“Corporation”) (TSX: S), the world leader in the mining and refining of nickel from lateritic ores, today reported its financial results for the year ended
Sherritt International Corporation
For immediate release
– Sherritt International Corporation (“Sherritt” or the
“Corporation”) (TSX: S), the world leader in the mining and refining of nickel from lateritic ores, today
reported its financial results for the year ended December 31, 2016.
“This year was about sticking to our strategic priority of liquidity preservation, negotiating a three-year
extension of maturities on our public debentures and entering into an Ambatovy lender agreement to
defer principal payments for three years,” said David Pathe, President and CEO, Sherritt International.
“We have pushed out our first public debenture maturity to late 2021 and markets for our products
have moved off the multi-year lows we saw in the first half of the year. I look forward to a year in which
we expect increased production at our HPAL nickel operations and results from our first oil drilling in
Block 10 in Cuba.”
In the second half of 2016, the maturity dates of the three senior unsecured debentures ($720
million principal value) were each extended by three years to 2021, 2023 and 2025. In the same
timeframe, the Ambatovy Joint Venture financing lenders agreed to up to six principal payment
deferrals totaling US$565.1 million (100% basis) which are to be repaid on a schedule starting
in 2021, or earlier subject to cash flow generation.
The 2016 nickel average reference price of US$4.36/lb was down 19% from the 2015 average
reference price of US$5.37/lb, which in turn was down 30% from the 2014 average of
US$7.65/lb. However, after two years of a steeply declining price, a change in trend appears to
be emerging, with nickel prices ending 2016 at US$4.54/lb compared to US$3.93/lb at the end
of 2015. Gulf Coast Fuel Oil No. 6 (GCF6) prices were also down 21% on average in 2016 to
US$32.13/barrel, but fourth quarter average prices of US$41.12/barrel are up 38% over their
comparable level in the fourth quarter of 2015.
2016 Net Direct Cash Costs (NDCC)(1) of US$3.42/lb at the Moa JV and US$4.27/lb at Ambatovy
are both improvements over their prior year comparables of US$3.88/lb and US$4.83/lb
respectively. Fourth quarter 2016 NDCC of US$3.10/lb at Ambatovy represent Ambatovy’s best
cost performance since inception and an indication of the potential cost profile when operating
close to design capacity, as Ambatovy produced 12,778 tonnes finished nickel (100% basis) in
the fourth quarter. The Moa JV NDCC of US$3.80/lb in the fourth quarter of 2016 includes the
impacts of a lower fertilizer credit and lower mixed sulphides production due to Hurricane
Matthew and the subsequent bridge collapse.
Cash, cash equivalents and short-term investments ended the year at $309.6 million, which is
$125.8 million lower than the ending balance of 2015. The main uses of cash were $65.7
million to repay loans and borrowings, and $59.8 million in interest payments on the
outstanding debentures.
2016 Fourth Quarter Report
Sherritt International Corporation
The net loss of $378.9 million for the year ended December 31, 2016 compares to a net loss of
$2.1 billion for the same period a year ago, with most of the 2015 total relating to Ambat ovy JV
impairment losses of $1.6 billion, net of tax (40% basis). The adjusted net loss from continuing
operations of $81.3 million or $0.28/share in the fourth quarter compares to an adjusted net
loss from continuing operations of $113.8 million a year ago.
All amounts are Canadian dollars unless otherwise indicated.
(1) For additional information see the Non-GAAP measures section of this press release.
On December 15, 2016, Energas received approval from the Cuban Executive Committee to
extend the contract term of the Varadero power facilities (173 MW installed capacity), originally
scheduled to terminate in 2018, to 2023.
Subsequent to year end, on January 31, 2017, $76.3 million of the $90 million syndicated
revolving-term credit facility was renewed to January 31, 2018 with the remaining $13.7
million due to mature in April 2017. The maximum credit available will further decrease by
approximately 4% quarterly beginning April 28, 2017. Collectively, these reductions in
available credit will result in outstanding credit of $63.6 million at January 30, 2018. A change
in interest rates and covenants has been implemented as described in the MD&A, Investment
Liquidity section, page 35.
Production, capital spending and Unit Operating Cost guidance was released January 31, 2017
and is repeated in the “Outlook” table on page 15 of this document.
Sherritt and its Ambatovy JV partners Sumitomo Corporation (Sumitomo) and Korea Resources
Corporation (KORES) have agreed to a further extension of the waiver under the Shareholders
Agreement to March 10, 2017. By agreement amongst the partners, Sherritt is not considered
to be a defaulting shareholder for cash call amounts not funded through this date.
Sherritt International Corporation
For the three months ended For the years ended
2015
2015
$ millions, except per share amount
December 31 Change
December 31 Change
Revenue
76.5 (8%)
$ 335.9 (22%)
Combined Revenue(1)
229.5 5%
1,022.7 (20%)
Net loss for the period
(1,757.3) 94%
(2,076.7) 82%
Adjusted EBITDA(1)
6.1 513%
113.1 (65%)
Cash provided by continuing operations
10.8 (309%)
64.5 (98%)
Combined free cash flow (1)
(24.8) (83%)
(98.8) (13%)
Net loss from continuing operations per share
(5.99) 94%
(7.05) 82%
Combined adjusted operating cash flow per share (1)
(0.09) 133%
0.21 (171%)
(1) For additional information, see the Non-GAAP measures section of this release.
$ millions, except as otherwise noted, as at December 31
2015 Change
Cash, cash equivalents and short-term investments
435.4 (29%)
Non-recourse loans and borrowings
1,303.2 5%
Other loans and borrowings
959.9 (10%)
In 2016, operating cash flow came mainly from the Oil and Gas and Power operations ($84.4 million),
partially offset by the Moa JV operations, which were free cash flow negative. There were no cash
contributions to Ambatovy in 2016. During the year, interest received on the CSA Loan was $3.9
million compared to $37.9 million in 2015. Total energy receipts from the Cuban operations were
US$129.6 million in 2016 compared to US$232.2 million in 2015, with Cuban overdue receivables of
US$74.6 million at the end of 2016 compared to US$53.8 million at the end of 2015. Discussions
continue to address the timing of ongoing Cuban payments, with new schedules expected from the
Cubans addressing payment over the course of the coming year.
2015
December 31
For the three months ended December 31
$ millions $/share
Net loss from continuing operations
(1,757.3) (5.99)
Adjusting items, net of tax:
Impairments
1,624.2 5.53
Unrealized foreign exchange (gain) loss
18.3 0.06
Other
1.0 0.00
Adjusted net loss from continuing operations
(113.8) (0.40)
2015
December 31
For the years ended December 31
$ millions $/share
Net loss from continuing operations
(2,071.7) (7.05)
Adjusting items, net of tax:
Impairments
1,704.8 5.80
Unrealized foreign exchange (gain) loss
44.3 0.15
Other
(28.7) (0.10)
Adjusted net loss from continuing operations
(351.3) (1.20)
(1) For additional information, see the Non-GAAP measures section of this release.
2016 Fourth Quarter Report
Sherritt International Corporation
The net loss from continuing operations in the fourth quarter of 2016 was $109.6 million, which
included $28.3 million of adjusting items, primarily a $25.7 million unrealized foreign exchange loss.
For the full year, the net loss from continuing operations was $381.8 million, with $51.9 million in pre-
tax adjusting items, and $5.8 million in tax adjustment items for an adjusted net loss from continuing
operations of $427.9. The main adjusting items on a full year basis were a $35.9 million unrealized
foreign exchange gain, a further gain of $12.6 million on the repurchase of debentures, and a gain of
$15.6 million relating to VAT adjustments.
Sherritt International Corporation
$ millions except as otherwise noted, for the three months ended December 31
2015
Moa JV and Ambatovy
(1)
(2)
Fort Site(1) JV Other(2) Total Change
(50%) (40%)
Revenue $
$ 101.1 $ 69.9 $ 12.8 $ 183.8 6%
(Loss) earnings from operations
(6.8) (1,785.5) (0.6) (1,792.9) 99%
Adjusted EBITDA(3)
7.6 (9.5) - (1.9) 1,689%
Cash provided (used) by operations
21.1 (22.3) 1.4 0.2 (1,900%)
Free cash flow(3)
1.3 (26.6) 1.4 (23.9) 28%
(tonnes)
Mixed Sulphides
4,336 5,042 - 9,378 4%
Finished Nickel
4,098 4,885 - 8,983 (1%)
Finished Cobalt
521 386 - 907 (13%)
Fertilizer
69,741 15,169 - 84,910 (8%)
(%)
89% 86%
(tonnes)
Finished Nickel
4,237 4,665 - 8,902 -
Finished Cobalt
559 411 - 970 (13%)
Fertilizer
60,461 14,814 - 75,275 (19%)
(CAD/US)
1.335 -
(US$ per pound)
Nickel
$ 4.27 15%
Cobalt
11.34 19%
(3)
Nickel ($ per pound)
$ 5.57 $ 5.52 $ 5.54 16%
Cobalt ($ per pound)
14.08 11.31 12.91 37%
Fertilizer ($ per tonne)
413 197 371 (23%)
(3) (US$ per pound)
Nickel - net direct cash cost
$ 2.90 $ 4.07 3.51 (3%)
Sustaining
$ 13.8 $ 4.9 $ - $ 18.7 27%
Expansion
6.7 - - 6.7 (131%)
$ 20.5 $ 4.9 $ - $ 25.4 (15%)
(1) Includes results for certain 100% owned assets at Fort Saskatchewan plant.
(2) Includes results for Sherritt’s marketing organizations for certain Ambatovy and Moa Joint Venture sales.
(3) For additional information, see the Non-GAAP measures section of this release.
2016 Fourth Quarter Report
Sherritt International Corporation
$ millions, except as otherwise noted, for the years ended December 31
2015
Moa JV and Ambatovy
(2)
Fort Site(1) JV Other(2) Total Change
(50%) (40%)
Revenue $
$ 412.6 $ 332.0 $ 60.5 $ 805.1 (19%)
(Loss) earnings from operations
(4.4) (1,934.1) 0.5 (1,938.0) 91%
Adjusted EBITDA(3)
42.2 (9.4) 0.5 33.3 (60%)
Cash provided (used) by operations
53.4 (24.3) 4.1 33.2 (203%)
Free cash flow(3)
(9.0) (60.4) 4.1 (65.3) (33%)
(tonnes)
Mixed Sulphides
18,510 19,598 - 38,108 (8%)
Finished Nickel
16,853 18,908 - 35,761 (7%)
Finished Cobalt
1,867 1,386 - 3,253 (3%)
Fertilizer
255,991 54,930 - 310,921 -
(%)
89% 86%
(tonnes)
Finished Nickel
16,980 18,857 - 35,837 (7%)
Finished Cobalt
1,885 1,362 - 3,247 (4%)
Fertilizer
182,065 56,033 - 238,098 (8%)
(CAD/USD)
1.278 4%
(US$ per pound)(3)
Nickel
$ 5.37 (19%)
Cobalt
12.99 (9%)
(3)
Nickel ($ per pound)
$ 6.72 $ 6.64 $ 6.68 (15%)
Cobalt ($ per pound)
15.69 14.50 15.20 1%
Fertilizer ($ per tonne)
425 196 371 (12%)
(3) (US$ per pound)
Nickel - net direct cash cost
$ 3.88 $ 4.83 4.38 (12%)
(4)
Sustaining
$ 47.4 $ 23.8 $ - $ 71.2 (22%)
Expansion
16.7 - - 16.7 (38%)
$ 64.1 $ 23.8 $ - $ 87.9 (25%)
(1) Includes results for certain 100% owned assets at Fort Saskatchewan plant.
(2) Includes results for Sherritt’s marketing organizations for certain Ambatovy and Moa Joint Venture sales.
(3) For additional information, see the Non-GAAP measures section of this release.
(4) Spending on capital includes accruals.
Sherritt International Corporation
On a year-over-year basis, the 2016 nickel average reference price of US$4.36/lb declined by 19% over
the 2015 average, with roughly 27% of global production remaining underwater on a cash margin
basis at this price. Despite the negative margins experienced by many producers, more significant
supply cuts have been slow to materialize, and global inventory levels remain high.
In the second half of 2016, prices recovered significantly from the lows of US$3.50/lb reached in the
first quarter of 2016 and remained generally above US$4.50/lb through the fourth quarter of 2016.
Recent market activity remains bullish on a fundamental basis, as market analysts continue to
reinforce projected deficits and forecast stronger prices carrying over from 2016 into 2017.
Fundamental supply challenges that have emerged with the Philippines ongoing environmental audits
on all mining operations in the country, closures of uneconomic operations, and healthy stainless
steel results from North America and Europe have helped propel LME prices to levels previously
reached in 2015. After peaking at 470,000 tonnes in June 2015, nickel inventories held in London
Metals Exchange warehouses have declined by close to 100,000 tonnes but the year end balance of
372,000 tonnes remains high compared to historical levels. The announced mine closures in the
Philippines coupled with improved stainless steel demand are both seen as near-term catalysts for
continued strength in the nickel market, although this is being tempered by the ramp up of Nickel Pig
Iron (NPI) operations in Indonesia and the announced easing of the ban on ore exports allowing
quotas of low grade nickel containing ore to be exported by Indonesian miners who meet criteria
which have not yet been fully articulated.
The average reference price for cobalt in 2016 was US$11.77/lb or down only 9% from its 2015
comparable, with the outlook remaining positive. The cobalt price recovery from the lows early in 2016
has been more significant than nickel, moving from approximately US$9.85/lb in the first quarter to
end the year at approximately US$14.92/lb. While nickel prices experienced a correction in the month
of December and since, cobalt prices have gone on to make new highs in January 2017. Refined cobalt
supply contracted in 2016 with the suspension of production from Votorantim (Tocantins) in Brazil and
Queensland Nickel in Australia. Indications are that the market is approaching balance or slight deficit.
Overall cobalt demand is supported by the longer-term outlook for cobalt in rechargeable batteries, a
market that utilizes refined forms of cobalt with purity being an important factor in customer demand,
and environmental and sustainability concerns from African sourced mines becoming increasingly
important. These concerns received media attention after an Amnesty International report in January
2016 which focused on human rights abuses in Democratic Republic of Congo (DRC) cobalt mining
operations. Because the DRC is the world’s largest producer of cobalt, cobalt customers have
responded by requiring more stringent certification of origin procedures, to restrict or prohibit buying
cobalt sourced from the DRC. Superalloy demand also remains strong, along with other applications
such as magnets, diamond cutting tools, soaps and paint driers which continue to provide strong
demand for cobalt. As a result of the positive medium term outlook for cobalt, and the knowledge that
most cobalt supply comes as a by-product of copper and nickel production, speculative interest has
picked up.
2016 Fourth Quarter Report
Sherritt International Corporation
The Moa JV finished nickel production of 3,782 tonnes (50% basis) in the fourth quarter is 8% lower
than its level last year and 12% lower than third quarter 2016 production. The shutdown of the
processing plant during Hurricane Matthew had a modest impact, which was compounded by the
bridge collapse in November, and the corresponding impacts on haulage time and distance using
secondary access roads. Full year production of finished nickel was relatively flat from 2015, down only
2% despite the impacts in the fourth quarter. The lower mixed sulphides production was partly offset
by utilization of third party feed. On a yearly basis, cobalt production was similar to 2015 levels as the
third party feed was and continues to be cobalt rich.
Revenue in the quarter is down by 9% on a year-over-year basis reflecting lower fertilizer revenue.
Fourth quarter fertilizer sales are down $10.1 million or 40% from their prior year level, as the early
onset of winter compared to last year resulted in a lower harvest for Fort Site fertilizer customers, and
average realized prices for fertilizer were also depressed. On a full year basis, revenue was down 18%
over 2015, consistent with the average reference price decline of 19% in nickel.
Although the year-over-year price decline was the main factor influencing Moa’s results, we have seen
an improvement over the course of the year as nickel and cobalt prices have recovered from their lows
earlier in 2016. Nickel average reference prices of US$4.90/lb in the fourth quarter of 2016 compare to
US$4.27/lb in the comparable quarter of 2015. Cobalt average reference prices of US$13.51/lb in the
fourth quarter of 2016 are up 19% from their comparable quarter of 2015.
The NDCC of US$3.80/lb of nickel in the fourth quarter is US$0.90/lb higher on a year-over-year basis
primarily due to lower production volumes and the lower fertilizer credit, which was approximately
US$0.55/lb lower than the prior year’s fertilizer credit. These negative effects were partly offset by the
benefits from the newly constructed acid plant, which is expected to deliver a further cost benefit in
2017. The cobalt credit in the fourth quarter was US$1.55/lb, the highest experienced since second
quarter 2012. Moa’s 2017 NDCC guidance range of US$3.20/lb to US$3.70/lb takes into account the
acid plant cost benefit, along with higher forecasted energy prices and planned maintenance spending,
including an annual refinery shutdown and acid plant shutdown.
Cash used by operations of $6.1 million in the fourth quarter reflects the lower production and higher
costs, although for the full year, cash used by operations was $2.7 million at full year average
reference nickel prices of approximately US$4.36/lb.
Capital spending of $2.6 million in the quarter and $32.9 million (US$25 million) in 2016 is
significantly lower compared to the same periods last year due to lower planned spending on
sustaining capital and the completion of the acid plant which is expected to be approximately US$10
million (100% basis) under budget. Expansion capital spending in the fourth quarter includes a credit
for the transfer of spare parts to inventory which is included in Sustaining Capital. Capital spending
guidance for 2017 is approximately US$28 million.
The Ambatovy JV fourth quarter 2016 finished nickel production was 5,111 tonnes (40% basis), and
was the highest for the year, up 39% from third quarter 2016 levels and 5% compared to the fourth
quarter of 2015. PAL ore throughput operated at 93% of design capacity during the quarter.