moa. The total capital cost is expected to be US$77.0 million (100% basis) or approximately US$13,200 per additional
annual tonne of contained nickel for the full expansion.
In phase one of the program, the completion of the SPP is expected to be completed in early 2024 and is anticipated to deliver
several benefits including reduced ore haulage distances and lower carbon intensity from mining. Upon completion it will increase
MSP production by approximately 1,700 tonnes of contained nickel and cobalt annually. Completion of the second phase of the
program, the Moa processing plant improvements, which is planned for completion by the end of 2024, is expected to increase
MSP production by approximately an additional 4,800 tonnes of contained metals annually and reduce NDCC by approximately
US$0.20/lb. Progress in the quarter included:
Slurry Preparation Plant:
Construction of the SPP is progressing on schedule with civil construction 100% complete, and all contracts for supply
of materials and services awarded. Structural steel pre -fabrication is ongoing with 65% erected and field assemb ly of
major equipment has commenced.
Moa Processing Plant:
The final stage of the Feasibility Study, encompassing the full project scope, has been submitted for approval to the
Cuban authorities and approval is anticipated in Q1 2023; and
Bids have been received and are being evaluated for the long lead items for the Leach Plant Sixth Train and contracts
for these items will be awarded in Q1 2023. A detailed project execution schedule is currently being developed.
Refer to the Moa Joint Venture and Fort Site review of operations section for further details.
MOA JV LIFE OF MINE/UPDATED NI 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 .
ECOG and LOM analysis using the latest methodologies are expected to extend the current LOM to beyond 2040. Progress in
the quarter included:
Resource model classifications were updated and a new LOM was generated based on the ECOG methodology; and
2022 Fourth Quarter Report
Press Release
4 Sherritt International Corporation
Sherritt and the Moa JV continued engagement with the Oficina Nacional de Recursos Minerales (ONRM), Cuba’s
Natural Resources Agency, and gained alignment on the latest resource models and ECOG methodology. The Joint
Venture will continue to collaborate with the ONRM to prepare det ailed mine plans using the new methodologies in
2023.
Development of the NI 43-101 report and peer review will continue in early Q1 2023 with the final NI 43-101 report expected to
be released by the end of Q1 2023.
DEVELOPMENTS SUBSEQUENT TO QUARTER END
The Moa Joint Venture distributed 760 tonnes of finished cobalt to Sherritt with an in -kind value of US$27.0 million
($36.2 million) (100% basis) under the Cobalt Swap agreement with its Cuban partners to recover its total outstanding
Cuban receivables ove r five years. The title to both Sherritt’s and its partner’s redirected share of the cobalt was
transferred immediately to a Sherritt warehouse in Fort Saskatchewan and other international warehouses. Sherritt has
begun and will continue to sell the cobalt to existing and new customers.
As a result, of the distribution, US$13.5 million ($18.1 million) of the GNC receivable will be settled in the three months
ended March 31, 2023, representing GNC’s 50% portion of cobalt redirected to Sherritt in satisfaction of the receivable
under the Cobalt Swap.
The syndicated revolving-term credit facility has been amended to extend its maturity for one year from April 30, 2024
to April 30, 2025, with no changes to the terms, financial covenants or restrictions.
Sherritt International Corporation 5
Q4 2022 FINANCIAL HIGHLIGHTS
For the three months ended For the year ended
2022 2021 2022 2021
$ millions, except per share amount December 31 December 31 Change December 31 December 31 Change
Revenue $ 48.6 $ 36.6 33% $ 178.8 $ 110.2 62%
Combined revenue(1) 237.1 198.6 19% 850.9 612.8 39%
Earnings from operations and joint venture (0.1) 20.5 (100%) 118.7 8.5 nm(2)
Net (loss) earnings from continuing operations (7.3) 14.4 (151%) 63.7 (13.4) 575%
Net (loss) earnings for the period (7.0) 14.1 (150%) 63.5 (18.4) 445%
Adjusted EBITDA(1) 19.7 46.4 (58%) 217.6 112.2 94%
Net (loss) earnings from continuing operations ($ per share) (0.02) 0.04 (150%) 0.16 (0.03) 633%
Cash provided (used) by continuing operations for operating
activities 40.3 (13.4) 401% 90.3 1.3 nm
Combined free cash flow(1) 43.2 (26.4) 264% 65.1 14.5 349%
Average exchange rate (CAD/US$) 1.358 1.260 8% 1.301 1.254 4%
(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).
$ millions, as at December 31 2022 2021 Change
Cash and cash equivalents $ 123.9 $ 145.6 (15%)
Loans and borrowings 350.9 444.5 (21%)
Cash and cash equivalents at December 31, 2022 were $123.9 million, down from $137.6 million at September 30, 2022. During
Q4 2022, $80.4 million of cash was used to repurchase $90.0 million of second lien secured notes and junior notes and $13.9
million of interest paid on the second lien secured notes. Partly offsetting these uses, Sherritt received $57.2 million in
distributions from the Moa JV during the quarter, and the Corporation drew $37.0 million on its revolving credit facility.
On a full year basis , cash and cash equivalents at December 31, 2022 of $123.9 million, were down from $145.6 million at
December 31, 2021. During 2022, cash decreased primarily due to the us e of $125.2 million to repurchase $149.1 million in
principal of second lien secured notes and junior notes, $29.1 million for interest on the second lien s ecured notes, and
$28.5 million for capital expenditures. Partly offsetting these uses, Sherritt received $100.6 million of distributions from the Moa
Joint Venture, drew $37.0 million draw n on the revolving credit facility, and realized $31.3 million of cash from continuing
operations at the Fort Site as a result of higher fertilizer sales.
Sherritt also received $22.8 million (US$16.8 million) and $54.6 million (US$41.4 million) from Energas in Q4 and the full year
2022, respectively, pursuant to the Moa Swap agreement which was primarily used to facilitate foreign currency payments for
the Energas operations and capital.
Of the $123.9 million of cash and cash equivalents, $20.3 million was held in Canada, and $96.7 million was held at Energas.
The remaining amounts were held in Cuba and other countries.
For the two-quarter period ended December 31, 2022, excess cash flow, as defined in the second lien secured notes indenture
agreement, was $43.4 million. At the interest payment date in April 2023, the Corporation will be required to redeem, at par, total
second lien secured notes up to an amount equal to 50% of excess cash flow, or $21.7 million, subject to minimum liquidity of
$75.0 million as defined in the indenture agreement being maintained before and a fter such payment is made . As such, the
$80.4 million of cash used to repurchase second lien secured notes and junior notes during the six months ended December
31, 2022 and any outstanding amounts drawn on the syndicated revolving-term credit facility as at the interest payment date in
April 2023 will be taken into account when calculating the minimum liquidity amount.
2022 Fourth Quarter Report
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6 Sherritt International Corporation
The Cobalt Swap agreement
In Q4 2022, Sherritt finalized the Cobalt Swap with its Cuban partners to recover 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 share of these cobalt dividends, and potentially additional cash dividends, will be
redirected to Sherritt as payment to settle the receivables until the annual minimum payment amount and cobalt dividend volume,
including the collection of any prior year shortfalls, has been reached.
The outstanding receivable amounts owing to Sherritt from Energas S.A. (Energas) and Union Cuba-Petroleo (CUPET), totaling
$368.0 million, were assumed by General Nickel Company (GNC), Sherritt’s Moa JV partner, who in turn will enter into payment
agreements of an equivalent amount, denominated in Cuban pesos, with Energas and CUPET. This amount includes the
Energas conditional sales agreement (Energas CSA) receivable of $336.4 million and trade accounts receivables from CUPET
of $31.7 million. This reflects the total amount owing to Sherritt from Energas and CUPET rather than only the overdue amounts
based on scheduled payments. The Energas CSA balance includes the total amount owing, excluding the 33 1/3% elimination
reported 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 finished 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. If the total annual finished cobalt dividend redirected by GNC has a value of less than US$57.0 million,
GNC’s share of any cash distributions from the Moa Joint Venture in such year will be redirected to Sherritt until the value of
physical cobalt and cash distributions in the aggregate totals US$57.0 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 and other international warehouses, 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 on the
Corporation’s strategic priorities to reduce debt and actively expand its business through:
reasonable certainty the amount will be paid over the five-year 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 annually through the sale of cobalt, half of which will be
used to settle the amounts receivable;
the receipt of the majority of the payments prior to 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.
Subsequent to the quarter end, the Moa Joint Venture distributed 760 tonnes of finished cobalt to Sherritt with an in-kind value
of US$27.0 million ($36.2 million) (100% basis) under the Cobalt Swap with its Cuban partners to recover its total outstanding
Cuban receivables over five years. The title to both Sherritt and its partner’s redirected share of the cobalt was transferred
immediately to a Sherritt warehouse in Fort Saskatchewan and other international warehouses. Sherritt has begun and will
continue to sell the cobalt to existing and new customers.
As a result, of the distribution, US$13.5 million ($18.1 million) of the GNC receivable will be settled in the three months ended
March 31, 2023, representing GNC’s 50% portion of cobalt redirected to Sherritt in satisfaction of the receivable.
Sherritt International Corporation 7
Adjusted net earnings (loss) from continuing operations (1)
2022 2021
For the three months ended December 31 $ millions $/share $ millions $/share
Net (loss) earnings from continuing operations $ (7.3) $ (0.02) $ 14.4 $ 0.04
Adjusting items:
Sherritt - Unrealized foreign exchange loss (gain) - continuing operations 4.1 0.01 (1.4) -
Corporate - Gain on repurchase of notes (7.1) (0.02) - -
Corporate - Transaction finance charges on repurchase of notes 1.1 - - -
Corporate - Severance and other contractual benefits expense - - 0.6 -
Corporate - Unrealized losses on commodity put options - - (2.2) (0.01)
Corporate - Realized loss on commodity put options - - 2.3 0.01
Moa Joint Venture - Inventory obsolescence 1.6 0.01 0.5 -
Fort Site - Inventory obsolescence 0.6 - - -
Oil and Gas - Impairment of intangible assets 1.3 0.01 - -
Oil and Gas and Power - Trade accounts receivable, net ACL revaluation - - 0.7 -
Oil and Gas and Power - Gain on modification of Cuban receivables (4.0) (0.01) - -
Power - Revaluation of Energas payable 4.0 0.01 - -
Power - Revaluation of GNC receivable (2.4) (0.01) - -
Other(1) - - 0.1 -
Total adjustments, before tax $ (0.8) $ - $ 0.6 $ -
Tax adjustments 0.6 - (0.2) -
Adjusted net (loss) earnings from continuing operations $ (7.5) $ (0.02) $ 14.8 $ 0.04
(1) Other items primarily relate to losses in net finance (expense) income.
2022 2021
For the year ended December 31 $ millions $/share $ millions $/share
Net earnings (loss) from continuing operations $ 63.7 $ 0.16 $ (13.4) $ (0.03)
Adjusting items:
Sherritt - Unrealized foreign exchange gain - continuing operations (5.4) (0.01) (4.7) (0.01)
Corporate - Gain on repurchase of notes (20.9) (0.06) (2.1) (0.01)
Corporate - Transaction finance charges on repurchase of notes 2.3 0.01 - -
Corporate - Severance and other contractual benefits expense - - 6.1 0.02
Corporate - Unrealized losses on commodity put options (0.9) - 0.8 -
Corporate - Realized losses on commodity put options 0.9 - 4.8 0.01
Moa Joint Venture - Inventory obsolescence 2.1 0.01 1.8 0.01
Fort Site - Inventory obsolescence 0.6 - 1.2 -
Oil and Gas - Gain on disposal of PP&E (1.3) - (1.2) -
Oil and Gas - Impairment of intangible assets 1.3 - - -
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 - 0.8 -
Oil and Gas and Power - Gain on modification of Cuban receivables (4.0) (0.01) - -
Power - Energas conditional sales agreement ACL revaluation(1) 49.0 0.12 2.7 0.01
Power - Revaluation of Energas payable 4.0 0.01 - -
Power - Revaluation of GNC receivable (2.4) (0.01) - -
Other(2) - - (0.3) -
Total adjustments, before tax $ 25.7 $ 0.06 $ (0.1) $ -
Tax adjustments (1.0) - (0.4) -
Adjusted net earnings (loss) from continuing operations $ 88.4 $ 0.22 $ (13.9) $ (0.03)
(1) Primarily related to a non-cash loss on revaluation of the ACL on the Energas CSA receivable as a result of the Cobalt Swap signed by the Corporation du ring the
year, in part, due to the suspension of interest over the five-year period of the agreement.
(2) Other items primarily relate to losses in net finance (expense) income.
2022 Fourth Quarter Report
Press Release
8 Sherritt International Corporation
METALS MARKET
As a commodity-based business, Sherritt’s operating results are primarily influenced by the prices of nickel and cobalt. In 2022,
fertilizer market changes also had a significant impact on operating results.
Nickel
Nickel prices closed Q4 2022 at US$13.80/lb on December 31, 2022 compared to US$10.11/lb on September 30, 2022. Th e
range for the quarter was between US$9.73/lb and US$13.84/lb. Class I supply and inventory remained tight, causing the London
Metals Exchange (LME) prices to rally in late Q4 reaching a high of US$13.84/lb on December 28 due to the covering of short
positions from prior months, with sentiment improving slightly on the expectation that relaxation of COVID-related restrictions in
China will increase commodity demand. The average nickel price for Q4 was US$11.47/lb compared to US$10.01/ lb for Q3
2022, a 15% increase while the average nickel price for 2022 was US$11.61/lb, 38% higher than the average for 2021 at
US$8.39/lb.
Total inventory levels on the LME and Shanghai Futures Exchange (SHFE) combined remained near-term range bound and
ended the quarter at 56,621 tonnes, about 5% higher than at Q3 level of 54,444 tonnes and 46% lower than at the end of 2021
(104,292 tonnes).
In December 2022, Wood Mackenzie estimated nickel demand to increase by 45% from 2023 to 2027. The continued strong
growth in nickel supply, especially additions in Indonesia from Class II sources, NPI (nickel pig iron), matte and to a lesser extent
MHP (mixed hydroxide precipitate) via HPAL (high pressure acid leach) is set to marginally outpace demand, resulting in the
potential for a marginally oversupplied market in the near term. This is, however, in a market that is anticipated to reach demand
of over 4,000 ktpa by 2026 up from 2,900 ktpa in 2022 . The combined growth of stainless steel and lithium -ion battery
consumption, as well as potential slower than anticipated ramp up of new projects to support supply, especially large-scale NPI,
matte and HPAL projects in Indonesia, is expected to keep the nickel market in relative balance, leading to prices remaining at
support levels required to incentivize continued new project growth.
On a shorter-term basis, the first half of 2023 is expected to reflect transitory downward pressure on nickel prices, as high energy
prices and the conflict in Ukraine weigh on sentiment and stainless production in Europe. In the Far East, stainless producti on
is expected to recover as China returns from the Spring Festival holiday in late January, fresh from the relaxation of COVID -
related lockdowns, but subject to the potential disruptions due to future outbreaks. Global lithium-ion battery demand will continue
to support consumption of nickel in the form of nickel sulphate, although consumption of Class I materials in this market segment
is expected to diminish as Class II materials (especially matte and MHP) continue to be produced in large quantities in Indonesia,
putting pressure on nickel sulphate premiums.
In the long-term (2027- 2032), continued strong demand from the electric vehicle and energy storage system sectors will shift
the lithium-ion batteries market share to 30% from 15% by 2028 . Despite stainless applications’ continued growth, albeit at a
slower rate, its market share is expected to shrink to 54% from 64%. The combined growth of batteries and stainless steel is
expected to push the market balance to a deficit, with new supply requ ired to maintain market balance, thus supporting robust
prices over the long-term.
Cobalt
Cobalt prices closed Q4 2022 at US$20.90/lb on December 31, 2022 compared to US$25.90/lb on September 30, 2022. The
price continued to decline in Q4, from a peak of US$26.15/lb in early October to a low of US$20.90/lb by December 31, 2022.
The average cobalt price for Q4 was US$23.00/lb compared to US$26.26/lb for Q3 2022, a 12% decrease while the average
cobalt price for 2022 was US$30.75/lb, 26% higher than the average for 2021 at US$24.24/lb.
A continued post -pandemic decline following strong pandemic -related purchases of consumer electronics, coupled with
advancement of high-nickel chemistries and lithium iron phosphate (LFP) cathode active materials (CAM) in lithium-ion batteries
has led to decreased near-term cobalt demand, even with stronger aerospace demand. This lower overall demand, coupled with
strong supply growth of cobalt from Indonesia HPAL MHP projects has led to cobalt continuing to trade at lower prices,
highlighting near-term weakness in the chemical sector. The anticipated growth in supply may be hampered by slower than
anticipated ramp up in new projects from large -scale NPI, matte and HPAL projects which may partly negate the downward
pressure on pricing.