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Sherritt announces financial result for Q4 2018

Mining News - Published on Tue, 19 Feb 2019

Image Source: Financial Post
Sherritt International Corporation, a world leader in the mining and hydrometallurgical refining of nickel and cobalt from lateritic ores, reported its financial results for the three- and 12-month periods ended December 31, 2018. All amounts are in Canadian currency unless otherwise noted.

Mr David Pathe, President and CEO of Sherritt Internationa, said that “Sherritt ended 2018 with lower debt and more cash than we started the year with as a result of several initiatives designed to reduce expenses, buy back USD 130 million of outstanding debentures and improve production reliability at our operationsl. Although concerns of international trade disputes and the impacts of tariffs have resulted in recent commodity price volatility, we expect to sustain our momentum through 2019 and beyond by capitalizing on the strong market fundamentals and outlook for Class 1 nickel, completing drilling on Block 10, and identifying opportunities where we can bring innovations developed by our Technologies Group to market.”

Sherritt’s share of finished nickel production at the Moa Joint Venture (“Moa JV”) in Q4 2018 was 4,294 tonnes, up 4% from last year, while finished cobalt was 428 tonnes, down 8% from Q4 2017. Production for Q4 2018 was impacted by the disruption in the supply of hydrogen sulphide, a key reagent used in the production of finished nickel and cobalt at the refinery in Fort Saskatchewan, as previously disclosed.
Q4 2018 Adjusted EBITDA(1) was $17.7 million, down from $49.6 million in Q4 2017. The decrease was due to a number of factors, including lower contributions from the Oil and Gas business, lower cobalt sales and higher input costs, including higher sulphur and energy prices, at the Moa JV.
Received $6.7 million in distributions from the Moa JV in Q4 2018 for a total of $11.9 million in distributions for FY2018. Q4 2018 marks the second consecutive quarter that the Moa JV has made distributions, indicative of improved nickel prices over the past several quarters.
Net direct cash cost (NDCC)(1) at the Moa JV for FY2018 was US$2.24 per pound of finished nickel sold, in line with the US$1.90 - $2.40 per pound guidance that Sherritt provided for the year. NDCC for 2018 ranked the Moa JV within the lowest cost quartile relative to other producers and ranked it as the lowest cost nickel HPAL operation according to annualized information tracked by Wood Mackenzie.

Cash from continuing operations in FY2018 was $7.4 million compared to cash flow used of $9.6 million in FY2017. The improvement was driven largely by the receipt of distributions from the Moa JV, lower interest payments on debentures and increased fertilizer customer prepayments.

Sherritt ended the year with cash, cash equivalents and short-term investments of $207.0 million, up from $203.0 million at the end of 2017. The increase was due to a combination of factors, including the receipt of distributions, working capital and advance repayments from the Moa JV totaling $47.7 million, reduced interest payments of $6.3 million and reduced administrative expenses of $6.1 million, excluding the reduction of share-based compensation. The lower administrative expenses were due to various cost-savings initiatives, including lower consulting fees, reduced employee costs and the relocation of the Toronto corporate office.

Reached an agreement in principle, subject to final approvals, with Cuban partner on a payment plan to reduce overdue receivables.
Based on a decision to prudently manage drilling and exploration costs, drilling on Block 10 has been suspended to enable the completion of additional analysis of the geological conditions between the upper and lower target reservoir.
To date, third-party industry experts have completed detailed lab analysis of rock cuttings collected during previous operations on Block 10. Results of the lab analysis, which indicated that the rock formation between the upper and lower target reservoirs has unique characteristics, are currently being used with the assistance of other third-party experts to adjust drilling parameters, including modifying the drilling fluid and making use of casing while drilling technology that addresses the challenges of well-bore degradation and fractured zones experienced to date.

Drilling on Block 10 will resume at the end of March with the new drilling parameters, and is expected to be completed in the second quarter of 2019. The adoption of new drilling parameters will not result in any increases to planned capital spending previously disclosed for the Oil and Gas business. Any incremental capital spend at the Oil and Gas business in 2019 will be predicated on successful drill results on Block 10 and collections on receivables. Sherritt intends to explore partnerships for further investment in Block 10 following completion of the current drilling.

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Posted By : Rabi Wangkhem on Tue, 19 Feb 2019
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