NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

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 12-month periods ended December 31, 2020. All amounts are in Canadian currency unless otherwise noted.

CEO COMMENTARY

“With a significantly strengthened balance sheet, a considerably improved outlook for nickel and cobalt, and encouraging signs for improved Cuban-U.S. relations, Sherritt ended 2020 in its strongest position in more than a decade,” said David Pathe, President and CEO of Sherritt International. “Keys to our progress were completion of a debt restructuring initiative that resolved our Ambatovy investment legacy while extending our debt maturities to the fourth quarter of 2026, ongoing commitments to operational excellence and employee health and safety that contributed to production results largely in line with our guidance for the year, and measures we took to preserve liquidity against a backdrop of a global pandemic and volatile commodity prices.”

Mr. Pathe added, “We plan to sustain our momentum into 2021 – even as we manage against the continuing global pandemic – by capitalizing on the growing demand for high purity nickel as the market adoption of electric vehicles and requirement for low-carbon emissions accelerate, and on the current nickel price nearly US$2 per pound higher than the average for 2020. We will also be focused on our ESG commitments in 2021 and beyond. Over the longer term, we expect to fuel our growth through an increased focus on commercializing the innovation and process development capabilities of our Technologies Group.”

SELECTED Q4 2020 HIGHLIGHTS

• Sherritt’s share of finished nickel and cobalt production at the Moa Joint Venture (Moa JV) were 4,020 tonnes and 451 tonnes, respectively. Despite being impacted by unplanned autoclave repairs at the refinery in Fort Saskatchewan, Alberta, Q4’s production totals helped to offset the negative effects of railway service disruptions in Q1 and an extended plant shutdown in Q3 due to additional found work scope, and reduced contractor availability due to COVID-19, enabling Sherritt to largely meet its production guidance at the Moa JV for the year.
• Sherritt received US$20 million in distributions from the Moa JV, representing its 50% share of total dividends declared. Sherritt also received an additional US$20 million, representing the 50% share of distributions of its Moa JV partner, General Nickel Company (“GNC”), pursuant to an overdue receivables agreement negotiated by Sherritt in 2019. Distributions received in Q4 were indicative of improving nickel and cobalt prices and strong operational performance.
• Sherritt received US$30.1 million in Cuban energy payments as part of the overdue receivables agreement with its Cuban partners. Included in this amount was the aforementioned US$20 million re-directed to Sherritt by GNC to be applied against amounts owed by Energas. Total payments consisted of US$27.7 million received in Canada and US$2.4 million accepted in Cuba to support local costs for Sherritt’s Oil and Gas operations.
• Adjusted EBITDA was $10.7 million, down 34% from last year due to declining Oil and Gas contributions related to maturing oil fields and a $7.2 million increase in non-cash share-based compensation as a result of the 116% rise in Sherritt’s share price in Q4 2020.
• Sherritt employee members of Unifor at the refinery in Fort Saskatchewan ratified a new collective agreement through March 31, 2022. The new agreement extends Sherritt’s track record of no labour disruptions at the refinery since it began operations in 1954.
• Sherritt renewed and extended its $70 million credit facility with its syndicate of lenders to April 30, 2022, agreeing to more flexible financial covenants. As at December 31, Sherritt had drawn $8 million against the facility.
• Sherritt purchased two separate put nickel options, each on 25% of its share of attributable finished nickel production from the Moa JV for 2021. The first, at a strike price of US$6.50/lb for a total cost of $5.8 million, is in effect for a 12-month period starting January 1, 2021. The second, at a strike price of US$7.00/lb for a total of $3.5 million, is in effect for a nine-month period starting April 1, 2021. Any cash settlements will be completed on a monthly basis against the average monthly nickel price on the London Metal Exchange and will involve no physical delivery. The hedging strategy is designed to provide Sherritt with cash flow security in 2021 against downward changes in nickel prices.
• Sherritt announced that its CEO, David Pathe, plans to step down from his role in 2021. The Company has launched a search for his successor, and Mr. Pathe has agreed to stay on until a replacement is in place to ensure an orderly transition.

SUMMARY OF KEY 2020 DEVELOPMENTS

• Sherritt ended 2020 with cash and cash equivalents of $167.4 million ($75.0 million held by Energas in Cuba), up from $166.1 million last year ($79.8 million held by Energas in Cuba). The higher cash position and increased amount held in Canada were driven by the receipt of $39.6 million of dividend distributions from the Moa JV, receipt of US$77 million of payments from Cuban energy partners, and lower interest payments of $5.0 million. The increased cash position was offset by balance sheet transaction costs of $27.6 million, capital expenditures of $12.1 million, and nickel put option purchase costs of $9.3 million.
• Sherritt successfully completed a balance sheet initiative in Q3 that improved its capital structure and addressed its Ambatovy investment legacy following stakeholder approval. As a result of the transaction, Sherritt reduced its outstanding debt by approximately $301 million, extended the maturities of its note obligations to 2026 and 2029, reduced annual interest payments by more than $15 million, terminated its debt obligations relating to the Ambatovy Joint Venture, and ended the cross-default risk of the Ambatovy shareholder agreement, all without any dilution of its common shares.
• Sherritt implemented a number of austerity measures that resulted in the reduction or deferral of more than $90 million in budgeted expenditures for the Moa JV (100% basis), Sherritt’s Oil and Power operations, and Corporate office, and reduced administrative expenses by $5.2 million (excluding non-cash share-based compensation and depreciation).
• Sherritt’s share of production, unit costs, and capital spend for each of its business units in 2020 were largely in line with guidance for the year, indicative of ongoing commitments to operational excellence and employee health and safety, particularly in light of the COVID-19 global pandemic.
• Net loss from continuing operations in FY2020 totaled $85.7 million or $0.22 per share. The amounts were an improvement from the net loss of $142.4 million, or $0.36 per share, for FY2019. In FY2020 Sherritt recognized earnings from discontinued operations of $107.9 million related to the disposition of its 12% ownership interest in the Ambatovy Joint Venture as part of the balance sheet initiative and reclassification as discontinued operations.
• Sherritt committed to identifying commercial applications for innovations developed by its Technologies Group aimed at making next generation lateritic ore mining more economically viable and more sustainable.
• Sherritt implemented a number of additional health and safety measures and work processes designed to protect employees, suppliers and other stakeholders at its operations in response to the spread of COVID-19. As a result of the additional measures, Sherritt had minimal impact to its nickel, cobalt, power, and oil production in 2020. The additional measures will remain in effect through the duration of the pandemic.
• Sherritt released its 2019 Sustainability Report showing progress against its Environmental, Social, and Governance (ESG) targets, including efforts to reduce greenhouse emissions, maintain peer-leading safety metrics, and commitments to doubling the number of female employees by 2030. Sherritt will continue to develop and reinforce its ESG commitments in 2021 and beyond.
• Sherritt signed the BlackNorth Initiative Pledge aimed at ending anti-Black systemic racism and creating opportunities for the BIPOC community.

DEVELOPMENTS SUBSEQUENT TO THE YEAR END

• Sherritt received a $20.3 million prepayment against nickel deliveries in 2021. The prepayment is consistent with Sherritt’s efforts to enhance its liquidity.
• Sherritt’s refinery in Fort Saskatchewan had its operating license renewed for 10 years by Alberta’s Ministry of Environment and Parks.

Q4 2020 FINANCIAL HIGHLIGHTS⁽¹⁾

Cash, cash equivalents, and short-term investments at December 31, 2020 were $167.4 million, up from $165.1 million at September 30, 2020. The increase was due to a number of factors including, receipt of more than US$30.1 million of Cuban energy payments and $26.3 million of dividend distributions from the Moa Joint Venture, partly offset by negative cash flow at Oil and Gas and the $9.3 million purchase of nickel put options.

As at December 31, 2020, $75.0 million of Sherritt’s cash and cash equivalents was held by Energas in Cuba, down from $82.1 million at the end of Q3 2020.

Sherritt received US$30.1 million in Cuban energy payments as part of its overdue receivables agreement with its Cuban partners in Q4 2020. Payments, which included US$27.7 million received in Canada and US$2.4 million accepted in Cuba to support local costs relating to Sherritt’s Oil and Gas operations, were higher than expected as Sherritt’s Moa Joint Venture partner, GNC, redirected US$20.0 million of its share of dividends paid by the joint venture to Sherritt to reduce the overdue receivables.

Total overdue scheduled receivables at December 31, 2020 were US$145.9 million, down from US$159.1 million at September 30, 2020 due to the timing of payments received and re-direction of Moa Joint Venture dividends.

Adjusted net loss⁽¹⁾

Net loss for FY2020 includes a gain of $142.3 million on the exchange of debentures as part of the balance sheet initiative offset by an impairment loss recognized on the write down of exploration and evaluation assets and capitalized spare parts relating to Block 10 drilling activities totaling $115.6 million and an impairment on Power assets of $9.4 million.

On the close of the balance sheet initiative in Q3 2020, Sherritt exchanged its 12% ownership interest and its loans and operator fee receivables in the Ambatovy Joint Venture for $145.6 million owed to its partners. Consistent with IFRS standards, Sherritt’s investment in the Ambatovy Joint Venture met the criteria to be classified and presented as discontinued operations for accounting purposes. As a result, Sherritt’s share of loss of an associate, net of tax, and other components of comprehensive income (loss) related to the Ambatovy Joint Venture were reclassified to the earnings (loss) on discontinued operations, net of tax, in the current and comparative periods. For FY2020, Sherritt recognized earnings on the disposition and reclassification of $107.9 million.

METALS MARKET

Nickel

Nickel market conditions continued to improve in the fourth quarter of 2020, sustaining the momentum triggered by the restart of economic activities late in the second quarter, particularly in China, following the easing of restrictions caused by the COVID-19 pandemic.

Market conditions in Q4 also benefited from renewed interest in electric vehicles, bullish forecasts by industry analysts for accelerated demand growth, and multiple announcements from automakers indicating considerable investments to significantly expand electric vehicle production capacity. High purity, or Class 1 nickel, as produced by Sherritt, will be the primary metal in battery chemistries most automakers have adopted.

Nickel prices on the London Metal Exchange opened at US$6.52/lb on October 1 and closed on December 31 at US$7.50/lb, representing a growth of 15%. Nickel prices in 2020 experienced considerable volatility, ranging from a low of US$5.01/lb to a high of US$8.07/lb. In 2020, nickel prices ended the year up 18% from the start of the year.

While nickel prices climbed during Q4, nickel inventory levels on the London Metal Exchange (LME) and the Shanghai Future Exchange (SHFE) remained relatively flat. Combined inventory levels at December 31 totaled approximately 262,900 tonnes, up from approximately 262,700 tonnes at September 30. Nickel inventories on the LME and SHFE have stayed relatively flat despite the reduced production of stainless steel globally on a year to date basis largely because a number of nickel mines around the world have either significantly reduced production or have gone into care and maintenance as a result of the spread of COVID-19. Production at the Moa JV has largely been unaffected by the spread of COVID-19 in 2020.

The momentum of higher nickel prices has carried over into 2021, reaching US$8.38/lb on February 10, the highest price since August 2019. Nevertheless, nickel prices are expected to be volatile over the near and medium term given the softening of demand expected with the interruption of manufacturing activities in China caused by Lunar New Year celebrations in February, and also by the ongoing economic uncertainty caused by the continued spread of the COVID-19 pandemic.

As mining operations resume production activities, nickel inventory levels may rise given that supply could exceed demand as a number of industries that are large consumers of stainless steel, such as food and hospitality sector, will experience a delayed or slower economic recovery, particularly if the second wave of the pandemic is prolonged.

Added to this uncertainty is the substantial increase expected in nickel pig iron production, leading some industry analysts to predict an oversupplied nickel market in the near term. This development is putting additional pressure on producers of lower-grade material such as ferronickel, which is currently selling at significant discount. Combined, these developments suggest near-term nickel price fluctuations.

Over the longer term, as demand for nickel is expected to grow with the increased adoption of electric vehicles and requirement for low-carbon emissions since nickel – along with cobalt – is a key metal needed to manufacture assorted energy storage batteries, more favorable price conditions with less volatility are expected.

Cobalt

Cobalt prices remained relatively flat in the fourth quarter of 2020 according to data collected by Fastmarkets MB. Standard grade cobalt prices on December 31 closed at US$15.60/lb, down from US$15.65/lb at the start of the quarter. Stable prices in the fourth quarter suggest that soft market conditions experienced earlier in the year due the onset of the COVID-19 pandemic have improved. Cobalt prices had declined to US$13.90/lb in July from U$15.53/lb at the start of 2020, largely due to reduced demand emanating from markets, such as the aerospace sector, most impacted by the pandemic.

Since the start of 2021, cobalt prices have climbed to more than US$22.00/lb, largely on news reports that consumers in China have started to stockpile inventory to take advantage of weak prices in anticipation of stronger demand expected with accelerated growth of electric vehicle demand expected in the coming years. Cobalt is a key component of rechargeable batteries providing energy density and stability.

REVIEW OF OPERATIONS

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

Mixed sulphides production at the Moa JV in Q4 2020 was 4,421 tonnes, up 5% from 4,203 tonnes produced in Q4 2019. The increase in Q4 2020 was largely due to normalized availability of diesel fuel supply at Moa, resulting in the greater use of mining equipment and better access to higher grade material compared to last year. Mixed sulphides production at Moa for much of the second-half of 2019 was negatively impacted by diesel fuel conservation measures implemented in response to reduced diesel fuel supply availability caused by economic and trade sanctions imposed on Venezuela, Cuba’s largest oil supplier. The diesel conservation measures in 2019 included reduced use of mining equipment and increased draw down of lower grade ore stockpiles.

Mixed suphides production for FY2020 was 17,429 tonnes, up 2% from FY2019. The growth was largely attributable to normalized diesel supply in 2020, but also reflective of the ongoing benefits of operational excellence initiatives implemented over the past 24 months and Cuba’s success in limiting the spread of the COVID-19 virus in the country since the start of the global pandemic.

Finished nickel production in Q4 2020 totaled 4,020 tonnes, largely flat with the 4,049 tonnes produced in Q4 2019 while finished cobalt production for Q4 2020 was 451 tonnes, up 10% from the 411 tonnes produced in Q4 2019. Finished production totals in Q4 2020 were negatively impacted by unplanned autoclave repairs at the refinery in Fort Saskatchewan. The repairs resulted in a reduction of nickel and cobalt production to 50% of normal capacity for several days. Repairs were completed before the end of Q4 2020, and finished production resumed to normal capacity.

Despite being impacted by unplanned repairs, Q4’s production totals helped to offset the negative effects of railway service disruptions in Q1 and an extended plant shutdown in Q3 due to additional found work scope and reduced contractor availability due to COVID-19, enabling the Moa JV to largely meet its production guidance of 32,000 to 33,000 tonnes on a 100% basis for the year.

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.