NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE U.S.

TORONTO--(BUSINESS WIRE)--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 and nine months ended September 30, 2021, and announced it is embarking on an expansion strategy with its Cuban partners to capitalize on the growing demand for high purity nickel and cobalt being driven by the accelerated adoption of electric vehicles. The strategy, which will build on the 26-year successful track record of the Moa Joint Venture, centres on growing finished nickel and cobalt production by 15 to 20% per year from the 34,876 tonnes produced in 2020 and extending the life of mine at Moa beyond 2040 through the conversion of mineral resources into reserves using an economic cut-off grade.

“Backed by a strengthened balance sheet and a favourable outlook for nickel and cobalt, we are moving forward with a multi-pronged strategy focused on generating incremental cash flow and transformative growth,” said Leon Binedell, President and CEO of Sherritt International Corporation. “In addition to commercializing projects developed by Sherritt Technologies, our growth will centre on brownfield opportunities, where working in close collaboration with our Cuban partners, we plan to increase finished nickel and cobalt production and extend Moa’s mine life. Preliminary economics of the brownfield projects identified are quite encouraging and suggest a high rate of return on investment and low capital intensity.

“By taking advantage of embedded growth opportunities, Sherritt will be better positioned to capitalize on the expected strong demand for green metals in the coming years and significantly grow shareholder value.”

Expansion plans for the Moa JV consist of a multi-phased approach, and includes completion of the new slurry preparation plant and other expansion circuits at Moa, installation of new equipment and upgrading existing equipment at the refinery in Fort Saskatchewan, Alberta, updating the 43-101 Technical Report published in June 2019 that reported more than 158 million tonnes of measured and indicated resources at 1% nickel and 0.13% cobalt at Moa to reflect production based on economic rather than a fixed, cut-off grade, and leveraging the expertise of Sherritt Technologies to optimize mine planning and performance.

Sherritt and its Cuban partners are currently finalizing timelines, capital estimates, and economics of the various projects, including identifying financing alternatives. Sherritt expects to provide an update on the rollout of the Moa JV expansion strategy by the end of the first quarter of 2022.

SELECTED Q3 2021 DEVELOPMENTS

• Received US$10 million in distributions from the Moa JV representing Sherritt’s 50% share of distributions declared by the Moa JV. Through September 30, Sherritt has received a total of US$43 million in direct and re-directed distributions from the Moa JV and its partner.
• Adjusted EBITDA⁽¹⁾ was $17.6 million, up 14% from last year. The higher total was indicative of improved nickel and cobalt prices, but offset by increased input costs, $3.1 million in other contractual benefits expenses and $0.5 million of accelerated share-based compensation expenses, both of which relate to the departure of senior executives.
• Sherritt’s share of finished nickel production at the Moa JV was 2,908 tonnes, down 22% from last year while Sherritt’s share of finished cobalt production was 334 tonnes, down 18%. Finished nickel and cobalt production were negatively impacted by a combination of factors, including the spread of COVID-19, timing of the full-facility shutdown at the refinery in Fort Saskatchewan, Alberta, and unplanned maintenance activities that temporarily disrupted production activities. All production has since resumed to normal, and Sherritt has adjusted its production guidance for 2021 to reflect Q3 developments and anticipated production for the balance of the year.
• Net Direct Cash Cost (NDCC)⁽¹⁾ at the Moa JV was US$4.53/lb, up 12% from last year. Despite a 52% improvement in cobalt by-product credits, unit costs per pound of finished nickel sold were impacted by the 126% increase in sulphur prices, 69% increase in fuel oil prices, and 59% increase in natural gas prices as well as by lower sales volumes. NDCC guidance for 2021 remains unchanged at US$4.25 to $4.75 per pound of nickel sold as the recent rise in cobalt prices partially offsets the rise in input costs.
• Received US$6.4 million in Cuban energy payments. Sherritt anticipates continued variability in the timing of collections through the remainder of 2021, and is working with its Cuban partners to ensure timely receipts.
• Sherritt released its 2020 Sustainability Report that featured a number of upgraded environmental, social, and governance (ESG) targets, including achieving net zero greenhouse 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 the workforce to 36% by 2030.
• Named Yasmin Gabriel as Chief Financial Officer, Greg Honig as Chief Commercial Officer, and Chad Ross as Chief Human Resources Officer as part of senior leadership changes. The appointments underscore Sherritt’s two-pronged growth strategy focused on capitalizing on the accelerating demand for high-purity nickel and cobalt from the electric vehicle industry and commercializing innovative process technology solutions for resources companies looking to improve their environmental performance and increase economic value.

DEVELOPMENTS SUBSEQUENT TO THE QUARTER END

• Sherritt amended its syndicated revolving-term credit facility with its lenders, increasing the maximum amount of credit available to $100 million from $70 million and extending the maturity to April 2024. Under the new terms, borrowings on the credit facility are available to fund capital as well as for working capital purposes. Spending on capital expenditures cannot exceed $75 million in a fiscal year. Capital expenditure restrictions do not apply to planned spending of Moa Nickel S.A. The increase in credit facility is indicative of Sherritt’s strengthened financial position and favorable outlook in light of improved nickel market fundamentals.
• Environmental rehabilitation obligations (ERO) held by Sherritt’s Spanish Oil and Gas operations were secured by a parent company guarantee of €31.5 million ($46.7 million) until December 31, 2023. Unlike the $47 million letter of credit issued previously to support the ERO and backed by Sherritt’s credit facility, the new guarantee has no impact on the Corporation’s available liquidity.
• Planned capital spending at the Moa JV for 2021 has been reduced to US$35 million from US$44 million (Moa JV 50% basis Fort Site 100% basis). The reduction in planned capital spending reflects operational challenges experienced through September 30, including freight and order delays caused by COVID-19.

Q3 2021 FINANCIAL HIGHLIGHTS

Cash, cash equivalents, and short-term investments at September 30, 2021 were $163.4 million, up from $153.8 million at June 30, 2021. The increase was due to a number of developments in the quarter, including the receipt of US$6.4 million in Cuban energy payments, strong fertilizer presales of $13.9 million, and the receipt of US$10 million in distributions from the Moa JV. The increase was partly offset by sustaining capital expenditures of $3.6 million.

Since the start of 2021, Sherritt has received a total of US$43 million in direct and re-directed distributions from the Moa JV and its partner. Sherritt anticipates receipt of additional distributions from the Moa JV through to the end of 2021 based on prevailing nickel and cobalt prices, planned capital spend, and liquidity requirements for the Moa JV.

As a result of the restructuring of its balance sheet in August 2020 that eliminated $30 million in cash interest payments annually, Sherritt did not have any cash interest payments in Q3 2021.

Collections against overdue amounts owed to Sherritt by its Cuban energy partners continue to be adversely impacted by a combination of factors, including the ongoing effects of U.S. sanctions against Cuba and Cuba’s reduced access to foreign currency on account of the global pandemic which has eliminated almost all tourism revenue over the past 18 months. Cuba has announced plans to fully open its borders to international travelers on November 15, 2021 in advance of the winter travel season. As at October 31, 88% of Cuba’s population had received at least one vaccine dose and 64% have been fully vaccinated⁽¹⁾.

Total overdue scheduled receivables at September 30, 2021 were US$152.5 million, down from US$154.7 million at June 30, 2021. Subsequent to quarter end, Sherritt received US$2.5 million in Cuban energy payments. Sherritt anticipates variability in the timing and the amount of energy payments in the near term, and continues to work with its Cuban partners to ensure timely receipt of energy payments. With the opening up of Cuba’s borders, the resumption of international tourism and the influx of foreign currency, Sherritt anticipates economic conditions in Cuba to improve in 2022.

As at September 30, 2021, Sherritt held cash, cash equivalents and short-term investment in Canada totaling $82.1 million, up from $77.4 million at June 30, 2021.

Adjusted net loss⁽¹⁾

Adjusted net loss from continuing operations was $13.4 million, or $0.03 per share, for the quarter ended September 30, 2021. In the same period last year adjusted net loss was $16.1 million or $0.04 per share. Sherritt’s adjusted net loss for Q3 2021 excluded an unrealized foreign exchange loss of $7.9 million, the realized gain on Cuban currency unification, and other contractual benefits expense of $3.1 million. In Q3 2020, the primary adjustments, in addition to an unrealized foreign exchange gain of $3.6 million, included the gain on debenture exchange offset by the impairment of oil assets related to Block 10.

METALS MARKET

Nickel

Nickel prices hit a seven-year high in Q3, climbing to US$9.24/lb on September 10. The price increase was driven by improving market fundamentals, including strong demand from across multiple industries, reduced inventory levels, and supply disruptions caused in part by COVID-19. By the end of the quarter, nickel prices retreated closing at US$8.25/lb on September 30 on concerns of a potential debt crisis in China as well as by speculation that stainless steel production would be impacted by China’s efforts to ration power supply. Since the start of Q4, nickel prices have recovered, reaching a high of US$9.31/lb on October 21. It is anticipated that nickel prices will be sustained at current levels through end of year.

Strong nickel demand in Q3 was reflected by the continued decrease in inventory levels since the start of 2021. In Q3, nickel inventory levels on the London Metals Exchange (LME) fell by 32% from 232,476 tonnes at the start of the period to 157,062 tonnes on September 30. Similarly, inventory levels on the Shanghai Futures Exchange fell to 3,728 tonnes, down 25% from 4,982 tonnes at the start of the quarter.

Continued strong demand and market tightness led a number of industry analysts, including Wood Mackenzie and S&P Global, to forecast a nickel supply deficit in 2021 in contrast to forecasts of a nickel surplus at the start of the year. As at October 15, nickel inventories on the LME declined further to 146,022 tonnes.

Although market conditions are currently favorable for nickel producers, nickel inventory level uncertainty is anticipated in 2022 and 2023 with some industry analysts forecasting an inventory surplus in the coming years. Visibility of market conditions in the medium term is limited and no new sources of supply are anticipated.

The long-term outlook for nickel remains bullish on account of the strong demand expected from the electric vehicle battery market. Some market observers, such as Wood Mackenzie, have forecast a prolonged nickel supply deficit beginning in 2025 due to recent developments in the electric vehicle market and no new nickel production coming on stream in the near term.

Over the past year, in particular, multiple automakers and governments have announced plans for significant investments to expand electric vehicle production capacity to meet growing demand as well as more aggressive timelines to phase out the sale of internal combustion engines. In 2020, more than three million plug-in electric vehicles (PEV) were sold despite the global pandemic. Industry observers estimate that the number of PEVs sold in 2021 will double to 6.1 million units. CRU has forecast that electric vehicles sales will grow to 13.7 million units by 2025.

As a result of its unique properties, high-nickel cathode formulations remain the dominant choice for long-range vehicles manufactured by automakers with Class 1 nickel being an essential feedstock in the battery supply chain. Sherritt is particularly well positioned given our Class 1 production capabilities and the fact that Cuba possesses the world’s fourth largest nickel reserves.

Cobalt

Cobalt prices in Q3 2021 were marked by a steady rise, closing on September 30 at US$25.88/lb, up 13% from US$22.90/lb at the start of the quarter according to data collected by Fastmarkets MB.

Higher cobalt prices in Q3 2021 were largely driven by increased buying from electric vehicle battery manufacturers. Cobalt is a key component of rechargeable batteries providing energy stability. Higher cobalt prices in Q3 2021 were also driven by increased stockpiling from consumers and by supply logistics disruptions in South Africa, where cobalt produced in the Democratic Republic of Congo, the source of almost two-thirds of the world’s supply, is sent before being shipped internationally.

Industry observers, such as CRU, expect cobalt prices to continue to rise in the near term with prices forecast to peak at US$31/lb in 2024 as limited new sources of supply have been announced to fill expected demand over the next five years.

The outlook for cobalt over the long term remains bullish as demand is expected to grow to 270,000 tonnes by 2025, representing a compound annual growth rate of 13.5% according to CRU.

REVIEW OF OPERATIONS

Moa Joint Venture (50% interest) and Fort Site (100%)

Despite additional measures taken to protect employees, suppliers and various stakeholders at operations at Moa and at the refinery in Fort Saskatchewan since the start of the pandemic in March 2020, the significant rise in the number of cases as a result of the spread of the Delta variant of COVID-19 negatively impacted mining operations and transportation activities in Q3 2021.

Most notably at Moa, the considerable increase in the number of COVID-19 cases in the Holguin province of Cuba adversely affected mining activities and delayed shipment of mixed sulphides. While these developments had minimal impact on mixed sulphides production in the quarter, measures to recover ore stockpiling inventory, including the use of contract mining services, have been implemented in advance of the traditional rainy season at Moa. Mixed sulphides production at the Moa JV in Q3 2021 was 4,666 tonnes, essentially unchanged from the 4,671 tonnes produced in Q3 2020.

At the refinery in Fort Saskatchewan, the rise in number of COVID-19 cases in Alberta coupled with reduced contractor availability resulted in the rescheduling and extension of the full-facility shutdown by two additional days than originally anticipated. This year’s shutdown lasted 13 days compared to the typical five-day annual shutdowns, and included all of the refinery and utility plants. Full-facility shutdowns occur once every six years.

Refinery operations were also disrupted by unplanned maintenance activities due to equipment and service failures in advance of the full-facility shutdown. Subsequent to the shutdown, repairs to the cobalt reduction autoclave nozzle were required, resulting in a temporary reduction in plant capacity.

As a result of the cumulative impact of these developments, finished nickel production in Q3 2021 totaled 2,908 tonnes, down 22% from the 3,750 tonnes produced in Q3 2020 while finished cobalt production for Q3 2021 was 334 tonnes, down 18% from the 409 tonnes produced in Q3 2020.

Finished nickel and cobalt production for the nine-month period of 2021 were 11,326 tonnes and 1,287 tonnes, respectively. The totals compare to 11,733 tonnes and 1,234 tonnes for the same period of 2020. As a result of developments in Q3 and anticipated performance through the balance of the year, Sherritt has adjusted its guidance for 2021 and now expects to produce 31,000 – 32,000 tonnes of nickel (100% basis). Guidance for cobalt production is unchanged at 3,300 – 3,600 tonnes (100% basis).

Sales volume for finished nickel and cobalt in Q3 2021 were down 16% and 26%, respectively, from last year. The year-over-year decrease was due to lower production volumes and the impact of the full-facility shutdown.

Despite the decrease in sales volume total, Moa JV revenue in Q3 2021 increased by 11% to $108.9 million from $97.7 million last year. The revenue increase was largely attributable to higher average-realized nickel, cobalt, and fertilizer prices. In Q3 2021, average-realized nickel, cobalt, and fertilizer prices were up 29%, 62% and 50%, respectively, from last year. Average-realized prices are impacted by the timing of deliveries, settlement against contract terms, and fluctuations in the value of the Canadian currency.

Mining, processing and refining (MPR) costs per pound of nickel sold for Q3 2021 were US$6.43/lb, up 31% from last year. MPR costs in Q3 2021 increased due to a combination of factors, including higher input costs and the impact of lower production volumes on period costs.

For further investor information contact:
Joe Racanelli, Director of Investor Relations
Telephone: (416) 935-2457
Toll-free: 1 (800) 704-6698
E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

Sherritt International Corporation
Bay Adelaide Centre, East Tower
22 Adelaide St. West, Suite 4220
Toronto, ON M5H 4E3
www.sherritt.com