Sherritt International (TSX:S) Q3 2020 Earnings Call

0:00 Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Shared International Third Quarter 2020 Results Conference Call and Webcast. At this time, our participants are in a listen-only mode. Following management presentation, we will conduct a question and answer session, and instructions will be given at that time. If anyone has any difficulties hearing the conference, please press star zero for assistance at any time. I would like to remind everyone that this conference call has been recorded today, Thursday, November the 5th, 2020, at 9 a.m. Eastern Time. I would now like to turn the presentation over to Joe Racanelli, Director of Investor Relations and Communication. Please go ahead.

0:45 Good morning, everyone, and thank you for joining us today. Before we begin, I'd like to remind everyone that we will be following a presentation that is available from our website at shareit.com. We will be making forward-looking statements, and the risks associated with these statements are detailed in our presentation. In addition, copies of our Q3 MD&A and financial statements are available on our website as well as from CDAR. With me, as customary, are David Pathy, Sherrod's CEO, Andrew Snowden, our CFO, and Steve Wood, our Chief Operating Officer. They will be reviewing our financial and operational performance for Q3 in a couple of minutes, and following management discussion, We'll be opening up the call to questions. We will also be available for any follow-up discussions after today's call.

1:32 Please go ahead, David.

1:34 All right. Well, thanks, Joe. And let me say thanks to everybody for joining us as well this morning. It's another busy week with a lot of companies coming out with earnings right now and a lot of attention still being paid to election results coming out from south of the border. So I appreciate you taking the time today. Q3 was a busy quarter for us as well, a lot of moving parts, and it brings up a few things that we want to spend a bit of time talking about this morning. You'll see a few highlights there on slide four where I'm going to start before letting Steve and Andrew expand on a few things. But highlights really, by far the biggest event of the quarter was the culmination and closing of our balance sheet initiative, and you saw we would have seen that at the end of August. That closing was really the culmination, not just of probably a year's worth of work on that particular transaction, but also probably six years worth of work in really trying to protect or share it from the threat that had to be presented to our entire capital structure.

2:35 The transaction itself eliminated $300 million worth of debt. eliminated maturities in 2021, 2023, and 2025, and replaced them with debt maturities in 2026 and 2029, thereby giving us a lot more runway on our debt maturity schedule, reduced our cash interest expense by about a third, and completed our exit from Embattity and all the associated risks that that presented to us. And all of that was achieved with no dilution to the equity. So it's a transaction that received very high support from all of our stakeholders and one we were very pleased to get done. It also greatly simplified our financial statements. And Andrew will talk a bit about a few of the impacts there in a couple of minutes.

3:20 It's also a strong quarter from a production perspective. We hit our production targets for the quarter. shows the continuing effectiveness of our COVID response, which was an enormous amount of effort and part of a lot of people and continues to be, but it's been very effective. And once again, we're on track to hit our guidance for the year, thanks to all those efforts. Production was a little lower in Q3 compared to Q2. As we had talked about last quarter, we did move some scheduled maintenance as part of our COVID planning from the second quarter to the third quarter, which was a production benefit, but it was all as we were expecting. Pretty good quarter from a commodity price perspective as well, and I'll talk a bit more about nickel and cobalt markets in a moment, but we did see both nickel prices and cobalt prices up on the quarter, strengthening the demand for stainless steel production in China, as did a greater interest and focus on the potential for nickel and batteries.

4:13 As I said, I'll talk about that in a few minutes. We'll also talk a bit about Cuban collections and our ongoing efforts to work with our Cuban partners through the COVID pandemic and the impact that is having on Cuba and their ability to meet their obligations to us and our receivables agreements. We did see collections in the quarter and some success in our conversations with the Cuban Sub-Summit quarter and then a dividend that was declared in the third quarter. We reached agreement that all of that would be redirected to us, not just our share. but the Cuban share as well for an aggregate of $15 million U.S. coming to us, which will help our cash flow and help produce the overdue receivables amounts. That's a quick run through just some of the highlights from the quarter. I'm going to have Steve now talk about a few of the operating results and highlights before Andrew gets into some finances, and I come back and talk about outlook a little bit towards the end.

5:03 Steve, are you here?

5:05 Yeah, I'm here. Thanks, Dave. Good morning, everyone. Before we move on to the next slide, I'd like to note that we've devoted considerable efforts over the past couple of years to fostering an environment where best practices for employee health and safety are followed closely. This has resulted in Share-It regularly ranking in the lowest quartile of our benchmark peer set data, and we continue this trend in Q3. Overall, our total recordable injury frequency rate of 0.12 and lost time injury frequency rate of 0.07, both of which were improvements from our performance in Q2 of 2020. As well, we continue to take necessary precautions to deal with COVID-19, and we continue to follow the experts' advice to prevent workplace transmission of COVID-19, and to date, we've been successful in doing so.

6:03 I'll now move on to the next slide and Building on that theme, Q3 saw the release of our 2019 sustainability report. In reading the report, you will see that we've made considerable progress on a number of fronts despite the liquidity constraints that we've been facing over the last several years. Most notably, as you'll see from that slide six, we've maintained greenhouse emissions in 2019 comparable to 2018, despite the increases in finished nickel and cobalt production of 8% and 4% respectively. We achieved our peer-leading safety performance over a three-year period, and during this time, our lost time injury frequency rate decreased by 76%.

6:55 And we generated more than $500 million in economic benefits, in economic spin-offs for our host communities where Share-It maintains operations, including Canada and Cuba. Turning now to slide seven, to date COVID-19 has had limited impact on our production activities at each of our operations, including MOA and our refinery in Fort Saskatchewan, as well as power and oil production efforts. The only real impact that COVID-19 has had was to delay the annual maintenance shutdown by several weeks and it pushed it from Q2 into Q3 due mainly to contractor availability. This rescheduling coupled with a four-day extension of the plant shutdown contributed to a drop in finished nickel and cobalt production.

7:49 But as you can see from slide seven, COVID-19 had no impact to mixed sulfides production. And on a 50% basis, MOA produced 4,671 tons of mixed sulfides in Q3, and that's up 12% from last year. The improvement was largely due to normalized availability of diesel fuel supply relative to Q3 of last year when we were forced to implement diesel preservation measures on account of sanctions imposed against Venezuela, Cuba's primary source of fuel supply. Turning to finished production, we produced 3,750 tons of nickel and 409 tons of cobalt in Q3 of this year.

8:36 These totals represent declines of 9% and 6% respectively over the same period of last year. Despite the extended duration of the maintenance shutdown, costs for this year's plant shutdown were consistent with last year's. The limited impact of COVID-19 on operations is due in large part to the additional health and safety measures that we implemented starting in early March. These measures included practicing social distancing, increased use of hand sanitizers, workplace modifications, and additional personal protective equipment. Our employee health and safety are paramount at Sheridan. We'll take all the necessary measures to protect our employees.

9:25 Measures implemented to date will continue to be in effect for the foreseeable future. Now I'll turn over to slide number eight regarding the MOA-JV. MPR, or our mining, processing, and refining costs, declined by 20% in Q3 relative to last year. The decline was driven by a combination of factors, including lower input costs for sulfur and fuel, as well as by expense savings generated via austerity measures we implemented earlier in the year. These austerity measures were implemented in the wake of the uncertainty caused by COVID-19. MDCC in Q3 was $4.04 US per pound.

10:14 and that represented an improvement of 8% from last year, and that's despite lower nickel sales volume and lower realized prices for nickel and cobalt of 8% and 5% respectively. The lower NDCC reflected the decline in NPR costs, lower third-party feed costs, and the 25% increase in cobalt by-product credits. Next, I'll turn over to our oil and gas operations on slide 9. We produced 2,886 barrels of oil per day in Cuba on a gross working interest basis in the quarter. This total marked a decline of about 29% from last year when we produced 4,060 barrels of oil per day.

11:02 The decrease was due to natural reservoir declines, and as is to be expected, the decrease in the number of barrels produced had a negative impact on our unit costs. Our unit costs for the quarter were $30.93 a barrel, and that's up 45% from $21.40 per barrel for Q3 of last year. The oil and gas business remains on track to achieve its production and unit cost targets for 2020, however. And now I'll turn over to slide 10 regarding our power division. We produced 152 gigawatts of electricity in Q3, and that's down 15% from last year when we produced 180 gigawatts in the same period.

11:48 The decrease was due to the reduced availability of gas supply. Units operating costs in Q3 2020 were $14.63, and that's up 1% from 1442 for last year. This increase was due to the timing of maintenance activities and some lower production. And based on the performance through to the end of September, the power business is on track to achieve its 2020 guidance for production and planned capital spend. Unit costs, however, have been lowered to $20 to $21.50 per megawatt hour based on performance year to date and our anticipated power production in Q4.

12:39 Now I'll turn to Block 10 on slide 11. In Q3, Sheret completed the analysis on a second set of samples. supplementing the preliminary testing that we did back in the second quarter. Unfortunately, the latest analysis confirmed that the water produced during the test period is from the lost circulation zone. Those of you who followed our Block 10 developments will remember some of the challenges we experienced in this zone. And it's located at a depth of approximately 5,300 meters and above the target oil reservoir. The analysis also confirmed that no viable technical solution to prevent the further flow of water into the existing well is possible.

13:28 While we still believe that the Block 10 reservoir contains oil, the existing well cannot be used for future production purposes. We are currently reviewing our options with respect to Block 10, including seeking an earn-in partner. And at this time, we're not contemplating any further investments in Block 10 without first securing an earn-in partner. That concludes my review of our operational results. I'll now turn it over to Andrew Snowden, our CFO, who will review our Q3 financial results in more detail. Andrew?

14:06 Thanks, Steve, and good morning, everyone. Now, I'll start my discussion with a review of our cash provision and liquidity through the quarter. And as you can see here on slide 13, our consolidated cash provision at September 30th declined by around $7 million through the quarter. And this was mainly due to costs associated with our balance sheet initiative, which included the $16 million in early consent payments, which were made to note holders during the quarter. As a reminder, our consolidated cash position that you see on this chart does include cash held by Energas in Cuba, and so that's the 82.1 you see in blue here, and that amount was relatively flat through the quarter compared to the June 30th balance.

14:57 These costs were partially offset, though, by the positive working capital change of around 22 million that you see on this slide, and that's due to timing of collections on ammonia sales an increase in accounts payable related to shutdown activities, which were the scheduled maintenance work at the fort sites that was referred to earlier, and also higher energy gas collections during the quarter. Despite these higher energy gas collections in Q3, the collections were still below expectations, and as Dave mentioned earlier, COVID-19 and the impact of U.S. sanctions have limited Cuba's access to to foreign currency, and so those collections are not where we hoped they would be. But we are continuing to work with our Cuban partners to resolve the overdue amounts, and they have been working hard to flow us what they can.

15:47 The recent Moe Joint Venture dividend redirection, again, that Dave referred to earlier, and you would have seen in our press release as an example of that, And in that example, really 100% of the $15 million U.S. of dividends that were declared by the MOA JV in Q3 were all paid to Sherratt. And so in addition to Sherratt receiving its 50% share of the dividends, so what would have been $7.5 million U.S. or $10 million Canadian, General Nickel Company, our MOA joint venture partner, redirected its share of dividends to Sherratt to be applied against amounts owed to us from Anagast I do also want to point out that this cash, which was $15 million U.S.

16:33 or $20 million Canadian, was distributed after the quarter end, and so that's not included in the cash position you see on this slide, and that will kind of roll into our Q4 cash position. This redirection did involve a series of discussions between Sherratt and our Cuban partner and was made in accordance with the the June 2019 overdue receivable agreement that we've talked to in the past. Given where nickel and cobalt prices have been now for the past couple of months, we do anticipate receiving further dividends through the course of Q4. However, it would be too premature at this point to speculate on whether we'll also be able to get dividend redirection from our Cuban partner for those further dividends in Q4, but we'll continue to have those discussions with our partners.

17:26 Next, I'd like to spend a couple of minutes just walking through a number of the one-off accounting impacts you'll have seen in our Q3 results, and they're summarized here on slide 14. The most significant changes in Q3 really relate to our balance sheet initiative, and that's impacted both our balance sheet and also our Q3 earnings during the quarter. Firstly, our existing $580 million of debenture debt that were maturing in 2021, 23, and 25 were exchanged for $430 million of new second lien and junior notes maturing in 2026 and 29. And this exchange resulted in a significant reduction in our debt and thereby a recognition of a $143 million gain in our Q3 income statement.

18:19 In addition, the exchange of our 12 percent ownership interest in the MBATIBI joint venture for the $145 million we owed to Sumitomo and Corres gave rise to a gain on disposition of about $260 million. You know, that gain represents the $145 million liability that was forgiven being greater than the assets transferred, and also $130 million of unrealized foreign exchange gains that's under the accounting rules were reclassified from accumulated other comprehensive income. The operating results for both actually 2020 and 2019 were reclassified within our income statement and they're presented as discontinued operations for accounting purposes. So there has been a fair bit of noise in our Q3 income statement as a result of this transaction.

19:14 In addition, as Steve mentioned earlier, with the data we got on Block 10, we did have a write-down on the assets and capital spares that related to Block 10 and were held on our balance sheet. Until we are able to secure an earning partner, as Steve mentioned, we will not be making any further investments into Block 10, but you'll see that there's an impairment of around $115 million in our Q3 results. Finally, we, along with our Cuban partner, converted the MOA expansion loans into shares of the MOA joint venture during the quarter with the goal really of simplifying the MOA joint venture's capital structure. You'll see this summarized on the top right of slide 14.

20:00 You know, this agreement resulted in a decrease of our expansion on receivable balance, which was $274 million, an equivalent increase in our investment in the MOA JV. As both shareholders did have the same value of loan into the joint venture, both shareholders do continue to hold a 50% interest in the business, so there's no change in the equity ownership in any way, shape, or form. But because of that simplified capital structure now, it will result in all distributions from the MoEJV being in the form of dividends going forward, rather than historically where some of those distributions have been repayments against the MoEJV loan. Finally, I want to take a few moments just to review our new long-term debt obligations with you. And as you can see on the next slide here, the slide 15, Share It Now has no debt maturities for the next six years with our next maturity coming up in November 2026 when the $358 million in second lien notes are due.

21:05 These notes pay a semi-annual interest in October and April of each year, and the annual interest rate is 8.5%. And, in fact, we actually made our first interest payment last Friday for the stub period from the issuance date, which was August 31 to October 31. So that was a $5 million payment we made just last Friday. In addition to the second lien note, there was also the $75 million in junior notes, which were offered as additional consideration to our debt holders. These notes pay interest of 10.75% annually twice a year to those that's in January and July of each year, and Shera has the option to pay that in cash or in PIC.

21:56 I should point out, though, that the default option for that interest is to be PIC, rather than cash payments, and that means that the additional junior notes will be issued in lieu of cash interest payment, and that will be settled at maturity of the instrument in August of 2029. Finally, I should just point out that the close of the transaction resulted in the reclassification of our debt obligations back to long-term liabilities, and you'll recall that many of those were classified as current last quarter due to some defaults which were in place. But those defaults were cured as part of our debt initiative, and so all of our debt is now back classified as long-term.

22:42 And you'll see that as a key change in our balance sheets as well. So that concludes my remarks. I'll pass the call back to Dave for his final comments.

22:54 Okay. Just a few things I wanted to touch on a little bit for you before we take your questions. The first is the U.S. elections. Given the impact of U.S. policy towards Cuba, the impact that has on Cuba and consequently on us in any number of ways, as we've talked about over the last few years, and particularly the ramping up of that over the last few years, we have had quite a number of questions of what do the U.S. elections mean for us. And here we sit 36 hours after election night, so with no clear winner. A couple of things I can say is that, first of all, we've never made business decisions predicated on any assumption of what's going to happen in the U.S. or U.S. policy towards Cuba. And that has continued to be true through this period of the last few years and leading up to this election.

23:47 Over the course of the election, Joe Biden did make some comments about his desire over time to return to more of the Obama-era policies, U.S. policies towards Cuba, and that appears it may have costed some votes to Miami-Dade on Tuesday night, but we think that there is a possibility of seeing that unfold over time. If there is, in fact, a Biden administration, it will no doubt have a lot of priorities out of the gate, but that has been their stated policy intention, and we think that would be positive for Cuba and consequently positive for us. Similarly, as we've talked about a number of times, the Trump administration has had an increasingly aggressive policy towards Cuba. We've seen those sanctions wrapping up in a number of rounds of increases over the last few years. We have always pointed out business that that is the reality.

24:37 I know the Cubans have run their business on the assumption that that is not going to run their economy on the assumption that's not going to change anytime so they are prepared to carry on. In that circumstance, as you can imagine, they are keen observers of U.S. politics and will be watching the election as closely as anyone. And we'll see in the coming days or weeks how that ultimately plays out. I also wanted to talk a little bit more about nickel and cobalt prices. I mentioned off the top that it was a good quarter for both. You can see on the graph on page 18 that we did see both move up nicely. And in the quarter, and we're seeing the benefits of that in some increasing in dividends out of our more joint venture in the third quarter and into the fourth quarter. Since the quarter ended, those prices have come off a little bit, but largely sustained.

25:24 And that is expected to continue, at least in the very near term here through this quarter and into the new year. There is some expectation and then certainly uncertainty with COVID-19. As we move on to outlook a bit on the next slide, and some softness in some industries that are stainless steel consumers, we'll see some softness and lacking in demand into next year that could lead to some surpluses and some softness and volatility in the nickel price. We are continuing to watch that. We're still seeing no trouble actually selling material, but there is some softness in the demand generally, and some of the recent rising prices have driven on. not just strength of the steel market in China, but speculation about where batteries are going, given some high-profile events with Tesla and some high-profile announcements in Canada of automakers making new investments into electric vehicles.

26:16 So we continue to believe that even if there is some volatility and softness through the course of next year, depending on how the whole COVID pandemic plays out and the extent and impact of second waves and such, The underlying story of nickel is as compelling as ever as the world moves into electrification transportation. It's still expected that nickel supply, 40% of nickel supply will go to electric vehicles and batteries by 2040, up from single-digit percentages today, and so that's still a fundamental shift in the nickel market that is coming. We did mention in our press releases, and some of you may have seen, that given that expected volatility next year in particular, and the impact that that has on us from our cash flows and the impact that it's having in our ability to predict cash flows out of Cuba next year.

27:05 We did take advantage of the recent run-up in nickel prices to put some support in for our cash flows in 2021. Historically, we have not. We are quite deliberately not undertaking hedging transactions with respect to the nickel price in order to preserve the market exposure to the nickel price that shareholders look to us for. but there was an opportunity where the nickel prices were for us to lock in some floors on a synthetic basis so they're all cash settled. There's no physical settlement here, but guaranteeing a nickel price of $6.50 on 25% of our share of production through next year does give us some certainty and predictability against the downside risk to our cash flow distributions from the more joint venture in the event that we do see some downside volatility in the nickel price over the course of next year. We went quite deliberately and did not cap the upside.

27:57 We've seen other companies put in place not just floors but collars, floors as well as caps. As part of an edging strategy, we deliberately chose not to do that. Given the theme of electric vehicles, I still firmly believe that there is an inflection point coming in the nickel market here that is difficult to predict the timing of. We certainly did not want to be on the wrong side of that with respect to any edging instrument. And so this opportunity that came along with relative strength in nickel prices in the last few weeks gave us the opportunity to give us some certainty on our cash flow for next year and preserve the upside potential in the nickel market. As you know and you've heard us say in the past, every dollar in the nickel price is worth about $50 million a year to us in cash flow. We were keen to preserve that upside leverage in the nickel price.

28:44 Longer term, now that we are through our debt restructurings, which have really been the primary focus of the company, not just in the past year, but for the past five, six, seven years, as I mentioned off the top, the other thing we will be looking to do is now bring greater focus to our technology business and the research and development and innovation that goes on there. There are a number of projects and opportunities that we're working on using the expertise that we've built up over the last 50 or 60 years. making us a world leader in hydrometallurgy and process or processing development to find new ways of processing, particularly nickel and cobalt, at lower costs, lower capital intensity, and make processes more environmentally friendly. That innovation has continued and gone on over the last few years, and there are a number of different projects we are working on that, as well as different step-out opportunities that are based entirely on our wheelhouse and our expertise in hydrometallurgic processing.

29:41 You've heard us speak of the bitumen project in the past. We're looking now at ways to find ways to commercialize that. We're also working on processes using, again, our expertise to remove arsenic from high arsenic copper concentrates, other methods of leaching nickel, cobalt, and copper from ores. And now that our debt restructuring is behind us and we have some runway, We see more greater focus from us in terms of how we look for past to bring some of those ideas and innovations into reality and into commercial and put them on paths towards commercialization of great incremental sources of cash flow for share. Given the increasing demand that we are expecting for nickel and cobalt and copper over the coming years with the electrification of vehicles and transportation, we think there is a real market opportunity for us and we now have the the timelines to be able to devote some focus to that and demonstrate the differentiating expertise that exists within charity on those kinds of initiatives.

30:43 So that's what we really want to tell you about this morning. As you can see, there's been a lot going on. It's been a busy quarter, but a very productive quarter. As a result of our restructuring, we have the strongest balance sheet that we've had really since before the financial crisis and our introduction of the battery project, and we're on track to reach our production guidance for the year. We really are now at a turning point for the company, given what we've been able to accomplish, and potentially on the cusp of an inflection point with respect to liquid prices and the opportunities that that creates for us as a company. So we are feeling quite excited now about what the future holds. And at this point, operator, we'd be happy to take any questions the analysts may have. Thank you, sir. If you would like to ask a question, please press star, then the number one on your telephone keypad. Again, if you would like to ask a question, please press star, then the number one.

31:37 Your first question is from Oris Wakata with Scotiabank.

31:43 Well, hi, good morning. I was wondering if we could get a bit of color on the Cuban oil and gas business. Obviously, Block 10 didn't pan out. And I'm just wondering what that means going forward. Is that business effectively winding down after this year, or do you still have production, and is it material after this year?

32:06 Hey, Orist, I'll start that. Right, so Block 10, as you heard today and saw in the press release, the drilling campaign that we undertook there has ultimately not succeeded. As Steve alluded to, there were the issues that we had with – Lost circulation zones on the way down the hole did lead to some excess water from those zones getting into the reservoir. The work we had done back at the beginning of the year was to try and seal those off if that water was coming in through the drill line. After sealing that off, that same water was still getting in, and the conclusion we've come to is that that is finding its way through the formation. Despite the fact, you'll recall, in the past conversations we've had around the fold and thrust geology that we work with, we reach those multiple sheets.

32:52 Typically, we do get isolation between the sheets that prevents that kind of fluid flow from one sheet to the next. But here, clearly, there is some connectivity outside of our drill hole that wasn't detectable from the seismic and what was done in advance, and that's the result of this. Nonetheless, we do continue to believe that there is oil in both the lower sheets that we were targeting and the upper zone of that. We're given where oil prices have gone at the moment and where we are as a company from a liquidity perspective at the moment. We are not spending more money on that business at the moment. We do think if conditions improve both market-wise and in Cuba, there will be opportunities to attract oil. capital and partners into perhaps Block 10 or other blocks that we have rights to in Cuba. But in the near term, you're right, our existing production, as we've seen over the last couple of years, has declined given the age and reservoirs of those production sharing contracts do expire at the end of the first quarter next year. We've seen a significant ramping down of the scale of our operations in Cuba as a result of where we are in our existing production and on Block 10.

34:03 In the future, so our production will disappear next year from our existing walks if those contracts revert back to the Cubans. Whether there is any further activity in Cuba will depend on whether we're able to attract new capital or market conditions changing.

34:22 Okay. And is there, I mean, when those wind down, is there going to be some kind of annual holding costs or maintenance costs to keep that business sort of on pause from a cash flow perspective?

34:38 No, I mean, at that point in time, we've already scaled down significantly given that the existing contracts are really basically in a run-out position. We will still have the power business in Cuba, but the cost of that business, the division as a whole, will be reduced significantly as a result if there is no further activity in the oil business.

35:00 Okay. And then just finally on Block 10, the impairment, I think, was $116 million. Is that indicative of the cash you've spent trying to drill it over the last couple of years, or does that also include a bunch of historical stuff as well?

35:17 There's some historical stuff and some parts in there as well. I don't have a specific breakdown for you today, but if you're interested in that, we can get you a bit more detail on that. I'll be in composition with that, just how we arrived at that number.

35:29 Okay, but I think it's probably close to $100 million just in the last couple years. Would that be fair? Yeah, I think that ballpark, that's got to be right.

35:38 Okay. Okay, thank you. Your next question is from Don DeMarco with National Bank.

35:48 Hi, thanks for taking my call. What is the cost for the nickel hedging, 25% of your production for one year,

36:01 So the derivative contracts, and they're actually a series of monthly contracts over the course of January through December 2021. They were placed over the course of a couple of days. The aggregate cost in order of magnitude was about $5 million.

36:21 Okay. And given your outlook for nickel and some concerns about demand, would you consider increasing that to maybe a 50% weighting?

36:36 We spent a lot of time in the last few weeks looking at various options and what we were budgeting and expecting out of the joint venture in terms of dividends next year and how much downside production, because you can do the variables you can play with is at what price level you set the floor. and what proportion of production you rent into a relatively synthetic hedge. In terms of giving us certainty and clarity on our cash flows at different nickel price scenarios, the cost of hedging on the floor at $6.50 where it is relative to annual forecast next year, that is what we determined was really going to be the optimal spot for us to be in, and that's what we executed on.

37:20 Okay, thanks, Matt. Finally, on the RCF extension, can you provide a little bit of color on how that process is going? You received a three-month extension. What is being negotiated here? Is it an increase in size, upsizing the RCF, or is it purely just to extend the maturity?

37:41 It's really around covenants. We were looking for and expect to retrieve. I think we're pretty much there. The working relationship with the banks has been strong throughout our whole restructuring process. It was only once that got done that we got into conversations more with the banks about what a more significant extension. We're looking at probably an 18-month extension to the revolver. and an easing of the covenants compared to what we had before our restructuring, given the stronger position that the balance sheet is in now. I think the facility will end up at the same size and the same banks, given our history with all of them. And I think you'll see news from us in the next couple of weeks, but these conversations have really been around easing the covenant backwards compared to what was there before.

38:26 Okay. That's all for me. Thanks, David. Thanks, Don. Your next question is from Greg Barnes with TD Securities.

38:38 Thank you. David, with the winding down of the oil business, and you noted in this quarter you had reduced availability of natural gas for the power business, is that going to be an ongoing issue for the power business now?

38:53 The power business has seen over the last few years those declines in gas availabilities. Expectation will continue somewhat, although we do expect that to level off a little bit. The production fields that we were operating will revert back to the Cubans, but they will be continuing to operate them. So there is gas there to run those businesses for quite some time yet. Our contracts on those businesses expire in 2023. However, we will be continuing our discussions with the Cubans about seeing those extended and if we have more time to recover the overdue amounts that are going to us and expect to be able to achieve that in time. But, yeah, the generally reduction of gas level availability will continue to some extent in the years of the future.

39:39 Ultimately, the right solution for the Cubans is to get into LNG importation. They've looked at that with different parties for years. Their challenge there is attracting the capital to do it, and that's been made more difficult by COVID, but ultimately that would be the right direction for the country to go.

39:56 But you do expect to extend your... agreements on the power business beyond 2023, I think is what you said.

40:04 Yeah, from the high-level conversations we've had in Cuba, that is what we expect will happen. Okay.

40:11 And, Andrew, just on the equitization of the MOA expansion loans, can you explain that a little bit and how your ownership interest doesn't change?

40:21 Sure. So those loans are long-standing loans, as you're familiar with, Greg, and with both Sherritt and our MOA JV partner in Cuba, which is General Nickel Company, both funding expansion back in 2005 period. And during that time, both Sherritt and our Cuban partner both loaned the same amount of funds into the JV. So, we had equivalent loans of about $270 million each into the JV. So, during the quarter when those loans were converted to equity, new shares were issued equally to both Sherratt and to our Cuban partner. And because those were issued on an equal basis, we still both hold a 50% interest in that joint venture.

41:12 Got you.

41:13 Okay.

41:14 Okay, got you. That's fine. Thank you. Your next question is from Tony Robson with Global Mining Research.

41:26 Good morning, gentlemen. Thank you for taking my question. Obviously, the receivables you're getting out of Cuba has picked up of late with that $16.3 million during the quarter on the energy side and the $15 million post that date. I just wondered, I think Andrew touched on it in part in his presentation, but could we expect to see the receivables stay at a fairly healthy rate for the coming quarter or six months or whatever? Thank you.

41:58 Thanks, Tony. How are you doing? That's certainly what we are working on with our partners. COVID-19 has had a pretty dramatic impact on Cuba as a whole. They've done quite a good job, as we may have spoken about in the past, in terms of managing the disease and infection within the country itself. But it has had quite a significant impact. Virtually put, their tourism business was one of their largest sources of foreign currency. went to zero within a matter of a couple weeks in March and hasn't yet come back. They are now working towards getting some resort areas open and hoping to recover some of the tourist season over the course of this winter. It remains to be seen just how much demand they'll actually be from that. They typically draw their tourists primarily from Canada and some from Europe.

42:47 And the extent to which they're able to do that will depend on how the disease progresses in some of those jurisdictions over the next six months. Clearly, it's an important issue for us, and it's a topic of regular conversation with our Cuban partners from top to bottom. There is a real intent on the part of our Cuban partners to meet their obligations to us, and they recognize the importance of that to us and to them in terms of keeping the intergas business going and their ability to attract new foreign capital into the country at some point. But the hard currency is scarce on the ground at the moment and they're having pretty difficult economic times. So there is some uncertainty around that. Seeing this dividend redirection is certainly encouraging. And as Andrew mentioned, we're expecting to see more dividends out of the joint venture over the course of the fourth quarter based on where prices have been the last few weeks. And there'll be an ongoing conversation about trying to capture a disproportionate share of those expected future dividends as well.

43:47 as well as trying to get more predictability about what cash flows will look like through 2021. And I expect that the Cubans will find enough to kind of keep things going. And if the disease improves globally, they will see the benefits of that. And consequently, so will we. But trying to manage that has been a big priority for us over the last few months. And that was part of the motivation behind the hedging strategy for 2021 as well, to just give us some certainty of a minimum level of cash flow given the the heightened uncertainty that the COVID-19 creates not just on nickel prices, but on collections next year. I appreciate that doesn't really answer your question, but hopefully that at least gives you some context of the dynamic and the ongoing relationship there.

44:32 Tony, is that helpful?

44:35 It is. Thank you. I understand it's crystal ball gazing to some extent here. Can I have a follow-up question, please? Completely different topic. Cobalt, nice to see that it's recovered from the COVID lows of April and so on. But the price still seems to be a bit soft. And given we still have Matandra's closed, that was 25,000 tons, so a huge supplier to the world. The price at $14, $15 a pound just reflects fairly weak economic data ex-China. And is there any hope for or any strength in the cobalt market you see in the short term? Ignoring the sort of longer term EV story.

45:13 Thank you. Yeah, I mean, that's another invitation to crystal ball game somewhat. But I guess what I can tell you is the physical spot market is in better shape than it was three or four months ago. Back in the spring, early summer, the world was relatively awash in physical cobalt. Some producers were having trouble moving material. That has changed. tightened up somewhat. There is a bit riskier market for cobalt now, and perhaps that is driven by some of the contractions in supply we've seen for various reasons. And so that does potentially bode well for continued improvement in the cobalt pricing, but you still have all the other uncertainties in the global economy at the moment that could continue to push that one way or the other.

46:07 So The only thing I can really tell you, depending on that, at the moment, Tony, is that we have seen a bit of strengthening of the pricing, and the physical market is in better shape than it was a few months ago.

46:21 Okay. Thank you. No further questions. At this time, there are no further questions. I would like to turn the call back over to management for closing remarks.

46:36 All right. Well, as ever, once again, thanks for joining us. We'll continue on with working on the things we've been talking about here. And as we saw, Q3 was a busy quarter and busy times continue. As Joe said off the top, we're always happy to catch up later as you're working through us and where we are at. Any other questions that come up, happy to connect and help you work through those and talk about what we're doing these days. So thanks for taking the time to join us this morning and we'll look forward to talking to you again soon. Thank you for participating today's conference call. You may now disconnect.