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Sherritt Announces Q4 and Year End 2016 Results

TORONTO, ON--(Marketwired - February 16, 2017) -

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

Sherritt International Corporation ("Sherritt" or the "Corporation") (TSX:S.TO), the world leader in the mining and refining of nickel from lateritic ores, today reported its financial results for the year ended December 31, 2016.

"This year was about sticking to our strategic priority of liquidity preservation, negotiating a three-year extension of maturities on our public debentures and entering into an Ambatovy lender agreement to defer principal payments for three years," said David Pathe, President and CEO, Sherritt International. "We have pushed out our first public debenture maturity to late 2021 and markets for our products have moved off the multi-year lows we saw in the first half of the year. I look forward to a year in which we expect increased production at our HPAL nickel operations and results from our first oil drilling in Block 10 in Cuba."

Q4 AND 2016 HIGHLIGHTS

  • In the second half of 2016, the maturity dates of the three senior unsecured debentures ($720 million principal value) were each extended by three years to 2021, 2023 and 2025. In the same timeframe, the Ambatovy Joint Venture financing lenders agreed to up to six principal payment deferrals totaling US$565.1 million (100% basis) which are to be repaid on a schedule starting in 2021, or earlier subject to cash flow generation.
  • The 2016 nickel average reference price of US$4.36/lb was down 19% from the 2015 average reference price of US$5.37/lb, which in turn was down 30% from the 2014 average of US$7.65/lb. However, after two years of a steeply declining price, a change in trend appears to be emerging, with nickel prices ending 2016 at US$4.54/lb compared to US$3.93/lb at the end of 2015. Gulf Coast Fuel Oil No. 6 (GCF6) prices were also down 21% on average in 2016 to US$32.13/barrel, but fourth quarter average prices of US$41.12/barrel are up 38% over their comparable level in the fourth quarter of 2015.
  • 2016 Net Direct Cash Costs (NDCC)(1) of US$3.42/lb at the Moa JV and US$4.27/lb at Ambatovy are both improvements over their prior year comparables of US$3.88/lb and US$4.83/lb respectively. Fourth quarter 2016 NDCC of US$3.10/lb at Ambatovy represent Ambatovy's best cost performance since inception and an indication of the potential cost profile when operating close to design capacity, as Ambatovy produced 12,778 tonnes finished nickel (100% basis) in the fourth quarter. The Moa JV NDCC of US$3.80/lb in the fourth quarter of 2016 includes the impacts of a lower fertilizer credit and lower mixed sulphides production due to Hurricane Matthew and the subsequent bridge collapse.
  • Cash, cash equivalents and short-term investments ended the year at $309.6 million, which is $125.8 million lower than the ending balance of 2015. The main uses of cash were $65.7 million to repay loans and borrowings, and $59.8 million in interest payments on the outstanding debentures.
  • The net loss of $378.9 million for the year ended December 31, 2016 compares to a net loss of $2.1 billion for the same period a year ago, with most of the 2015 total relating to Ambatovy JV impairment losses of $1.6 billion, net of tax (40% basis). The adjusted net loss from continuing operations of $81.3 million or $0.28/share in the fourth quarter compares to an adjusted net loss from continuing operations of $113.8 million a year ago.

All amounts are Canadian dollars unless otherwise indicated.
(1) For additional information see the Non-GAAP measures section of this press release.

SIGNIFICANT ITEMS

  • On December 15, 2016, Energas received approval from the Cuban Executive Committee to extend the contract term of the Varadero power facilities (173 MW installed capacity), originally scheduled to terminate in 2018, to 2023.
  • Subsequent to year end, on January 31, 2017, $76.3 million of the $90 million syndicated revolving-term credit facility was renewed to January 31, 2018 with the remaining $13.7 million due to mature in April 2017. The maximum credit available will further decrease by approximately 4% quarterly beginning April 28, 2017. Collectively, these reductions in available credit will result in outstanding credit of $63.6 million at January 30, 2018. A change in interest rates and covenants has been implemented as described in the MD&A, Investment Liquidity section, page 35.
  • Production, capital spending and Unit Operating Cost guidance was released January 31, 2017 and is repeated in the "Outlook" table on page 15 of this document.
  • Sherritt and its Ambatovy JV partners Sumitomo Corporation (Sumitomo) and Korea Resources Corporation (KORES) have agreed to a further extension of the waiver under the Shareholders Agreement to March 10, 2017. By agreement amongst the partners, Sherritt is not considered to be a defaulting shareholder for cash call amounts not funded through this date.

Q4 AND 2016 FINANCIAL HIGHLIGHTS

                         
    For the three months ended           For the years ended        
    2016     2015           2016     2015        
$ millions, except per share amount   December 31     December 31     Change     December 31     December 31     Change  
                                         
Revenue   70.5     76.5     (8 %)   $ 262.3     $ 335.9     (22 %)
Combined Revenue(1)   240.3     229.5     5 %     820.2       1,022.7     (20 %)
Net loss for the period   (106.7 )   (1,757.3 )   94 %     (378.9 )     (2,076.7 )   82 %
Adjusted EBITDA(1)   37.4     6.1     513 %     40.0       113.1     (65 %)
Cash provided by continuing operations   (22.6 )   10.8     (309 %)     1.6       64.5     (98 %)
Combined free cash flow (1)   (45.5 )   (24.8 )   (83 %)     (111.9 )     (98.8 )   (13 %)
Net loss from continuing operations per share   (0.37 )   (5.99 )   94 %     (1.30 )     (7.05 )   82 %
Combined adjusted operating cash flow per share (1)   0.03     (0.09 )   133 %     (0.15 )     0.21     (171 %)
  (1) For additional information, see the Non-GAAP measures section of this release.
 
             
$ millions, except as otherwise noted, as at December 31   2016   2015   Change
             
Cash, cash equivalents and short-term investments   309.6   435.4   (29%)
Non-recourse loans and borrowings   1,367.5   1,303.2   5%
Other loans and borrowings   860.7   959.9   (10%)
             

In 2016, operating cash flow came mainly from the Oil and Gas and Power operations ($84.4 million), partially offset by the Moa JV operations, which were free cash flow negative. There were no cash contributions to Ambatovy in 2016. During the year, interest received on the CSA Loan was $3.9 million compared to $37.9 million in 2015. Total energy receipts from the Cuban operations were US$129.6 million in 2016 compared to US$232.2 million in 2015, with Cuban overdue receivables of US$74.6 million at the end of 2016 compared to US$53.8 million at the end of 2015. Discussions continue to address the timing of ongoing Cuban payments, with new schedules expected from the Cubans addressing payment over the course of the coming year.

Adjusted earnings (loss) from continuing operations(1)

             
    2016     2015  
    December 31     December 31  
For the three months ended December 31   $ millions     $/share     $ millions     $/share  
                         
Net loss from continuing operations   (109.6 )   (0.37 )   (1,757.3 )   (5.99 )
                         
Adjusting items, net of tax:                        
Impairments   3.0     0.01     1,624.2     5.53  
Unrealized foreign exchange (gain) loss   25.7     0.09     18.3     0.06  
Other   (0.4 )   0.00     1.0     0.00  
Adjusted net loss from continuing operations   (81.3 )   (0.27 )   (113.8 )   (0.40 )
                         
       
    2016     2015  
    December 31     December 31  
For the years ended December 31   $ millions     $/share     $ millions     $/share  
                         
Net loss from continuing operations   (381.8 )   (1.30 )   (2,071.7 )   (7.05 )
                         
Adjusting items, net of tax:                        
Impairments   11.5     0.04     1,704.8     5.80  
Unrealized foreign exchange (gain) loss   (35.9 )   (0.12 )   44.3     0.15  
Other   (21.7 )   (0.08 )   (28.7 )   (0.10 )
Adjusted net loss from continuing operations   (427.9 )   (1.46 )   (351.3 )   (1.20 )
  (1) For additional information, see the Non-GAAP measures section of this release.
 

The net loss from continuing operations in the fourth quarter of 2016 was $109.6 million, which included $28.3 million of adjusting items, primarily a $25.7 million unrealized foreign exchange loss.

For the full year, the net loss from continuing operations was $381.8 million, with $51.9 million in pre-tax adjusting items, and $5.8 million in tax adjustment items for an adjusted net loss from continuing operations of $427.9. The main adjusting items on a full year basis were a $35.9 million unrealized foreign exchange gain, a further gain of $12.6 million on the repurchase of debentures, and a gain of $15.6 million relating to VAT adjustments.

REVIEW OF OPERATIONS

METALS

$ millions except as otherwise noted, for the three months ended December 31   2016                       2015        
    Moa JV &
Fort Site(1)
(50%)
    Ambatovy
JV
(40%)
   
Other(2)
 
Total
    Moa JV and
Fort Site(1)
(50%)
    Ambatovy
JV
(40%)
   
Other(2)
   
Total
   
Change
 
                                                                     
FINANCIAL HIGHLIGHTS                                                                    
Revenue   $ 92.5     $ 88.2     $ 14.9   $ 195.6     $ 101.1     $ 69.9     $ 12.8     $ 183.8     6 %
(Loss) earnings from operations     (7.6 )     (15.0 )     0.2     (22.4 )     (6.8 )     (1,785.5 )     (0.6 )     (1,792.9 )   99 %
Adjusted EBITDA(3)     5.6       24.4       0.2     30.2       7.6       (9.5 )     -       (1.9 )   1,689 %
Cash provided (used) by operations     (6.1 )     (0.8 )     3.3     (3.6 )     21.1       (22.3 )     1.4       0.2     (1,900 %)
Free cash flow(3)     (9.8 )     (10.6 )     3.3     (17.1 )     1.3       (26.6 )     1.4       (23.9 )   28 %
                                                                     
PRODUCTION VOLUMES (tonnes)                                                                    
Mixed Sulphides     3,674       6,036       -     9,710       4,336       5,042       -       9,378     4 %
Finished Nickel     3,782       5,111       -     8,893       4,098       4,885       -       8,983     (1 %)
Finished Cobalt     382       404       -     786       521       386       -       907     (13 %)
Fertilizer     61,460       16,650       -     78,110       69,741       15,169       -       84,910     (8 %)
                                                                     
NICKEL RECOVERY (%)     85 %     87 %                   89 %     86 %                      
                                                                     
SALES VOLUMES (tonnes)                                                                    
Finished Nickel     3,975       4,935       -     8,910       4,237       4,665       -       8,902     -  
Finished Cobalt     487       360       -     847       559       411       -       970     (13 %)
Fertilizer     45,698       15,485       -     61,183       60,461       14,814       -       75,275     (19 %)
                                                                     
AVERAGE EXCHANGE RATE (CAD/US)                           1.334                               1.335     -  
                                                                     
AVERAGE REFERENCE PRICES (US$ per pound)                                                                    
Nickel                         $ 4.90                             $ 4.27     15 %
Cobalt                           13.51                               11.34     19 %
                                                                     
AVERAGE-REALIZED PRICES(3)                                                                    
Nickel ($ per pound)   $ 6.39     $ 6.50           $ 6.45     $ 5.57     $ 5.52             $ 5.54     16 %
Cobalt ($ per pound)     16.85       18.73             17.68       14.08       11.31               12.91     37 %
Fertilizer ($ per tonne)     326       160             284       413       197               371     (23 %)
                                                                     
UNIT OPERATING COSTS(3) (US$ per pound)                                                                    
Nickel - net direct cash cost   $ 3.80     $ 3.10             3.41     $ 2.90     $ 4.07               3.51     (3 %)
                                                                     
SPENDING ON CAPITAL                                                                    
Sustaining   $ 4.7     $ 19.0     $ -   $ 23.7     $ 13.8     $ 4.9     $ -     $ 18.7     27 %
Expansion     (2.1 )     -       -     (2.1 )     6.7       -       -       6.7     (131 %)
    $ 2.6     $ 19.0     $ -   $ 21.6     $ 20.5     $ 4.9     $ -     $ 25.4     (15 %)
  (1) Includes results for certain 100% owned assets at Fort Saskatchewan plant.
  (2) Includes results for Sherritt's marketing organizations for certain Ambatovy and Moa Joint Venture sales.
  (3) For additional information, see the Non-GAAP measures section of this release.
 
null
                                   
$ millions, except as otherwise noted, for the years ended December 31   2016                     2015        
    Moa JV and
Fort Site(1)
(50%)
    Ambatovy
JV
(40%)
   
Other(2)
 
Total
    Moa JV and
Fort Site(1)
(50%)
    Ambatovy
JV
(40%)
   
Other(2)
 
Total
   
Change
 
                                                                   
FINANCIAL HIGHLIGHTS                                                                  
Revenue   $ 339.3     $ 264.8     $ 48.0   $ 652.1     $ 412.6     $ 332.0     $ 60.5   $ 805.1     (19 %)
(Loss) earnings from operations     (28.4 )     (150.9 )     0.8     (178.5 )     (4.4 )     (1,934.1 )     0.5     (1,938.0 )   91 %
Adjusted EBITDA(3)     19.6       (7.0 )     0.8     13.4       42.2       (9.4 )     0.5     33.3     (60 %)
Cash provided (used) by operations     (2.7 )     (34.6 )     3.1     (34.2 )     53.4       (24.3 )     4.1     33.2     (203 %)
Free cash flow(3)     (33.9 )     (55.9 )     3.1     (86.7 )     (9.0 )     (60.4 )     4.1     (65.3 )   (33 %)
                                                                   
PRODUCTION VOLUMES (tonnes)                                                                  
Mixed Sulphides     16,923       18,271       -     35,194       18,510       19,598       -     38,108     (8 %)
Finished Nickel     16,464       16,842       -     33,306       16,853       18,908       -     35,761     (7 %)
Finished Cobalt     1,847       1,309       -     3,156       1,867       1,386       -     3,253     (3 %)
Fertilizer     256,812       53,908       -     310,720       255,991       54,930       -     310,921     -  
                                                                   
NICKEL RECOVERY (%)     87 %     86 %                   89 %     86 %                    
                                                                   
SALES VOLUMES (tonnes)                                                                  
Finished Nickel     16,402       16,844       -     33,246       16,980       18,857       -