First Quarter Results l April 29, 20151).pdf · Management uses Combined Results, Adjusted EBITDA,...

SHERRITT INTERNATIONAL CORPORATION 1

First Quarter Results l April 29, 2015

THE NAME IN NICKEL


Cautionary Statement on Forward-Looking Information This document 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”, “should”, “suspect”, “outlook”, “projected”, “continue” or other similar words or phrases. Specifically, forward-looking statements in this document include, but are not limited to, certain expectations for achieving financial completion at Ambatovy; securing additional Production Sharing Contracts in Cuba; capital costs and expenditures; global nickel market supply and demand forecasts; Cuban tax rates in the power business; and corporate objectives, goals and plans for 2015. Forward-looking statements are not based on historic facts, but rather on current expectations, assumptions and projections about future events. By their nature, forward-looking statements require the Corporation to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that those assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. The Corporation cautions readers of this document not to place undue reliance on any forward-looking statement as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Key factors that may result in material differences between actual results and developments and those contemplated by this document include global economic and market conditions, and business, economic and political conditions in Canada, Cuba, Madagascar, and the principal markets for the Corporation’s products. Other such factors include, but are not limited to, uncertainties in the ramp-up and operation of large mining, processing and refining projects; risks related to the availability of capital to undertake capital initiatives; changes in capital cost estimates in respect of the Corporation’s capital initiatives; risks associated with the Corporation’s joint-venture partners; risk of future non-compliance with financial covenants; potential interruptions in transportation; political, economic and other risks of foreign operations; the Corporation’s reliance on key personnel and skilled workers; the possibility of equipment and other unexpected failures; the potential for shortages of equipment and supplies; risks associated with mining, processing and refining activities; uncertainties in oil and gas exploration; risks related to foreign exchange controls on Cuban government enterprises to transact in foreign currency; risks associated with the United States embargo on Cuba and the Helms-Burton legislation; risks related to the Cuban government’s and Malagasy government’s ability to make certain payments to the Corporation; risks related to exploration and development programs; risks associated with access to reserves and resources; risks related to the Corporation’s reliance on partners and significant customers; risks related to the Corporation’s corporate structure; foreign exchange and pricing risks; uncertainties in commodity pricing; credit risks; competition in product markets; the Corporation’s ability to access markets; risks in obtaining insurance; uncertainties in labour relations; uncertainty in the ability of the Corporation to enforce legal rights in foreign jurisdictions; uncertainty regarding the interpretation and/or application of the applicable laws in foreign jurisdictions; risks associated with future acquisitions; uncertainty in the ability of the Corporation to obtain government permits; risks associated with government regulations and environmental, health and safety matters; uncertainties in growth management; interest rate risk; risks related to political or social unrest or change and those in respect of indigenous and community relations; risks associated with rights and title claims; and the Corporation’s ability to meet other factors listed from time to time in the Corporation’s continuous disclosure documents. Readers are cautioned that the foregoing list of factors is not exhaustive and should be considered in conjunction with the risk factors described in the Corporation’s other documents filed with the Canadian securities authorities. The Corporation may, from time to time, make oral forward-looking statements. The Corporation advises that the above paragraph and the risk factors described in this document and in the Corporation’s other documents filed with the Canadian securities authorities including, but not limited to, the Corporation’s Annual Information Form for the year ended December 31, 2014 should be read for a description of certain factors that could cause the actual results of the Corporation to differ materially from those in the oral forward-looking statements. The forward-looking information and statements contained in this document are made as of the date hereof and the Corporation undertakes no obligation to update publicly or revise any oral or written forward-looking information or statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. The forward-looking information and statements contained herein are expressly qualified in their entirety by this cautionary statement.

Non-GAAP Measures Management uses Combined Results, Adjusted EBITDA, average-realized price, unit operating cost, adjusted earnings, combined adjusted operating cash flow per share and combined free cash flow, to monitor the financial performance of the Corporation and its operating divisions and believes these measures enable investors and analysts to compare the Corporation’s financial performance with its competitors and evaluate the results of its underlying business. These measures do not have a standard definition under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. As these measures do not have a standardized meaning, they may not be comparable to similar measures provided by other companies. For additional information, including a reconciliation of each non-GAAP measures to the most directly comparable GAAP measure, see the Non-GAAP measures section in our Management’s Discussion and Analysis (MD&A) for the three months ended March 31, 2015 available on our website at www.sherritt.com.


Quarterly results David Pathe, President & CEO


Executing on Our 2015 Strategic Priorities

Focusing On Our Core Nickel Business

Continuing To Ramp Up Ambatovy

Extending The Life Of Our Cuban Energy Business

Building Balance Sheet Strength

Sustaining production and lowering costs at Moa JV Advancing the acid plant project at Moa JV

Targeting a production rate of 90% of nameplate capacity over a 90-day period within the first half of 2015 Targeting financial completion by September 30, 2015

Securing two additional exploration PSCs Commencing drilling on extended Puerto Escondido/Yumuri PSC

Maintaining a strong balance sheet and liquidity

Reducing Costs

Optimizing operating and administrative costs

SHERRITT INTERNATIONAL CORPORATION 5 (1) Compared to the three months ending March 31, 2015. (2) Refers to a Non-GAAP measure. For additional information see the MD&A for March 31, 2015 at www.sherritt.com

Q1 2015 Highlights

Operational Results(1)

• Record nickel production of 9,013 tonnes increased by 26% • Nickel cash costs at Moa JV decreased to US$4.36/lb • Nickel cash costs at Ambatovy JV decreased to U.S.$5.74/lb • Ambatovy JV nickel mine achieved production milestone of “90 for 90”

Financial Results(2)

• Adjusted EBITDA decreased by 19% to $44 million • Combined adjusted operating cash flow increased 58% to $56 million

or $0.19/share • Ambatovy JV achieved $13 million in operating cash flow


Moa JV Highlights

Moa JV Nickel Production (50% basis, tonnes) Net Direct Cash Costs (U.S.$/lb)

PRODUCTION INCREASED BY 20% -- LOWER CASH COSTS

• Finished nickel production increased by 20% to 4,357 tonnes • Cash costs decreased to U.S.$4.36/lb • Cash flow from operations increased to $30 million • Adjusted EBITDA more than doubled to $18.3 million • Nickel recovery of 88%

+20% (18%)

$5.30 $4.36

Q1 2014 Q1 2015

3,639 4,357

Q1 2014 Q1 2015


• Construction commenced in Q1 2015 • Sulphur and sulphuric acid represent 1/3 of our NDCC • Cost savings from eliminating the need to import sulphuric acid and from reduced

fuel oil consumption for steam production

Construction Underway at Acid Plant


Ambatovy JV Outperforms Expectations • Finished nickel production increased 33% • Net direct cash costs decreased 16% • Operating cash flow increased to $13 million from a loss of $21 million in the

previous year, adjusted EBITDA increased to $4.3 million from a loss of $4.4 million • Nickel recovery at 85%

Cash Costs Continue to Improve with Higher Quarterly Production

(1) The net direct cash costs calculation in Q1 2014 includes two of the three months in the quarter due to the start of commercial production effective Feb 1st of 2014. The production number is for the three months of the quarter.

$6.83 $7.19 $7.26

$7.04

$5.74

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

$7.50

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

Production (Tonnes) NDCC (US$/lb)

(1)


Physical Facilities

Certificate

Mining Certificate

Production Certificate

Port Capacity

Certificate

Pipeline Capacity

Certificate

Environmental Certificate

Marketing Certificate

Efficiency Certificate

Legal and Other Conditions Certificate

Financial Certificate

FINANCIAL COMPLETION

Ambatovy Progressing Towards Financial Completion

• Requirement for financial completion by September 30, 2015

• Ten certificates to be delivered • Upon achieving financial completion

• Financing is non-recourse to all partners

• One-time funding of reserve account equivalent to 6 months principal + interest

• Interest changes from Libor + ~140 bps to Libor + ~255 bps

• Put/call option for SNC-Lavalin’s 5% equity and loans can be triggered

After IE sign off After IE sign off

After IE sign off


1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

2,400

2014 2015 2016 2017 2018 2019

World Demand World SupplySource: CRU

World Supply/Demand 2014-2019 • Prices remain under pressure

from softer demand; LME inventories rose 5%

• NPI supply challenges from China starting to appear, and supply deficit expectations remain, but timing is unpredictable

Nickel Market Supply/Demand 2015E-2019E

$1 CHANGE IN NICKEL PRICE = $100 MILLION IN ADDITIONAL CASH FLOW PER YEAR


• Oil prices declined 50% year over year • First evidence of oil prices rebounding

Global Oil Prices Continue to Impact Revenue

0

20

40

60

80

100

120

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr

-15

WTI Fuel Oil No 6


Oil and Gas Operating Highlights

REVENUE DOWN 45% YOY FOLLOWING A 50% DECLINE IN AVERAGE REFERENCE PRICES AND A 41% DECLINE IN WEIGHTED AVG REALIZED PRICES

(2%) +23% 20,200

19,719

Q1 2014 Q1 2015

Production – Gross Working-Interest

$6.70 $8.26

Q1 2014 Q1 2015

Unit Operating Costs – Cuba ($ per boe)

• Adjusted EBITDA of $21.5 million down 64% • Cash provided by operations of $6.6 million down 59% • Gross production down 2%, primarily due to lower than expected production from two

of the six wells drilled in the extension


• Two new wells drilled in the quarter, with one producing and one being tested

• Since start of drilling in the extension, six out of seven commitment wells completed

Expansion Drilling in Two New Blocks


Power Cash Flow Continues to Improve

• Electricity generation increased 12% • Unit operating costs decreased 10% • Average realized price increased 14% • Cash flow from operations increased to $24 million • Boca de Jaruco plant is producing solid results

187

210

Q1 2014 Q1 2015

$17.43

$15.64

Q1 2014 Q1 2015

Electricity Generation (GWh) Unit Operating Costs ($/MWh)

+10%

(12%)


FINANCE UPDATE Dean Chambers, Executive Vice President & CFO


Combined Results • Combined Results are a non-GAAP measure that has been presented to report

Sherritt's proportionate interest in all of its businesses including the Moa and Ambatovy Joint Ventures.

(1) Cash flow from operations associate and joint venture adjusted for non-cash changes in working capital (2) Accounting regulations prevent Sherritt from labeling this non-GAAP measure as "Combined EBITDA" and therefore

it is required to call it "Adjusted EBITDA“ (3) Cash flow from operations, associate, and joint venture adjusted for spending on property, plant and equipment, exploration

and evaluation, and intangible expenditures

Combined Results Per Financial Statements

Combined revenue Revenue

Combined cost of sales Cost of sales

Combined administration expenses Administration expenses

Combined net financing expense Net financing expense

Combined income taxes Income taxes

Combined adjusted operating cash flow (1)

Cash flow from operations

Adjusted EBITDA(2)

Adjusted EBITDA

Combined free cash flow(3)

Free cash flow

Adjustments to include proportionate share of Moa

and Ambatovy in the combined results

Combined Results Non-GAAP Measures


STRENGTHENING OUR FINANCIAL POSITION Financial Highlights

(1) Refers to a non-GAAP measure. For additional information see the MD&A for March 31, 2015 at www.sherritt.com

$54.9 $44.2

Q1 2014 Q1 2015

Combined Adjusted Operating Cash Flow ($ millions)

Earnings (Loss) from Continuing Operations/Share

$34.7

$56.1

Q1 2014 Q1 2015

In millions $, as at

March 31, 2015

December 31, 2014

% Change

Cash, Cash Equivalents and Short Term Investments $478 $476 --

Ambatovy JV Partner Loans $1,109 $1,014 9%

Recourse Debt 854 843 1%

Total Debt $1,964 $1,860 6%

Q1 2014

Adjusted EBITDA ($ millions)

(1)

($0.24) ($0.20) ($0.19)

($0.24)

Q1 2015 As reported Adjusted As reported Adjusted


New Foreign Investment Law in Cuba to Reduce Taxes

Segment/Operation Oil & Gas Power Moa JV Ambatovy JV Corporate & other

Jurisdiction

Cuba Cuba

Cuba Madagascar

Canada

Statutory Tax Rate

22.5% 15%

22.5% 10%, 25%

25%

• Cuban tax rates have decreased • ~$17 Million if tax savings in place all of 2014 • One-time gain recognized in Q1 of $30 million

30% 30% 45%

ONE TIME TAX GAIN OF $30 MILLION

(1) Subject to confirmation

(1)


Net Loss Reconciliation from Q4 2014 to Q1 2015

Adjusted net loss - Q4 2014 $ (80.0)

Ambatovy higher sales, lower loss 22.7 Lower Oil & Gas EBITDA and lower Moa JV earnings (7.9) Tax recovery in Cuba 30.1 Higher FX and consolidated depreciation, lower borrowing (21.7) Q1 2015 net loss from continuing operations (56.8) Adjusting items (FX, VAT, call option) 15.9 Adjusting for tax recovery (30.1) Adjusted net loss from continuing operations $ (71.0)


Combined Adjusted Operating Cash Flow Reconciliation from Q4 2014 to Q1 2015

Combined adjusted operating cash flow - Q4 2014 $ (35)

Increase in Ambatovy operating cash flow 24 Decrease in Moa and Fort Site operating cash flow (2) Decrease in Oil & Gas operating cash flow (5) Increase in Power operating cash flow (excluding Energas CSA interest) 2 Higher Energas CSA interest received 12 Lower interest paid on debentures 18 Add back premium paid on debentures in Q4 2014 34 Lower other Corporate cash flows 8

Combined adjusted operating cash flow - Q1 2015 $ 56


Reducing Capital Spending

• At the current USD/ CAD exchange rate, originally forecasted expenditures are ~$250 million vs. $231 million at original exchange rates.

• Capital guidance is now $210 million

Division Original Guidance Feb 2015

Current Guidance Q1 2015

Change

Oil & Gas $ 107 $ 96 $ (11)

Ambatovy JV 40 35 (5)

Moa JV / Fort Site 80 75 (5)

Power 4 4 -

Total $ 231 $ 210 $ (21)


Investment Opportunity

Top 10 largest nickel producer in the world

Strong cash flow growth

Catalysts - Increasing nickel production and rising nickel price

Rising production in base metals with forecasted nickel price increases


Appendix - Enhancing Disclosure of Cash Flow

Combined adjusted operating cash flow

• Cash flow from operations, associate and joint venture adjusted for non-cash changes in working capital

Combined free cash flow

• Cash flow from operations, associate, and joint venture adjusted for spending on property plant and equipment, exploration and evaluation, and intangible expenditures


Sherritt International Corporation 1133 Yonge Street, Toronto, Ontario, Canada M4T 2Y7 Media & Investor Relations Sean McCaughan Telephone: 416.935.2451 Toll-Free: 1.800.704.6698 Email: [email protected] Website: www.sherritt.com

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First Quarter Results l April 29, 20151).pdf · Management uses Combined Results, Adjusted EBITDA,...

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