NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES
All amounts are Canadian dollars unless otherwise indicated
Sherritt International Corporation ("Sherritt" or the "Corporation") (TSX:S)
today reported earnings of $1.1 million ($0.00 per share, basic), compared to a
net loss of $22.6 million ($0.08 per share, basic) for third-quarter 2012.
Earnings were higher quarter-over-quarter largely as a result of the impact of
changes in the Ambatovy call option (a $11.2 million non-cash gain in
third-quarter 2013 compared to a $3.2 million non-cash loss in third-quarter
2012), a $27.0 million expense in third-quarter 2012 (related to the redemption
of Sherritt's 8.25% Senior Unsecured Debentures Series B due October 24, 2014),
and higher finished metals sales volumes in third-quarter 2013. These factors
that increased relative earnings were partially offset by the impact of lower
nickel and export coal prices, as well as higher administrative expenses and
lower royalties in Coal.
Adjusted operating cash flow per share for second quarter 2013 was $0.20 per
share, compared to $0.30 per share in third- quarter 2012 and up from
second-quarter 2013 ($0.18 per share).
Consolidated Highlights
-- Spending on capital and intangibles relating to operations totaled $35.5
million for third-quarter 2013, compared to $48.5 million in third-
quarter 2012.
-- Cash, cash equivalents and short-term investments were $370.8 million at
September 30, 2013.
-- Sales volumes for third-quarter 2013 (Sherritt's share) totaled 10.1
million pounds of finished nickel, 1.0 million pounds of finished
cobalt, 5.4 million tonnes of thermal coal, 1.0 million barrels of oil
and 130 GWh of electricity.
-- Sales volumes in third-quarter 2013 do not include sales from the
Ambatovy Joint Venture. Finished metal sold from the Ambatovy Joint
Venture will not be categorized as sales volumes until the declaration
of commercial production, defined as 70% of ore throughput of nameplate
capacity in the Pressure Acid Leach (PAL) circuit, averaged over a
thirty-day period. During third-quarter 2013, Ambatovy had pre-
commercial sales of approximately 13.5 million pounds (100% basis) of
finished nickel and approximately 1.0 million pounds (100% basis) of
finished cobalt.
Operating Highlights
-- The Moa Joint Venture partners have reached agreement to proceed with a
third acid plant at the Moa, Cuba facilities. The new 2,000 tonne per
day plant is expected to reduce the net direct cash cost of nickel by
approximately 20%, largely by eliminating the requirement for purchased
acid. Construction is scheduled to begin in second-quarter 2014, and
initial production from the facility is expected in third-quarter 2015.
-- The progress of the ramp-up at Ambatovy was impeded during third-quarter
2013 by mechanical challenges. As a result, ore throughput in the PAL
circuit was similar to second-quarter 2013. Despite lower autoclave
availability during the quarter, improved volumetric flow rates, higher
ore grade and improved metallurgical recoveries in the PAL circuit
resulted in higher mixed sulphides production relative to second-quarter
2013. Ambatovy finished metal production was lower than the previous
quarter, as the combined impact of a net drawdown of mixed sulphides
inventory in the previous quarter and an increase in in- process
inventory during third-quarter 2013, more than offset the increase in
mixed sulphides production.
-- Third-quarter 2013 consolidated finished metal production (including
production from both the Moa and Ambatovy Joint Ventures) was
significantly higher than the prior-year period due to the addition of
Ambatovy production and production increases at the Moa Joint Venture
(relative to both the prior-year period and second-quarter 2013).
-- The net direct cash cost of nickel at the Moa Joint Venture for third-
quarter 2013 was comparable to the prior-year period, and was $0.46 per
pound (8%) lower than second-quarter 2013.
-- Coal production volumes were lower in both the Prairie Operations and
Mountain Operations relative to the prior-year period, due to a planned
production response to reduced customer demand and the termination of
the contract mining business in January 2013 in the mine-mouth Prairie
Operations, and to sustained weaker international thermal coal prices in
Mountain Operations.
-- In Oil, gross-working interest production levels in Cuba were maintained
during the quarter as the natural reservoir decline rates were largely
offset by the addition of production from new wells and an established
program of workovers and optimization of existing wells.
-- To reflect lower-than-expected actual production to September 30, 2013,
estimated full-year 2013 Ambatovy production was reduced for mixed
sulphides (by 15% or 5,000 tonnes, 100% basis), finished nickel (by 16%
or 5,000 tonnes, 100% basis), and finished cobalt (by 21% or 600 tonnes,
100% basis).
SUMMARY FINANCIAL DATA Nine months ended
September 30,
($ millions unless otherwise noted) Q3 2013 Q3 2012 2013 2012
----------------------------------------------------------------------------
Revenue 286.2 341.5 911.2 1,078.0
Adjusted EBITDA(1) 84.8 115.9 270.8 400.0
Earnings from operations and associate
and joint venture 27.3 45.1 106.8 203.7
Net earnings (loss) 1.1 (22.6) 13.5 50.6
Basic and diluted earnings (loss) per
share ($ per share) 0.00 (0.08) 0.05 0.17
Net working capital balance(2) 721.9 1,023.6 721.9 1,023.6
Spending on capital and intangibles(3) 35.5 48.5 140.6 152.2
Total assets 6,648.4 6,798.8 6,648.4 6,798.8
Shareholders' equity 3,708.3 3,655.8 3,708.3 3,655.8
Long-term debt to total assets (%) 33 34 33 34
Weighted-average number of shares
(millions)
Basic 296.9 296.4 296.7 296.2
Diluted 297.3 297.0 297.1 296.8
----------------------------------------------------------------------------
1. For additional information see the 'Non-GAAP Measure - Adjusted EBITDA'
section of this release.
2. Net working capital is calculated as total current assets less total
current liabilities.
3. Spending on capital and intangibles includes accruals and does not
include spending on the Ambatovy Joint Venture or service concession
arrangements.
SUMMARY SALES DATA Nine months ended
September 30,
(units as noted) Q3 2013 Q3 2012 2013 2012
----------------------------------------------------------------------------
Sales volumes
Nickel - Moa Joint Venture (thousands of
pounds, 50% basis)(1) 10,095 8,590 27,338 28,060
Cobalt - Moa Joint Venture (thousands of
pounds, 50% basis)(1) 1,035 949 2,777 3,096
Thermal coal - Prairie Operations
(millions of tonnes) 4.6 7.6 15.5 22.5
Thermal coal - Mountain Operations
(millions of tonnes) 0.8 0.9 2.6 2.7
Oil (boepd, net working-interest
production) 11,403 11,408 11,255 11,511
Electricity (GWh, 33 1/3% basis) 130 154 443 466
Realized prices
Nickel ($/lb)(1) 6.42 7.20 7.01 7.94
Cobalt ($/lb)(1) 13.26 12.55 12.56 13.54
Thermal coal - Prairie Operations
($/tonne) 18.40 17.47 18.26 17.55
Thermal coal - Mountain Operations
($/tonne) 86.29 100.32 88.62 102.66
Oil ($/boe) 69.63 69.81 68.96 72.74
Electricity ($/MWh) 43.47 41.20 42.48 41.49
----------------------------------------------------------------------------
1. Sales volumes and average realized prices do not include the impact of
the Ambatovy Joint Venture.
Review of Operations
METALS Nine months ended
September 30,
($ millions unless otherwise noted) Q3 2013 Q3 2012 2013 2012
----------------------------------------------------------------------------
Production
Mixed sulphides (Ni+Co contained,
tonnes)
Moa Joint Venture (50% basis) 4,957 4,750 13,693 14,285
Ambatovy Joint Venture (40% basis) 2,622 1,358 8,055 1,601
----------------------------------------------------------------------------
Total 7,579 6,108 21,748 15,886
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Nickel (tonnes)
Moa Joint Venture (50% basis) 4,573 3,909 12,343 12,693
Ambatovy Joint Venture (40% basis) 2,183 917 7,369 917
----------------------------------------------------------------------------
Total 6,756 4,826 19,712 13,610
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Cobalt (tonnes)
Moa Joint Venture (50% basis) 446 436 1,225 1,410
Ambatovy Joint Venture (40% basis) 161 64 627 64
----------------------------------------------------------------------------
Total 607 500 1,852 1,474
----------------------------------------------------------------------------
Fertilizer (tonnes)
Moa Joint Venture (50% basis) 25,344 22,323 68,177 71,734
Fort Site (100% basis) 39,108 44,742 122,902 129,216
Ambatovy Joint Venture (40% basis) 6,027 - 21,159 -
----------------------------------------------------------------------------
Total 70,479 67,065 212,238 200,950
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Sales(1)
Nickel (thousands of pounds, 50% basis) 10,095 8,590 27,338 28,060
Cobalt (thousands of pounds, 50% basis) 1,035 949 2,777 3,096
Fertilizer (tonnes)
Moa Joint Venture (50%) 12,083 14,839 50,739 59,812
Fort Site (100%) 16,041 5,612 78,828 58,560
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Total 28,124 20,451 129,567 118,372
----------------------------------------------------------------------------
Reference prices(1)
Nickel (US$/lb) 6.31 7.40 6.97 8.04
Cobalt (US$/lb)(2) 13.42 13.06 12.82 13.96
Realized prices(1)
Nickel ($/lb) 6.42 7.20 7.01 7.94
Cobalt ($/lb) 13.26 12.55 12.56 13.54
Unit operating costs (US$/lb)(1)
Mining, processing and refining costs 6.10 6.48 6.70 6.55
Third-party feed costs 0.18 0.06 0.18 0.10
Cobalt by-product credits (1.31) (1.39) (1.24) (1.49)
Other 0.15 (0.02) (0.06) (0.28)
----------------------------------------------------------------------------
Net direct cash costs of nickel
(NDCC)(3) 5.12 5.13 5.58 4.88
----------------------------------------------------------------------------
Natural gas ($/GJ) 2.48 2.27 3.07 2.13
Fuel oil (US$/tonne) 618 629 626 676
Sulphur (US$/tonne) 201 263 222 266
Sulphuric acid (US$/tonne) 144 184 150 188
Revenue
Nickel $ 64.8 $ 61.9 $ 191.5 $ 222.8
Cobalt 13.7 11.9 34.9 41.9
Fertilizer, other 15.3 15.8 81.7 82.2
Metal marketing(4) 11.0 - 21.0 -
----------------------------------------------------------------------------
Total revenue 104.8 89.6 329.1 346.9
----------------------------------------------------------------------------
Adjusted EBITDA (5) 8.9 17.2 43.1 94.1
Depletion, depreciation and amortization 9.6 8.7 30.1 26.0
Earnings (loss) from operations and
associate (0.7) 8.5 13.0 68.1
Spending on capital (1) 7.1 6.3 21.6 18.3
----------------------------------------------------------------------------
1. Sales volumes, reference and realized prices, unit operating costs and
spending on capital do not include the impact of the Ambatovy Joint
Venture.
2. Average Metal Bulletin - Low Grade Cobalt published price.
3. Net direct cash costs of nickel (NDCC) after cobalt and other by-product
credits.
4. Under the Ambatovy Joint Venture agreements, the Corporation established
a marketing organization to buy, market and sell certain Ambatovy nickel
production.
5. For additional information see the 'Non-GAAP Measure - Adjusted EBITDA'
section of this release.
Consolidated production of mixed sulphides (which is presented on a contained
nickel + cobalt basis) of 16,469 tonnes (100% basis) was 28% (3,574 tonnes)
higher than third-quarter 2012 resulting from the addition of Ambatovy
production and higher production at Moa. Mixed sulphides production at Moa
during the period established a new joint venture quarterly production record.
Third-quarter 2013 consolidated finished metal production was higher than the
prior-year period due to both the addition of Ambatovy production and higher
production at the Moa Joint Venture due to the timing of the annual maintenance
turnaround at the refinery (in second-quarter 2013 versus third-quarter 2012).
Consolidated finished nickel production of 14,604 tonnes (100% basis) was 44%
(4,493 tonnes) higher than third-quarter 2012, and third-quarter 2013 finished
cobalt production of 1,297 tonnes (100% basis), was 26% (265 tonnes) higher than
the prior-year period.
Consolidated fertilizer production of 104,864 tonnes (100% basis) was 17%
(15,478 tonnes) higher for third-quarter 2013 compared to the prior-year period,
primarily reflecting the addition of Ambatovy production.
Consolidated sales volumes of finished nickel, finished cobalt and fertilizer
for third-quarter 2013 reflect sales only from the Moa Joint Venture and Fort
Site operations. Finished metal and fertilizer sold from the Ambatovy Joint
Venture will not be categorized as sales volumes until the declaration of
commercial production, defined as 70% of ore throughput of nameplate capacity in
the Pressure Acid Leach (PAL) circuit, averaged over a thirty-day period.
Third-quarter 2013 finished nickel sales volumes from the Moa Joint Venture were
18% (1.5 million lbs, 50% basis), and finished cobalt sales volumes were 9% (0.1
million lbs, 50% basis) higher than the prior-year period reflecting the
production trend. Fertilizer sales volumes (50% Moa Joint Venture, 100% Fort
Site), were 38% (7,673 tonnes) higher for third-quarter 2013 compared to the
prior-year period, reflecting strong fall season sales and higher product
availability due to increased inventory availability.
For accounting purposes, all revenues from the sale of Ambatovy nickel and
cobalt will be capitalized until commercial production is reached. During
third-quarter 2013, Ambatovy sold approximately 13.5 million pounds (100% basis)
of finished nickel and approximately 1.0 million pounds (100% basis) of finished
cobalt. Finished nickel products averaged in excess of 99.9% purity in
third-quarter 2013 with only silicon slightly above the limit for the ASTM
B39-79 (2013) LME specification. During the same period, finished cobalt
products averaged above 99.9% purity - in excess of both the highest quality
standard (99.8%) and the 99.3% LME specification.
The average nickel reference price was 15% (US$1.09 per pound) lower in
third-quarter 2013 compared to the prior-year period, due to a persistent market
surplus that has been sustained by a lack of material production capacity
closures. The average cobalt reference price was slightly higher (3% or US$0.36
per pound) compared to the prior-year period, reflecting increased industrial
demand and the impact of electricity outages in key supply regions. The impact
of the lower nickel reference price on realized prices was partially offset by
the weaker Canadian dollar relative to the U.S. dollar. The impact of the
foreign exchange movement, combined with higher reference pricing for cobalt,
increased the average realized cobalt price period-over-period.
The NDCC of nickel at the Moa Joint Venture for third-quarter 2013 was
comparable to the prior-year period, but continued the downward trend in 2013.
The third-quarter 2013 NDCC was 8% (US$0.46 per lb) lower than second-quarter
2013, reflecting the unit impact of higher production (as fixed costs are spread
across a larger number of production units), as well as lower input commodity
costs (primarily sulphuric acid, sulphur and fuel oil).
Spending on capital in third-quarter 2013 for the Moa Joint Venture was 13%
($0.8 million, 50% basis) higher than the prior year-period, due to higher
planned spending in 2013.
The Moa Joint Venture partners have reached agreement to proceed with a third
acid plant at the Moa, Cuba facilities. This new plant is expected to reduce the
NDCC by approximately 20%. The 2,000 tonne per day plant will enhance the
efficiency of the operations by providing sufficient acid production capacity to
eliminate all sulphuric acid purchases at the current rate of production (38,000
tonnes per annum of mixed sulphides) and will accommodate future acid
requirements for subsequent expansions (up to a total facility capacity of
46,000 tonnes per annum of mixed sulphides). Construction is scheduled to begin
in second-quarter 2014, and initial production from the facility is expected in
third-quarter 2015. The Moa Joint Venture has obtained project financing for the
estimated capital cost of the plant (US$65 million) from a Cuban financial
institution.
Ambatovy Update
Mechanical challenges faced in the ramp-up of the facilities during
third-quarter 2013 impeded progress in increasing the ore throughput in the PAL
circuit during the quarter. In third-quarter 2013, average ore throughput in the
pressure acid leach (PAL) circuit of 39% was largely similar to second-quarter
2013. Planned and unplanned maintenance activity on the autoclaves reduced the
operating hours 13% (721 hours) compared to second-quarter 2013. One of the two
autoclaves affected during the period has been returned to service, and the
second is expected to be on-line by year-end. Despite lower autoclave
availability during the quarter, improved volumetric flow rates, higher ore
grade and improved metallurgical recoveries in the PAL circuit resulted in
higher mixed sulphides production relative to second-quarter 2013.
Finished nickel production for third-quarter 2013 was 23% (1,676 tonnes, 100%
basis) lower and finished cobalt production was 35% (220 tonnes, 100% basis)
lower than second-quarter 2013. The variances were largely due to the combined
impact of a net drawdown of mixed sulphides inventory in the previous quarter
and an increase in in-process inventory during third- quarter 2013.
Total capital costs for Ambatovy remained US$5.3 billion (100% basis), below the
US$5.5 billion (100% basis) estimate.
Total project costs (including operating costs, financing charges, working
capital and foreign exchange, net of pre-commercial sales revenue) in
third-quarter 2013 were US$150.2 million (100% basis) and were net of
pre-commercial sales revenue of US$96.3 million (100% basis). This compares to a
total project cost credit of US$10.4 million (100% basis) in second-quarter
2013, net of US$129.9 million (100% basis) of pre-commercial sales revenue.
Cumulative total project costs to September 30, 2013 were US$7.0 billion (100%
basis), including financing charges, working capital and foreign exchange, and
will continue to vary until commercial production is declared. The most
significant variability in total project costs is most likely to arise from the
working capital component and the offsetting production revenue component (which
is netted from these costs).
In third-quarter 2013, a total of US$153.0 million (100% basis) in funding was
provided by the Ambatovy Joint Venture partners. Sherritt's 40% share of the
funding was US$61.2 million ($63.8 million), and was sourced from cash on hand.
The Ambatovy operations are expected to reach commercial production in 2013,
which is the point at which all operating costs, net of revenue, cease to be
capitalized. Commercial production is defined as 70% of ore throughput of
nameplate capacity in the PAL circuit, averaged over a 30-day period.
COAL Nine months ended
September 30,
($ millions unless otherwise noted) Q3 2013 Q3 2012 2013 2012
----------------------------------------------------------------------------
Production (millions of tonnes)
Prairie Operations - owned mines 4.8 5.1 15.9 15.4
Prairie Operations - contract mine - 2.2 - 7.5
Mountain Operations 0.7 0.9 2.3 2.7
----------------------------------------------------------------------------
Total production 5.5 8.2 18.2 25.6
----------------------------------------------------------------------------
Sales (millions of tonnes)
Prairie Operations - owned mines 4.6 4.9 15.5 14.6
Prairie Operations - contract mine - 2.7 - 7.9
Mountain Operations 0.8 0.9 2.6 2.7
----------------------------------------------------------------------------
Total sales 5.4 8.5 18.1 25.2
----------------------------------------------------------------------------
Realized prices ($/tonne)
Prairie Operations(1) 18.40 17.47 18.26 17.55
Mountain Operations 86.29 100.32 88.62 102.66
Unit operating costs ($/tonne)
Prairie Operations(1) 14.43 15.22 13.97 14.95
Mountain Operations 79.95 84.57 86.72 87.12
Revenue
Prairie Operations
Mining revenue 91.2 140.3 302.9 417.6
Coal royalties 9.2 10.1 29.0 30.9
Potash royalties 1.9 3.0 8.8 9.8
Mountain Operations and other assets 72.7 83.7 230.6 274.7
----------------------------------------------------------------------------
Total revenue 175.0 237.1 571.3 733.0
----------------------------------------------------------------------------
Adjusted EBITDA (2)
Prairie Operations 22.5 33.9 95.9 103.7
Mountain Operations and other assets 2.9 10.4 1.0 34.1
----------------------------------------------------------------------------
Total Adjusted EBITDA 25.4 44.3 96.9 137.8
----------------------------------------------------------------------------
Depletion, depreciation and
amortization 28.6 39.4 84.3 97.4
Earnings (loss) from operations (3.2) 4.9 34.6 40.4
Spending on capital
Prairie Operations 5.1 23.6 37.6 50.3
Mountain Operations and other assets 5.7 4.7 35.9 44.6
----------------------------------------------------------------------------
Total spending on capital 10.8 28.3 73.5 94.9
----------------------------------------------------------------------------
1. Prairie Operations realized pricing and unit operating costs exclude
royalties and the results of the char and activated carbon businesses.
2. For additional information see the 'Non-GAAP Measure - Adjusted EBITDA'
section of this release.
Production volumes for third-quarter 2013 in Prairie Operations owned mines were
6% (0.3 million tonnes) lower than the prior-year period primarily due to weaker
customer demand at the Sheerness mine and an extended outage at the Boundary Dam
power station. Total production (owned mines + contract mine) was 34% (2.5
million tonnes) lower than in third-quarter 2012, due to the exclusion of
production volumes from the Highvale mine with the termination of the contract
mining business in January 2013. Mountain Operations production volumes in
third-quarter 2013 were 22% (0.2 million tonnes) lower than the prior-year
period, reflecting the impact of an optimized production plan, which was
implemented in response to sustained weak international coal prices.
Sales volumes for third-quarter 2013 in Prairie Operations owned mines were 6%
(0.3 million tonnes) lower compared to the prior-year period, reflecting the
production trends. Total sales volumes (owned mines + contract mine) were 39%
(3.0 million tonnes) lower than in third-quarter 2012, due to the exclusion of
sales volumes from the Highvale mine with the termination of the contract mining
business in January 2013. Mountain Operations sales volumes in third-quarter
2013 were substantially unchanged from third-quarter 2012 as a drawdown in
inventory offset lower production volumes.
Average realized pricing (excluding royalties, char and activated carbon) for
third-quarter 2013 at Prairie Operations was 5% ($0.93 per tonne) higher than
the prior-year quarter, reflecting both the impact of an increase in general
contract price escalators as well as revised pricing, due to a contract
extension at the Paintearth mine. Realized pricing at Mountain Operations was
14% ($14.03 per tonne) lower than third-quarter 2012, as a result of weaker
international thermal coal reference pricing.
Unit operating costs at Prairie Operations were 5% ($0.79 per tonne) lower in
third-quarter 2013 primarily due to exiting the contract mining business in
January 2013. Excluding the impact of the contract mining business, unit
operating costs were marginally higher due to mining conditions at the
Paintearth and Sheerness mines and dragline maintenance at the Boundary Dam
mine. Unit operating costs at Mountain Operations were 5% ($4.62 per tonne)
lower than in third-quarter 2012, as a result of cost reduction initiatives and
an optimized mine plan which have resulted in a focus on lower cost mining
areas, a reduction in the use of contractors, as well as higher equipment
availability and productivity.
Royalties for third-quarter 2013 were 15 % ($2.0 million) lower than the
prior-year period. Coal royalties were 9% ($0.9 million) lower than the
prior-year quarter, reflecting the timing of mining activities in royalty
assessable areas at the Paintearth mine. Potash royalties, which can represent
up to 25% of the royalty portfolio, were 37% ($1.1 million) lower than
third-quarter 2012, primarily due to weaker market pricing for potash.
Spending on capital at Prairie Operations for third-quarter 2013 was 78% ($18.5
million) lower than second-quarter 2013, due to cost reduction initiatives and
expenditure deferrals in support of a long-standing capital discipline of
maintaining spending within a business' cash flow generation. Spending on
capital at Mountain Operations was 21% ($1.0 million) higher than second-
quarter 2013, reflecting the timing of equipment arrivals at the Coal Valley
mine.
OIL AND GAS Nine months ended
September 30,
($ millions unless otherwise noted) Q3 2013 Q3 2012 2013 2012
----------------------------------------------------------------------------
Production (boepd)(1)
Gross working-interest - Cuba(2), (3) 20,445 20,557 20,144 20,481
Net working-interest(4)
Cuba - cost recovery 2,870 2,746 2,825 2,907
Cuba - profit oil 7,909 8,015 7,793 7,908
----------------------------------------------------------------------------
Cuba - total 10,779 10,761 10,618 10,815
Spain 294 297 305 343
Pakistan 330 350 332 353
----------------------------------------------------------------------------
Total net working-interest 11,403 11,408 11,255 11,511
----------------------------------------------------------------------------
Reference prices (US$/bbl)
U.S. Gulf Coast Fuel Oil No.6 92.94 97.30 93.59 100.97
Brent crude 111.61 110.14 109.43 112.89
Realized prices
Cuba ($/bbl) 70.27 70.69 69.66 73.59
Spain ($/bbl) 114.91 110.67 110.41 112.42
Pakistan ($/boe) 8.35 7.95 8.30 8.10
----------------------------------------------------------------------------
Weighted average ($/boe) 69.63 69.81 68.96 72.74
----------------------------------------------------------------------------
Unit operating costs
Cuba ($/bbl) 12.50 11.81 12.48 12.38
Spain ($/bbl) 33.88 52.86 24.70 48.49
Pakistan ($/boe) 4.68 3.80 5.54 3.56
----------------------------------------------------------------------------
Weighted average ($/boe) 12.86 12.72 12.62 13.29
----------------------------------------------------------------------------
Revenue 74.2 74.2 216.5 232.7
Adjusted EBITDA (5) 58.4 58.6 171.5 182.2
Depletion, depreciation and amortization 17.5 16.6 51.4 51.9
Earnings from operations 40.9 42.0 120.1 130.3
Spending on capital (6) 14.5 11.4 37.8 32.3
----------------------------------------------------------------------------
1. Oil production is stated in barrels of oil per day ("bopd"). Natural gas
production is stated in barrels of oil equivalent per day ("boepd"),
which is converted at 6,000 cubic feet per barrel.
2. In Cuba, Oil and Gas delivers all of its gross working-interest oil
production to Union Cubapetroleo (CUPET) at the time of production.
Gross working- interest oil production excludes: (i) production from
wells for which commercial viability has not been established in
accordance with production- sharing contracts, and (ii) working-interest
of other participants in the production-sharing contracts.
3. 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 working-interest 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.
4. Net working-interest production (equivalent to net sales volume)
represents the Corporation's share of gross working-interest production.
5. For additional information see the 'Non-GAAP Measure - Adjusted EBITDA'
section of this release.
6. Exploration and evaluation spending incurred prior to the technical
feasibility and commercial viability of extracting the resources is
recorded as an intangible asset.
Gross working-interest (GWI) oil production in Cuba was marginally (1% or 112
bopd) lower in third-quarter 2013 compared to the prior-year period, primarily
due to natural reservoir declines, which were largely offset by the impact of
production increases from new wells drilled and the optimization of production
from existing wells. A 5% (124 bopd) increase in cost-recovery oil production in
Cuba during third-quarter 2013 was primarily due to a decline in oil reference
pricing compared to the prior-year period. Third-quarter 2013 production in
Spain was unchanged from the prior-year period. Third-quarter 2013 production in
Pakistan was 6% (20 boepd) lower than the prior-year quarter, due to natural
reservoir declines.
The average-realized price for oil produced in Cuba in third-quarter 2013 was
marginally lower (1% or $0.42 per barrel) as the impact of lower reference
pricing (4% or $4.36 per barrel) was largely offset by a weaker Canadian dollar
relative to the U.S. dollar. Average-realized pricing for oil produced in Spain
was 4% ($4.24 per barrel) higher in third-quarter 2013 compared to the
prior-year quarter, reflecting the impact of higher reference pricing and a
weaker Canadian dollar relative to the U.S. dollar.
Unit operating costs in Cuba during third-quarter 2013 were 6% ($0.69 per
barrel) higher in third-quarter 2013 compared to the prior-year period, due to
higher labour, fuel, electricity, and insurance costs, which were partially
offset by lower production chemical costs. The unit operating cost in Spain was
36% ($18.98 per barrel) lower, compared to the prior-year period, following the
introduction of third-party production to the production facility in October
2012, which was partially offset by the impact of a weaker Canadian dollar
relative to the Euro.
Spending on capital for third-quarter 2013 was 27% ($3.1 million) higher
compared to the prior-year period, primarily due to an increase in exploration
spending in the United Kingdom North Sea Prospect Area, where a seismic program
was completed in July 2013. The results of this program are currently under
evaluation. During third-quarter 2013, one well was drilled and completed and is
currently being evaluated. A second development well was initiated during the
quarter and is expected to be completed in fourth-quarter 2013.
POWER Nine months ended
September 30,
($ millions unless otherwise noted) Q3 2013 Q3 2012 2013 2012
----------------------------------------------------------------------------
Electricity sold (GWh, 33 1/3% basis) 130 154 443 466
Realized price ($/MWh) 43.47 41.20 42.48 41.49
Unit operating cost ($/MWh)
Base(1) 20.59 13.78 18.41 14.90
Non-base(2) 5.42 1.03 6.56 1.38
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Total unit cash operating costs 26.01 14.81 24.97 16.28
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Net capacity factor (%) 66 67 65 67
Revenue 14.7 18.8 44.2 53.0
Adjusted EBITDA (3) 3.7 6.5 1.7 18.2
Depletion, depreciation and
amortization 2.3 3.0 7.6 8.3
Impairment of property, plant and
equipment - - 7.3 -
Earnings (loss) from operations 1.4 3.5 (13.2) 9.9
Spending on capital (33 1/3% basis)(4) 2.6 1.7 6.4 4.2
Spending on SCAs (33 1/3% basis)(5) 7.5 9.7 17.8 24.6
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Total spending on capital and SCAs 10.1 11.4 24.2 28.8
----------------------------------------------------------------------------
1. Base costs relate to the operations in Cuba and do not include the
impairment of receivables that relates to the operations in Madagascar.
2. Costs incurred at the Boca de Jaruco and Puerto Escondido facilities
that otherwise would have been capitalized if these facilities were not
accounted for as service concession arrangements. Excludes a credit
adjustment in third-quarter 2013 related to pipeline costs incurred
during that year.
3. For additional information see the 'Non-GAAP Measure - Adjusted EBITDA'
section of this release.
4. Spending on capital includes sustaining capital at the Varadero site as
well as capitalized interest relating to the 150 MW Boca de Jaruco
Combined Cycle Project.
5. Service Concession Arrangement ("SCA") spending is primarily related to
the 150 MW Boca de Jaruco Combined Cycle Project. Sherritt provides 100%
of the funding for the 150 MW Boca de Jaruco Combined Cycle Project and
accounts for the Project as an SCA. As a result, two thirds of the
project spending (relating to the non-Sherritt partners' share) is
recorded as a loan receivable. The remaining one third of project
spending (Sherritt's share) is recorded as a construction cost, and is
offset by the same amount recorded as construction revenue.
Electricity production for third-quarter 2013 was 16% (24 MWh, 33 1/3% basis)
lower than third-quarter 2012, primarily due to an increase in maintenance
activities.
The average realized price of electricity was 6% ($2.27 per MWh) higher in
third-quarter 2013 compared to the prior-year period, primarily due to the
impact of the weaker Canadian dollar relative to the U.S. dollar.
Total unit operating costs were 76% ($11.20 per MWh) higher in third-quarter
2013 compared to the prior-year period; base unit operating costs increased by
49% ($6.81 per MWh) primarily due to an increase in maintenance, freight and
duty costs and lower production. Non-base unit operating costs increased 426%
($4.39 per MWh) in the same comparable periods primarily as a result of
scheduled major inspections at the Boca de Jaruco facilities.
Spending on capital and service concession arrangements (SCA) for third-quarter
2013 was 11% ($1.3 million) lower than the prior-year period resulting from
lower SCA spending due to the 150 MW Boca de Jaruco Combined Cycle project
nearing start-up, which was partially offset by the combined impact of a modest
increase in facilities and equipment spending and higher capitalized interest on
the 150 MW Boca de Jaruco Combined Cycle Project.
150 MW Boca de Jaruco Combined Cycle Project
Spending on the Project for the quarter was 23% ($2.2 million, 33 1/3% basis)
lower than in third-quarter 2012 as the Project is nearing start-up. The Project
is still expected to be operational by the end of the year and to remain within
the total cost estimate of $297 million. The Combined Cycle unit is expected to
operate at 40% of capacity, until gas supply issues are resolved.
CASH, DEBT AND FINANCING
Cash, cash equivalents and short-term investments were $370.8 million at
September 30, 2013. This does not include cash, cash equivalents and short-term
investments of $56.5 million (100% basis) held by the Moa Joint Venture or $70.2
million (100% basis) held by the Ambatovy Joint Venture.
Total long-term debt at September 30, 2013 was $2.1 billion, including
approximately $0.9 billion related to non-recourse Ambatovy partner loans to
Sherritt. At September 30, 2013, Sherritt had approximately $0.6 billion of
credit available under various facilities.
Outlook
Projected production volumes, royalties and spending on capital for full-year
2013 are shown below.
Projected for the year ending
(units as noted) December 31, 2013
----------------------------------------------------------------------------
Production volumes
Mixed sulphides (tonnes, Ni+Co contained, 100%
basis)
Moa Joint Venture 38,000
Ambatovy Joint Venture 29,000
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Total 67,000
----------------------------------------------------------------------------
Nickel, finished (tonnes, 100% basis)
Moa Joint Venture 34,000
Ambatovy Joint Venture 26,000
----------------------------------------------------------------------------
Total 60,000
----------------------------------------------------------------------------
Cobalt, finished (tonnes, 100% basis)
Moa Joint Venture 3,350
Ambatovy Joint Venture 2,200
----------------------------------------------------------------------------
Total 5,550
----------------------------------------------------------------------------
Coal - Prairie Operations (millions of tonnes) 22
Coal - Mountain Operations (millions of
tonnes) 3.2
Oil - Cuba (gross working-interest, bopd) 19,500
Oil - All operations (net working-interest,
boepd) 11,200
Electricity (GWh, 33 1/3% basis) 600
Royalties ($ millions)
Coal 35
Potash 12
Spending on capital ($ millions)
Metals - Moa Joint Venture (50% basis), Fort
Site (100% basis)(1) 38
Metals - Ambatovy Joint Venture (40% basis) 29
Coal - Prairie Operations 58
Coal - Mountain Operations 48
Oil and Gas - Cuba(2) 54
Oil and Gas - Other(2) 13
Power (33 1/3% basis)(3) 8
----------------------------------------------------------------------------
Spending on capital (excluding Projects and
Corporate) 248
----------------------------------------------------------------------------
Spending on projects
Power - 150 MW Boca de Jaruco ($ millions,
100% basis)(4) 51
----------------------------------------------------------------------------
1. Spending on capital relating to the Corporation's 50% share of the Moa
Joint Venture and to the Corporation's 100% interest in the fertilizer
and utilities assets in Fort Saskatchewan.
2. Exploration and evaluation spending incurred prior to the technical
feasibility and commercial viability of extracting the resources is
recorded as an intangible asset.
3. Spending on capital for Power includes sustaining capital at the
Varadero site as well as capitalized interest in respect of the 150 MW
Boca de Jaruco Combined Cycle Project.
4. Sherritt provides 100% of the funding for the 150 MW Boca de Jaruco
Combined Cycle Project and accounts for the Project as a "Service
Concession Arrangement". As a result, two thirds of the project spending
(relating to the non-Sherritt partners' share) is recorded as a loan
receivable. The remaining one third of project spending (Sherritt's
share) is recorded as a construction cost.
The last 2013 Outlook on production, royalties and spending on capital was
presented in July 2013 ("second-quarter 2013 Outlook"). The only material
changes to the second-quarter 2013 Outlook relate to the Ambatovy Joint Venture
in the Metals business. Estimated 2013 Ambatovy production was reduced for mixed
sulphides (by 15% or 5,000 tonnes, 100% basis), finished nickel (by 16% or 5,000
tonnes, 100% basis), and finished cobalt (by 21% or 600 tonnes, 100% basis). The
adjustments reflect lower-than-expected actual production to September 30, 2013.
Non-GAAP Measure - Adjusted EBITDA
As a result of the change in accounting for the Moa Joint Venture under IFRS 11,
the Corporation revised its definition of Adjusted EBITDA to include the results
of the Corporation's share of earnings or loss in associate and joint venture,
to provide a measure that is reasonable consistent with historical measures. As
Adjusted EBITDA does not have a standardized meaning, it may not be comparable
to similar measures provided by other companies.
The Corporation defines Adjusted EBITDA as earnings (loss) from operations,
associate and joint venture as reported in the financial statements, adjusted
for depletion, depreciation and amortization; impairment charges for property,
plant and equipment, intangible assets, goodwill and investments; and gain or
loss on disposal of property, plant and equipment of the Corporation, associate
and joint venture.
Adjusted Operating Cash Flow
The Corporation defines adjusted operating cash flow as cash provided by
operating activities before the net change in non- cash working capital, as
provided in the financial statements for the period.
About Sherritt
Sherritt is a world leader in the mining and refining of nickel from lateritic
ores with projects and operations in Canada, Cuba, Indonesia and Madagascar. The
Corporation is the largest thermal coal producer in Canada and is the largest
independent energy producer in Cuba, with extensive oil and power operations on
the island. Sherritt licenses its proprietary technologies and provides
metallurgical services to mining and refining operations worldwide. The
Corporation'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", "projected",
"continue" or other similar words or phrases. Specifically, forward-looking
statements in this document include statements respecting certain future
expectations about capital expenditures; sufficiency of working capital and
capital project funding; capital project commissioning and completion dates;
earnings and revenues; and production volumes. These forward-looking statements
are not based on historic facts, but rather on current expectations, assumptions
and projections about future events. 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 those 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.
Key factors that may result in material differences between actual results and
developments and those contemplated by this press release include global
economic conditions, and business, economic and political conditions in Canada,
Cuba, Madagascar, Indonesia, and the principal markets for the Corporation's
products. Other such factors include, but are not limited to, uncertainties in
the development, construction and ramp-up of large mining, processing and
refining projects; risks related to the availability of capital to undertake
capital initiatives; changes in capital cost estimates in respect of the
Corporat ion's capital initiatives; risks associated with the Corporation's
joint-venture partners; future non-compliance with financial covenants;
potential interruptions in transportation; political, economic and other risks
of foreign operations; the Corporation'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; uncertainty of gas supply for electrical
generation; 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; drilling and development programs;
uncertainties in reserve estimates; risks associated with access to reserves and
resources; uncertainties in environmental rehabilitation provisions estimates;
the Corporation's reliance on significant customers; risks related to the
Corporation's corporate structure; foreign exchange and pricing risks;
uncertainties in commodity pricing; credit risks; competition in product
markets; the Corporation's ability to access markets; risks in obtaining
insurance; uncertainties in labour relations; uncertainties in pension
liabilities; the ability of the Corporation to enforce legal rights in foreign
jurisdictions; risks associated with future acquisitions; the ability of the
Corporation to obtain government permits; risks associated with government
regulations and environmental, health and safety matters; uncertainties in
growth management and other factors listed from time to time in the
Corporation's continuous disclosure documents. Statements relating to "reserves"
or "resources" are deemed to be forward-looking statements, as they involve
assessments based on certain estimates or assumptions. Readers are cautioned
that the foregoing list of factors is not exhaustive and should be considered in
conjunction with the risk factors described in this press release and the
Corporation's other documents filed with the Canadian securities authorities.
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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Sherritt International Corporation
Investor Relations
416.935.2451 or Toll-Free: 1.800.704.6698
investor@sherritt.com
www.sherritt.com
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