NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES
Sherritt International Corporation ("Sherritt" or the "Corporation") (TSX:S)
today announced second-quarter 2009 results.
- Net earnings of $24.4 million in second-quarter 2009 ($0.08 per share),
compared with net earnings of $80.3 million ($0.28 per share) for second-quarter
2008, despite a significant decline in commodity prices. A net loss for the
first six months of 2009 totaled $18.5 million ($0.07 per share) compared to net
earnings of $169.3 million ($0.65 per share) for the first six months of 2008.
First-quarter 2009 results included a $79.5 million ($57.4 million after-tax)
loss on disposal in respect of the sale of certain Oil and Gas assets.
- Consolidated cash, cash equivalents and short-term investments were $1.0
billion at June 30, 2009, of which $29.0 million (50% basis) was held in the Moa
Joint Venture and $341.7 million (100% basis) was held in the Ambatovy Joint
Venture. In addition to cash generated by operations, the majority of the net
increase in the balance from March 31, 2009 was due to an increase in Ambatovy
Project cash that was utilized to satisfy capital expenditure obligations
subsequent to the end of the quarter.
- Cash flow from operations totaled $47.0 million for second-quarter 2009, net
of a non-cash working capital increase of $57.3 million. This compares to
operating cash flow of $21.3 million for second-quarter 2008, net of a non-cash
working capital increase of $133.7 million.
- Capital expenditures totaled $388.2 million for second-quarter 2009, including
$326.8 million relating to the Ambatovy Project (100% basis). Sherritt's share
of Ambatovy capital expenditures ($130.7 million) was funded through loans
provided by the Ambatovy partners.
- In May, the Corporation amended and extended its $140.0 million syndicated
364-day revolving-term credit facility. The amendments provide for less
restrictive financial covenants, revise applicable interest rates to current
market benchmarks and extend the facility to May 10, 2010. Corresponding
amendments to the covenants of two short-term facilities totaling $60.0 million
were also completed.
- In June, the Ambatovy partners finalized arrangements to fund Sherritt's pro
rata share of shareholder funding for the Project. These arrangements create a
mechanism by which the partners can provide new, non-recourse loans to Sherritt
that the Corporation can only use to meet its shareholder funding obligations.
The arrangements also provide Sherritt additional completion guarantee
protection related to the US$2.1 billion senior project financing.
- Total debt approximated $2.7 billion at June 30, 2009, of which $1.2 billion
(100% basis) was attributable to the limited-recourse Ambatovy senior project
financing and $0.4 billion to non-recourse partner loans to Sherritt.
Summary Financial and Sales Data (unaudited)
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Six months ended June 30
Q2 2009 Q2 2008 2009 2008
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Financial Data (millions of
dollars, except per share
amounts and ratios)
Revenue $ 357.7 $ 441.2 $ 706.7 $ 755.4
EBITDA(1) 112.2 190.4 209.4 366.1
Operating earnings 52.4 126.3 81.0 262.3
Net earnings (loss) 24.4 80.3 (18.5) 169.3
Basic earnings (loss) per
share 0.08 0.28 (0.07) 0.66
Diluted earnings (loss) per
share 0.08 0.28 (0.07) 0.65
Net working capital(2) 861.8 904.7 861.8 904.7
Capital expenditures 388.2 619.3 805.1 1,081.5
Total assets 10,076.6 8,255.0 10,076.6 8,255.0
Shareholders' equity 3,586.7 3,794.8 3,586.7 3,794.8
Long-term debt to
capitalization 33% 25% 33% 25%
Weighted average number
of shares (millions)
Basic 293.1 282.1 293.1 257.1
Diluted 295.9 286.6 293.1 261.7
Sales Volumes (units as noted)
Nickel (thousands of pounds,
50% basis) 9,582 8,200 18,318 16,562
Cobalt (thousands of pounds,
50% basis) 1,078 902 2,076 1,822
Thermal coal - Prairie
Operations (millions of
tonnes)(3) 8.2 8.4 16.7 17.5
Thermal coal - Mountain
Operations (millions of
tonnes, 50% basis) 0.4 0.4 0.8 0.8
Oil (boepd, net production) 12,757 18,060 13,544 18,213
Electricity (GWh, 100% basis) 515 567 1,056 1,164
Average Realized Prices
(units as noted)
Nickel ($/lb) $ 6.86 $ 12.12 $ 6.30 $ 12.53
Cobalt ($/lb) 16.62 45.67 16.43 45.90
Thermal coal - Prairie
Operations ($/tonne) 14.35 14.61 14.68 14.12
Thermal coal - Mountain
Operations ($/tonne) 85.86 87.87 92.72 77.56
Oil ($/boe) 42.72 62.50 39.04 57.01
Electricity ($/MWh) 47.93 40.83 49.23 40.72
----------------------------------------------------------------------------
(1) EBITDA is a non-GAAP measure. See the "Non-GAAP Measures" section at the
end of this release.
(2) Net working capital is calculated as total current assets less total
current liabilities.
(3) Prairie Operations volumes presented on a 100% basis for each period.
Review of Operations
----------------------------------------------------------------------------
Metals
Six months ended June 30
Q2 2009 Q2 2008 2009 2008
----------------------------------------------------------------------------
Production (tonnes, 50% basis)
Nickel 4,261 3,704 8,334 7,452
Cobalt 470 406 939 813
Sales (thousands of pounds,
50% basis)
Nickel 9,582 8,200 18,318 16,562
Cobalt 1,078 902 2,076 1,822
Reference prices (US$/lb)
Nickel $ 5.89 $ 11.67 $ 5.31 $ 12.38
Cobalt(1) 13.53 45.93 13.91 46.06
Realized prices ($/lb)
Nickel $ 6.86 $ 12.12 $ 6.30 $ 12.53
Cobalt 16.62 45.67 16.43 45.90
Unit operating costs (US$/lb)
Mining, processing and
refining costs $ 4.34 $ 6.91 $ 4.65 $ 6.26
Third-party feed costs 0.13 1.02 0.24 1.17
Cobalt by-product credits (1.61) (4.96) (1.55) (5.01)
Other (0.01) (0.56) 0.09 (0.24)
----------------------------------------------
Net direct cash costs of
nickel(2) $ 2.85 $ 2.41 $ 3.43 $ 2.18
----------------------------------------------
Revenue ($ millions)
Nickel $ 65.7 $ 99.4 $ 115.4 $ 207.5
Cobalt 17.9 41.1 34.1 83.6
Fertilizer and other 27.5 37.2 41.3 48.9
----------------------------------------------
$ 111.1 $ 177.7 $ 190.8 $ 340.0
EBITDA ($ millions)(3) $ 26.5 $ 71.3 $ 25.1 $ 160.5
Operating earnings
($ millions) $ 20.0 $ 65.5 $ 11.2 $ 149.8
Capital expenditures
($ millions)
Moa Joint Venture (50% basis) $ 7.3 $ 64.6 $ 12.8 $ 114.9
Ambatovy Joint Venture
(100% basis) 326.8 501.7 703.7 884.6
----------------------------------------------
$ 334.1 $ 566.3 $ 716.5 $ 999.5
----------------------------------------------------------------------------
(1) Average Metal Bulletin: Low Grade cobalt published price.
(2) Net direct cash cost of nickel after cobalt and by-product credits.
(3) EBITDA is a non-GAAP measure. See the "Non-GAAP Measures" section at
the end of this release. EBITDA excludes depreciation of $6.4 million
and $3.4 million in the three-month periods ended June 30, 2009 and
June 30, 2008 and $10.9 million and $6.5 million in the six-month
periods ended June 30, 2009 and June 30, 2008.
Mixed sulphide production for second-quarter 2009 was 9,277 tonnes (100% basis),
up 7% (631 tonnes) from the prior-year period. The production increase reflects
the impact of the additional capacity from the Phase 1 Expansion which was
commissioned during second-quarter 2008.
Second-quarter 2009 finished nickel production of 8,522 tonnes (100% basis) and
finished cobalt production of 940 tonnes (100% basis) were 15% (1,115 tonnes)
and 16% (129 tonnes) respectively higher than the prior-year period. The
production increases reflect the impact of the additional capacity from the
Phase 1 Expansion which was commissioned during the second quarter of 2008.
Nickel sales of 9.6 million pounds (50% basis) increased by 17% (1.4 million
pounds) from second-quarter 2008. Cobalt sales of 1.1 million pounds (50% basis)
were 20% (0.2 million pounds) higher than the prior-year period. Increased sales
reflected increased metal production and the drawdown of nickel inventory to
more normal levels.
Average nickel reference prices in second-quarter 2009 were down 50%
(US$5.78/lb) and average cobalt reference prices were 71% (US$32.40/lb) lower
compared to the prior-year period due to the impact of weakened global
industrial demand on the base metals markets.
The net direct cash cost of nickel for the quarter was US$2.85/lb, 31%
(US$1.27/lb) lower than first-quarter 2009, reflecting the impact of declining
input commodity costs and the realization of spring fertilizer by-product sales.
Compared to the prior-year period, the cash cost of nickel was 18% (US$0.44/lb)
higher as the benefit of lower mining, processing and refining costs, lower
maintenance and lower third-party feed costs were more than offset by the 68%
(US$3.35/lb) decline in the cobalt by-product credit.
Sustaining capital expenditures for second-quarter 2009 were 69% ($8.8 million)
lower than the prior-year period, commensurate with lower metal prices.
Expansion expenditures in the Moa Joint Venture during the second quarter were
$3.4 million, 93% ($48.5 million) lower than the prior-year period. The decline
was due to the suspension of the Phase 2 Expansion in October 2008. Current
spending reflects the capitalization of interest related to the financing of the
Phase 2 Expansion and the Moa Acid Plant, and the construction of certain
expansion assets at Fort Saskatchewan.
The Ambatovy Project
Ambatovy Project expenditures for second-quarter 2009 were $326.8 million (100%
basis), bringing total Project expenditures to US$2.8 billion (100% basis),
excluding capitalized interest. The Project, which is expected to produce 60,000
tonnes (100% basis) of nickel and 5,600 tonnes (100% basis) of cobalt, is on
schedule for mechanical completion in the latter part of 2010.
There were no borrowings against the senior project loans in second-quarter
2009. During the second quarter, Sherritt finalized arrangements with its
Ambatovy partners to fund Sherritt's pro rata share of the shareholder funding
for the Ambatovy Project. These arrangements create a mechanism by which the
partners can provide new, non-recourse loans to Sherritt that the Corporation
can only use to meet its shareholder funding obligations. As a result,
Sherritt's share of the Project expenditures during second-quarter 2009 was
funded by partner loans.
Coal
Six months ended June 30
Q2 2009 Q2 2008 2009 2008
----------------------------------------------------------------------------
Production (millions of
tonnes)
Prairie Operations(1) 8.4 8.8 16.9 17.6
Mountain Operations(2)
(50% basis) 0.5 0.4 1.0 0.8
Sales (millions of tonnes)
Prairie Operations(1) 8.2 8.4 16.7 17.5
Mountain Operations(2)
(50% basis) 0.4 0.4 0.8 0.8
Realized prices, excluding
royalties ($/tonne)
Prairie Operations(1) $ 14.35 $ 14.61 $ 14.68 $ 14.12
Mountain Operations(2) 85.86 87.87 92.72 77.56
Unit operating costs ($/tonne)
Prairie Operations(1) $ 11.19 $ 11.88 $ 11.41 $ 11.04
Mountain Operations(2) 63.17 72.19 61.01 63.44
Six months ended June 30
Q2 2009 Q2 2008 2009 2008
----------------------------------------------------------------------------
Revenue ($ millions)
Prairie Operations(1)
Mining revenue $ 116.7 $ 123.6 $ 244.6 $ 247.4
Coal royalties 13.2 11.0 26.1 19.5
Potash royalties 2.3 4.6 6.6 8.1
Mountain Operations and
Other Assets(2),(3)(50% basis) 33.5 34.2 77.3 65.1
---------------------------------------------
$ 165.7 $ 173.4 $ 354.6 $ 340.1
EBITDA ($millions)(4)
Prairie Operations(1) $ 34.3 $ 30.2 $ 78.6 $ 70.2
Mountain Operations and
Other Assets(2),(3)(50% basis) 7.6 5.6 23.3 10.9
---------------------------------------------
$ 41.9 $ 35.8 $ 101.9 $ 81.9
Operating earnings
($ millions) $ 17.9 $ 6.5 $ 52.7 $ 24.5
Capital expenditures
($ millions)
Prairie Operations(1) $ 16.4 $ 7.5 $ 25.0 $ 11.5
Mountain Operations(2)
(50% basis) 1.9 0.5 3.1 1.1
Activated Carbon Project
(50% basis) 3.8 - 5.6 -
Obed Mountain mine (50%
basis)(5) 11.4 - 12.6 -
---------------------------------------------
$ 33.5 $ 8.0 $ 46.3 $ 12.6
----------------------------------------------------------------------------
(1) Prairie Operations are presented on a 100% basis. Sherritt
equity-accounted for these operations up to the date of the acquisition
of Royal Utilities Income Fund in May 2008.
(2) Mountain Operations include the results of the Coal Valley mine, which
is primarily involved in the export of thermal coal, and are presented
on a 50% basis.
(3) Other Assets include certain undeveloped reserves that produce coal-bed
methane and technologies under development, including the
Dodds-Roundhill Coal Gasification Project, and are presented on a 50%
basis.
(4) EBITDA is a non-GAAP measure. See the "Non-GAAP Measures" section at
the end of this release. EBITDA excludes depreciation of $14.7 million
and $9.2 million for the three-month periods ended June 30, 2009 and
June 30, 2008, and $29.8 million and $11.1 million for the six-month
periods ended June 30, 2009 and June 30, 2008.
(5) Includes $6.5 million of equipment financed through a bank credit
facility that ordinarily would have been acquired under a capital lease.
Prairie Operations production and sales volumes in second-quarter 2009 were 5%
(0.4 million tonnes) and 4% (0.3 million tonnes), respectively lower than the
prior-year period, due to the timing of outages at the generating stations
supplied by contract mining operations. Production at the Mountain Operations
was up 17% (0.1 million tonnes) compared to the prior-year quarter, continuing
the trend of improved equipment availability from the first quarter.
Realized pricing was down slightly in both the Prairie and Mountain Operations
when compared to the prior-year period. The 2% ($0.26/tonne) decline in realized
pricing in the Prairie Operations was the result of index adjustments to prices
at owned mines and lower cost and capital recoveries at the contract mines.
Second-quarter pricing in the Mountain Operations was 2% ($2.01/tonne) lower
than the prior-year period, reflecting the impact of new contract pricing which
began to take effect in April, partially offset by the impact of a stronger
Canadian dollar. For the first six months of 2009, Mountain Operations pricing
was 20% ($15.16/tonne) higher than the comparable period in 2008, reflecting the
record pricing on thermal coal contracts for the period from April 2008 through
March 2009.
Unit cost improvements at both the Prairie (6% or $0.69/tonne) and Mountain
Operations (12% or $9.02/tonne) in second-quarter 2009 were largely attributable
to the decline in input commodity prices when compared to the prior-year period,
and higher production at the Mountain Operations.
Total royalties of $15.5 million in second-quarter 2009 were largely unchanged
from the prior-year period, as an increase in coal royalties ($2.2 million) due
to the timing of mining in royalty areas was offset by a decline in potash
royalties ($2.3 million) that resulted from lower potash production. Lower
potash production resulted as producers reacted to relieve downward pressure on
potash prices.
Sustaining capital expenditures for Coal were $18.3 million for the quarter,
129% higher than the prior-year period. The increase in cash capital
expenditures reflected the reduced availability of equipment lease-financing on
acceptable terms. Expenditures for the Activated Carbon Project (50% basis) and
the Obed Mountain mine expansion (50% basis) totaled $15.2 million for the
quarter.
Oil and Gas
Six months ended June 30
Q2 2009 Q2 2008 2009 2008
----------------------------------------------------------------------------
Production (boepd)(1),(2)
Gross working interest
- Cuba(3),(5) 20,167 33,813 20,923 32,409
Net working interest(4)
Cuba - cost recovery(5) 6,589 5,320 7,380 6,683
Cuba - profit oil(5) 5,510 11,879 5,498 10,653
-----------------------------------------------
Cuba - total 12,099 17,199 12,878 17,336
Spain(4) 276 476 290 485
Pakistan(4) 382 385 376 392
-----------------------------------------------
Total net working-interest
production 12,757 18,060 13,544 18,213
Reference prices (US$/bbl)
US Gulf Coast Fuel Oil No. 6 $ 51.68 $ 84.44 $ 45.38 $ 77.11
Brent crude 58.89 121.38 51.85 109.46
Realized prices
Cuba ($/bbl) $ 43.18 $ 62.01 $ 39.40 $ 56.63
Spain ($/bbl) 70.75 124.76 62.92 110.78
Pakistan ($/boe) 7.90 7.36 8.41 7.21
Unit operating costs
Cuba ($/bbl) $ 7.87 $ 5.51 $ 8.48 $ 5.82
Spain ($/bbl) 81.49 32.44 67.99 31.39
Pakistan ($/boe) 1.12 1.06 1.22 1.00
Revenue ($ millions) $ 50.2 $ 104.5 $ 96.8 $ 192.0
EBITDA ($ millions)(6) $ 33.6 $ 86.5 $ 60.8 $ 154.5
Operating earnings
($ millions) $ 13.3 $ 57.3 $ 13.3 $ 101.6
Capital expenditures
($ millions) $ 10.3 $ 30.8 $ 22.4 $ 55.1
----------------------------------------------------------------------------
(1) Production figures exclude production from wells for which commerciality
has not been established.
(2) Oil production is stated in barrels per day ("bpd"). Natural gas
production is stated in barrels of oil equivalent per day ("boepd"),
which is converted at 6,000 cubic feet per barrel.
(3) In Cuba, Oil and Gas delivers all of its gross working-interest oil
production to CUPET at the time of production. Gross working-interest
oil production excludes (i) production from wells for which
commerciality has not been established in accordance with
production-sharing contracts; and (ii) working interests of other
participants in the production-sharing contracts.
(4) Net production (equivalent to net sales volume) represents the
Corporation's share of gross working-interest production. In Spain
and Pakistan, net oil production volumes equal 100% of gross working-
interest production volumes.
(5) Gross working-interest oil production is allocated between Oil and Gas
and CUPET in accordance with production-sharing contracts. The
Corporation's share, referred to as 'net oil production', includes (i)
cost recovery oil (based upon the recoverable capital and operating
costs incurred by Oil and Gas under each production-sharing contract)
and (ii) a percentage of profit oil (gross working-interest production
remaining after cost recovery oil is allocated to Oil and Gas). Cost
recovery pools for each production-sharing contract include cumulative
recoverable costs, subject to certification by CUPET, less cumulative
proceeds from cost recovery oil allocated to Oil and Gas. Cost recovery
revenue equals capital and operating costs eligible for recovery under
the production-sharing contracts. Therefore, cost recovery oil volumes
increase as a result of higher capital expenditures and decrease when
selling prices increase. When oil prices increase, the resulting
reduction in cost recovery oil volumes is partially offset by an
increase in profit oil barrels.
(6) EBITDA is a non-GAAP measure. See the "Non-GAAP Measures" section at
the end of this release.
Gross working-interest (GWI) production in 2009 reflects the loss of Block 7
production in Cuba resulting from the premature termination of the
production-sharing contract earlier in the year. Excluding Block 7,
second-quarter GWI production was 19% (4,758 bpd) lower than the prior-year
period, reflecting the impact of the suspension of drilling activity in late
2008 and early 2009 due to cash flow restrictions in Oil and Gas. For
comparison, GWI production in Cuba for second-quarter 2008, excluding Block 7,
was 24,925 bpd and net working-interest production was 12,872 bpd. Net
production in Cuba for second-quarter 2009 was down 6% (773 bpd) from the
prior-year period excluding Block 7, reflecting the impact of lower GWI
production and lower oil prices. In Spain, continued reservoir declines and the
impact of a series of workovers resulted in a 42% reduction in net oil
production. Production levels in Spain are expected to return to their
historical levels once the workovers are completed in third-quarter 2009.
Lower realized prices in second-quarter 2009 reflected lower oil reference
prices relative to the prior-year period. Unit operating costs in Cuba were 43%
($2.36/bbl) higher than the prior-year period due to fixed operating costs being
applied against a smaller production base, following the termination of Block 7,
and higher treatment and transportation costs. Unit operating costs in Spain
reflected higher workover activity in second-quarter 2009, and are expected to
return to historical levels in future quarters with lower ongoing costs
resulting from the workovers and improved production.
Second-quarter 2009 capital expenditures were 67% ($20.5 million) lower than the
prior-year period, mainly the result of Oil and Gas' objective to restrict its
capital expenditures to its available cash flow, which is largely dependent on
the timing of the receipt of payments for receivables. In Cuba, three
development wells were initiated and one development well was completed during
second-quarter 2009. Exploration expenditures during the quarter were directed
at initial activity related to an exploratory gas well in Turkey. During
second-quarter 2009, the Corporation sold half of its interest in this well.
Upon completion of the well, the Corporation will have a 21% interest in the
licenses associated with this well.
Power
Six months ended June 30
Q2 2009 Q2 2008 2009 2008
----------------------------------------------------------------------------
Electricity sold (GWh, 100%
basis) 515 567 1,056 1,164
Realized price ($/MWh) $ 47.93 $ 40.83 $ 49.23 $ 40.72
Unit cash operating cost
($/MWh) $ 15.14 $ 11.80 $ 16.49 $ 10.13
Net capacity factor 69% 76% 72% 77%
Revenue ($ millions) $ 28.6 $ 30.3 $ 59.0 $ 60.1
EBITDA ($ millions)(1) $ 19.7 $ 22.9 $ 39.4 $ 46.7
Operating earnings
($ millions) $ 12.0 $ 15.7 $ 24.1 $ 32.0
Capital expenditures
($ millions)
Cuba $ 8.7 $ 7.5 $ 14.2 $ 11.3
Madagascar 1.3 - 4.8 -
-----------------------------------------------
$ 10.0 $ 7.5 $ 19.0 $ 11.3
----------------------------------------------------------------------------
(1) EBITDA is a non-GAAP measure. See the "Non-GAAP Measures" section at the
end of this release.
Electricity production for second-quarter 2009 was 9% (52 GWh) lower than the
prior-year period due to scheduled maintenance and unplanned outages. Unit cash
operating costs increased 28% over the same period due to higher maintenance
costs and the loss of production from the unplanned outages. The net capacity
factor during the quarter fell below 70%, reflecting the lower availability
resulting from the impact of maintenance activities and unplanned outages.
Sustaining capital expenditures of $6.8 million for second-quarter 2009 were
131% ($3.9 million) higher than the prior-year period and related mainly to
infrastructure projects in Cuba. Expansion capital expenditures were $3.2
million and were directed at ongoing construction costs in Madagascar ($1.3
million) and engineering and site preparation ($1.9 million) for the Phase 8
expansion in Cuba.
Cash, Debt and Financing
Cash, cash equivalents and short-term investments were $1.0 billion at June 30,
2009. Of that amount, 3% ($29.0 million, 50% basis) was held by the Moa Joint
Venture and 32% ($341.7 million, 100% basis) was held by the Ambatovy Joint
Venture. These funds are for the use of each joint venture, respectively.
At June 30, 2009, the amount of credit available under various credit
facilities, inclusive of approximately US$1.0 billion (100% basis) under the
Ambatovy senior project financing, was $1.5 billion.
In June, the Corporation finalized arrangements with its Ambatovy Partners, to
fund its pro rata share of shareholder contributions for the Ambatovy Project.
These arrangements are described earlier in this release under the heading
"Ambatovy Project".
Outlook
----------------------------------------------------------------------------
Sherritt's production volumes, royalties and capital expenditures for the
first six months of 2009 and projections for the year 2009 are shown below:
Actual Projected
for the six months ended for the year ending
June 30, 2009 December 31, 2009
----------------------------------------------------------------------------
Production
Mixed sulphides (tonnes,
100% basis) 18,649 37,000
Nickel (tonnes, 100% basis) 16,668 33,500
Cobalt (tonnes, 100% basis) 1,877 3,500
Coal - Prairie Operations
(millions of tonnes) 16.9 36
Coal - Mountain Operations
(millions of tonnes,
100% basis) 2.0 4.4
Oil - Gross working interest
(Cuba) (bpd) 20,923 21,000
Oil - Net production, all
operations (boepd)(1) 13,544 13,000
Power - Electricity (GWh) 1,056 2,000
Royalties
Coal ($ millions) 26 41
Potash ($ millions) 7 15
Capital Expenditures
($ millions, unless
otherwise noted)
Metals - Moa Joint Venture
(50% basis) 13 39
Coal - Prairie Operations(2) 25 35
Coal - Mountain Operations
(50% basis) 3 9
Coal - Activated Carbon
Project (50% basis) 6 27
Coal - Obed Mountain mine
(50% basis)(3) 6 8
Oil and Gas - Cuba 18 119
Oil and Gas - Other 5 16
Power - Cuba 14 45
Power - Madagascar 5 19
------------------------------------------------
95 317
Metals - Ambatovy (100%
basis, US$ millions) 580 1,800
----------------------------------------------------------------------------
(1) Net oil production is predicated on the WTI/Fuel Oil No.6 price
differential remaining consistent with historical levels.
(2) Excludes equipment expected to be financed through new borrowings in
the second half of 2009.
(3) Excludes equipment financed through a bank credit facility.
- In Metals, the majority benefit of lower commodity input prices is expected to
continue for the balance of 2009, with any change in unit operating costs from
the first half of the year largely dependent on cobalt prices. Annual
maintenance activities are being completed in three windows in May, June and
September/October, subject to finalization of the schedule. This staged approach
is proving less disruptive and more cost efficient than a single shut-down.
Capital expenditure guidance in Metals has been adjusted to reflect the
capitalization of interest on the Moa/Fort Expansion financing, partly offset by
lower-than-planned sustaining capital expenditures.
- In the Ambatovy Project, approximately US$0.6 billion of the estimated US$1.8
billion in 2009 capital expenditures is expected to be financed through
drawdowns on the senior project financing. Sherritt's contribution of partner
funding for the remainder of 2009 is expected to be funded through non-recourse
partner loans.
- In Coal, annual production levels are expected to be consistent with prior
years and all production has been contracted. Price settlement for the majority
of Mountain Operations export contracts occurred in late March and early April
2009. Export settlement prices are significantly lower than the record prices of
2008 due to current market conditions. Approximately 50% of Coal Valley mine's
contract year production will be linked to the Newcastle FOB settlement price,
which settled at approximately US$ 70.00/tonne, down over 40% from last year.
This has resulted in a corresponding reduction in the average realized price per
tonne at Mountain Operations for second-quarter 2009 that will continue for the
balance of 2009, although the impact will be somewhat offset if the Canadian
dollar remains weaker than last year. Additional production from the Obed
Mountain mine (scheduled to re-open in the third quarter) is estimated to be
approximately 0.4 million tonnes for the year. Sustaining capital expenditures
for Prairie Operations are expected to increase as working capital or other
credit facilities are used to fund capital purchases that otherwise would have
been leased. The commissioning of the first activated carbon plant is on
schedule for early 2010.
- In Oil and Gas, the extent of the drilling program in 2009 will be dictated
largely by the receipt of payments in Cuba. The reduction in second-quarter
guidance for full-year 2009 GWI production in Cuba to 21,000 bpd is due to a
decrease in expected production from new wells in 2009. The reduction in the
second-quarter guidance for full-year 2009 net production to 13,000 boepd
results mainly from the decrease in the gross working-interest production in
Cuba. Plans for an enhanced oil recovery pilot project in Cuba have been delayed
pending the issuance of required permits. In July, drilling was initiated on an
exploratory well in Turkey which is expected to be completed in third-quarter
2009.
- In Power, all issues related to the two turbine failures that occurred in
first-quarter 2009 have been corrected, and all turbines are available for
operation. A major steam turbine overhaul is scheduled for fourth-quarter 2009
and is not expected to have a significant impact on production. Full-year 2009
production is expected to reach 2,000 GWh. The turbine failures in the first
quarter necessitated repairs that increased operating costs during the first two
quarters of 2009, and as a result full-year 2009 unit operating costs are
expected to be higher than in 2008. The 150 MW Boca de Jaruco Combined Cycle
Project in Cuba continues to be reviewed in light of current economic
conditions. Sherritt will continue with engineering and progress payments to
maintain the Project option value while it is under review. Due to delays in
equipment delivery, the 25 MW Madagascar Thermal Power Project is now expected
to be operational in August 2009 compared with the previous guidance for end of
June 2009.
Non-GAAP Measures
The Corporation discloses EBITDA in order to provide an indication of revenue
less cash operating expenses. Operating earnings is a measure used by Sherritt
to evaluate the operating performance of its businesses as it excludes interest
charges, which are a function of the particular financing structure for the
business, and certain other charges. EBITDA and operating earnings do not have
any standardized meaning prescribed by Canadian generally accepted accounting
principles and, therefore, they may or may not be comparable with similar
measures presented by other issuers.
About Sherritt
Sherritt is a diversified natural resource company that produces nickel, cobalt,
thermal coal, oil, gas and electricity. It also licenses its proprietary
technologies to other metals companies. 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 generally can be identified by the use of statements that include
words such as "believe", "expect", "anticipate", "intend", "plan", "forecast",
"likely", "may", "will", "could", "should", "suspect", "outlook", "projected",
"continue" or other similar words or phrases. Similarly, statements with respect
to expectations concerning assets, prices, costs, dividends, foreign-exchange
rates, earnings, production, market conditions, capital expenditures, commodity
demand, risks, availability of regulatory approvals, the impact of investments
in Master Asset Vehicles, corporate objectives and plans or goals, are or may be
forward-looking statements. These forward-looking statements are not based on
historic facts, but rather on current expectations, assumptions and projections
about future events. There is significant risk that predictions, forecasts,
conclusions or projections will not prove to be accurate, that those assumptions
may not be correct and that actual results may differ materially from such
predictions, forecasts, conclusions or projections. Sherritt cautions readers of
this press release not to place undue reliance on any forward-looking statements
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.
By their nature, forward-looking statements require Sherritt to make assumptions
and are subject to inherent risks and uncertainties. Key factors that may result
in material differences between actual results and developments and those
contemplated by this press release include global economic conditions, business,
economic and political conditions in Canada, Cuba, Madagascar, and the principal
markets for Sherritt's products. Other such factors include, but are not limited
to, uncertainties in the development and construction of large mining projects;
risks related to the availability of capital to undertake capital initiatives;
changes in capital cost estimates in respect of the Corporation's capital
initiatives; risks associated with Sherritt's joint venture partners; future
non-compliance with financial covenants; potential interruptions in
transportation; political, economic and other risks of foreign operations;
Sherritt's reliance on key personnel and skilled workers; the possibility of
equipment and other unexpected failures; the potential for shortages of
equipment and supplies; risks associated with mining, processing and refining
activities; uncertainties in oil and gas exploration; risks related to
foreign-exchange controls on Cuban government enterprises to transact in foreign
currency; risks associated with the United States embargo on Cuba and the
Helms-Burton legislation; risks related to the Cuban government's ability to
make certain payments to the Corporation; development programs; uncertainties in
reserve estimates; uncertainties in asset retirement and reclamation cost
estimates; Sherritt's reliance on significant customers; foreign exchange and
pricing risks; uncertainties in commodity pricing; credit risks; competition in
product markets; Sherritt's ability to access markets; risks in obtaining
insurance; uncertainties in labour relations; uncertainties in pension
liabilities; the ability of Sherritt to enforce legal rights in foreign
jurisdictions; the ability of Sherritt to obtain government permits; risks
associated with government regulations and environmental health and safety
matters; and other factors listed from time to time in Sherritt's continuous
disclosure documents.
Further, any forward-looking statement speaks only as of the date on which such
statement is made, and except as required by law, Sherritt undertakes no
obligation to update any forward-looking statements.
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