Sherritt International Corporation · TSX:S
Sherritt International — Q2 2019 Earnings Presentation
33 slides from Sherritt International's earnings presentation, Aug 1, 2019
Slide 1: Q2 Earnings Call
Q2 Earnings Call August 1, 2019 1
Slide 2: Forward-looking statements
Forward-looking statements This presentation 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”, “sho
Slide 3: Participants
Participants David Pathe President & CEO Steve Wood Executive Vice President & COO Andrew Snowden Senior Vice President & CFO 3
Slide 4: Highlights for Q2
Highlights for Q2 1 Ratified overdue receivables agreement 2 Operational excellence initiatives drove higher production at Moa 3 Financial results impacted by 64% decline in realized cobalt prices 4 New Resource estimates provide potential to extend Moa mine life Production improvements offset by vo
Slide 5: Market environment
Market environment 5
Slide 6: Headwinds impacting results and performance
Headwinds impacting results and performance 1 Increasing commodity price volatility 2 Increasing U.S. sanctions on Cuba and its trading partners 3 Increasing geopolitical and economic tensions Long-term nickel and cobalt markets outlook remain strong 6
Slide 7: Nickel and cobalt performance since Q2 2018
Nickel and cobalt performance since Q2 2018 20% US$6.51/lb 0% -20% -40% -60% -80% US$12.43/lb Nickel Cobalt Nickel is up 13%, cobalt down 9% since start of Q3 7
Slide 8: Factors driving recent nickel price swings
Factors driving recent nickel price swings 1. Stainless steel production growth in China 2. Short sellers covering their positions 3. Concerns of Indonesian ore export ban in 2022 Growth of EV market having minimal impact on prices so far 8
Slide 9: Sherritt's sensitivity to nickel and cobalt prices
Sherritt’s sensitivity to nickel and cobalt prices $12 $50 Nickel Price (US$/lb) $45 Cobalt price (US$/lb) $10 Moa JV - Adjusted EBITDA(1) ($M) $40 Nickel price (SUS$/lb) $35 Cobalt Price (US$/lb) $8 $30 $6 $25 $128 $20 $4 $15 $10 $2 $78 $81 $5 $0 $54 $0 $42 $20 $18 2013 2014 2015 2016 2017 2018 201
Slide 10: Nickel market fundamentals remain strong
Nickel market fundamentals remain strong 450,000 400,000 350,000 59% 300,000 Tonnes 250,000 200,000 Decline in inventory 150,000 since Jan 1 2018 100,000 Mar-18 Mar-19 Jul-19 1-Jan-18 May-18 Jul-18 May-19 Apr-18 Apr-19 Feb-18 Oct-18 Feb-19 Aug-18 Sep-18 Nov-18 Dec-18 Jan-18 Jun-18 Jan-19 Jun-19 LME
Slide 11: Operations
Operations 11
Slide 12: Metals highlights - Moa JV
Metals highlights - Moa JV Production(1) (tonnes) NDCC (US$/lb) Nickel Cobalt $4.53 3,969 3,749 $3.83 415 388 $1.68 Q2 2018 Q2 2019 Q2 2018 Q2 2019 Q2 2018 Q1 2019 Q2 2019 • Growth driven by new mining equipment and operational • Q2 2019 NDCC impacted by 64% reduction in excellence initiatives reali
Slide 13: Oil and Gas highlights
Oil and Gas highlights Oil Production (Cuba GWI, bopd)(1) Unit operating costs (Cuba GWI, $/bbl(2)) 4,689 4,420 $19.93 $16.10 Q2 2018 Q2 2019 Q2 2018 Q2 2019 • Production decrease due to natural reservoir declines • Cost increase due to lower production volumes • Costs also negatively impacted by a
Slide 14: Power highlights
Power highlights Electricity production (33⅓% GWh(1)) Unit operating costs ($/MWh(2)) $18.57 204 $16.35 180 Q2 2018 Q2 2019 Q2 2018 Q2 2019 • Production impacted by reduced natural gas supply • Unit costs lower due to decision to limit spending pending collection of Cuban energy receivables 1. GWh =
Slide 15: Updated 43-101 Technical Report for Moa
Updated 43-101 Technical Report for Moa • Mineral Reserve estimates confirmed • 53.4M tonnes of proven and probable reserves • 621.7K tonnes of nickel • 68.6K tonnes of cobalt • Mineral Resource estimates increased by 77% • 157.96M tonnes of measured and indicated resources • 1,579K tonnes of nickel
Slide 16: Financial highlights
Financial highlights 16
Slide 17: Before Overdue Receivables Agreement
Before Overdue Receivables Agreement Moa JV - Holds cash primarily in offshore accounts 1. Provides approximately US$10M per month for local purchases from offshore account 2 MOA JV 2. Provides quarterly distributions to Sherritt in Offshore A account US$ based on cash position Havana Energas Energa
Slide 18: With Overdue Receivables Agreement
With Overdue Receivables Agreement Moa JV - Holds cash primarily in offshore accounts 1. Pays Sherritt US$2.5M monthly on behalf of Energas 2. Provides approximately US$7.5M per month for local purchases from offshore account 1 3 MOA JV 3. Pays Sherritt 50% of available distributions up to Offshore
Slide 19: Status of scheduled Cuban energy receivables
Status of scheduled Cuban energy receivables Received on US$M Q1 2019 Receivables Q2 2019 overdue Expected/due Received Agreement overdue Oil & Gas - Trade $ 38.8 $ 4.1 $ (20.2) -- $ 22.7 receivables Power Trade receivables/other $ 17.1 $ 7.8 $ (6.5) $ (5.4) $ 13.0 Energas CSA $115.7 $ 5.8 -- -- $ 1
Slide 20: Adjusted EBITDA waterfall from Q1 2019 to Q2 2019
Adjusted EBITDA waterfall from Q1 2019 to Q2 2019 (1) Q2 was not impacted by cobalt provisional pricing adjustments 1. For additional information see Non-GAAP measures section 20
Slide 21: Liquidity position
Liquidity position $207M $207M $198M $177M $177M $55M $61M $68M $73M $76M Decline in total cash position exacerbated by the increase $143M $146M $139M in cash held in Cuba $104M $101M 6/30/2018 9/30/2018 12/31/2018 3/31/2019 6/30/2019 Canada and other Energas Liquidity preservation remains a priorit
Slide 22: Credit facility availability & status of covenants
Credit facility availability & status of covenants Existing credit facility $70M • Minimum cash covenant remains unchanged $17M • $100M in Canada less undrawn credit facility calculated monthly Undrawn • June 30 covenant requirement = $82.7M $45M Letters of Credit - O&G • New covenants provide relie
Slide 23: Focus on administrative expenses
Focus on administrative expenses $10.8M $10.3M • Admin expenses in Q2 impacted by higher legal fees due to Helms-Burton • Austerity measures implemented in Q2 will reduce discretionary spending in H2 Q1 2019 Q2 2019 Reducing administrative expenses is consistent with austerity measures 23
Slide 24: Summary of guidance updates
Summary of guidance updates Old New Production Oil & Gas NWI 1,800 – 2,100 BOEPD 1,600 – 1800 BOEPD Unit Operating Costs Moa JV NDCC US$3.40 - $3.90/lb US$4.00 - $4.50/lb Oil and Gas Cuba $25.00 - $26.50/barrel $23.00 - $24.50/barrel Electricity $25.25 - $26.75/MWh $20.00 - $23.75/MWh Capital Spend
Slide 25: Recent developments and outlook
Recent developments and outlook 25
Slide 26: Update on Block 10
Update on Block 10 • Approximately 5,300 meters drilled and lined • Drilling has traversed zones where previous technical challenges were encountered • Target drilling depth is 5,700 metres • Completion is expected in coming weeks Prudent drilling and capital spending driven by complex geological fo
Slide 27: Current drilling on Block 10
Current drilling on Block 10 Drilling is 150 meters from target wellbore intersection 27
Slide 28: Summary
Summary 1 Progress made on items we can control 2 Preserving liquidity and managing costs remain priorities 3 Near-term volatility expected until geopolitical conditions improve 4 Long-term outlook for nickel market is favorable 28
Slide 29: Q&A Discussion
Q&A Discussion 29
Slide 30: Sherritt International Corporation
Sherritt International Corporation 22 Adelaide West, 42nd Floor Toronto, Ontario, Canada M5H 4E3 Joe Racanelli Telephone: (416) 935-2457 Toll-Free: 1 (800) 704-6698 Email: investor@sherritt.com Website: www.sherritt.com 30
Slide 31: Appendix
Appendix 31
Slide 32: Important definitions (Non-GAAP measures)
Important definitions (Non-GAAP measures) All non-GAAP measures are reconciled to the most directly comparable IFRS measure in the MD&A. Adjusted EBITDA • The Corporation defines Adjusted EBITDA as earnings (loss) from operations, joint venture and associate as reported in the financial statements f
Slide 33: Important definitions
Important definitions Reference Prices: • Market price upon which price of the Sherritt’s products’ sales prices are derived: • Nickel – LME nickel; • Cobalt – Average low-grade cobalt published price per Fastmarkets MB; • Cuban Oil - U.S. Gulf Coast High Sulphur Fuel Oil. Mining, Processing and Ref
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