Sherritt Reports Strong 2022 Results, Improved Balance Sheet and Receipt of First Cobalt Swap Distribution

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TORONTO--(BUSINESS WIRE)-- Sherritt International Corporation (“Sherritt”, the “Corporation”, the “Company”) (TSX: S), a world leader in the mining and hydrometallurgical refining of nickel and cobalt from lateritic ores, today reported its financial results for the three months and year ended December 31, 2022. All amounts are in Canadian currency unless otherwise noted.

“2022 was a pivotal year for Sherritt. On the strength of higher nickel and fertilizer prices, we achieved strong operating and financial results while delivering on each of our 2022 strategic priorities to set the stage for continued success in the future. We were able to commence a low capital intensity expansion program, significantly deleverage our balance sheet, finalize transformative payment agreements with our Cuban partners to recover $368 million of total outstanding receivables, advance our portfolio of proprietary technologies, and meet our sustainability targets,” said Leon Binedell, President and CEO of Sherritt International Corporation.

Mr. Binedell added, “We are encouraged by the progress we have made on these building blocks for the future while maintaining sound operational focus and fiscal responsibility. Our Cobalt Swap agreement yielded its first distribution following the year-end, demonstrating the significant value associated with our outstanding receivables, and will provide financial support to deliver on our strategic priorities going forward. In addition, we set both our Metals and Power businesses up for the long-term, with on-going work at the Moa mine to extend the mine life beyond 2040, and the 20-year extension to the Power production agreement. Combined with the Moa Swap, it enables the Power business to run efficiently, including a mechanism to distribute funds to Sherritt in the future.”

SELECTED Q4 2022 DEVELOPMENTS

Sherritt finalized an agreement with its Cuban partners to recover $368 million total outstanding Cuban receivables over five years beginning January 1, 2023 (the Cobalt Swap). Under this agreement, the Moa JV will prioritize payment of dividends in the form of finished cobalt to each partner, up to an annual maximum of cobalt, with any additional dividends in a given year to be distributed in cash. All of the Cuban partner’s share of these cobalt dividends, and potentially additional cash dividends, will be redirected to Sherritt as payment to settle the receivables until the annual maximum cobalt volume and dollar amount limits, including the collection of any prior year shortfalls, has been reached.
Sherritt repurchased an aggregate of almost $90 million in principal of its second lien secured notes and junior notes at a discounted value of $80 million.
Sherritt and its Cuban partners finalized an extension to the Energas Payment Agreement (the Moa Swap) to fund the operating and maintenance costs of Energas, as well as cover future payments that would be owed to Sherritt, including dividends. Sherritt expects to continue to receive approximately US$4.2 million ($5.6 million) per month under a payment agreement between Sherritt, Moa JV and Energas. The Moa JV converts foreign currency to Cuban pesos through Energas to support Moa JV’s local Cuban operating activities. The foreign currency is then paid to Sherritt primarily to facilitate foreign currency payments for the Energas operations and capital as well as to fund dividend repatriations to Sherritt. During the quarter Sherritt received $22.8 million (US$16.8 million) pursuant to this agreement.
Cuba’s Executive Committee of the Council of Ministers approved the twenty-year extension of the Energas Joint Venture contract with the Cuban government to March 2043. The extension of this economically beneficial contract supports Sherritt's on-going investments in Cuba, helps facilitate the Cobalt and Moa Swaps, and supports Cuba’s long-term energy security.
Sherritt received distributions from the Moa JV of $57.2 million (US$42.5 million) which resulted in H2 distributions exceeding those received in H1.
Net loss from continuing operations was $7.3 million, or $(0.02) per share in Q4 2022, compared to net earnings from continuing operation of $14.4 million, or $0.04 per share, in Q4 2021 while Adjusted EBITDA(1) in the quarter was $19.7 million compared to $46.4 million in Q4 2021. Higher nickel and fertilizer sales volume and realized prices in the current-year period were offset by lower cobalt sales volume and realized price and higher input commodity prices. In addition, Sherritt recognized a $12.8 million environmental rehabilitation obligation (ERO) expense adjustment on legacy Oil and Gas Spanish assets, and a $10.7 million share-based compensation expense. Net earnings from continuing operations also includes a $7.1 million gain on the repurchase of notes.
Sherritt’s share of finished nickel and cobalt production at the Moa Joint Venture (Moa JV) was 4,112 tonnes and 423 tonnes, 4% and 11% lower, respectively, than the prior year periods. Lower finished nickel and cobalt production was impacted by lower mixed sulphides availability at the refinery. The higher nickel-to-cobalt ratio in the feed from Moa further contributed to lower cobalt production.
Net direct cash cost (NDCC)(1) at the Moa JV was US$7.00/lb in Q4 2022 compared to US$3.60/lb in Q4 2021. NDCC was higher due to higher input commodity costs, including a 55% increase in global sulphur prices, 133% increase in diesel prices, and a 15% increase in fuel oil prices, alongside lower cobalt by-product credit, partly offset by higher net fertilizer by-product credit.
Sherritt issued its 2021 sustainability, climate, and tailings management reports as well as its sustainability scorecard outlining the Corporation’s performance on environmental, social, and governance (ESG) matters. Sherritt continues to progress on its commitments to achieving net zero greenhouse (GHG) emissions by 2050, obtaining 15% of overall energy from renewable sources by 2030, reducing nitrogen oxide emission intensity by 10% by 2024, and increasing the number of women in its workforce to 36% by 2030.
Technologies entered into an agreement with Open Mineral AG to jointly develop a business case in 2023 for the hydrometallurgical treatment of complex precious metal concentrates. Sherritt will partner with Open Mineral to explore the implementation of its proprietary technologies to solve ESG and precious metal concentrate market challenges regarding arsenic pollution. Open Mineral is a physical commodity trader powered by technology and market intelligence, enabling profitable and efficient trading of raw material commodities and has been recognized by the World Economic Forum as a Technology Pioneer (2019) and was an S&P Global Metals Awards Winner as a Rising Star Company (2020).
(1)

Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release.

SELECTED FULL YEAR 2022 DEVELOPMENTS

Including the repurchase of notes in Q4, Sherritt repurchased an aggregate of almost $150 million in principal of its second lien secured notes and junior notes at a 16% discount, reducing its principal debt by 35% from the beginning of the year and reducing its annual interest expense by approximately $13 million.
Sherritt received distributions from the Moa JV of $100.6 million (US$76.5 million) which were more than double those received in each of the three prior years.
Net earnings from continuing operations was $63.7 million, or $0.16 per share in 2022, compared to a net loss from continuing operations of $13.4 million, or $(0.03) per share, in 2021 while Adjusted EBITDA(1) for 2022 was $217.6 million compared to $112.2 million in 2021. Higher nickel and fertilizer sales volume and realized prices were partly offset by higher input commodity prices, a $15.0 million ERO expense adjustment on legacy Oil and Gas Spanish assets, and a $17.5 million share-based compensation expense. Net earnings from continuing operations were also impacted by the recognition of a $49.0 million non-cash loss on revaluation of the allowances for expected credit losses (ACL) related to the repayment of the Energas conditional sales agreement (CSA) receivable under the Cobalt Swap agreement and a $20.9 million gain on the repurchase of notes.
Sherritt’s adjusted net earnings from continuing operations(1) was $88.4 million, or $0.22 per share, in 2022 compared to an adjusted net loss from continuing operations of $13.9 million, or $(0.03) per share, in 2021.
Finished nickel production was 32,268 tonnes (100% basis), in line with guidance, representing a 3% increase year-over-year primarily due to increased refinery reliability, while finished cobalt production of 3,368 tonnes (100% basis) was materially within guidance and 4% lower than the prior year as a result of the higher nickel-to-cobalt ratio in the Moa mixed sulphide feed and lower availability of third-party feed.
NDCC(1) at the Moa JV was US$5.14/lb for 2022 compared to US$4.11/lb in 2021. NDCC was higher in the current year due to higher input commodity costs, including a 119% increase in global sulphur prices, a 109% increase in diesel prices, and a 40% increase in fuel oil prices. The Cobalt by-product credit was only 2% lower for 2022 compared to 2021 as the higher average-realized prices offset lower sales volume. Net fertilizer by-product credit increased by 210% compared to 2021 on higher sales volume and average-realized prices. NDCC was slightly above guidance as a result of higher input commodity prices and lower than anticipated cobalt prices and sales volume during the fourth quarter.
At the Power business unit, electricity production beat updated guidance and unit operating cost(1) was lower than guidance, primarily as a result of higher equipment availability in 2022 as a result of the completion of maintenance activities in the prior year and as a result of successful efforts to increase availability of gas.
Sherritt ended 2022 with cash and cash equivalents of $123.9 million, down from $145.6 million at the end of last year. Of these amounts, $20.3 million was held in Canada, down from $64.9 million as at December 31, 2021, and $96.7 million was held at Energas, up from $78.6 million as at December 31, 2021. Cash decreased primarily due to the use of $125.2 million to repurchase approximately $150 million in principal of second lien secured notes and junior notes, $29.1 million of interest paid on the second lien secured notes, and $28.5 million of capital expenditures, partly offset by $100.6 million of distributions received from the Moa Joint Venture, $37.0 million drawn on the revolving credit facility, and $31.3 million of cash provided by continuing operations at the Fort Site as a result of higher fertilizer sales.
(1)

Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release.

MOA JV EXPANSION PROGRAM UPDATE

In 2022, Sherritt embarked on an expansion program focused on increasing annual mixed sulphide precipitate (MSP) production by 20% or 6,500 tonnes of contained nickel and cobalt (100% basis). The program includes completion of the Slurry Preparation Plant (SPP), Leach Plant Sixth Train and Fifth Sulphide Precipitation Train as well as construction of additional acid storage capacity at Moa. The total capital cost is expected to be US$77.0 million (100% basis) or approximately US$13,200 per additional annual tonne of contained nickel for the full expansion.

In phase one of the program, the completion of the SPP is expected to be completed in early 2024 and is anticipated to deliver several benefits including reduced ore haulage distances and lower carbon intensity from mining. Upon completion it will increase MSP production by approximately 1,700 tonnes of contained nickel and cobalt annually. Completion of the second phase of the program, the Moa processing plant improvements, which is planned for completion by the end of 2024, is expected to increase MSP production by approximately an additional 4,800 tonnes of contained metals annually and reduce NDCC by approximately US$0.20/lb. Progress in the quarter included:

Slurry Preparation Plant:

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https://www.sherritt.com/English/Investor-Relations/News-Releases/News-Release-Details/2023/Sherritt-Reports-Strong-2022-Results-Improved-Balance-Sheet-and-Receipt-of-First-Cobalt-Swap-Distribution/default.aspx



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