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 a first-quarter 2014 loss of $48.2 million ($0.16 per share),
compared to earnings of $23.1 million ($0.08 per share) for first-quarter 2013.
Earnings were affected by the impact of higher financing expense related to
foreign exchange losses as a result of the weakening of the Canadian dollar
against the U.S. dollar ($9.8 million, after-tax, or $0.03 per share), and by
depreciation, depletion, and amortization being recognized at Ambatovy for the
first time following the declaration of commercial production in January 2014
($27.5 million for Sherritt's 40% share, or $0.09 per share).
Despite the impact of lower nickel prices, which averaged US$6.64 per pound in
first-quarter 2014, Adjusted EBITDA remained strong at $54.9 million ($0.18 per
share). Adjusted operating cash flow for first-quarter 2014 was $0.26 per share,
compared to $0.18 per share in first-quarter 2013.
First-Quarter Highlights
-- Ambatovy met the requirements for commercial production, (70% of ore
throughput of nameplate capacity in the pressure acid leach (PAL)
circuit, averaged over 30 days) in January 2014.
-- Ambatovy sold the first two months of commercial production at market
prices, generating $127.1 million (100% basis) in revenue. Net direct
cash costs for nickel of US$6.83 per pound at Ambatovy were within
guidance at reported production rates and lower than current market
prices.
-- On April 28, 2014 Sherritt completed the agreements to sell its Coal
operations. As a result of the sale, Sherritt received $793 million in
cash and expects to record a gain on the sale of the Coal royalty
operations in second-quarter 2014 in addition to changes to working
capital and other closing adjustments. The transaction is a part of the
Corporation's strategic focus of strengthening its balance sheet,
streamlining its business model and concentrating its focus on the base
metals and Cuba assets.
-- Unit operating costs were lower on a year-over-year basis in the main
businesses. In Metals, mining and processing costs were lower, primarily
due to lower sulphur and sulphuric acid input commodity prices. In Oil
and Gas, unit operating costs in Cuba decreased primarily due to higher
net production.
-- The Corporation continues to target savings in excess of $33 million in
2014 in general and administrative, and other costs. In the first
quarter of 2014, approximately 58% ($19 million) of the projected
savings were realized, including reduced headcount, salary freezes and
lower bonus payouts across the organization, as well as other cost
structure reductions. The cost saving measures will be partly offset by
other non-recurring costs such as the Coal transaction costs, consulting
costs related to the special Shareholders' meeting and severance costs.
"Momentum in our business increased during the quarter due to a number of
factors," said David Pathe, President and CEO. "We achieved an important
milestone at Ambatovy in meeting the requirements for commercial production.
Finished nickel sales volumes in our Metals business increased by 64%, largely
due to the first commercial sales at Ambatovy, further enhancing Sherritt's
position to benefit from the strengthening nickel price. We also closed the Coal
transaction and made significant strides in our ongoing efforts to reduce costs.
The market has begun to recognize the progress we have made in our business and
the improvements in our operating environment. Our near-term focus continues to
be paying down debt, meeting our cost reduction targets, and moving Ambatovy
forward."
CONSOLIDATED FINANCIAL DATA Three months ended
March 31,
($ millions unless otherwise noted) 2014 2013
----------------------------------------------------------------------------
Revenue
Metals $ 160.1 $ 103.7
Oil and Gas 76.9 71.1
Power 11.9 16.0
Corporate, other 1.8 1.2
Adjustments for Metals Joint Ventures(1) (129.8) (85.0)
----------------------------------------------------------------------------
Total revenue 120.9 107.0
----------------------------------------------------------------------------
Adjusted EBITDA(2)
Metals 2.8 16.9
Oil and Gas 60.4 57.4
Power 4.9 3.5
Corporate, other (13.2) (16.5)
----------------------------------------------------------------------------
Total Adjusted EBITDA(2) 54.9 61.3
----------------------------------------------------------------------------
Operating profit (loss)(2)
Metals (34.1) 7.0
Oil and Gas 43.6 41.4
Power 0.9 0.9
Corporate, other (14.2) (17.4)
Adjustments for Metals Joint Ventures(1) (12.5) (4.8)
----------------------------------------------------------------------------
Earnings (loss) from operations, associate and
joint venture (16.3) 27.1
----------------------------------------------------------------------------
Net finance expense 40.8 26.9
Income tax expense 13.4 2.8
----------------------------------------------------------------------------
Net (loss) from continuing operations (70.5) (2.6)
Net earnings from discontinued operations, net
of tax 22.3 25.7
----------------------------------------------------------------------------
Net earnings (loss) (48.2) 23.1
----------------------------------------------------------------------------
Basic and diluted earnings (loss) per share ($
per share)
Net earnings (loss) from continuing
operations (0.24) (0.01)
Net earnings (loss) (0.16) 0.08
Adjusted operating cash flow - total ($ per
share)(2) 0.26 0.18
Net working capital balance(3) 478.2 850.1
Spending on capital and intangibles(4) 25.6 23.3
Total assets 6,605.5 6,664.7
Shareholders' equity 3,176.7 3,707.9
Long-term debt to total assets (%) 38 32
Weighted-average number of shares (millions)
Basic 297.0 296.5
Diluted 297.3 296.9
----------------------------------------------------------------------------
(1) Reflects the adjustments for equity-accounted investments in the Moa and
Ambatovy Joint Ventures that are included within the Metals segment.
(2) For additional information see the 'Non-GAAP Measures' section of this
release.
(3) Net working capital is calculated as total current assets less total
current liabilities.
(4) Spending on capital and intangibles includes accruals and does not
include spending at Coal, which is classified as a discontinued
operation, or service concession arrangements.
For the period ended March
CONSOLIDATED SALES DATA 31,
(units as noted) 2014 2013
----------------------------------------------------------------------------
Sales volumes
Nickel (thousands of pounds)
Moa Joint Venture (50% basis) 8,428 8,631
Ambatovy Joint Venture (40% basis)(1) 5,738 -
----------------------------------------------------------------------------
Total nickel (Sherritt's share) 14,166 8,631
----------------------------------------------------------------------------
Cobalt (thousands of pounds)
Moa Joint Venture (50% basis) 858 909
Ambatovy Joint Venture (40% basis)(1) 425 -
----------------------------------------------------------------------------
Total cobalt (Sherritt's share) 1,283 909
----------------------------------------------------------------------------
Oil and gas (boepd, net working-interest
production) 11,776 10,871
Electricity (GWh, 33 1/3% basis) 187 160
Thermal coal - Prairie Operations (millions of
tonnes) 4.9 5.7
Thermal coal - Mountain Operations (millions of
tonnes) 0.9 0.6
Average-realized prices(2)
Nickel ($/lb)(1) 7.23 7.85
Cobalt ($/lb)(1) 14.78 11.52
Oil and gas ($/boe) 71.24 70.34
Electricity ($/MWh) 46.21 41.87
Thermal coal - Prairie Operations ($/tonne) 20.99 18.20
Thermal coal - Mountain Operations ($/tonne) 87.95 94.44
----------------------------------------------------------------------------
(1) Includes the impact of the Ambatovy Joint Venture from February 1, 2014
onward.
(2) For additional information, see the "Non-GAAP Measures" section of this
release.
CORPORATE AND OTHER
The Corporation continues to target savings in excess of $33 million in 2014 in
general and administrative, and other costs. In the first quarter of 2014,
approximately 58% ($19 million) of the projected savings were realized,
including reduced headcount, salary freezes and lower bonus payouts across the
organization, as well as other cost structure reductions. The cost saving
measures will be partly offset by other non-recurring costs such as the Coal
transaction costs, consulting costs related to the special Shareholders' meeting
and severance costs.
LIQUIDITY, CAPITAL RESOURCES AND USE OF PROCEEDS FROM COAL TRANSACTION
Cash, cash equivalents and short-term investments were $603.9 million at March
31, 2014. This does not include cash, cash equivalents and short-term
investments of $31.5 million (100% basis) held by the Moa Joint Venture, $53.7
million (100% basis) held by the Ambatovy Joint Venture, or the $793 million of
cash proceeds from the sale of the Coal business.
Total long-term debt at March 31, 2014 was $2.2 billion, including approximately
$0.9 billion related to non-recourse Ambatovy partner loans to Sherritt.
Sherritt intends to use the proceeds of the Coal transaction to pay down a
significant portion of the outstanding debentures and to retain sufficient
flexibility to fund Ambatovy and investment opportunities in the core
businesses.
Review of Operations
METALS - Consolidated Results
For the period ended
($ millions) March 31, 2014
----------------------------------------------------------------------------
Moa Ambatovy Other Sherritt
(50%)(1) (40%)(4) (100%)(2) Metals(3)
Sales volumes (Sherritt's
share)
Nickel, finished (000
lbs) 8,428 5,738 - 14,166
Cobalt, finished (000
lbs) 858 425 - 1,283
Fertilizer (tonnes) 36,882 4,628 - 41,510
Average reference prices
Nickel (US$/lb) 6.64 6.77 - -
Cobalt (US$/lb)(6) 13.90 14.43 - -
Average-realized
prices(1)
Nickel ($/lb) 7.11 7.37 - 7.23
Cobalt ($/lb) 14.86 14.66 - 14.78
Fertilizer ($/tonne) 358 195 - 328
Revenue
Nickel $ 60.0 $ 43.0 $ - $ 103.0
Cobalt 12.7 6.8 - 19.5
Fertilizer 16.2 1.0 - 17.2
Other 1.5 18.9 20.4
----------------------------------------------------------------------------
Total revenue 90.4 50.8 18.9 160.1
----------------------------------------------------------------------------
Cost of sales 81.1 50.1 18.4 149.6
Administrative expenses 2.3 5.1 0.3 7.7
Adjusted EBITDA(5) 7.0 (4.4) 0.2 2.8
Depletion and
amortization 9.4 27.5 - 36.9
Earnings (loss) from
operations (2.4) (31.9) 0.2 (34.1)
Spending on capital 4.6 3.9 - 8.5
----------------------------------------------------------------------------
Three months ended
($ millions) March 31, 2013
----------------------------------------------------------------------------
Moa Ambatovy Other Sherritt
(50%) (40%)(4) (100%) Metals(3)
Sales volumes (Sherritt's
share)
Nickel, finished (000
lbs) 8,631 - - 8,631
Cobalt, finished (000
lbs) 909 - - 909
Fertilizer (tonnes) 31,513 - - 31,513
Average reference prices
Nickel (US$/lb) 7.85 - - 7.85
Cobalt (US$/lb)(6) 11.95 - - 11.95
Average-realized
prices(1)
Nickel ($/lb) 7.85 - - 7.85
Cobalt ($/lb) 11.52 - - 11.52
Fertilizer ($/tonne) 435 - - 435
Revenue
Nickel $ 67.8 $ - $ - $ 67.8
Cobalt 10.5 - - 10.5
Fertilizer 17.2 - - 17.2
Other 1.8 - 6.4 8.2
----------------------------------------------------------------------------
Total revenue 97.3 - 6.4 103.7
----------------------------------------------------------------------------
Cost of sales 78.8 5.9 84.7
Administrative expenses 1.9 0.5 (0.3) 2.1
Adjusted EBITDA(5) 16.6 (0.5) 0.8 16.9
Depletion and
amortization 9.3 - 0.6 9.9
Earnings (loss) from
operations 7.3 (0.5) 0.2 7.0
Spending on capital 4.7 5.0 - 9.7
----------------------------------------------------------------------------
(1) Moa Joint Venture (50%) + Fort Site operations (100%) that service the
Moa Joint Venture. For three months ended March 31, 2014.
(2) Under the Ambatovy Joint Venture agreements, the Corporation established
a marketing organization to buy, market and sell certain Ambatovy nickel
production.
(3) Sherritt's share of Joint Ventures + 100%-owned Fort Site Operations +
marketing support for the Ambatovy Joint Venture.
(4) Effective February 1, 2014, Ambatovy ceased capitalizing project costs
and commenced recognizing operating revenues and costs for accounting
purposes. Financial results are presented for the post-commercial period
only.
(5) For additional information, see the "Non-GAAP Measures" section of this
release.
(6) Average Metal Bulletin - Low Grade Cobalt published price.
In January 2014, Ambatovy met the requirements for commercial production (70% of
ore throughput of nameplate capacity in the pressure acid leach circuit on
average over a thirty-day period). Effective February 1, 2014, Ambatovy ceased
capitalizing project costs and commenced recognizing operating revenues and
costs for accounting purposes.
Average reference prices differ between Moa and Ambatovy, as Moa reference
prices are for a three-month period (January 1 to March 31) and Ambatovy
reference prices are for a two-month period (effective February 1 to March 31).
The average nickel reference price decreased compared to the prior-year period
as global nickel markets remained oversupplied despite the enactment of a
mineral export ban on raw ore exports on January 12, 2014 in Indonesia. The
average cobalt reference price strengthened compared to the prior-year period
due to ongoing power issues in the Democratic Republic of the Congo and Zambia
resulting in a shortage of certain cobalt metal grades as well as improving
demand in the rechargeable battery and superalloy sectors.
METALS - Unit Operations
Moa Joint Venture (50%) + Sherritt Fort Site Operations (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended,
March 31,
(100% basis) 2014 2013
----------------------------------------------------------------------------
Production volumes
Mixed sulphides (Ni+Co contained, tonnes) 7,981 8,333
Nickel (tonnes) 7,278 7,803
Cobalt (tonnes) 712 810
Fertilizer (tonnes)
Moa Joint Venture 41,174 40,779
Fort Site 39,266 39,006
----------------------------------------------------------------------------
Total fertilizer 80,440 79,785
----------------------------------------------------------------------------
Sales volumes
Nickel (thousands of pounds) 16,856 17,262
Cobalt (thousands of pounds) 1,716 1,818
Fertilizer (tonnes)
Moa Joint Venture 28,254 19,988
Fort Site 22,755 21,519
----------------------------------------------------------------------------
Total fertilizer 51,009 41,507
----------------------------------------------------------------------------
Average unit operating costs (US$/lb)(1)
Mining, processing and refining costs 6.59 7.00
Third-party feed costs 0.23 0.22
Cobalt by-product credits (1.37) (1.20)
Fort-site credits (0.39) (0.65)
Other 0.24 (0.03)
----------------------------------------------------------------------------
Net direct cash costs of nickel (NDCC)(2) 5.30 5.34
----------------------------------------------------------------------------
Natural gas ($/GJ) 5.60 3.21
Fuel oil (US$/tonne) 604 641
Sulphur (US$/tonne) 127 238
Sulphuric acid (US$/tonne) 128 163
Spending on capital
Sustaining 3.8 4.7
Expansion 0.8 -
----------------------------------------------------------------------------
Total 4.6 4.7
----------------------------------------------------------------------------
(1) For additional information, see the "Non-GAAP Measures" section of this
release.
(2) Net direct cash costs of nickel (NDCC) after cobalt and other by-product
credits.
(3) Moa Joint Venture (50% interest) + Fort Site operations (100% interest)
that provides services to the Moa Joint Venture.
Production of mixed sulphides in first-quarter 2014 was 4% (352 tonnes, 100%
basis) lower than in the prior-year period, due to poor metallurgical recoveries
of mined ore (first encountered on transition to a new mining concession in
fourth-quarter 2013) and low leach train availability due to unplanned
maintenance activities on one of the five pressure acid leach (PAL) trains.
Measures taken to improve leaching of the ore improved production by the end of
the quarter with production returning to normal levels. Repairs to the one leach
train were completed during the quarter and full availability was restored.
Consolidated metals sales volumes reflected production trends. Fertilizer sales
volumes were 23% (9,502 tonnes, 100% basis) higher than in the prior-year
period, reflecting a strong spring fertilizer season as customers have taken
shipments of ammonium sulphate earlier in the season than is usual.
The net direct cash cost (NDCC) decreased 1% (U.S.$ 0.04/lb) compared to the
prior-year period as lower mining and processing costs and higher cobalt
by-product credits were offset by lower net fertilizer by-product credits. Lower
mining and processing costs largely reflected lower sulphur and sulphuric acid
input commodity prices, partly offset by the impact of lower mixed sulphide
production. Lower net fertilizer by-product credits largely reflected lower
realized sale prices and higher natural gas input commodity prices.
Spending on capital during the quarter was focused on sustaining activities.
Mobilization of resources for the construction of the 2,000 tonne per day acid
plant at Moa continued during the quarter. Acid plant project expenditures were
included in expansion spending and largely related to engineering and
procurement activities. The Moa Joint Venture has obtained project financing for
the estimated capital cost of the plant (U.S.$65 million) from a Cuban financial
institution, and completed additional draws of $1.1 million (50% basis) on the
facility during the quarter.
Ambatovy Joint Venture (40%)
In January 2014, Ambatovy met the requirements for commercial production (70% of
ore throughput of nameplate capacity in the pressure acid leach circuit on
average over a thirty-day period). Effective February 1, 2014, Ambatovy ceased
capitalizing project costs and commenced recognizing operating revenues and
costs for accounting purposes.
Operating results at the 100% level are summarized in the following table:
For the period ended March 31,
(100% basis) 2014 2013
----------------------------------------------------------------------------
Production volumes(1) (3 months)
Mixed sulphides (Ni+Co contained, tonnes)(2) 9,631 7,803
Nickel (tonnes) 8,782 5,830
Cobalt (tonnes) 693 540
Fertilizer (tonnes) 20,842 21,958
Sales volumes(3) (2 months)
Nickel (thousands of pounds) 14,345 -
Cobalt (thousands of pounds) 1,063 -
Fertilizer (tonnes) 11,571 -
Average unit operating costs (US$/lb)(3),(4) (2
months)
Mining, processing and refining costs 7.42 -
Cobalt by-product credits (0.98) -
Other (0.39) -
----------------------------------------------------------------------------
Net direct cash costs of nickel (NDCC) (5) 6.83 -
----------------------------------------------------------------------------
Sulphur (US$/tonne) 171 -
Limestone (US$/tonne) 19 -
Coal (US$/tonne) 97 -
Spending on capital ($ millions)(6) 3.9 5.0
----------------------------------------------------------------------------
(1) Production volumes are presented for three months ended March 31, 2014.
(2) Net of recycle to the refinery.
(3) Sales volumes are presented from February 1, 2014 onward.
(4) For additional information, see the "Non-GAAP Measures" section of this
release.
(5) Net direct cash costs of nickel (NDCC) after cobalt and other by-product
credits for the period from February 1, 2014 onward.
(6) Sustaining capital only.
The average ore throughput in the PAL circuit was 67% for the quarter (compared
to 53% in fourth-quarter 2013) as further improvement in autoclave availability,
solids density and volumetric flow to the autoclaves continued to advance the
ramp-up. All autoclaves were available for service during the quarter. Finished
nickel production volumes averaged 108 tonnes per day in February and March.
Nickel reduction volumes peaked at record 159 tonnes per day for one day in
March.
Finished metal sales volumes were consistent with production levels. Fertilizer
sales volumes were lower than production volumes due largely to inventory
establishment in key warehouses and the timing of sales.
The net direct cash cost (NDCC) of nickel for the quarter was within guidance
and expectation for the facility when operating at approximately 60% of its
finished metal production capacity. Guidance was for NDCC of U.S.$6.00 per pound
to U.S.$8.00 per pound when operating near this rate.
Spending on capital focused on sustaining activities and construction of Phase
II of the Tailings Management Facility.
Subsequent to the end of the quarter, Ambatovy received ISO 9001:2008
certification for the management system for refining, analytical services and
shipping of nickel, cobalt and ammonium sulphate products from the plant site in
Toamasina. ISO 9001:2008 certification is a requirement for registration of
primary nickel brands on the London Metal Exchange.
Ambatovy ceased capitalizing project costs on January 31, 2014. Cumulative
spending on capital at Ambatovy was US$5.3 billion (100% basis), excluding
financing charges, working capital and foreign exchange, below the US$5.5
billion (100% basis) estimate established in June 2011. Cumulative total project
costs at January 31, 2014 (including operating costs, financing charges, working
capital and foreign exchange, and net of sales revenue) were US$7.2 billion
(100% basis), with US$49.9 million (100% basis) spent in January 2014.
In first-quarter 2014, a total of US$90.0 million (100% basis) in funding was
provided by the Ambatovy Joint Venture partners. Sherritt's 40% share of funding
for first-quarter 2014 was US$36.0 million ($39.5 million), and was sourced from
cash on hand.
OIL AND GAS
Three months ended
March 31,
($ millions unless otherwise noted) 2014 2013
----------------------------------------------------------------------------
Production volumes (boepd)(1)
Gross working-interest - Cuba(2), (3) 20,200 19,551
Net working-interest(4)
Cuba - cost recovery 3,844 2,631
Cuba - profit oil 7,341 7,614
----------------------------------------------------------------------------
Cuba - total 11,185 10,245
Spain 278 290
Pakistan 313 336
----------------------------------------------------------------------------
Total net working-interest 11,776 10,871
----------------------------------------------------------------------------
Average reference prices (US$/bbl)
U.S. Gulf Coast Fuel Oil No.6 (GCF6) 89.30 97.07
Brent crude 109.13 113.59
Average-realized prices(5)
Cuba ($/bbl) 71.80 71.17
Spain ($/bbl) 118.75 112.99
Pakistan ($/boe) 9.13 8.26
----------------------------------------------------------------------------
Weighted average ($/boe) 71.24 70.34
----------------------------------------------------------------------------
Average unit operating costs(5)
Cuba ($/bbl) 12.10 12.24
Spain ($/bbl) 49.43 14.62
Pakistan ($/boe) 5.97 7.95
----------------------------------------------------------------------------
Weighted average ($/boe) 12.91 12.18
----------------------------------------------------------------------------
Revenue 76.9 71.1
Cost of sales 13.7 11.9
Administrative expenses 2.8 1.8
Adjusted EBITDA(5) 60.4 57.4
Depletion, depreciation and amortization 16.8 16.0
Earnings from operations 43.6 41.4
Spending on capital(6) 15.8 11.5
----------------------------------------------------------------------------
(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. Oil and natural gas
production are referred to collectively as "boepd".
(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 Measures' 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 increased 3% (649 bopd)
primarily due to production increases from a new well drilled and the
optimization of production from existing wells. Cost-recovery production in Cuba
increased 46% (1,213 bopd) primarily due to higher recoverable spending, partly
offset by higher oil prices. Profit-oil production, which represents Sherritt's
share of production after cost recovery volumes are deducted from GWI volumes,
decreased by 4% (273 bopd) in 2014 due to the increase in cost recovery oil.
Production in Spain and Pakistan was lower than the prior-year period due to
natural reservoir declines.
The average-realized price for oil produced in Cuba and Spain both increased
compared to the prior-year period as the impact of a weaker Canadian dollar more
than offset a decline in the reference prices (GCF6 and Brent respectively).
Unit operating costs in Cuba decreased 1% ($0.14/bbl) primarily due to higher
net production. Unit operating costs in Spain increased 238% ($34.81/bbl)
compared to the prior-year period due to an adjustment in first-quarter 2013
related to 2012 costs, the impact of a weaker Canadian dollar relative to the
Euro, and costs associated in 2014 related to a major well work-over.
Spending on capital was 37% ($4.3 million) higher than in the prior-year period,
reflecting the planned increase in development drilling in Cuba, partly offset
by lower equipment and inventory purchases. During the quarter, one development
well was drilled and completed, and is currently producing oil. A second
development well was initiated during the quarter and was completed in April
2014.
Negotiations with Cuban authorities have been completed with respect to four new
exploratory production sharing contracts (PSCs) and the extension of the term of
the existing PSC covering the Puerto Escondido/Yumuri oil fields until March
2028 for all development wells drilled. The contracts are now under internal
review by certain Cuban ministries with final approval anticipated in
second-quarter 2014.
POWER
Three months ended
March 31,
($ millions unless otherwise noted) 2014 2013
----------------------------------------------------------------------------
Electricity sold (GWh, 33 1/3% basis) 187 160
Average-realized price ($/MWh)(3) 46.21 41.87
Average unit operating cost ($/MWh) (3)
Base(1) 14.93 16.79
Non-base(2) 2.50 9.91
----------------------------------------------------------------------------
Total unit cash operating costs 17.43 26.70
----------------------------------------------------------------------------
Net capacity factor (%) 56% 69%
Revenue 11.9 16.0
Cost of sales 4.5 11.0
Administrative expenses 2.5 1.5
Adjusted EBITDA(3) 4.9 3.5
Depletion, depreciation and amortization 4.0 2.6
Earnings from operations 0.9 0.9
Spending on capital (33 1/3% basis)(4) 1.0 1.8
Spending on SCAs (33 1/3% basis)(5) 1.2 6.1
----------------------------------------------------------------------------
Total spending on capital and SCAs 2.2 7.9
----------------------------------------------------------------------------
(1) Base costs relate to the operations in Cuba and do not include the
impairment of receivables and property, plant and equipment related to
the operations in Madagascar or the impairment of intangible assets.
(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.
(3) For additional information see the 'Non-GAAP Measures' 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 provided 100%
of the funding for the 150 MW Boca de Jaruco Combined Cycle Project and
accounts for the Project as an SCA. 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 was 17% (27 GWh) higher for first-quarter 2014, primarily
due to a decrease in maintenance activity which resulted in less downtime, and
additional production from the 150 MW Boca de Jaruco Combined Cycle which became
operational on February 2, 2014. The net capacity factor declined 13% primarily
due to the completion of the 150 MW Boca de Jaruco Combined Cycle which is
forecast to operate at 47% of capacity until additional fuel sources are
identified. A project to capture natural gas that is otherwise being flared has
been initiated and is expected to be completed before the end of the year. This
incremental natural gas will be consumed at the Boca de Jaruco facility to
produce electricity.
The average-realized price of electricity was 10% ($4.34/MWh) higher in
first-quarter 2014 primarily due to the impact of a weaker Canadian dollar
relative to the U.S. dollar.
Average unit operating costs were 35% ($9.27/MWh) lower than in 2013 due to
lower scheduled turbine maintenance costs and higher production in 2014.
Spending on capital is primarily related to capitalized interest on the 150 MW
Boca de Jaruco Combined Cycle Project, which became operational on February 2,
2014. In addition, service concession arrangement expenditures primarily relate
to the 150 MW Boca de Jaruco Combined Cycle Project. As a result of the Project
becoming operational, interest on the Project ceased to be capitalized (recorded
as spending on expansion capital) and SCA spending will no longer include any
expenditures related to the Project.
DISCONTINUED OPERATIONS - COAL
On April 28, 2014, the Corporation completed the agreements to sell its Coal
operations. As a result of the sale, the Corporation received $793 million in
cash and expects to record a gain on the sale of the Coal royalty operations in
second-quarter 2014 in addition to changes to working capital and other closing
adjustments. Coal was classified as a discontinued operation for first-quarter
2014.
($ millions
unless
otherwise Three months ended March 31, Three months ended March 31,
noted) 2014 2013
----------------------------------------------------------------------------
Prairie Mountain Prairie Mountain
Operations Operations Total Operations Operations Total
Production
(millions of
tonnes) 5.2 0.8 6.0 5.6 0.8 6.4
Sales (millions
of tonnes) 4.9 0.9 5.8 5.7 0.6 6.3
Average-realized
prices
($/tonne)(1) 20.99 87.95 - 18.20 94.44 -
Unit operating
costs ($/tonne)
(1) 15.74 75.69 - 13.97 91.05 -
Revenue(2) 121.4 82.2 203.6 122.9 56.6 179.5
Cost of sales 89.8 76.1 165.9 85.3 52.5 137.8
Administrative
expenses 5.7 - 5.7 2.1 2.0 4.1
Adjusted
EBITDA(3) 32.7 11.5 44.2 35.5 2.1 37.6
Depletion,
depreciation
and
amortization(4) - - - 15.4 10.8 26.2
Earnings (loss)
from operations 25.9 6.1 32.0 42.1 (8.7) 33.4
Spending on
capital 8.1 6.8 14.9 13.0 20.3 33.3
----------------------------------------------------------------------------
(1) Prairie Operations realized pricing and unit operating costs exclude
royalties and the results of the char and activated carbon businesses.
(2) Prairie Operations revenue is comprised of mining revenue, coal
royalties and potash royalties ($110.5 million, $8.5 million and $2.4
million for 2014; $112.2 million, $7.5 million and $3.2 million for
2013).
(3) For additional information see the 'Non-GAAP Measures' section of this
release.
(4) Depletion, depreciation and amortization is not recognized for the three
months ended March 31, 2014 as a result of being classified as a
discontinued operation in December 2013.
Prairie Operations production volumes were 7% (0.4 million tonnes) lower than
the prior-year period, reflecting lower Highvale sales volumes and reduced
customer demand at the Boundary Dam mine.
Mountain Operations sales volumes were 50% (0.3 million tonnes) higher in 2014
as a result of the incident at the Westshore Terminals which reduced throughput
at the port from December 2012 through February 2013.
Prairie Operations average-realized pricing increased due to contract price
escalations and the impact of a contract extension for a new mining area at the
Paintearth mine. Mountain Operations average-realized pricing for the quarter
reflected weaker international coal reference pricing due to oversupply in the
international coal market.
Prairie Operations unit operating costs increased primarily due to the impact of
the mining area at the Paintearth mine. Mountain Operations unit operating costs
decreased due to Coal's successful cost reduction initiative that was a focus in
2013. This included streamlining mining to lower cost areas, raising equipment
utilization and a significant reduction in workforce and administration
expenses.
Coal royalties were 13% ($1.0 million) higher than in 2013 due to mining in
royalty-assessable areas. Potash royalties were 25% ($0.8 million) lower than
the prior-year period due to weaker global potash pricing.
Spending on capital was lower at both the Prairie and Mountain Operations (38%
or $4.9 million and 67% or $13.5 million, respectively) due to deferrals and
cost-cutting programs aimed at maintaining a disciplined capital spending
profile in light of challenging coal market conditions.
On October 31, 2013, a breach of an onsite water containment pond occurred at
the Obed Mountain mine near Hinton, Alberta. The total costs of assessment,
clean-up, and remediation (including ongoing water management, but excluding
insurance recoveries) remain unchanged at $52.2 million. Total costs incurred to
date and for first-quarter 2014 were $23.5 million and $12.6 million
respectively. Following closing of the Coal sale transaction, Sherritt has
retained the obligations associated with the October 2013 Obed water containment
pond breach.
Outlook
Production volumes and spending on capital projected for full-year 2014 are
shown below.
Projected
for the year ending
(units as noted) December 31, 2014
----------------------------------------------------------------------------
Production volumes
Mixed sulphides (tonnes, Ni+Co contained, 100%
basis)
Moa Joint Venture 38,000
Ambatovy Joint Venture 44,000 - 50,000
----------------------------------------------------------------------------
Total 82,000 - 88,000
----------------------------------------------------------------------------
Nickel, finished (tonnes, 100% basis)
Moa Joint Venture 34,000
Ambatovy Joint Venture 40,000 - 45,000
----------------------------------------------------------------------------
Total 74,000 - 79,000
----------------------------------------------------------------------------
Cobalt, finished (tonnes, 100% basis)
Moa Joint Venture 3,350
Ambatovy Joint Venture 3,300 - 3,800
----------------------------------------------------------------------------
Total 6,650 - 7,150
----------------------------------------------------------------------------
Oil - Cuba (gross working-interest, bopd) 19,000
Oil - All operations (net working-interest, boepd) 11,200
Electricity (GWh, 33 1/3% basis) 750
Spending on capital ($ millions)
Metals - Moa Joint Venture (50% basis), Fort Site
(100% basis)(1) 70
Metals - Ambatovy Joint Venture (40% basis) 34
Oil and Gas (2) 73
Power (33 1/3% basis)(3) 4
----------------------------------------------------------------------------
Spending on capital (excluding Corporate) 181
----------------------------------------------------------------------------
(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.
-- Projected numbers remain unchanged from the 2013 year-end results
release issued in February 2014.
Non-GAAP Measures
The Corporation uses adjusted net earnings, adjusted EBITDA, average-realized
price, unit operating cost, and adjusted operating cash flow to monitor the
performance of the Corporation and its operating divisions and believes these
measures enable investors and analysts to compare the Corporation's financial
performance with its competitors and evaluate the results of its underlying
business. These measures do not have a standard definition under IFRS and should
not be considered in isolation or as a substitute for measures of performance
prepared in accordance with IFRS. As these measures do not have a standardized
meaning, they may not be comparable to similar measures provided by other
companies. See Sherritt's Management's Discussion and Analysis for the period
ended March 31, 2014 for further information.
About Sherritt
Sherritt is a world leader in the mining and refining of nickel from lateritic
ores with operations in Canada, Cuba, and Madagascar. The Corporation 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 commercial metals 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, but are not limited to, statements set out
in the "Outlook" sections of this press release and those respecting certain
expectations regarding the closing of the Coal sale transaction; certain
expectations about capital costs and expenditures; capital project commissioning
and completion dates; production and sales volumes; revenue, costs, and
earnings; sufficiency of working capital and capital project funding; completion
of development and exploration wells; amounts of certain joint venture
commitments; compliance and ability to remedy financial covenant breaches in a
timely manner.
Forward-looking statements are not based on historic facts, but rather on
current expectations, assumptions and projections about future events, including
commodity and product prices and demand; realized prices for production;
earnings and revenues; development and exploratory wells and enhanced oil
recovery in Cuba; environmental rehabilitation provisions; availability of
regulatory approvals; compliance with applicable environmental laws and
regulations; the impact of regulations related to greenhouse gas emissions and
credits; debt repayments; collection of accounts receivable; and certain
corporate objectives, goals and plans for 2014. 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 and market conditions, and business, economic and political conditions
in Canada, Cuba, Madagascar, and the principal markets for the Corporation's
products.
Other such factors include, but are not limited to, uncertainties in the
development, construction, ramp-up and operation 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
Corporation's capital initiatives; risks associated with the Corporation's
joint-venture partners; expectations of the timing of financial completion at
the Ambatovy Joint Venture; risk of future non-compliance with financial
covenants; risk of inability to remedy covenant breaches; 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 and Malagasy government's
ability to make certain payments to the Corporation; risks related to
exploration and development programs; uncertainties in reserve estimates; risks
associated with access to reserves and resources; uncertainties in environmental
rehabilitation provisions estimates; risks related to the Corporation's reliance
on partners and 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;
uncertainty in the ability of the Corporation to enforce legal rights in foreign
jurisdictions; uncertainty regarding the interpretation and/or application of
the applicable laws in foreign jurisdictions; risks associated with future
acquisitions; uncertainty in the ability of the Corporation to obtain government
permits; risks associated with governmental regulations regarding greenhouse gas
emissions; risks associated with government regulations and environmental,
health and safety matters; uncertainties in growth management; interest rate
risk; risks related to political or social unrest or change and those in respect
of aboriginal and community relations; risks associated with rights and title
claims; and other factors listed from time to time in the Corporation's
continuous disclosure documents.
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 in 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 including, but not limited to, the Corporation's
Annual Information Form for the year ended December 31, 2013 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
Toll-free: 1.800.704.6698
investor@sherritt.com
www.sherritt.com
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