NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE U.S.
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.
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Appendix 1. Pro forma expansion
production profile (Graphic: Business Wire)
“2022 was a pivotal year for Sherritt. On the strength of higher
nickel and fertilizer prices, we achieved strong operating and
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
supports 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.
- 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 production 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.
- 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 result 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, down 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 junior notes, $29.1 million of interest paid on the
second lien secured notes, and $28.5 million of capital
expenditures, partly offset by $100.6 million of distributions
received from the Moa Joint Venture, $37.0 million drawn 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 storage 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 assembly 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
- 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 detailed 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
over 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.
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 use 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 secured 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 drawn 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 after 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.
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.
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 during 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.
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. The 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
production 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 required 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.
The expected proliferation of EV’s provides a positive
longer-term outlook for demand, which is expected to increase
despite the EV industry’s efforts to minimize cobalt content to
reduce both battery cost and supply risk. CRU estimates cobalt
demand growth to increase at an 11% CAGR from 2023 to 2027 with EV
battery consumption driving much of this increase, at a 13% CAGR.
The cobalt market is largely levered to the EV growth sector
providing strong long-term demand for cobalt and supporting
Sherritt’s growth strategy as a reliable cobalt producer. According
to the CRU outlook in December 2022, the global cobalt market in
the short to medium term is expected to shift between balanced to
slight surpluses until 2026, with deficits likely occurring in the
long term from 2027 onwards.
Fertilizer
The two main fertilizer products produced at the Fort site are
ammonia and ammonium sulphate. Revenue is derived from the sale of
ammonia and ammonium sulphate fertilizers principally into the
Western Canadian market. Demand for fertilizer products is mainly
seasonal, consisting of a spring and a fall season. Demand in the
spring season is typically greater due to more crop planting
compared to the fall season, leading to higher sales volumes.
The average-realized prices for Sherritt’s fertilizer products
in Q4 2022 were 19% higher than in Q4 2021. For 2022, the
average-realized price was 73% higher than in 2021, largely as a
result of the significant run up in reference prices in Q1 and Q2
of 2022 with the escalation of the Ukraine conflict.
Prices reflect higher raw material prices for ammonia and
ammonium related fertilizer stemming from high natural gas prices
due the Russia-Ukraine war. The war also put further pressure on
price of grains with Ukraine being one of the biggest regional
exporters. Strong corn and wheat prices improved the relative
affordability in a high fertilizer price environment. A mild winter
in Europe and sufficient gas storage could result in a short-term
prices decline; however, energy markets and global geo-political
constraints will continue to influence prices with expected
elevated natural gas prices continuing to support ammonia and
ammonium sulphate prices.
REVIEW OF OPERATIONS
Moa Joint Venture (50% interest) and Fort Site (100%)
For the three months ended
For the year ended
2022
2021
2022
2021
$ millions (Sherritt's share), except as
otherwise noted
December 31
December 31
Change
December 31
December 31
Change
FINANCIAL HIGHLIGHTS
Revenue(1)
$
221.6
$
183.2
21%
$
786.8
$
560.6
40%
Cost of Sales(1)
186.9
142.7
31%
576.9
451.4
28%
Earnings from operations
31.0
36.2
(14%)
200.2
98.3
104%
Adjusted EBITDA(2)
45.6
49.4
(8%)
254.0
152.3
67%
CASH FLOW
Cash provided by continuing operations for
operating activities
$
85.7
$
8.9
863%
$
177.1
$
90.5
96%
Free cash flow(2)
61.8
0.6
nm(7)
112.9
56.5
100%
PRODUCTION VOLUMES (tonnes)
Mixed Sulphides
4,000
3,881
3%
16,248
16,498
(2%)
Finished Nickel
4,112
4,266
(4%)
16,134
15,592
3%
Finished Cobalt
423
476
(11%)
1,684
1,763
(4%)
Fertilizer
62,254
65,021
(4%)
250,147
245,059
2%
NICKEL RECOVERY(3) (%)
85%
90%
(6%)
87%
86%
1%
SALES VOLUMES (tonnes)
Finished Nickel(4)
4,486
4,169
8%
15,879
15,603
2%
Finished Cobalt
386
474
(19%)
1,379
1,775
(22%)
Fertilizer
61,664
51,748
19%
170,427
168,782
1%
AVERAGE-REFERENCE PRICE(2)
(USD)
Nickel (US$ per pound)(5)
$
11.47
$
8.99
28%
$
11.61
$
8.39
38%
Cobalt (US$ per pound)(6)
23.00
29.89
(23%)
30.75
24.34
26%
AVERAGE-REALIZED PRICE(2)
(CAD)
Nickel ($ per pound)
$
15.55
$
11.16
39%
$
14.93
$
10.30
45%
Cobalt ($ per pound)
25.72
31.88
(19%)
34.26
25.88
32%
Fertilizer ($ per tonne)
647.03
545.08
19%
759.91
438.75
73%
UNIT OPERATING COST(2) (US$ per
pound)
Nickel - net direct cash cost
$
7.00
$
3.60
94%
$
5.14
$
4.11
25%
SPENDING ON
CAPITAL(2)(CAD)
Sustaining
$
22.3
$
12.1
84%
$
66.7
$
37.7
77%
Growth
4.4
-
-
7.4
-
-
$
26.7
$
12.1
121%
$
74.1
$
37.7
97%
(1)
Revenue and Cost of sales of Moa Joint Venture and Fort Site is
composed of revenue/cost of sales, respectively, recognized by the
Moa Joint Venture at Sherritt’s 50% share, which is
equity-accounted and included in share of earnings (loss) of Moa
Joint Venture, net of tax, and revenue/cost of sales recognized by
Fort Site, which is included in consolidated revenue. For a
breakdown of revenue between Moa Joint Venture and Fort Site see
the Combined revenue section in the Non-GAAP and other financial
measures section of this press release.
(2)
Non-GAAP financial measures. For additional information see the
Non-GAAP and other financial measures section of this press
release.
(3)
The nickel recovery rate measures the amount of finished nickel
that is produced compared to the original nickel content of the ore
that was mined.
(4)
For the three months and year ended December 31, 2021, excludes 600
tonnes (50% basis) of finished nickel purchased from and sold to a
third party as it was not internally produced.
(5)
The average nickel reference price for the year ended December 31,
2022 was impacted by the suspension of nickel trading and
disruption events on the LME in March 2022. The calculation of the
average nickel reference price for the year ended December 31, 2022
includes the prices prescribed by LME guidance for disruption
events for the period of the disruption, which uses the next
available price after a disruption event.
(6)
In August 2022, the Corporation changed its cobalt reference price
from the average standard-grade published price per Fastmarkets MB
to the “minimum 99.8% chemical grade – Rotterdam” price per Argus
Metals. All cobalt spot and average prices referenced for the three
months and year ended December 31, 2022 reflect the Argus Metals
price. Comparative amounts for the three months and year ended
December 31, 2021 are Fastmarkets MB prices.
(7)
nm = not meaningful
Revenue in Q4 2022 increased by 21% to $221.6 million from
$183.2 million in the same period last year. Full year 2022 revenue
was $786.8 million, 40% higher than 2021 revenue of $560.6 million.
Revenue increases in the current-year periods were largely
attributable to higher sales volume and average-realized prices(1)
for nickel and fertilizer. Nickel revenue was 32% and 42% higher
while fertilizer by-product revenue was 41% and 75% higher in the
three months and year ended December 31, 2022, respectively,
compared to the same periods in the prior year.
Cobalt revenue was 34% lower in Q4 2022 and marginally higher in
full year 2022 compared to the same periods in the prior year. The
decline in cobalt revenue for Q4 2022 was a result of both a 19%
lower average realized price and a 19% lower sales volume as a
result of continued near-term softness in the market. Despite the
lower Q4 cobalt revenue, revenue for 2022 was 3% higher than 2021
as the higher realized and reference prices in 2022 offset lower
sales volume.
Mixed sulphides production at the Moa JV in Q4 2022 was 4,000
tonnes, up 3% from the 3,881 tonnes produced in Q4 2021. The
variance was primarily due to higher leach train availability
compared to the prior year which was impacted by unplanned
maintenance. Full year 2022 production was 16,248 tonnes, slightly
lower than the 16,498 tonnes produced in 2021 as a result of mining
limitations caused by a combination of higher precipitation, lower
diesel supply and lower equipment availabilities.
Sherritt’s share of finished nickel production in Q4 2022
totaled 4,112 tonnes, 4% lower than the 4,266 tonnes produced in Q4
2021. Q4 2022 nickel production was impacted by lower mixed
sulphide feed availability at the refinery.
Finished cobalt production for Q4 2022 was 423 tonnes, down 11%
from the 476 tonnes produced in Q4 2021 due lower feed coupled with
a higher nickel-to-cobalt ratio.
For the full year 2022, finished nickel production was 16,134
tonnes, 3% higher than the 15,592 tonnes produced in 2021 primarily
due to improved equipment reliability during the year and the
drawdown of feed stock inventory at the refinery.
Full year 2022, cobalt production was down 4% to 1,684 tonnes
from 1,763 tonnes in 2021 primarily due to the higher
nickel-to-cobalt ratio in the Moa mixed sulphide feed and lower
availability of cobalt rich third-party feed.
As a result, 2022 finished nickel production was in line with
guidance and finished cobalt production materially within
guidance.
Finished nickel sales volume in Q4 2022 was higher than
production volume during the quarter bringing inventory back to
more typical levels following a build-up in Q3. Finished cobalt
sales volume and prices continued to be impacted by contract
delays, logistical challenges and a general near-term softness in
the market due to high global inventory levels and weaker
downstream demand for cobalt which we expect to normalize during
2023. Moa JV cobalt inventory remained higher than normal but is
expected to reduce to more typical levels as market conditions
rebound.
Fertilizer production for the three months and year ended
December 31, 2022 was 4% lower and 2% higher, respectively,
compared to the same period in the prior year, in line with metals
production.
Mining, processing and refining (MPR) costs per pound of nickel
sold in Q4 2022 were up 54% from Q4 2021. Higher MPR costs in Q4
2022 continue to be driven by the rise in input costs, including a
55% increase in global sulphur prices, a 133% increase in diesel
prices, and a 15% increase in fuel oil prices. Sulphur prices have
declined since Q3 2022, however they continued to be higher than
2021. For full year 2022, MPR costs per pound of nickel sold were
up 36% primarily due to higher input costs, including a 119%
increase in global sulphur prices, a 109% increase in diesel
prices, and a 40% increase in fuel oil prices.
NDCC(1) per pound of nickel sold increased by 94% to US$7.00/lb
in Q4 2022 from US$3.60/lb in Q4 2021. The higher NDCC was
primarily due to higher MPR costs, discussed above, and lower
cobalt by-product credits, partly offset by higher net fertilizer
by-product credits.
Full year 2022 NDCC was US$5.14/lb compared to US$4.11/lb in
2021 as increased MPR costs more than offset higher net fertilizer
by-product credits. Overall for the year, cobalt by-product credit
was only slightly lower than in 2021 as higher average-realized
price in 2022 on lower sales volume offset the lower
average-realized price on higher sales volume in 2021. Full year
2022 NDCC was slightly above the updated guidance range primarily
as a result higher input commodity prices and lower than
anticipated cobalt prices and sales volume during the fourth
quarter.
Sustaining spending on capital(1) in Q4 2022 was $22.3 million,
up 84% from $12.1 million in Q4 2021. The year-over-year increase
was due primarily to higher planned spending at both the Moa JV and
Fort Site. Growth spending on capital, which represents spending on
the joint venture’s expansion program, was $4.4 million, most of
which was related to spending on the slurry preparation plant.
Sustaining spending on capital for 2022 of $66.7 million was
above guidance while growth spending on capital of $7.4 million was
lower than guidance primarily as a result of logistics challenges
in getting materials to the site.
(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 storage 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 annual
MSP production by approximately an additional 4,800 tonnes of
contained metals annually and reduce NDCC(1) by approximately
US$0.20/lb.
With substantial growth in demand stemming from EV batteries,
Sherritt sees an opportunity to focus its strategy on increasing
production of intermediary products that will enable it to fully
utilize existing capacity at the refinery and also consider direct
sales of intermediate product into the EV battery supply chain. Of
the total increased production, Sherritt estimates that two thirds
of the increased Moa feed will be processed into finished nickel
and cobalt and the remaining could be sold as MSP into the EV
battery supply chain. This increased feed will likely result in the
displacement of some current lower margin third-party processing at
the refinery.
The diagram in Appendix 1 provides
a pro forma example of the expected impact of the expansion.
Growth spending on capital(1) is expected to be self-funded by
the Moa Joint Venture primarily using operating cash flows. Total
growth spending on capital in 2022 was $14.8 million (100% basis),
primarily related to the SPP, ordering of long lead items, and
basic engineering work related to the expansion program.
Progress for the expansion program in Q4 2022 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 assembly of major equipment has
commenced; and
- Up until Q4 2022, US$19.5 million (100% basis) in spending has
been committed and is prioritized on long lead materials and
equipment, construction supplies and civil, mechanical, and
electrical construction.
Moa Processing Plant:
The Moa processing expansion consists of the completion of the
Leach Plant Sixth Train and Fifth Sulphide Precipitation Train and
construction of additional acid storage capacity.
- 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.
Basic engineering will commence in Q1 2023 on the Fifth Sulphide
Precipitation Train and additional acid storage capacity.
(1)
Non-GAAP financial measures. For
additional information see the Non-GAAP and other financial
measures section of this press release.
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
- Sherritt and 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 detailed 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.
Power
For the three months ended
For the year ended
2022
2021
2022
2021
$ millions (33 ⅓% basis), except as
otherwise noted
December 31
December 31
Change
December 31
December 31
Change
FINANCIAL HIGHLIGHTS
Revenue
$
10.5
$
8.1
30%
$
37.1
$
28.3
31%
Cost of sales
4.9
7.0
(30%)
24.2
26.1
(7%)
Earnings (loss) from operations
4.5
0.5
800%
8.7
(0.6)
nm(3)
Adjusted EBITDA(1)
6.1
4.5
36%
22.3
15.1
48%
CASH FLOW
Cash provided by continuing operations for
operating activities
$
13.5
$
0.8
nm
$
37.4
$
18.1
107%
Free cash flow(1)
12.0
0.7
nm
32.3
18.0
79%
PRODUCTION AND SALES
Electricity (GWh(2))
159
130
22%
568
450
26%
AVERAGE-REALIZED PRICE(1)
Electricity ($/MWh(2))
$
58.54
$
54.33
8%
$
56.47
$
54.05
4%
UNIT OPERATING COSTS(1)
Electricity ($/MWh)
21.41
22.72
(6%)
19.39
23.06
(16%)
NET CAPACITY FACTOR (%)
49
40
23%
44
36
22%
SPENDING ON CAPITAL(1)
Sustaining
$
1.6
$
0.1
nm
$
5.1
$
0.1
nm
$
1.6
$
0.1
nm
$
5.1
$
0.1
nm
(1)
Non-GAAP financial measures. For
additional information see the Non-GAAP and other financial
measures section of this press release.
(2)
Gigawatt hours (GWh), Megawatt
hours (MWh).
(3)
nm = not meaningful
Revenue in Power for the three months and year ended December
31, 2022 was $10.5 million and $37.1 million, respectively, which
is up 30% and 31% compared to the same periods in the prior year
primarily due to higher equipment availability in 2022 as a result
of the completion of maintenance activities in the prior year and
additional gas supply.
Electricity production in Q4 and full-year 2022 was 159 GWh and
568 GWh compared to 130 GWh and 450 GWh, respectively in the prior
year periods. The increase in electricity production in Q4 is a
result of successful efforts to increase availability of gas which
enabled Power to beat its updated annual guidance.
Unit operating costs(1) for the three months and year ended
December 31, 2022 were $21.41/MWh, and $19.39/MWh, down 6% and 16%,
respectively, from the same periods in 2021. The improvement in
each of the current-year periods was driven by higher electricity
production and sale volume. The annual unit cost was lower than the
updated guidance range as a result of higher than anticipated gas
availability and lower than anticipated maintenance costs in
Q4.
The Power business unit had $1.6 million and $5.1 million
spending on capital(1) in the Q4 and for the full year 2022,
respectively, primarily driven by maintenance activities much of
which was deferred from the prior year. Spending on capital was at
guidance for the year.
Additionally during the quarter:
- Sherritt and its Cuban partners finalized an extension to the
Energas Payment Agreement to fund the operating, maintenance costs
and capital of Energas, as well as cover future payments that would
be owed to Sherritt, including dividends (the Moa Swap). Under the
agreement between Sherritt, Moa JV and Energas, Sherritt receives
approximately US$4.2 million ($5.6 million) per month; and
- 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.
Sherritt 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.
Sherritt continues to work with its Cuban partners to access
additional gas supply for the Boca facility from two new gas wells
to be drilled in Puerto Escondido that are scheduled to begin
production in Q4 2023.
(1)
Non-GAAP financial measure. For
additional information see the Non-GAAP and other financial
measures section of this press release.
Technologies
During the three months ended December 31, 2022, Sherritt
Technologies (Technologies) continued to support the Moa JV’s
expansion strategy. These activities included establishing an
updated life of mine plan based on an economic cut-off grade for
determining reserves to optimize mine planning and upgrade
resources into reserves, as well as supporting on-going process
plant capacity testing and debottlenecking work at both Moa and the
Fort Site locations.
Sherritt Technologies continued to advance development and
commercialization of its most promising and innovative proprietary
technologies:
“Chimera”/”D-POX” – a suite of processes for the treatment of
complex copper and precious metals concentrates (or other high
arsenic content feeds) that enable high recoveries of base and
precious metals while providing a significant step change in the
stabilization of arsenic bearing solid waste. Chimera combines
complex copper concentrate and laterite processing into a single
facility that enables additional environmental and economic
benefits and the production of nickel and cobalt intermediate
by-products. D-POX is a pressure oxidation process that enables
treatment of higher arsenic concentrations while simplifying silver
recovery.
- During the quarter, Technologies continued discussions with
potential interested parties within the copper and precious metals
industries and advanced proposals for potential batch testing and
piloting programs on existing concentrate feeds and specific
development project opportunities.
- 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).
Dense slurry hydroprocessing (DSH) – a metallurgical reactor
technology being applied to the processing of bio-oils into
second-generation renewable fuels, upgrading of refinery vacuum
residue to create value add products and upgrading heavy oils and
bitumen. Utilizing the DSH reactor platform for bio-oils would
overcome many of the challenges associated with commonly utilized
fixed bed designs.
- During Q4, Technologies continued to advance its assessment of
the technology on bio-oils and refinery vacuum residues. Batch
testing and process condition refinements demonstrated improvements
in the renewable diesel product quality to satisfy industry
requirements.
- Technologies also continued engagement with specific external
refineries on the potential to add significant value to their
operations with the ability for significant conversion of their
vacuum residues into higher value products. Implementation of a
cost-effective, laboratory-scale catalyst-life testing system
continues, with testing to commence in Q1 2023. Sherritt
Technologies will continue to work with interested external parties
to secure interest and support to advance a full piloting program
for the new catalyst system on bio-oils and refinery residues in
2023.
Next-generation laterite (NGL) processing – a novel processing
flowsheet with the potential to make processing of lateritic ores
more economically viable and sustainable while enabling the supply
of nickel and cobalt products from lateritic ores to the battery
sector.
- Following completion of the unit operation pilot testing in Q2
2022 which demonstrated the ability for selective leaching of
nickel and cobalt from both saprolite and limonite ores, in Q3 the
piloting on the other unit operations were completed and results
demonstrated high metal extraction rates into a final mixed
hydroxide product.
During the quarter, additional batch tests and initial
engineering work was completed to refine key operating and
commercial aspects of the process. Technologies commenced
discussions with specific external parties on the potential to
jointly develop this technology and looks to conduct batch testing
on specific projects in 2023.
Environmental, Social and Governance update
In Q4, Sherritt issued its 2021 sustainability, climate and
tailings management reports as well as its sustainability scorecard
outlining the Corporation’s performance on ESG matters.
Successes seen in 2021 carried into 2022 and included:
- Further improved upon safety performance, with the Total
Recordable Incident Frequency Rate of 0.14 and the Lost Time
Incident Frequency Rate of 0.07, a decrease of 59% and 50%,
respectively, between 2021 and 2022.
- Donations of another approximately $1 million to community
investment projects in 2022.
- Completed a Task Force on Climate-related Disclosures
(TFCD)-aligned Risk and Opportunity Assessment for the Fort
Site.
- Initiated a Greenhouse Gas Emissions Baseline Study in the
Energas business.
- Advanced project planning for carbon capture opportunities at
the Fort Site.
- Received confirmation of conformity with the LME’s Track B
Responsible Sourcing Requirements. Sherritt received independent
verification that its minerals are not associated with conflict,
risks such as human rights abuses, forced labour, or
corruption.
- Improved gender balance in the operations senior management
team and board.
Sherritt continues to meet safety and production targets at all
its sites, prioritizing the health and safety of its employees,
contractors and the communities in which Sherritt operates. Once
again in 2022, across all Sherritt’s sites, there were zero
work-related fatalities, zero significant environmental incidents,
zero security incidents involving allegations of human rights
abuses, and no material tailings-related incidents.
2022 REVIEW OF STRATEGIC PRIORITIES
The table below lists Sherritt’s Strategic Priorities for 2022,
and summarizes how the Corporation has performed against those
priorities.
2022 Strategic Priorities
Selected Actions
Status
ESTABLISH SHERRITT AS A LEADING GREEN METALS PRODUCER
Accelerate plans to expand Moa JV nickel and cobalt production by
up to 20% from the combined 34,710 tonnes produced in 2021.
Sherritt and its Moa JV advanced the
US$77.0 million (100% basis) two-phase expansion to increase total
mixed sulphide precipitate intermediate production by 6,500 tonnes
of contained metals at Moa at a low capital intensity of
approximately US$13,200 per annual tonne of contained nickel. The
program remains on time and budget for completion in 2024.
Implementation of ECOG methodology is
expected to extend the current LOM to beyond 2040.
Rank in lowest quartile of HPAL nickel
producers for NDCC.
NDCC(1) for 2022 of US$5.14/lb ranked
Sherritt in the first cost quartile for HPAL nickel producers and
the second cost quartile of all nickel producers.
Normalization of key input costs and
cobalt by-product credits would help return Sherritt to ranking in
the first quartile.
LEVERAGE TECHNOLOGIES FOR
TRANSFORMATIONAL GROWTH
Support Moa JV expansion, operational
improvements, and life of mine extension.
Continued to support the Moa JV expansion
and life of mine extension at Moa.
Advance Technologies solutions toward
commercialization.
Continued to advance development and
commercialization of most promising and innovative technologies,
including:
Chimera/D-POX – engaged with interested
parties to advance batch testing and piloting programs for specific
copper and precious metal opportunities.
DSH – advanced assessment of the
technology on bio-oils and refinery vacuum residues. Batch testing
demonstrated the ability to produce a renewable diesel product.
NGL – completed unit operations piloting
and initial engineering work to refine key operating and commercial
aspects. Engaged with external parties on the potential to jointly
develop this technology.
ACHIEVE BALANCE SHEET STRENGTH
Maximize collections of overdue Cuban
receivables.
Maximize available liquidity to support
growth strategy.
Signed agreements to recover the full
amount – $368.0 million – of receivables on the Energas CSA and Oil
and Gas trade receivables by the end of 2027 through the use of the
Cobalt Swap.
Repurchased approximately $150 million
principal amount of notes at a 16% discount reducing debt by 35%
from the beginning of the year and annual interest expense of
approximately $13 million.
Continue to optimize costs to reflect
operating footprint.
Implemented measures relating to director
compensation and employee costs that resulted in savings of
approximately $3 million.
BE RECOGNIZED AS A SUSTAINABLE ORGANIZATION
Deliver on actions identified in the
Sustainability Report.
Issued Sherritt’s 2021 sustainability
reports and scorecard in October 2022.
Achieve year-over-year ESG improvements
including reduction of carbon intensity.
Developed a climate plan to advance a road
map to achieve long-term net-zero GHG emissions by 2050.
Continued replacing vehicles and equipment
with EVs and electric equipment at Moa and the Fort Site.
Deliver on ‘Diversity and Inclusion’
global framework
Made progress in defining metrics,
analyzing workforce demographics and aligning Sustainability (CSR)
investments with D&I initiatives.
Improved gender balance in the operations
senior management team and board.
MAXIMIZE VALUE FROM CUBAN ENERGY
BUSINESSES
Extend economically beneficial Energas
power generation contract beyond 2023.
Received approval for extension of the
Energas Joint Venture contract to March 2043, and finalized
extension of the Moa Swap agreement to support liquidity and secure
sustainable operations.
Power was successful in working with its
Cuban partners to successfully increase gas supply in the fourth
quarter.
(1)
Non-GAAP and other financial
measures. For additional information, see the Non-GAAP and other
financial measures section.
2023 strategic priorities
The table below lists Sherritt’s Strategic Priorities for 2023.
Summaries of how the Corporation is performing against these
priorities will be provided on a quarterly basis during 2023.
Strategic Priorities
2023 Actions
ESTABLISH SHERRITT AS A LEADING GREEN
METALS PRODUCER
Execute on plans to expand Moa JV mixed
sulphide precipitate intermediate production by 20% or 6,500 tonnes
of contained metals annually.
Rank in lowest quartile of HPAL nickel
producers for NDCC.
Complete and publish NI 43-101 Report.
Expand sales into battery supply
chain.
LEVERAGE TECHNOLOGIES FOR
TRANSFORMATIONAL GROWTH
Support Moa JV expansion, operational
improvements, ECOG implementation and life of mine extension, and
marketing initiatives.
Advance Technologies solutions toward
commercialization with external partnerships and funding.
Develop innovative processing solutions
for treatment of blackmass for battery recycling.
ACHIEVE BALANCE SHEET STRENGTH
Effectively leverage collections on the
Cobalt Swap agreement.
Maximize available liquidity to support
growth strategy.
Continue to optimize costs to reflect
operating footprint.
BE RECOGNIZED AS A SUSTAINABLE
ORGANIZATION
Deliver on actions identified in the
Sustainability Report.
Achieve year-over-year ESG improvements
including reduction of carbon intensity.
Deliver on ‘Diversity and Inclusion’
global framework.
MAXIMIZE VALUE FROM CUBAN ENERGY
BUSINESSES
Access additional gas supply to increase
electrical power generation.
Maximize value from Oil and Gas
business.
OUTLOOK
2022 and 2023 production volumes, unit operating costs and
spending on capital guidance
Year-to-date
2022
actual to
2023
Production volumes, unit operating costs
and spending on capital
Guidance
December 31, 2022
Guidance
Production volumes
Moa Joint Venture (tonnes, 100% basis)
Nickel, finished
32,000 - 34,000
32,268
30,000 - 32,000
Cobalt, finished
3,400 - 3,700
3,368
3,100 - 3,400
Electricity (GWh, 33⅓% basis)(1)
525 - 550
568
575 - 625
Unit operating costs(2)
Moa Joint Venture - NDCC (US$ per
pound)(1)
$4.50 - $5.00
$5.14
$5.00 - $5.50
Electricity - unit operating cost, ($ per
MWh)(1)
$22.00 - $23.00
$19.39
$28.50 - $30.00
Spending on capital(2)($
millions)
Sustaining
Moa Joint Venture (50% basis), Fort Site
(100% basis)(3)
$60.0
$66.7
$70.0
Power (33⅓% basis)
$5.0
$5.1
$4.4
Growth
Moa Joint Venture (50% basis)(1)
$10.0
$7.4
$20.0
Spending on capital(4)
$75.0
$79.2
$94.4
(1)
2022 guidance updated November 2, 2022.
(2)
Non-GAAP financial measures. See the Non-GAAP and other financial
measures section for reconciliations of the year-to-date actual
amounts to the most directly comparable IFRS measures.
(3)
2022 guidance was updated July 27, 2022.
(4)
Excludes spending on capital at Oil and Gas, Technologies,
Corporate and Metals Other.
2023 will be a transition year for the Moa JV. The key priority
will be to ensure the expansion plan remains on time and on budget.
The final draft of the NI 43-101 report is expected to be released
by the end of the first quarter using the latest methodologies for
the analysis of the ECOG and LOM, in which the current LOM is
expected to extend to beyond 2040. This transition phase of mine
expansion will include accessing new mining areas and bringing the
new SPP online in 2024. As a result, finished nickel production is
forecast to be 30,000 – 32,000 tonnes (100% basis), while finished
cobalt production is forecast to be 3,100 – 3,400 tonnes (100%
basis).
NDCC at the Moa JV is forecast to be in the range of US$5.00 –
US$5.50 per pound of finished nickel sold.
Sherritt’s share of spending on capital(4) is forecast to be
$94.4 million:
- Sustaining spending on capital of $70.0 million is primarily
for infrastructure, the replacement of equipment, and tailings
management at the Moa JV.
- Growth spending on capital of $20.0 million is primarily for
the continued construction of the new SPP and leach plant sixth
train at the Moa JV.
- Sustaining spending on capital of $4.4 million at Power is
primarily for maintenance and equipment purchases.
CONFERENCE CALL AND WEBCAST
Sherritt will hold its conference call and webcast February 9,
2023 at 10:00 a.m. Eastern Time to review its Q4 and fiscal 2022
results. Dial-in and webcast details are as follows:
North American callers, please dial:
1 (888) 886-7786 Passcode:
06165116
International callers, please dial:
1 (416) 764-8658 Passcode:
06165116
Live webcast:
www.sherritt.com
Please dial in 15 minutes before the start of the call to
secure a line. Alternatively, listeners can access the
conference call and presentation via the webcast available on
Sherritt’s website.
An archive of the webcast and replay of the conference call will
also be available on the website.
FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND
ANALYSIS
Sherritt’s consolidated financial statements and MD&A for
the year ended December 31, 2022 are available at www.sherritt.com
and should be read in conjunction with this news release. Financial
and operating data can also be viewed in the investor relations
section of Sherritt’s website.
NON-GAAP AND OTHER FINANCIAL MEASURES
Management uses the following non-GAAP and other financial
measures in this press release and other documents: combined
revenue, adjusted earnings before interest, taxes, depreciation and
amortization (Adjusted EBITDA), average-realized price, unit
operating cost/net direct cash cost (NDCC), adjusted net
earnings/loss from continuing operations, adjusted earnings/loss
from continuing operations per share, spending on capital and
combined free cash flow.
Management uses these measures to monitor the financial
performance of the Corporation and its operating divisions and
believes these measures enable investors and analysts to compare
the Corporation’s financial performance with its competitors and/or
evaluate the results of its underlying business. These measures are
intended to provide additional information, not to replace
International Financial Reporting Standards (IFRS) measures, and do
not have a standard definition under IFRS and should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. As these measures do
not have a standardized meaning, they may not be comparable to
similar measures provided by other companies.
The non-GAAP and other financial measures are reconciled to
their most directly comparable IFRS measures in the Appendix below.
This press release should be read in conjunction with Sherritt’s
consolidated financial statements for the three months and year
ended December 31, 2022.
ABOUT SHERRITT INTERNATIONAL CORPORATION
Headquartered in Toronto, Sherritt is a world leader in using
hydrometallurgical processes to mine and refine nickel and cobalt –
metals essential for an electric future. Its Technologies Group
creates innovative, proprietary solutions for natural
resource-based industries around the world to improve environmental
performance and increase economic value. Sherritt has embarked on a
multi-pronged growth strategy focused on expanding nickel and
cobalt production by up to 20% from 2021 and extending the life of
mine at Moa beyond 2040. The Corporation is also the largest
independent energy producer in Cuba. Sherritt’s common shares are
listed on the Toronto Stock Exchange under the symbol “S”.
FORWARD-LOOKING STATEMENTS
This press release contains certain forward-looking statements.
Forward-looking statements can generally be identified by the use
of statements that include such words as “believe”, “expect”,
“anticipate”, “intend”, “plan”, “forecast”, “likely”, “may”,
“will”, “could”, “should”, “suspect”, “outlook”, “potential”,
“projected”, “continue” or other similar words or phrases.
Specifically, forward-looking statements in this document include,
but are not limited to, statements regarding strategies, plans and
estimated production amounts resulting from expansion of mining
operations at the Moa Joint Venture, growing and increasing nickel
and cobalt production, optimizing mine planning and performance,
extending the Moa life of mine and completing the economic cut-off
grade development, updating technical reports including the timing
of release of a new NI 43-101 report, conversion of mineral
resources to reserves, expansion program update as it relates to
the Slurry Preparation Plant and Moa Processing, the purchase of
secured second lien and junior notes, commercializing Technologies
projects and growing shareholder value; statements set out in the
“Outlook” section of this press release and certain expectations
regarding production volumes and increases, inventory levels,
operating costs and capital spending and intensity; sales volumes;
revenue, costs and earnings; supply, demand and pricing outlook in
the nickel, cobalt and fertilizer markets; the availability of
additional gas supplies to be used for power generation; the impact
of COVID-19; Sherritt’s strategy, plans, targets and goals in
respect of environmental and social governance issues, including
climate change and greenhouse gas emissions reduction targets;
anticipated payments and intention to settle outstanding
receivables under the Cobalt Swap, including liability amounts at
the implementation date, the anticipated end of historical
repayment uncertainty, the anticipated repayment of all outstanding
receivables through dividends, including in the form of finished
cobalt or cash; and the timing, and amount of cobalt dividend
distributions; distributions from the Corporation’s Moa Joint
Venture in general; future receipts under the Moa Swap agreement;
the anticipated second lien secured notes becoming due in 2026; the
impact of the U.S. sanctions on Cuba; anticipated economic
conditions in Cuba; sufficiency of working capital management and
capital project funding; strengthening the Corporation’s capital
structure and reducing annual interest expenses; and amounts of
certain other commitments.
Forward-looking statements are not based on historical facts,
but rather on current expectations, assumptions and projections
about future events, including commodity and product prices and
demand; the level of liquidity and access to funding; share price
volatility; production results; realized prices for production;
earnings and revenues; global demand for electric vehicles and the
anticipated corresponding demand for cobalt and nickel; the
commercialization of certain proprietary technologies and services;
advancements in environmental and greenhouse gas (GHG) reduction
technology; GHG emissions reduction goals and the anticipated
timing of achieving such goals, if at all; statistics and metrics
relating to Environmental, Social and Governance (ESG) matters
which are based on assumptions or developing standards;
environmental rehabilitation provisions; environmental risks and
liabilities; compliance with applicable environmental laws and
regulations; risks related to the U.S. government policy toward
Cuba; and certain corporate objectives, goals and plans for 2023.
By their nature, forward-looking statements require the Corporation
to make assumptions and are subject to inherent risks and
uncertainties. There is significant risk that predictions,
forecasts, conclusions or projections will not prove to be
accurate, that the assumptions may not be correct and that actual
results may differ materially from such predictions, forecasts,
conclusions or projections.
The Corporation cautions readers of this press release not to
place undue reliance on any forward-looking statement as a number
of factors could cause actual future results, conditions, actions
or events to differ materially from the targets, expectations,
estimates or intentions expressed in the forward-looking
statements. These risks, uncertainties and other factors include,
but are not limited to, security market fluctuations and price
volatility; level of liquidity and the related ability of the Moa
Joint Venture to pay dividends; access to capital; access to
financing; the risk to Sherritt’s entitlements to future
distributions (including pursuant to the Cobalt Swap) from the Moa
Joint Venture, the impact of infectious diseases (including the
COVID-19 pandemic), the impact of global conflicts; changes in the
global price for nickel, cobalt, oil, gas, fertilizers or certain
other commodities; risks related to Sherritt’s operations in Cuba;
risks related to the U.S. government policy toward Cuba, including
the U.S. embargo on Cuba and the Helms-Burton legislation;
political, economic and other risks of foreign operations;
uncertainty in the ability of the Corporation to enforce legal
rights in foreign jurisdictions; uncertainty regarding the
interpretation and/or application of the applicable laws in foreign
jurisdictions; compliance with applicable environment, health and
safety legislation and other associated matters; risks associated
with governmental regulations regarding climate change and
greenhouse gas emissions; risks relating to community relations;
maintaining social license to grow and operate; risks related to
environmental liabilities including liability for reclamation
costs, tailings facility failures and toxic gas releases;
uncertainty about the pace of technological advancements required
in relation to achieving ESG targets; risks to information
technologies systems and cybersecurity; identification and
management of growth opportunities; the ability to replace depleted
mineral reserves; risk of future non-compliance with debt
restrictions and covenants; risks associated with the Corporation’s
joint venture partners; variability in production at Sherritt’s
operations in Cuba; risks associated with mining, processing and
refining activities; potential interruptions in transportation;
uncertainty of gas supply for electrical generation; reliance on
key personnel and skilled workers; growth opportunity risks; the
possibility of equipment and other failures; uncertainty of
resources and reserve estimates; the potential for shortages of
equipment and supplies, including diesel; supplies quality issues;
risks related to the Corporation’s corporate structure; risks
associated with the operation of large projects generally; risks
related to the accuracy of capital and operating cost estimates;
foreign exchange and pricing risks; credit risks; shortage of
equipment and supplies; competition in product markets; future
market access; interest rate changes; risks in obtaining insurance;
uncertainties in labour relations; legal contingencies; risks
related to the Corporation’s accounting policies; uncertainty in
the ability of the Corporation to obtain government permits;
failure to comply with, or changes to, applicable government
regulations; bribery and corruption risks, including failure to
comply with the Corruption of Foreign Public Officials Act or
applicable local anti-corruption law; the ability to accomplish
corporate objectives, goals and plans for 2023; and the ability to
meet other factors listed from time to time in the Corporation’s
continuous disclosure documents.
The Corporation, together with its Moa Joint Venture is pursuing
a range of growth and expansion opportunities, including without
limitation, process technology solutions, development projects,
commercial implementation opportunities, life of mine extension
opportunities and the conversion of mineral resources to reserves.
In addition to the risks noted above, factors that could, alone or
in combination, prevent the Corporation from successfully achieving
these opportunities may include, without limitation: identifying
suitable commercialization and other partners; successfully
advancing discussions and successfully concluding applicable
agreements with external parties and/or partners; successfully
attracting required financing; successfully developing and proving
technology required for the potential opportunity; successfully
overcoming technical and technological challenges; successful
environmental assessment and stakeholder engagement; successfully
obtaining intellectual property protection; successfully completing
test work and engineering studies, prefeasibility and feasibility
studies, piloting, scaling from small scale to large scale
production, , procurement, construction, commissioning, ramp-up to
commercial scale production and completion; and securing regulatory
and government approvals. There can be no assurance that any
opportunity will be successful, commercially viable, completed on
time or on budget, or will generate any meaningful revenues,
savings or earnings, as the case may be, for the Corporation. In
addition, the Corporation will incur costs in pursuing any
particular opportunity, which may be significant. Readers are
cautioned that the foregoing list of factors is not exhaustive and
should be considered in conjunction with the risk factors described
in the Corporation’s other documents filed with the Canadian
securities authorities, including without limitation the “Managing
Risk” section of the Management’s Discussion and Analysis for the
year ended December 31, 2022 and the Annual Information Form of the
Corporation dated March 24, 2022 for the period ending December 31,
2021, which is available on SEDAR at www.sedar.com.
The Corporation may, from time to time, make oral
forward-looking statements. The Corporation advises that the above
paragraph and the risk factors described in this press release and
in the Corporation’s other documents filed with the Canadian
securities authorities should be read for a description of certain
factors that could cause the actual results of the Corporation to
differ materially from those in the oral forward-looking
statements. The forward-looking information and statements
contained in this press release are made as of the date hereof and
the Corporation undertakes no obligation to update publicly or
revise any oral or written forward-looking information or
statements, whether as a result of new information, future events
or otherwise, except as required by applicable securities laws. The
forward-looking information and statements contained herein are
expressly qualified in their entirety by this cautionary
statement.
APPENDIX – NON-GAAP AND OTHER FINANCIAL MEASURES
Management uses the measures below to monitor the financial
performance of the Corporation and its operating divisions and
believes these measures enable investors and analysts to compare
the Corporation’s financial performance with its competitors and/or
evaluate the results of its underlying business. These measures are
intended to provide additional information, not to replace IFRS
measures, and do not have a standard definition under IFRS and
should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with IFRS. As these
measures do not have a standardized meaning, they may not be
comparable to similar measures provided by other companies.
The non-GAAP and other financial measures are reconciled to the
most directly comparable IFRS measure as presented in the condensed
consolidated financial statements for the year ended December 31,
2022.
Combined revenue
The Corporation uses combined revenue as a measure to help
management assess the Corporation’s financial performance across
its operations. Combined revenue includes the Corporation’s
consolidated revenue and revenue of the Moa Joint Venture on a 50%
basis, which is accounted for using the equity method for
accounting purposes.
Management uses this measure to reflect the Corporation’s
economic interest in its operations prior to the application of
equity accounting to help allocate financial resources and provide
investors with information that it believes is useful in
understanding the scope of Sherritt’s business, based on its
economic interest, irrespective of the accounting treatment.
The table below reconciles combined revenue to revenue per the
financial statements:
For the three months ended
For the year ended
2022
2021
2022
2021
$ millions
December 31
December 31
Change
December 31
December 31
Change
Revenue by reportable segment
Moa Joint Venture and Fort Site(1)
$
221.6
$
183.2
21%
$
786.8
$
560.6
40%
Metals Other
1.9
2.1
(10%)
8.3
6.8
22%
Oil and Gas
2.5
4.7
(47%)
16.2
15.6
4%
Power
10.5
8.1
30%
37.1
28.3
31%
Technologies
0.5
0.2
150%
1.8
0.6
200%
Corporate
0.1
0.3
(67%)
0.7
0.9
(22%)
Combined revenue
$
237.1
$
198.6
19%
$
850.9
$
612.8
39%
Adjustment for Moa Joint Venture
(188.5)
(162.0)
(672.1)
(502.6)
Financial statement revenue
$
48.6
$
36.6
33%
$
178.8
$
110.2
62%
Adjusted EBITDA
The Corporation defines Adjusted EBITDA as earnings (loss) from
operations and joint venture, which excludes net finance expense
and loss from discontinued operations, net of tax, as reported in
the financial statements for the period, adjusted for: depletion,
depreciation and amortization; impairment losses on non-current
non-financial assets and investments; and gains or losses on
disposal of property, plant and equipment of the Corporation and
the Moa Joint Venture. The exclusion of impairment losses
eliminates the non-cash impact of the losses.
Management uses Adjusted EBITDA internally to evaluate the cash
generation potential of Sherritt’s operating divisions on a
combined and segment basis as an indicator of ability to fund
working capital needs, meet covenant obligations, service debt and
fund capital expenditures, as well as provide a level of
comparability to similar entities. Management believes that
Adjusted EBITDA provides useful information to investors in
evaluating the Corporation’s operating results in the same manner
as management and the Board of Directors.
The tables below reconcile earnings (loss) from operations and
joint venture per the financial statements to Adjusted EBITDA:
$ millions, for the three months ended
December 31
2022
Adjustment
for Moa
Moa JV and
Metals
Oil and
Techno-
Joint
Fort Site(1)
Other
Gas
Power
logies
Corporate
Venture
Total
Earnings (loss) from operations and joint
venture
per financial statements
$
31.0
$
(0.5)
$
(17.1)
$
4.5
$
(4.4)
$
(11.6)
$
(2.0)
$
(0.1)
Add (deduct):
Depletion, depreciation and
amortization
2.8
-
-
1.6
-
0.3
-
4.7
Impairment of intangible assets
-
-
1.3
-
-
-
-
1.3
Adjustments for share of earnings of Moa
Joint Venture:
Depletion, depreciation and
amortization
11.8
-
-
-
-
-
-
11.8
Net finance expense
-
-
-
-
-
-
(1.6)
(1.6)
Income tax recovery
-
-
-
-
-
-
3.6
3.6
Adjusted EBITDA
$
45.6
$
(0.5)
$
(15.8)
$
6.1
$
(4.4)
$
(11.3)
$
-
$
19.7
$ millions, for the three months ended
December 31
2021
Adjustment
for Moa
Moa JV and
Metals
Oil and
Techno-
Joint
Fort Site(1)
Other
Gas
Power
logies
Corporate
Venture
Total
Earnings (loss) from operations and joint
venture
per financial statements
$
36.2
$
(0.4)
$
(0.7)
$
0.5
$
(3.9)
$
(4.0)
$
(7.2)
$
20.5
Add (deduct):
Depletion, depreciation and
amortization
2.5
-
1.1
4.0
-
0.4
-
8.0
Adjustments for share of earnings of Moa
Joint Venture:
Depletion, depreciation and
amortization
10.7
-
-
-
-
-
-
10.7
Net finance expense
-
-
-
-
-
-
1.5
1.5
Income tax expense
-
-
-
-
-
-
5.7
5.7
Adjusted EBITDA
$
49.4
$
(0.4)
$
0.4
$
4.5
$
(3.9)
$
(3.6)
$
-
$
46.4
$ millions, for the year ended December
31
2022
Adjustment
for Moa
Moa JV and
Metals
Oil and
Techno-
Joint
Fort Site(2)
Other
Gas
Power
logies
Corporate
Venture
Total
Earnings (loss) from operations and joint
venture
per financial statements
$
200.2
$
(2.3)
$
(16.3)
$
8.7
$
(14.8)
$
(27.4)
$
(29.4)
$
118.7
Add (deduct):
Depletion, depreciation and
amortization
10.3
0.1
0.8
13.6
0.1
1.1
-
26.0
Impairment of intangible assets
-
-
1.3
-
-
-
-
1.3
Gain on disposal of property, plant and
equipment
-
-
(1.3)
-
-
-
-
(1.3)
Adjustments for share of earnings of Moa
Joint Venture:
Depletion, depreciation and
amortization
43.5
-
-
-
-
-
-
43.5
Net finance expense
-
-
-
-
-
-
5.1
5.1
Income tax expense
-
-
-
-
-
-
24.3
24.3
Adjusted EBITDA
$
254.0
$
(2.2)
$
(15.5)
$
22.3
$
(14.7)
$
(26.3)
$
-
$
217.6
$ millions, for the year ended December
31
2021
Adjustment
for Moa
Moa JV and
Metals
Oil and
Techno-
Joint
Fort Site(2)
Other
Gas
Power
logies
Corporate
Venture
Total
Earnings (loss) from operations and joint
venture
per financial statements
$
98.3
$
(2.0)
$
(11.6)
$
(0.6)
$
(12.9)
$
(35.6)
$
(27.1)
$
8.5
Add (deduct):
Depletion, depreciation and
amortization
10.8
0.2
6.7
15.7
0.1
1.1
-
34.6
Gain on disposal of property, plant and
equipment
-
-
(1.2)
-
-
-
-
(1.2)
Adjustments for share of earnings of Moa
Joint Venture:
Depletion, depreciation and
amortization
43.2
-
-
-
-
-
-
43.2
Net finance income
-
-
-
-
-
-
0.8
0.8
Income tax expense
-
-
-
-
-
-
26.3
26.3
Adjusted EBITDA
$
152.3
$
(1.8)
$
(6.1)
$
15.1
$
(12.8)
$
(34.5)
$
-
$
112.2
(1)
Adjusted EBITDA of Moa Joint
Venture and Fort Site for the three months ended December 31, 2022
is composed of Adjusted EBITDA at Moa Joint Venture of $76.9
million (50% basis) and Adjusted EBITDA at Fort Site of $4.3
million (for the three months ended December 31, 2021 - $42.6
million and $(0.9) million, respectively).
Average-realized price
Average-realized price is generally calculated by dividing
revenue by sales volume for the given product in a given division.
The average-realized price for power excludes by-product revenue,
as this revenue is not earned directly for power generation.
Transactions by a Moa Joint Venture marketing company, included in
other revenue, are excluded.
Management uses this measure, and believes investors use this
measure, to compare the relationship between the revenue per unit
and direct costs on a per unit basis in each reporting period for
nickel, cobalt, fertilizer and power and provide comparability with
other similar external operations.
Average-realized price for fertilizer is the weighted-average
realized price of ammonia and various ammonium sulphate
products.
Average-realized price for nickel and cobalt are expressed in
Canadian dollars per pound sold, while fertilizer is expressed in
Canadian dollars per tonne sold and electricity is expressed in
Canadian dollars per megawatt hour sold.
The tables below reconcile revenue per the financial statements
to average-realized price:
$ millions, except average-realized price
and sales volume, for the three months ended December 31
2022
Moa Joint Venture and Fort
Site
Adjustment
for Moa Joint
Nickel
Cobalt
Fertilizer
Power
Other(1)
Venture
Total
Revenue per financial statements
$
153.8
$
22.0
$
40.4
$
10.5
$
10.4
$
(188.5)
$
48.6
Adjustments to revenue:
By-product revenue
-
-
-
(1.2)
Revenue for purposes of average-realized
price calculation
153.8
22.0
40.4
9.3
Sales volume for the period
9.9
0.9
61.7
159
Volume units
Millions of
Millions of
Thousands
Gigawatt
pounds
pounds
of tonnes
hours
Average-realized price(2)(3)(4)
$
15.55
$
25.72
$
647.03
$
58.54
$ millions, except average-realized price
and sales volume, for the three months ended December 31
2021
Moa Joint Venture and Fort
Site
Adjustment
for Moa Joint
Nickel
Cobalt
Fertilizer
Power
Other(1)
Venture
Total
Revenue per financial statements
$
116.7
$
33.4
$
28.3
$
8.1
$
12.1
$
(162.0)
$
36.6
Adjustments to revenue:
Third-party finished nickel revenue
(14.1)
By-product revenue
-
-
-
(1.1)
Revenue for purposes of average-realized
price calculation
102.6
33.4
28.3
7.0
Sales volume for the period
9.2
1.0
51.7
130
Volume units
Millions of
Millions of
Thousands
Gigawatt
pounds
pounds
of tonnes
hours
Average-realized price(2)(3)(4)
$
11.16
$
31.88
$
545.08
$
54.33
$ millions, except average-realized price
and sales volume, for the year ended December 31
2022
Moa Joint Venture and Fort
Site
Adjustment
for Moa Joint
Nickel
Cobalt
Fertilizer
Power
Other
Venture
Total
Revenue per financial statements
$
522.8
$
104.2
$
129.5
$
37.1
$
40.7
$
(672.1)
$
162.2
Adjustments to revenue:
Third-party finished nickel revenue
(14.1)
-
-
-
By-product revenue
-
-
-
(5.0)
Revenue for purposes of average-realized
price calculation
508.7
104.2
129.5
32.1
Sales volume for the period
35.0
3.0
170.4
568
Volume units
Millions of
Millions of
Thousands
Gigawatt
pounds
pounds
of tonnes
hours
Average-realized price(1)(2)(3)
$
14.93
$
34.26
$
759.91
$
56.47
$ millions, except average-realized price
and sales volume, for the year ended December 31
2021
Moa Joint Venture and Fort
Site
Adjustment
for Moa Joint
Nickel
Cobalt
Fertilizer
Power
Other(1)
Venture
Total
Revenue per financial statements
$
368.4
$
101.3
$
74.1
$
28.3
$
40.7
$
(502.6)
$
110.2
Adjustments to revenue:
Third-party finished nickel revenue
(14.1)
By-product revenue
-
-
-
(4.0)
Revenue for purposes of average-realized
price calculation
354.3
101.3
74.1
24.3
Sales volume for the period
34.4
3.9
168.8
450
Volume units
Millions of
Millions of
Thousands
Gigawatt
pounds
pounds
of tonnes
hours
Average-realized price(2)(3)(4)
$
10.30
$
25.88
$
438.75
$
54.05
(1)
Other revenue includes revenue from the Metals Other, Oil and Gas,
Technologies and Corporate reportable segments.
(2)
Average-realized price may not calculate exactly based on amounts
presented due to foreign exchange and rounding.
(3)
Power, average-realized price per MWh.
(4)
Fertilizer, average-realized price per tonne.
Unit operating cost/NDCC
With the exception of the Moa Joint Venture, which uses NDCC,
unit operating cost is generally calculated by dividing cost of
sales as reported in the financial statements, less depreciation,
depletion and amortization in cost of sales, the impact of
impairment losses, gains and losses on disposal of property, plant,
and equipment and exploration and evaluation assets and certain
other non-production related costs, by the number of units
sold.
The Moa Joint Venture’s NDCC is calculated by dividing cost of
sales, as reported in the financial statements, adjusted for the
following: depreciation, depletion, amortization and impairment
losses in cost of sales; cobalt by-product, fertilizer and other
revenue; and other costs primarily related to the impact of opening
and closing inventory values, by the number of finished nickel
pounds sold in the period, expressed in U.S. dollars.
Unit operating costs for nickel and electricity are key measures
that management and investors uses to monitor performance. NDCC of
nickel is a widely-used performance measure for nickel producers.
Management uses unit operating costs/NDCC to assess how well the
Corporation’s producing mine and power facilities are performing
and to assess overall production efficiency and effectiveness
internally across periods and compared to its competitors.
Unit operating cost (NDCC) for nickel is expressed in U.S.
dollars per pound sold, while electricity is expressed in Canadian
dollars per megawatt hour sold.
The tables below reconcile cost of sales per the financial
statements to unit operating cost/NDCC:
$ millions, except unit cost and sales
volume, for the three months ended December 31
2022
Adjustment
Moa JV and
for Moa
Fort Site
Power
Other(1)
Joint Venture
Total
Cost of sales per financial statements
$
186.7
$
4.8
$
24.4
$
(159.7)
$
56.2
Less:
Depletion, depreciation and amortization
in cost of sales
(14.7)
(1.5)
172.0
3.3
Adjustments to cost of sales:
Cobalt by-product, fertilizer and other
revenue
(67.8)
-
Impact of opening/closing inventory and
other(2)
(10.4)
-
Cost of sales for purposes of unit cost
calculation
93.8
3.3
Sales volume for the period
9.9
159
Volume units
Millions of
Gigawatt
pounds
hours
Unit operating cost(3)(4)
$
9.48
$
21.41
Unit operating cost (US$ per pound)
(NDCC)(5)
$
7.00
$ millions, except unit cost and sales
volume, for the three months ended December 31
2021
Adjustment
Moa JV and
for Moa
Fort Site
Power
Other(1)
Joint Venture
Total
Cost of sales per financial statements
$
142.7
$
7.0
$
11.2
$
(118.3)
$
42.6
Less:
Depletion, depreciation and amortization
in cost of sales
(13.2)
(4.0)
129.5
3.0
Adjustments to cost of sales:
Cobalt by-product, fertilizer and other
revenue
(66.5)
-
Third-party finished nickel cost
(13.7)
-
Impact of opening/closing inventory and
other(2)
(7.7)
-
Cost of sales for purposes of unit cost
calculation
41.6
3.0
Sales volume for the period
9.2
130
Volume units
Millions of
Gigawatt
pounds
hours
Unit operating cost(3)(4)
$
4.53
$
22.72
Unit operating cost (US$ per pound)
(NDCC)(5)
$
3.60
$ millions, except unit cost and sales
volume, for the year ended December 31
2022
Adjustment
Moa JV and
for Moa
Fort Site
Power
Other(1)
Joint Venture
Total
Cost of sales per financial statements
$
576.6
$
24.1
$
56.5
$
(494.6)
$
162.6
Less:
Depletion, depreciation and amortization
in cost of sales
(53.8)
(13.1)
522.8
11.0
Adjustments to cost of sales:
Cobalt by-product, fertilizer and other
revenue
(264.0)
-
Impact of opening/closing inventory and
other(2)
(24.9)
-
Cost of sales for purposes of unit cost
calculation
233.9
11.0
Sales volume for the period
35.0
568
Volume units
Millions of
Gigawatt
pounds
hours
Unit operating cost(3)(4)
$
6.68
$
19.39
Unit operating cost (US$ per pound)
(NDCC)(5)
$
5.14
$ millions, except unit cost and sales
volume, for the year ended December 31
2021
Adjustment
Moa JV and
for Moa
Fort Site
Power
Other(1)
Joint Venture
Total
Cost of sales per financial statements
$
451.4
$
26.1
$
45.5
$
(382.0)
$
141.0
Less:
Depletion, depreciation and amortization
in cost of sales
(53.8)
(15.7)
397.6
10.4
Adjustments to cost of sales:
Cobalt by-product, fertilizer and other
revenue
(192.2)
-
Third-party finished nickel cost
(13.7)
Impact of opening/closing inventory and
other(2)
(14.5)
-
Impairment on assets
-
-
Cost of sales for purposes of unit cost
calculation
177.2
10.4
Sales volume for the period
34.4
450
Volume units
Millions of
Gigawatt
pounds
hours
Unit operating cost(3)(4)
$
5.15
$
23.06
Unit operating cost (US$ per pound)
(NDCC)(5)
$
4.11
(1)
Other is composed of the cost of sales of the Metals Other, Oil and
Gas and Technologies reportable segments.
(2)
Other is primarily composed of royalties and other contributions,
sales discounts and other non-cash items.
(3)
Unit operating cost/NDCC may not calculate exactly based on amounts
presented due to foreign exchange and rounding.
(4)
Power, unit operating cost price per MWh.
(5)
Unit operating costs in US$ are converted at the average exchange
rate for the period.
Adjusted net earnings/loss from continuing operations and
adjusted net earnings/loss from continuing operations per
share
The Corporation defines adjusted net earnings/loss from
continuing operations as net earnings/loss from continuing
operations less items not reflective of operational performance.
These adjusting items include, but are not limited to, inventory
obsolescence, impairment of assets, gains and losses on the
acquisition or disposal of assets, unrealized foreign exchange
gains and losses, gains and losses on financial assets and
liabilities and other one-time adjustments. While some adjustments
are recurring (such as unrealized foreign exchange (gain) loss and
revaluations of allowances for expected credit losses (ACL)),
management believes that they do not reflect the Corporation’s
operational performance or future operational performance. Adjusted
net earnings/loss from continuing operations per share is defined
consistent with the definition above and divided by the
Corporation’s weighted-average number of common shares
outstanding.
Management uses these measures internally and believes that they
provide investors with performance measures with which to assess
the Corporation’s core operations by adjusting for items or
transactions that are not reflective of its core operating
activities.
The table below reconcile net earnings (loss) from continuing
operations and net earnings (loss) from continuing operations per
share, both per the financial statements, to adjusted net earnings
(loss) from continuing operations and adjusted net earnings (loss)
from continuing operations per share, respectively:
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 during 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.
Spending on capital
The Corporation defines spending on capital for each segment as
property, plant and equipment and intangible asset expenditures on
a cash basis adjusted to the accrual basis in order to account for
assets that are available for use by the Corporation and the Moa
Joint Venture prior to payment and includes adjustments to
accruals. The Moa Joint Venture and Fort Site segment’s spending on
capital includes the Fort Site’s expenditures, plus the
Corporation’s 50% share of the Moa Joint Venture’s expenditures,
which is accounted for using the equity method for accounting
purposes.
Combined spending on capital is the aggregate of each segment’s
spending on capital or the Corporation’s consolidated property,
plant and equipment and intangible asset expenditures and the
property, plant and equipment and intangible asset expenditures of
the Moa Joint Venture on a 50% basis, all adjusted to the accrual
basis.
Combined spending on capital is used by management, and
management believes this information is used by investors, to
analyze the Corporation and the Moa Joint Venture’s investments in
non-current assets that are held for use in the production of
nickel, cobalt, fertilizers, oil and gas and power generation.
The tables below reconcile property, plant and equipment and
intangible asset expenditures per the financial statements to
combined spending on capital, expressed in Canadian dollars:
$ millions, for the three months ended
December 31
2022
Moa JV and Fort Site
Power
Other(1)
Combined total
Adjustment for Moa Joint
Venture
Total derived from financial
statements
Property, plant and equipment
expenditures(2)
$
24.0
$
2.1
$
0.1
$
26.2
$
(15.9)
$
10.3
Intangible asset expenditures(2)
-
-
0.8
0.8
-
0.8
24.0
2.1
0.9
27.0
$
(15.9)
$
11.1
Adjustments:
Accrual adjustment
2.7
(0.5)
(0.3)
1.9
Spending on capital
$
26.7
$
1.6
$
0.6
$
28.9
$ millions, for the three months ended
December 31
2021
Moa JV and Fort Site
Power
Other(1)
Combined total
Adjustment for Moa Joint
Venture
Total derived from financial
statements
Property, plant and equipment
expenditures(2)
$
8.3
$
0.1
$
0.5
$
8.9
$
(6.2)
$
2.7
Intangible asset expenditures(2)
-
-
0.2
0.2
-
0.2
8.3
0.1
0.7
9.1
$
(6.2)
$
2.9
Adjustments:
Accrual adjustment
3.8
-
(0.5)
3.3
Spending on capital
$
12.1
$
0.1
$
0.2
$
12.4
$ millions, for the year ended December
31
2022
Moa JV and Fort Site
Power
Other(1)
Combined total
Adjustment for Moa Joint
Venture
Total derived from financial
statements
Property, plant and equipment
expenditures(2)
$
64.2
$
5.1
$
0.2
$
69.5
$
(41.8)
$
27.7
Intangible asset expenditures(2)
-
-
0.8
0.8
-
0.8
64.2
5.1
1.0
70.3
$
(41.8)
$
28.5
Adjustments:
Accrual adjustment
9.9
-
0.3
10.2
Spending on capital
$
74.1
$
5.1
$
1.3
$
80.5
$ millions, for the year ended December
31
2021
Moa JV and Fort Site
Power
Other(1)
Combined total
Adjustment for Moa Joint
Venture
Total derived from financial
statements
Property, plant and equipment
expenditures(2)
$
34.0
$
0.1
$
0.9
$
35.0
$
(25.1)
$
9.9
Intangible asset expenditures(2)
-
-
0.8
0.8
-
0.8
34.0
0.1
1.7
35.8
$
(25.1)
$
10.7
Adjustments:
Accrual adjustment
3.7
-
(0.7)
3.0
Spending on capital
$
37.7
$
0.1
$
1.0
$
38.8
(1)
Includes property, plant and
equipment and intangible asset expenditures of the Oil and Gas and
Corporate segments.
(2)
Total property, plant and
equipment expenditures and total intangible asset expenditures as
presented in the Corporation’s consolidated statements of cash
flow.
Combined free cash flow
The Corporation defines free cash flow for each segment as cash
provided (used) by continuing operations for operating activities,
less cash expenditures on property, plant and equipment and
intangible assets, including exploration and evaluation assets. The
Moa Joint Venture and Fort Site segment’s free cash flow includes
the Fort Site’s free cash flow, plus the Corporation’s 50% share of
the Moa Joint Venture’s free cash flow, which is accounted for
using the equity method for accounting purposes. The Corporate
segment’s cash used by continuing operations for operating
activities is adjusted to exclude distributions received from Moa
Joint Venture.
Combined free cash flow is the aggregate of each segment’s free
cash flow or the Corporation’s consolidated cash provided (used) by
continuing operations for operating activities, less consolidated
cash expenditures on property, plant and equipment and intangible
assets, including exploration and evaluation assets, less
distributions received from Moa Joint Venture, plus cash provided
(used) by continuing operations for operating activities for the
Corporation’s 50% share of the Moa Joint Venture, less cash
expenditures on property, plant and equipment and intangible assets
for the Corporation’s 50% share of the Moa Joint Venture.
Distributions from the Moa Joint Venture excluded from Corporate
cash used by continuing operations for operating activities are
included in the Adjustment for Moa Joint Venture to arrive at total
cash provided (used) by continuing operations for operating
activities per the financial statements.
Free cash flow is used by management, and management believes
this information is used by investors, to analyze cash flows
generated from operations and assess its operations’ ability to
provide cash or its use of cash, after funding cash capital
requirements, to service current and future working capital needs
and service debt.
The tables below reconcile cash provided (used) by continuing
operations for operating activities per the financial statements to
combined free cash flow:
$ millions, for the three months ended
December 31
2022
Total
Adjustment
derived
for Moa
from
Moa JV and
Metals
Oil and
Technol-
Combined
Joint
financial
Fort Site(1)
Other
Gas
Power
ogies
Corporate
total
Venture
statements
Cash provided (used) by continuing
operations
for operating activities(2)
$
85.7
$
(4.1)
$
(1.7)
$
13.5
$
(4.5)
$
(19.9)
$
69.0
$
(28.7)
$
40.3
Less:
Property, plant and equipment
expenditures
(23.9)
-
-
(1.5)
-
(0.2)
(25.6)
15.9
(9.7)
Intangible expenditures
-
-
(0.2)
-
-
-
(0.2)
-
(0.2)
Free cash flow
$
61.8
$
(4.1)
$
(1.9)
$
12.0
$
(4.5)
$
(20.1)
$
43.2
$
(12.8)
$
30.4
$ millions, for the three months ended
December 31
2021
Total
Adjustment
derived
for Moa
from
Moa JV and
Metals
Oil and
Technol-
Combined
Joint
financial
Fort Site(1)
Other
Gas
Power
ogies
Corporate
total
Venture
statements
Cash provided (used) by continuing
operations
for operating activities(2)
$
8.9
$
(3.2)
$
2.3
$
0.8
$
(3.6)
$
(22.5)
$
(17.3)
$
3.9
$
(13.4)
Less:
Property, plant and equipment
expenditures
(8.3)
-
-
(0.1)
-
(0.5)
(8.9)
6.2
(2.7)
Intangible expenditures
-
-
(0.2)
-
-
-
(0.2)
-
(0.2)
Free cash flow
$
0.6
$
(3.2)
$
2.1
$
0.7
$
(3.6)
$
(23.0)
$
(26.4)
$
10.1
$
(16.3)
$ millions, for the year ended December
31
2022
Total
Adjustment
derived
for Moa
from
Moa JV and
Metals
Oil and
Technol-
Combined
Joint
financial
Fort Site(3)
Other
Gas
Power
ogies
Corporate
total
Venture
statements
Cash provided (used) by continuing
operations
for operating activities(4)
$
177.1
$
(5.5)
$
(3.9)
$
37.4
$
(15.1)
$
(54.6)
$
135.4
$
(45.1)
$
90.3
Less:
Property, plant and equipment
expenditures
(64.2)
-
(0.1)
(5.1)
-
(0.1)
(69.5)
41.8
(27.7)
Intangible expenditures
-
-
(0.8)
-
-
-
(0.8)
-
(0.8)
Free cash flow
$
112.9
$
(5.5)
$
(4.8)
$
32.3
$
(15.1)
$
(54.7)
$
65.1
$
(3.3)
$
61.8
$ millions, for the year ended December
31
2021
Total
Adjustment
derived
for Moa
from
Moa JV and
Metals
Oil and
Technol-
Combined
Joint
financial
Fort Site(3)
Other
Gas
Power
ogies
Corporate
total
Venture
statements
Cash provided (used) by continuing
operations
for operating activities(4)
$
90.5
$
5.0
$
4.2
$
18.1
$
(12.4)
$
(55.1)
$
50.3
$
(49.0)
$
1.3
Less:
Property, plant and equipment
expenditures
(34.0)
-
(0.2)
(0.1)
-
(0.7)
(35.0)
25.1
(9.9)
Intangible expenditures
-
-
(0.8)
-
-
-
(0.8)
-
(0.8)
Free cash flow
$
56.5
$
5.0
$
3.2
$
18.0
$
(12.4)
$
(55.8)
$
14.5
$
(23.9)
$
(9.4)
(1)
Property, plant and equipment
expenditures and intangible expenditures for the Moa Joint Venture
and Fort Site was $15.9 million and $8.0 million, respectively, for
the three months ended December 31, 2022 (December 31, 2021 - $6.2
million and $2.1 million, respectively).
(2)
Cash provided (used) by
continuing operations for operating activities for the Moa Joint
Venture and Fort Site was $85.8 million and $(0.1) million,
respectively, for the three months ended December 31, 2022
(December 31, 2021 - $(3.8) million and $12.7 million,
respectively).
(3)
Property, plant and equipment
expenditures and intangible expenditures for the Moa Joint Venture
and Fort Site was $41.8 million and $22.4 million, respectively,
for the year ended December 31, 2022 (December 31, 2021 - $25.1
million and $8.9 million, respectively).
(4)
Cash provided (used) by
continuing operations for operating activities for the Moa Joint
Venture and Fort Site was $145.8 million and $31.3 million,
respectively, for the year ended December 31, 2022 (December 31,
2021 - $85.0 million and $5.5 million, respectively).
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230207006175/en/
For further investor information contact: Lucy Chitilian,
Director, Investor Relations Telephone: (416) 935-2457 Toll-free: 1
(800) 704-6698 E-mail: investor@sherritt.com Sherritt International
Corporation Bay Adelaide Centre, East Tower 22 Adelaide St. West,
Suite 4220 Toronto, ON M5H 4E3 www.sherritt.com
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