2017 Annual General Meetings2.q4cdn.com/343762060/files/doc_presentations/... · Management uses...
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SHERRITT INTERNATIONAL CORPORATION 1
2017 Annual General Meeting
June 13, 2017
SHERRITT INTERNATIONAL CORPORATION 2
Forward-looking statements
This presentation 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”, “potential”, “projected”, “continue” or other similar words or phrases. Specifically, forward-looking statements in this document may
include, but are not limited to, statements set out in the “Outlook” sections of this presentation and certain expectations about capital costs and expenditures; production volumes; capital project completion and
ramp up dates; future price of key commodities; sales volumes; revenue, costs, and earnings; sufficiency of working capital and capital project funding; results of on-going discussions regarding the partnership
structure and future financing arrangements at the Ambatovy Joint Venture; results of discussions regarding timing of ongoing Cuban payments; completion of development and exploration wells; and amounts of
certain joint venture commitments.
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 presentation 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. These risks, uncertainties and other factors include, but are not limited to changes in the global price
for nickel, cobalt, oil and gas or certain other commodities, share-price volatility, level of liquidity and access to capital resources, access to financing, risk of future non-compliance with debt restrictions and
covenants; risks associated with the Corporation’s joint venture partners and the liability to finalize and close on a revised partnership structure; discrepancies between actual and estimated production; variability
in production at Sherritt’s operations in Madagascar and Cuba; potential interruptions in transportation; uncertainty of gas supply for electrical generation; uncertainty of exploration results and Sherritt’s ability to
replace depleted mineral and oil and gas reserves; the Corporation’s reliance on key personnel and skilled workers; the possibility of equipment and other failures; the potential for shortages of equipment and
supplies; risks associated with mining, processing and refining activities; uncertainty of resources and reserve estimates; uncertainties in environmental rehabilitation provisions estimates; risks related to the
Corporation’s corporate structure; political, economic and other risks of foreign operations; risks related to Sherritt’s operations in Madagascar and Cuba; risks related to the U.S. government policy toward Cuba,
including the U.S. embargo on Cuba and the Helms-Burton legislation; risks related to amounts owed to the Corporation by the Malagasy and Cuban governments; risks related to the accuracy of capital and
operating cost estimates; reliance on significant customers; foreign exchange and pricing risks; compliance with applicable environment, health and safety legislation and other associated matters; risks associated
with governmental regulations regarding greenhouse gas emissions; maintaining the Corporation’s social license to grow and operate; risks relating to community relations; credit risks; shortage of equipment and
supplies; competition in product markets; future market access; interest rate changes; 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; legal contingencies; risks related to the Corporation’s accounting policies; risks
associated with future acquisitions; uncertainty in the ability of the Corporation to obtain government permits; failure to comply with, or changes to, applicable government regulations; bribery and corruption risks,
including failure to comply with the Corruption of Foreign Public Officials Act or applicable local anti-corruption law; uncertainties in growth management; risks related to information technology systems; and
certain corporate objectives, goals and plans for 2017; 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 this presentation and 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 presentation and in the Corporation’s other
documents filed with the Canadian securities authorities 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 presentation 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, adjusted operating cash flow per share, free cash flow and Net Investment in Ambatovy 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.
SHERRITT INTERNATIONAL CORPORATION 3
A low cost nickel and cobalt producer, with a 20 year energy business in Cuba
Strengthening the balance sheet: extended maturity dates and reduced debt
• Cash position of $301M as at March 31, 2017
• $86M expended to repay $99M of loans and borrowings since January 2016
• First public debt maturity date extended from 2018 to 2021
Core nickel business achievements
• Agreement in principle reached on key features of Ambatovy JV restructuring
• Moa JV acid plant construction completed on time and under budget, delivering
NDCC savings of US$0.50/lb
Extending the life of our Cuban energy business
• Extension of the Varadero power facilities until 2023
• Oil production better than expected in 2016 and YTD, strong free cash flow
generation
• Block 10 drilling underway
1
2
3
SHERRITT INTERNATIONAL CORPORATION 4
Key trends in the nickel and cobalt markets
SHERRITT INTERNATIONAL CORPORATION 5
The nickel price has suffered more, and recovered less
than copper or gold
0
200
400
600
800
1,000
1,200
1,400
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
US
$/o
z
US
$/lb
Nickel Copper Gold
US$1,265/oz
US$7.65/lb
US$3.11/lb
US$1,160/oz
US$5.37/lb
US$1,250/oz
US$4.36/lb
US$1,237/oz
US$4.48/lb
US$2.49/lb US$2.21/lb
US$2.61/lb
(8%)
(30%)
(20%)
(20%) +3%
+18%
+8% (1%)
(11%)
0
200
400
600
800
1,000
1,200
1,400
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
1/2/2014 1/2/2015 1/2/2016 1/2/2017
US
$/o
z
US
$/lb
Nickel Copper Gold
Average reference prices
2014 2015 2016 2017
Source: Capital IQ data to June 9, 2017
SHERRITT INTERNATIONAL CORPORATION 6
Nickel cash cost curve and our positioning 40% of the industry is underwater at current price level
(5)
0
5
10
0 1,000 2,000 3,000 4,000
C1 C
ash
Co
sts
(U
S$/lb
)
Mlbs
2017 Nickel industry, normal C1 cash cost grouped by operation and ranked by cash cost (C1)
existing operations and base case
Source: Wood Mackenzie, Dataset: Q1 2017
Ambatovy = US$3.93
(Q1 2017)
25th percentile
= US$2.88
50th percentile
= US$3.78
Moa = US$3.25
(Q1 2017)
Moa guidance: 3.20-3.70
Ambatovy guidance: 3.10-3.70
Spot price: US$4.00/lb
SHERRITT INTERNATIONAL CORPORATION 7
A continuing focus on liquidity
SHERRITT INTERNATIONAL CORPORATION 8
No maturity until Q4 2021 and $1.4bn in debt to be
eliminated from Sherritt balance sheet
Liquidity
• 3-year bond extension completed in July - no maturity until Nov 2021
• Ambatovy JV project debt principal payment deferrals totaling US$565 million over 3 years
• $86M expended to repay $99M of loans and borrowings since January 2016 (as at Q1 2017)
• Ending cash of $301 million as of March 31, 2017
Ambatovy Agreement in Principle
• $1.4 billion in debt to be eliminated from Sherritt’s balance sheet upon closing
• Sherritt’s ownership to be realigned to its 12% economic interest
• Retain exposure to a long life asset with upside potential over its remaining 27 year mine life
SHERRITT INTERNATIONAL CORPORATION 9
Our operations
SHERRITT INTERNATIONAL CORPORATION 10
Nickel and Cobalt Production Steady production at Moa and ramp-up challenges at Ambatovy
17,132 16,771 16,455 16,853 16,464 16,750
1,896 1,660 1,605 1,867 1,847 1,825
2012 2013 2014 2015 2016 2017e
683
3,018
4,446
5,672 5,053
6,000
59 250 350 416 393 474
2012 2013 2014 2015 2016 2017e
Moa (50%) (tonnes)
Ambatovy (12%) (tonnes)
Nickel Cobalt Ambatovy production shown on a 12% basis to reflect
proposed revised structure
SHERRITT INTERNATIONAL CORPORATION 11
A steady downward trend in NDCC despite
quarterly fluctuations
$4.94 $4.86 $4.99
$3.88
$3.42 $3.25
$7.04
$4.83
$4.27
$3.93
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
2012 2013 2014 2015 2016 Q1 2017
U.S
.$/lb N
i
Moa JV & Fort Site Ambatovy JV
• Moa JV third acid plant now in operation, with ~US$0.50/lb improvement for Moa expected in 2017
SHERRITT INTERNATIONAL CORPORATION 12
Cuban oil production has generated over $1 billion in
free cash flow since inception
• Very low unit operating costs (in the $CAD 7-13/bbl range over the past 5 years)
• Second well to be drilled later this year at Block 10
Cu
mu
lati
ve
Fre
e C
as
h F
low
$C
AD
M
Note: Cumulative FCF starting point represents cumulative consolidated FCF of 1996-1998
($250)
$0
$250
$500
$750
$1,000
$1,250
($50)
$0
$50
$100
$150
$200
$250
(10,000)
(5,000)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Fre
e C
as
h F
low
$C
AD
MM
GW
I B
OP
D
Varadero PE/YU Other Free Cash Flow Cumulative Free Cash Flow
SHERRITT INTERNATIONAL CORPORATION 13
Cuban power generation: steady production and
strong EBITDA generation
• Extension of the Varadero power facilities until 2023
• Cash also due to Sherritt from CSA payments (Conditional Sales Agreement: loan from Sherritt to
Energas $196M as at March 31, 2017; 8% annual interest rate)
Power generation (331/3% basis, GWh)
EBITDA ($M)
847 902 894
217
2014 2015 2016 Q1 2017
24.8
30.0 29.5
9.2
2014 2015 2016 Q1 2017
SHERRITT INTERNATIONAL CORPORATION 14
A changing demand source for nickel and cobalt
SHERRITT INTERNATIONAL CORPORATION 15
After 5 years of surplus production, the nickel market is
expected to experience multiple years of deficit
Global nickel supply/demand market balance (kt)
Source: Wood Mackenzie
0
200
400
600
800
1,000
1,200
1,400
1,600
(150)
(100)
(50)
0
50
100
150
200
250
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
To
tal sto
cks (
kt)
kt
Annual deficit/surplus Total stocks
SHERRITT INTERNATIONAL CORPORATION 16
Even under conservative assumptions the EV market is
expected to grow to >10 million car sales per year by 2025
The EV market is becoming a key part of the automotive industry and will drive the growth in
battery demand
0
10
20
30
40
50
60
70
80
90
2015 2025Conservative view
2025Optimistic view
Millio
ns o
f v
eh
icle
s
Electric and hybrid vehicles Traditional cars
Increasing EV market penetration (annual vehicle sales)
• Conservative vs. optimistic view depends on how fast EVs are adopted in
key markets like China, Europe and the US
SHERRITT INTERNATIONAL CORPORATION 17
Today the nickel market is driven by stainless steel
31%
69%
Non-stainless Stainless
• Class I has to compete against NPI and Ferronickel as demand for Class I products is still
catching up to supply
• Thus, Class I nickel does not benefit from a full premium compared to lower quality products
48%
52%
NPI and ferronickel High quality nickel
Nickel supply Nickel demand
Source: CRU
SHERRITT INTERNATIONAL CORPORATION 18
But low grade nickel for stainless has no ability to
supply the growing battery market
As new Class I nickel supply is capital intensive and takes time (7-10 years) to bring into
full production, this shortage could lead to a premium for Class I nickel products
• Today stocks of Class I nickel remain high (~380,000 tonnes)
• Strong forecast demand from batteries for Class I units could lead to a shortage of high purity products
• Nickel content is one of the key enablers of the high energy batteries used in most electric vehicles
− Depending on the technology the nickel content is typically in the 10 kg – 80kg range per electric
vehicle
− Conservative estimate of 10.5 million EVs in 2025 would result in battery demand for Class I nickel of
420,000 tonnes per annum (assuming 40 kg per vehicle)
Source: CRU, LME
SHERRITT INTERNATIONAL CORPORATION 19
The cobalt price response is already well underway
• A limited supply cobalt market (~125,000 tonnes per annum) with no price elasticity has caused a doubling of
prices with no sign of slowdown
Cobalt price performance (US$/lb)
$9
$11
$13
$15
$17
$19
$21
$23
$25
$27
1/2/2015 1/2/2016 1/2/2017
Cobalt
Source: LME
SHERRITT INTERNATIONAL CORPORATION 20
EVs will also increase the demand for cobalt but the
cobalt supply dynamic has its own challenges
Cobalt sources Mine production by country (2016)
Source: CRU
Most cobalt production is mined as a by-product and 61% of the total supply comes from
the Democratic Republic of Congo (DRC), a country with a high geopolitical risk profile
61%
37%
2%
Copper mines by-product
Nickel mines by-product
Primary cobalt mines
Cuba: 5%
DRC: 61%
Russia: 5%
Australia: 5%
Philippines:
3%
Madagascar: 3%
Canada: 3%
SHERRITT INTERNATIONAL CORPORATION 21
Sustainability & Strategic Priorities
SHERRITT INTERNATIONAL CORPORATION 22
Demonstrating sustainability leadership
Learn more: sustainability.sherritt.com
2016 KPIs
Named to Corporate Knights’ 2017
Future 40 Corporate Leaders in
Canada
• Beat all injury frequency
targets
• Zero high-severity
environmental incidents
• 4 worker fatalities – corrective
action underway
• 4% decreased in GHGs
• 45% drop in community
grievances
• $750 million to host
communities and countries
Exemplary emergency response to
Hurricane Matthew in Cuba:
• No major production losses
• Praise from the UN’s Secretary-
General
SHERRITT INTERNATIONAL CORPORATION 23
Our 2017 strategic priorities
Uphold global operational leadership
in finished nickel laterite production
Optimize opportunities in Cuban
energy business
Preserve liquidity and build balance
sheet strength
2017 strategic priorities Q1 2017 status update
• First quarter NDCC of US$3.25/lb at the Moa JV represents
cash costs at the 30th percentile, while Ambatovy NDCC of
US$3.93/lb fell short of its target, due to lower production
• Improvements to EHSS activities continue. The Lost Time
Incident rate in Q1 2017 was an improvement over the 2016
average
• First well results provided constructive data to optimize the
drilling of the second well, again targeting the Lower Veloz
formation
• Future capital allocation will be based on results from this
new well
• Cuban energy payments received were US$37.6 million in
the first quarter of 2017, an improvement over Q4 2016
payments received of US$18.3 million
• Free cash flow generation of $12.6 million from Moa and
Fort Site and $12 million from Power in the first quarter of
2017
SHERRITT INTERNATIONAL CORPORATION 24
Sherritt International Corporation
181 Bay Street, 26th Floor, Brookfield Place
Toronto, Ontario, Canada M4T 2Y7
Investor Relations
Flora Wood
Telephone: 416.935.2457 Toll-Free: 1.800.704.6698 Email: [email protected]
Website: www.sherritt.com