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Blackstone Minerals Quarterly Report for the Period Ending 31 March 2021
Ta Khoa Nickel – Copper – PGE Project
Upstream Business Unit (UBU)
• Multiple drill rigs active focussed on resource definition drilling and exploration for disseminated sulfide (DSS) and massive sulfide vein (MSV) prospects at the Ta Khoa Nickel – Copper – PGE Project in northern Vietnam
• Total of 14,502 metres of core drilling was completed in the March quarter, of which 5,285 metres were infill drilling at the large Ban Phuc DSS open pit orebody
• Infill drilling continued at the Ban Chang MSV prospect to support resource estimations and preliminary mining studies which are ongoing
• Testing of Electro-magnetic (EM) geophysics targets confirmed additional high grade MSV potential at the King Snake and Ta Cuong prospects:
• At King Snake high-grade massive sulfide nickel, copper and platinum group elements (PGEs) were confirmed (refer to ASX announcements dated 4 February 2021, 16 February 2021 and 11 March 2021); and
• At Ta Cuong significant sulfide mineralisation was identified in new Taipan Discovery Zone (TDZ), where drill hole TC21-03 intersected 39.70m of sulfide mineralisation including DSS, semi-massive sulfide (SMSV) and MSV (refer ASX announcement 25 February 2021)
Downstream Business Unit (DBU)
• The Company confirmed that separate Pre-Feasibility Studies (PFS) will be delivered for its Upstream and Downstream business units
• The Downstream PFS is anticipated to be completed by June/July 2021 and will consider expanded downstream refining capacity, which has potential to transform Blackstone into a globally significant Class 1 nickel producer
• Feedstock, namely nickel in concentrate, for the expanded planned refining capacity is expected to include both third – party concentrate and Blackstone’s potential orebodies within the Ta Khoa district in Northern Vietnam
Blackstone Minerals Limited (ASX:BSX) expanded downstream refinery is driven by strong indicative demand for the Company’s planned downstream products which will include Nickel:Cobalt:Manganese (NCM) precursor products suitable for the Lithium-ion battery industry, for example NCM811
• Blackstone intends to collaborate with Tier 1 partners to unlock the value of its expanded downstream refinery strategy, including EcoPro who are the world’s second largest manufacturer of cathodes and a major shareholder of Blackstone.
Corporate
• Letter of Interest signed with global commodity trading group Trafigura as part of its downstream refining strategy
• Highly-experienced hydrometallurgical engineer Tony Tang appointed General Manager Project Development – Downstream
• Blackstone to spin out non-core gold assets into new Codrus Minerals Limited IPO
• Blackstone commences trading on the US-based OTCQX Best Market
• Cash balance as at 31 March 2021 of A$19.2m
Blackstone Minerals’ Managing Director Scott Williamson commented:
“The March 2021 quarter was transformative for Blackstone as plans to expand our downstream refinery capacity were outlined to the market. Executing on our planned expanded downstream refinery strategy will see the Company become a globally significant Class I nickel producer.”
“During the March 2021 quarter the company continued an aggressive drilling program, adding confidence to the existing resource base as well as successfully targeting new massive sulfide opportunities including the King Snake prospect. The Ta Khoa district remains largely untested and we are confident based on our existing resource, initial success at multiple MSV deposits and from future exploration success, that the Ta Khoa Nickel – CuPGE project will be a significant feedstock for our downstream refinery in Vietnam for many years to come”
“The formalisation of Blackstone’s relationship with Trafigura, one of the largest commodity traders in the world, was an important milestone for the March 2021 quarter. The ability for our downstream business to access third-party concentrate will be important to meet the burgeoning demand for nickel driven by rapid growth in the Lithium-ion battery industry. During the quarter Blackstone continued to collaborate with Trafigura and the Company looks forward to presenting outcomes of the PFS for its downstream refinery business in
June / July this year.”
Blackstone Minerals
Investor Insights
Blackstone Minerals is well-positioned to leverage a projected nickel supply deficit as it strives to become a vertically integrated producer of low-cost, low-carbon, battery-grade nickel. Key to this is Blackstone’s Ta Khoa project in Vietnam, an emerging hub for the electric vehicle market.
Overview
As the world moves closer to a sustainable net-zero future, the need for battery metals continues to mount and nickel may soon be among the metals to see a supply crunch. Though its roots are in the stainless steel sector, it's also a critical component of lithium-ion batteries.
Given that many nations are aiming to replace combustion vehicles with electric cars by 2030, the metal is already experiencing a massive spike in demand. Benchmark Minerals expects the need for battery-grade nickel will increase about 950 percent by 2040.
It's imperative to ramp up global nickel production but the resource sector, for its part, must do so with a much-reduced carbon footprint to influence the sustainability of the entire value chain. Blackstone Minerals (ASX:BSX,OTC:BLSTF,FRA:B9S) recognizes this. As a vertically integrated producer of low-cost, low-carbon nickel, the company aims to become a leading source of low CO2 emission nickel sulphide. Its flagship Ta Khoa project in Vietnam is representative of that goal.Blackstone Minerals business structure schematic
With over 20 active mines and a burgeoning technology sector, Vietnam is on the road to becoming a hub of electric vehicle production and innovation, with low labor costs and regulated electricity pricing further driving its growth. Steadily increasing foreign direct investment in the region is indicative of this as the country seeks to attract $50 billion in new foreign investment by 2030.
Blackstone is uniquely positioned to take advantage of this, thanks to two factors. US President Joe Biden's Inflation Reduction Act, which came into force in August 2022, represents the largest investment into climate action in United States history. A similar initiative is rolling out in the European Union (EU), which maintains a Free Trade Agreement with Vietnam — something multiple partners of the company have expressed interest in.
Blackstone's Ta Khoa Project consists of two streams, the Ta Khoa Nickel Mine and the Ta Khoa Refinery. Recent milestones point to Blackstone’s commitment to advancing this game-changing project.
These milestones include a memorandum of understanding with Cavico Laos Mining to collaborate in a number of areas associated with CLM’s nickel mine in Lao People's Democratic Republic and supply of nickel products for Blackstone’s Ta Khoa Refinery in Vietnam.
Blackstone also partnered with Arca Climate Technologies to further investigate the carbon capture potential at the Ta Khoa Project through carbon mineralisation, and explore opportunities to utilise Arca’s carbon capture technologies within the project.
In a bid to collaborate on the supply of renewable wind energy to the Ta Khoa Project, Blackstone signed a direct power purchase agreement with Limes Renewables Energy.
Blackstone received AU$2.8 million as an advance from a research & development (R&D) lending fund backed by Asymmetric Innovation Finance and Fiftyone Capital. The advanced payment reflects the significant investment by Blackstone to develop the Ta Khoa Refinery process and Blackstone’s unique strategy to convert nickel concentrate blends into battery products in the form of precursor cathode active material (pCAM).
In December 2023, Blackstone entered into an option agreement with CaNickel Mining to acquire the Wabowden nickel projectlocated in the world-class Thompson Nickel Belt in Manitoba, Canada.
The Wabowden project will have the potential to fill the Ta Khoa Refinery, removing dependence on third party feed sources.
The company has signed a non-binding MOU with the Development for Resources Environmental Technology joint stock company (DRET) to investigate opportunities to repurpose and trade waste material (or residue) from the Ta Khoa Refinery into construction material products. Moreover, it has also progressed the Ta Khoa Refinery byproduct offtake strategy with Vietnam Chemical Group (VinaChem), PV Chemical and Equipment Corporation (PVChem) and Nam Phong Green Joint Stock Company (Nam Phong) to sell Ta Khoa Refinery byproducts, being manganese sulphate (or epsomite) and sodium sulphate.
As the company plans to build a global nickel business, Blackstone signed a non-binding memorandum of understanding with Yulho Co. Ltd (Yulho) and EN Plus Co. Ltd (EN Plus) to establish a collaboration across the businesses including EN Plus and Yulho who are in joint venture on the Ntaka Hill nickel sulphide project in Tanzania, and the Dinagat Island nickel laterite project in the Philippines.
Company Highlights
- The global nickel market is currently entering a structural deficit, with demand expected to grow 950 percent by 2040.
- Blackstone Minerals is well-positioned to address this deficit as a vertically integrated producer of low-cost, low-carbon nickel.
- Blackstone's flagship project Ta Khoa is a brownfield project situated in Vietnam, one of the lowest capital cost countries in the world and an emerging hub for the electric vehicle market with vast reserves of nickel.
- Vietnam is an increasingly attractive region for investment with direct foreign investments that grew from $1.3 billion in 2000 to $15.6 billion in 2020.
- The Ta Khoa project also has infrastructure advantages, via the existing Ban Phuc mine, and processing facilities, access to low-cost and underutilized hydroelectricity, a trained labor force and support from the local government.
- Blackstone Minerals’ downstream pre-feasibility study confirms a technically and economically robust hydrometallurgical refining process to upgrade nickel sulphide concentrate to produce battery-grade nickel.
- Blackstone’s key nickel and cobalt feedstocks for the Ta Khoa Refinery Pilot program were delivered to the metallurgical laboratory in Western Australia as of April 2022.
Key Project
Ta Khoa
Blackstone holds a 90 percent interest in the Ta Khoa Nickel-Copper-PGE Project, located 160 kilometers west of Hanoi in the Son La Province of Vietnam. It includes an existing modern nickel mine built to Australian Standards, which is currently under care and maintenance. The Ban Phuc nickel mine successfully operated as a mechanized underground nickel mine from 2013 to 2016.
Blackstone intends to complement the existing mine through the installation of a large concentrator, refinery and precursor facility, supporting integrated on-site production of nickel, cobalt and manganese precursor products for the Asia-Pacific market. One of Blackstone's key Research and Development objectives with Ta Khoa is to develop a flowsheet that will support this production.
To fulfill this goal, Blackstone is focusing on a partnership model, collaborating with groups committed to sustainable mining. It is also working to minimize its carbon footprint and implement a vertically integrated supply chain.
Project Highlights:
- Multiple Massive Sulphide Deposits: The Ta Khoa project features several incredibly promising deposits including King Snake (up to 4.3 percent nickel and 18.2 grams per ton (g/t) PGE), Sui Phong (2.95 meters @ 2.42 percent nickel, 0.52 percent copper, 0.06 percent cobalt and 0.05 g/t PGE), and Ban Chang. The project is also the site of the Ban Phuc nickel mine, which was operated from 2013 to 2016 by Asia Mineral Resources, along with several exploration targets that have yet to be tested.
- Experienced Leadership: Internally, Blackstone’s owners’ team brings over 50 years of experience in leadership roles at major nickel mines and refineries globally. This experience has been complemented by ALS Group, Wood, Future Battery Industries CRC, Curtin University and the Electric Mining Consortium.
- Large Reserve and Mining Inventory: The entirety of Ta Khoa is estimated to contain probable reserves of 48.7 Mt at 0.43 percent nickel for 210 kilotons (kt) of nickel and a mining inventory of 64.5 Mt at 0.41 percent nickel for 265 kt nickel. This excludes Ban Khoa and other developing prospects.
- A Long-lived Project: The Ta Khoa mine is expected to produce a yearly average of 18 kt of annual nickel concentrate over its ten-year lifespan. Blackstone believes the refinery can potentially extend its life past ten years.
- An Established Mining Operation: Existing infrastructure onsite includes a 450 ktpa Mill and mining camp. The mine will also benefit from a highly supportive community and favorable government legislation — Blackstone is committed to collaborating with community stakeholders in the project's development.
- Feed Flexibility: Ta Khoa's refinery will offer multiple feed options, including nickel concentrate, mixed hydroxide precipitate, nickel matte and black mass. This flexibility greatly improves the security and greatly reduces the risk of the project overall.
- Valued Partnerships: Blackstone is collaborating with multiple industry leaders and groups in the development of Ta Khoa
- Compelling Pre-feasibility Study: The financial outcomes of a base case pre-feasibility study on the project are promising. Based on a conservative NCM811 precursor price forecast, Ta Khoa displays an exceptional internal return rate on capital invested.
- Integrated Vertical Strategy: Blackstone is constructing both the Ta Khoa mine and refinery against a highly supportive ESG, macroeconomic and fiscal backdrop. This along with Ta Khoa's low capital intensity gives the company a significant advantage over competitors. Said low intensity is the result of multiple factors, including competitive labor costs, favorable regulations and low-cost renewable hydroelectric power.
- A Leader in Low Emissions: Independent assessments from Digbee, Minviro and Circulor, alongside an audit from the Nickel Institute, have confirmed that Ta Khoa will be the lowest-emitting flowsheet in the industry, at 9.8 kilograms of CO2 per kilogram of precursor with opportunities for even further reduction.
- Promising Pilots: With the support of ALS and process engineering partner Wood, Blackstone recently completed a 12-month programme of work that developed a scaled version of its concentrate to sulphate flowsheet. The refinery, which processed more than 9 tonnes of concentrate and MHP, successfully achieved battery-grade nickel sulphate of 99.95 percent, with a nickel recovery rate of 97 percent.
- Current Roadmap: Blackstone's next priority is to complete a series of definitive feasibility studies. Once those are complete, it will focus on fully integrating the mine into the electric vehicle consumer supply chain and finalizing its refining partnership structure.
Management Team
Hamish Halliday - Non-executive Chairman
Hamish Halliday is a geologist with over 20 years of corporate and technical experience. He is also the founder of Adamus Resources Limited, an AU$3 million float that became a multimillion-ounce emerging gold producer.
Scott Williamson - Managing Director
Scott Williamson is a mining engineer with a commerce degree from the West Australian School of Mines and Curtin University. He has over 10 years of experience in technical and corporate roles in the mining and finance sectors.
Dr. Frank Bierlein - Non-executive Director
Dr. Frank Bierlein is a geologist with 30 years of technical and corporate experience, focusing on grassroots to mine-stage mineral exploration, target generation, project management and oversight, due diligence studies, mineral prospectivity analysis, metallogenic framework studies and mineral resources market and investment analysis.
Alison Gaines - Non-executive Director
Alison Gaines has over 20 years of experience as a director in Australia and internationally. She has experience in the roles of board chair and board committee chair, particularly remuneration and nomination and governance committees. She is also the managing director of Gaines Advisory P/L and was recently global CEO of international search and board consulting firm Gerard Daniels, with a significant mining and energy practice.
Gaines has a Bachelor of Laws and a Bachelor of Arts (hons) from the University of Western Australia, a Graduate Diploma in Legal Practice from Australian National University and an honorary doctorate of the University and Master of Arts (Public Policy) from Murdoch University. She is a fellow of the Australian Institute of Company Directors and holds the INSEAD certificate in corporate governance. She is currently the governor of the College of Law Ltd, and non-executive director of Tura New Music.
Dan Lougher - Non-executive Director
Daniel Lougher’s career spans more than 40 years involving a range of exploration, feasibility, development, operations and corporate roles with Australian and international mining companies including a period of eighteen years spent in Africa with BHP Billiton, Impala Plats, Anglo American and Genmin. He was the managing director and chief executive officer of the successful Australian nickel miner Western Areas Ltd until its takeover by Independence Group.
Lougher also holds a first class mine manager’s certificate of competency (WA) and is a fellow of the Australasian Institute of Mining and Metallurgy (AusIMM). Lougher is the chair of the company’s technical committee and nomination committee.
Jamie Byrde - CFO and Company Secretary
Jamie Byrde has over 16 year's experience in corporate advisory, public and private company management since commencing his career with big four and mid-tier chartered accounting firms positions. Byrde specializes in financial management, ASX and ASIC compliance and corporate governance of mineral and resource focused public companies. He is also currently company secretary for Venture Minerals Limited.
Tessa Kutscher - Executive
Tessa Kutscher is an executive with more than 20 years of experience in working with C-Level executive teams in the fields of business strategy, business planning/optimisation and change management. After starting her career in Germany, she has worked internationally across different industries, such as mining, finance, tourism and tertiary education.
Kutscher holds a master’s degree in literature, linguistics and political science from the University of Bonn, Germany and a master’s degree in teaching from Ludwig Maximilian University of Munich.
Andrew Strickland - Executive
Andrew Strickland is an experienced study and project manager, a fellow of the Australian Institute of Mining and Metallurgy, University of WA MBA graduate, with undergraduate degrees in chemical engineering and extractive metallurgy from Curtin and WASM.
Before joining Blackstone, Strickland was a senior study manager for GR Engineering Services where he was responsible for delivering a series of scoping, PFS and DFS studies for both Australian and international projects. Over his career, he has held a variety of project development roles across both junior to mid-tier developers (including Straits Resources, Perseus Mining and Tiger Resources) and major multi-operation producers (South32).
Graham Rigo - Executive
Graham Rigo is an experienced study manager with over a decade of on-site production experience, holding undergraduate degrees in chemical engineering and finance from Curtin University, WA.
Before joining Blackstone, Rigo was a study manager for Ausenco where he was responsible for delivering a series of scoping, PFS and DFS studies for both Australian and international projects over a range of different commodities.
Rigo has over 11 years of site experience in nickel and cobalt hydromet production experience, in supervisory/superintendent level roles as well as process engineer experience.
Lon Taranaki - Executive
Lon Taranaki is an international mining professional with over 25 years of extensive experience in all aspects of resources and mining, feasibility, development and operations. Taranaki is a qualified process engineer from the University of Queensland Australia. He holds a Master of Business Administration, and is a fellow of the Australian Institute of Company Directors. Taranaki has established his career in Asia where he has successfully worked (and lived) across multiple jurisdictions and commodities ranging from technical, mine management and executive management roles.
Prior to joining Blackstone in February 2022, Taranaki was the chief executive officer of Minegenco, a renewable-energy-focused independent power producer. Preceding this, he was managing director of his private consultancy, AMG Mining Global, where he was providing services to the mining industry in Singapore, Guyana, Indonesia and Cambodia. Additionally, Taranaki has held various senior positions with Sakari Resources, PTT Asia Pacific Mining, Straits Resources, Sedgmans and BHP Coal.
Top 10 Cobalt Producers by Country (Updated 2024)
The cobalt market is facing high demand, but analysts advise that production is also on the rise.
One of the metal’s main catalysts is excitement about electric vehicles. The lithium-ion batteries that power electric vehicles require lithium, graphite and cobalt, among other raw materials, and demand for these important commodities is expected to keep rising as the shift toward clean technologies continues at a global scale. Additionally, the metal is predominantly produced as a by-product of copper and nickel, two other metals that are important for the green transition.
Given those circumstances, it’s interesting to look at the top cobalt producers by country. According to the US Geological Survey, world production has increased significantly over the past two years. In 2023 total cobalt output topped 230,000 metric tons (MT), a large increase from 2022’s 190,000 MT, and a big jump from 2021's 165,000 MT.
Read on for a closer look at cobalt supply and which countries lead in production.
1. Democratic Republic of Congo
Mine production: 170,000 metric tons
The Democratic Republic of Congo (DRC) is by far the world’s largest producer of cobalt, with 170,000 metric tons of production in 2023, accounting for roughly 73 percent of global production. The country has been the top producer of the metal for some time, and is likely to remain crucial to the cobalt market for the foreseeable future.
However, cobalt mining in the DRC is associated with rampant human rights abuses and child labor, due in part to the large presence of unregulated artisanal mining. Attempts have been made to regulate the DRC's artisanal mining sector. But with hundreds of thousands of people relying on artisanal mining for income, eliminating it completely isn't possible.
Efforts to date include the creation of a new state company, Entreprise Générale du Cobalt, to buy and market all artisanal cobalt mined in the DRC; it was set up in 2019 and struggled to make progress. However, in February 2024, it signed an agreement with state miner Gecamines for exclusive mining rights to five mining areas.
Aside from that, the Responsible Minerals Initiative, in cooperation with the Global Battery Alliance, has drafted a framework for a regulated artisanal mining sector. The DRC's mines minister formally approved the ASM Cobalt Standard in 2022, and plans for assessing its effectiveness at pilot sites are being developed.
Outside the DRC's artisanal mining sphere, cobalt is largely produced as a by-product of copper mines, including the Tenke Fungurume mine, owned by the CMOC Group (OTC Pink:CMCLF,HKEX:3993); Metalkol RTR, owned by Eurasian Resources Group and the KOV; and the Mutanda and Mashamba East mines, owned by Glencore (LSE:GLEN,OTC Pink:GLCNF).
2. Indonesia
Mine production: 17,000 metric tons
After producing only 2,700 MT of cobalt in 2021, Indonesia has ramped up production to become the second largest producer of the EV metal. This rapid change was the result of an increase in investment in Indonesia's battery metals supply chain, predominantly from Chinese companies, which moved in after Indonesia banned nickel ore exports in 2019. The country's higher cobalt production has come from four new high-pressure acid leaching (HPAL) facilities that process ore to produce both nickel and cobalt in mixed hydroxide precipitate, which can then be exported.
The first two HPAL operations came online in 2021 as part of the existing Indonesia Morowali Industrial Park. The facilities were developed by QMB New Materials, a joint venture between Tsingshan Holding Group, GEM (SZSE:002340), CATL (SZSE:300750) and Hanwa (TSE:8078). As of late 2023, two others are also operating in the country — one run by Huayue, owned by Tsingshan and CMOC Group, and one run by Halmahera Persada Lygend, owned by Lygend Resources (HKEX:2245) and Trimegah Bangun Persada (IDX:NCKL).
In mid-2024, partners Eramet (EPA:ERA) and chemical producer BASF (OTCQX:BFFAF,FWB:BASF) decided against executing the planned US$2.6 billion Sonic Bay nickel-cobalt hydrometallurgical complex due to nickel market dynamics, including low prices and oversupply. Sonic Bay would have processed ore from the Weda Bay nickel mine to produce 7,500 MT of cobalt and 67,000 MT of nickel per year.
According to a market report released in May 2023 from the Cobalt Institute, Indonesia has the potential to increase its cobalt output 10 fold by 2030. In the same vein, data from Benchmark Mineral Intelligence indicates that Indonesia's 2030 cobalt output will make up 20 percent of global production compared to 1 percent in 2021 and 5 percent in 2022. While the market has been searching for an alternative to the DRC for its cobalt, both Indonesia's nickel industry and this rapid build out come with their own environmental concerns.
3. Russia
Mine production: 8,800 metric tons
After rising in 2022, Russia’s cobalt production declined in 2023, falling from 9,200 metric tons to 8,800 metric tons. While the country's cobalt reserves stand at 250,000 MT, Russia is still well behind the DRC in terms of production. Large Russian miner Norilsk Nickel produces cobalt and is among the world’s top five producers of the mineral.
With concerns about DRC cobalt running high, some automakers have been calling for increased electric vehicle battery production in Europe. There was hope that this push could boost Russia's future cobalt production — however, that may now be out of the question while the country wages war against Ukraine. In April 2022, the US hit Russian cobalt with a 45 percent duty that was set to expire on January 1, 2024. The sanctions on Russian and Belarusian cobalt were extended in June 2024. Additionally, a 25 percent tariff has also been introduced on Chinese cobalt.
4. Australia
Mine production: 4,600 metric tons
As the DRC becomes increasingly challenging for miners and as investors try to divert their interests away from Africa, Australia is another country that’s receiving more attention — the island nation's cobalt reserves are the second largest in the world at 1,700,000 MT.
Despite holding a large amount in reserves, Australian cobalt production contracted year-over-year from 2022 to 2023. After output spiked to 5,900 metric tons in 2022, cobalt production declined to 4,600 metric tons in 2023.
As is the case for many other countries on this list, cobalt is produced in Australia as a by-product of copper and nickel mining. The country’s nickel mines are located in the western part of the country, mostly around the Kalgoorlie and Leonora regions.
Additionally, the Australian government has been sending geologists to search for cobalt in mine waste, an effort that bore fruit when Queensland geologist Anita Parbhakar-Fox tested a copper mine waste sample that graded 7,000 parts per million cobalt. The CEO of Australian company Cobalt Blue Holdings (ASX:COB,OTC Pink:CBBHF) described the discovery as a game changer to the Financial Times, estimating there could be up to 300,000 MT of cobalt in Australian mine waste.
Another important cobalt project in the country under Cobalt Blue is the Broken Hill project, which will allow for cobalt production on-site, rather than extracted as a by-product of nickel. Broken Hill is planned to begin production in 2026, and is anticipated to have an output of around 4,000 metric tons of cobalt annually over a 20 year mine lifespan.
5. Madagascar
Mine production: 4,000 metric tons
Madagascar’s cobalt production was suspended in 2020 to prevent the spread of COVID-19, leading the country’s output for the year to fall to 850 from 3,400 MT in 2019. However, Madagascar’s cobalt-mining industry rebounded through 2021, putting out 3,500 MT in 2022, and 4,000 MT in 2023.
Much of the country’s cobalt production comes from the Ambatovy nickel-cobalt mine, owned by Japanese company Sumitomo (TSE:8053) and the Korean government.
In August 2024, the companies submitted a debt restructuring plan to a London court. According to media reports, Sumitomo, the project's major shareholder, has accumulated 410 billion yen in losses stemming from the project, including a 265.5 billion yen total impairment loss.
6. Philippines
Mine production: 3,800 metric tons
The Philippines is the sixth largest cobalt producer in the world. The country’s cobalt production has remained steady over the last two years, coming in at 3,800 metric tons. The Asian country is also a top nickel producer.
The fate of mining in the Philippines was up in the air for a while as former President Rodrigo Duterte and former Environment Secretary Roy Cimatu called for a shutdown of all mines in the country based on environmental concerns. However, Duterte seemed to have a change of heart in early 2021, lifting a ban on new mine permits in an effort to boost revenues.
His successor, President Bongbong Marcos, has ordered the country's Department of Environment and Natural Resources to enforce stricter guidelines and safety protocols on both small- and large-scale mines. He hopes to bring illegal mining operations into compliance so they can operate legally and with safer conditions for employees.
7. Cuba
Mine production: 3,200 metric tons
Cuban cobalt production fell in 2023 to 3,200 metric tons, down from 3,700 MT in the year prior.
The country’s Moa region is home to the Moa joint venture nickel-cobalt operation held by Canadian firm Sherritt International (TSX:S,OTC Pink:SHERF) and the General Nickel Company of Cuba. Moa uses an open-pit mining system to produce lateritic ore, which is processed into mixed sulfides containing nickel and cobalt using HPAL. The country’s state-owned nickel miner, is the sole operator of the Che Guevara processing plant at Moa.
8. New Caledonia
Mine production: 3,000 metric tons
New Caledonia, a French overseas territory in the Pacific Ocean east of Australia, is known for its mineral industry, primarily focused on nickel and cobalt mining. According to a 2019 USGS Mineral Yearbook report, nickel mining contributes roughly 7 percent of the country’s annual GDP.
Although cobalt production in New Caledonia has increased year-over-year, climbing from 2,000 MT in 2022 to 3,000 metric tons in 2023, the island nation’s primary cobalt producing mine has been embroiled in controversy.
The Goro nickel and cobalt mine, which was brought into operation by Vale (NYSE:VALE), has been impacted by weak nickel prices and electoral reform unrest. In 2020, Vale opted to sell the project as part of a broader company restructuring. The following year, Goro was acquired by Prony Resources New Caledonia consortium, a joint venture owned by New Caledonian entities and international commodities trader Trafigura.
Earlier in 2024, the mine was again making headlines when Trafigura Group declined to provide additional funding for Prony Resources Nouvelle-Calédonie, as part of a French government rescue plan for New Caledonia's struggling mining sector.
9. Papua New Guinea
Mine production: 2,900 metric tons
Papua New Guinea has made the list of top cobalt producers by country for the sixth year in a row. In 2023, the small country off the coast of Australia produced 2,900 MT of cobalt as a by-product of nickel production, staying nearly flat with the previous year's output of 3,000 MT.
The country’s main cobalt producer is the Ramu nickel mine near Madang, a joint venture between private company MCC Ramu NiCo, Nickel 28 Capital (TSXV:NKL,OTC Pink:CONXF) and the Papua New Guinea government.
10. Turkey
Mine production: 2,800 metric tons
Taking the tenth spot on the list is Turkey, which has seen its annual cobalt output rise from 2,100 MT in 2022 to 2,800 metric tons in 2023. The Middle Eastern nation also boasts large reserves totaling 91,000 MT.
A 2021 report from the British Geological Survey, underscored the importance of Turkey's cobalt potential amid the energy transition, noting “the greatest cobalt resource potential lies in laterite deposits in the Balkans and Turkey and in magmatic and black shale-hosted deposits in Fennoscandia.”
It went on to point out that in the Balkans and Turkey, 27 nickel laterite deposits are known to contain cobalt in significant quantities, with several deposits holding over 10,000 MT of cobalt metal. Currently, only nickel is extracted from these deposits, but advancements in processing technologies like high-pressure acid leaching may allow for cobalt recovery in the future.
FAQs for cobalt production
What is the most common source of cobalt?
As cobalt is only found in a chemically combined form, it must be separated from mined ore. Most commonly, cobalt is produced as a by-product at copper or nickel mines. According to Benchmark Minerals, currently three-quarters of cobalt is produced from copper-primary mines and 25 percent is produced from nickel-primary mines. The agency forecasts that by 2030, cobalt production from copper-primary mines will fall to 57 percent, while that from nickel-primary mines will rise to 41 percent.
How rare is cobalt on Earth?
Cobalt is the 32nd most common element on Earth, according to the Cobalt Institute, meaning it isn't particularly rare. However, only a handful of countries have cobalt reserves over 300,000 MT, with the DRC coming in first place at 4 million MT, Australia in second at 1.5 million MT and Indonesia coming in third place with 600,000 MT. In fact, the DRC has higher cobalt reserves than the rest of the world combined.
How many years of cobalt are left?
How long it will take to deplete cobalt reserves and resources depends on the approach and speed with which electrification and a fully renewable society is approached, according to a 2019 study. Another factor is whether or not lithium-ion battery formulas that require cobalt will continue to be the norm in the future. If widespread cobalt substitution does take place, that will ease demand pressures on the metal.
Why is cobalt so valuable?
Cobalt has risen in recent years due to supply chain difficulties and the metal's necessity in many lithium-ion battery cathodes, with prices peaking in March and April 2022 at over US$80,000 per MT. However, prices have fallen since then, and sat around the US$33,000 mark as of November 2023. The EV story has led to increased cobalt supply, meaning that there will be short-term price pressures due to oversupply as demand continues to rise in the coming years.
What is the problem with cobalt mining?
Most cobalt production takes place in the DRC, which is known for artisanal mining. Artisanal miners are adults and children who are not employed by mining companies, but mine independently using their own tools or just their hands.
A 2023 ABC news report on the country's artisanal mining industry estimates that 200,000 artisanal miners are working on cobalt deposits; unfortunately, a lack of oversight and safety measures means injuries and death are more frequent than in regulated mining. While organizations are working to keep the supply chain transparent, it is hard to fully avoid cobalt that is sourced through child labor and human rights abuses.
Other countries are not exempt from concerns related to mining cobalt — Indonesia's burgeoning cobalt production comes with the vast environmental concerns that plague the nation's nickel industry.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Electra Battery Materials Secures US$20 Million Grant for Ontario Cobalt Facility
Electra Battery Materials (TSXV:ELBM,NASDAQ:ELBM) has received a US$20 million grant from the US Department of Defense to support the construction and commissioning of a cobalt refinery in Ontario.
According to a Monday (August 19) press release from the Department of Defense, the money will come to Electra via the Defense Production Act Investments Office and will use funds from the Ukraine Supplemental Appropriations Act of 2022.
The US$250 million refinery project is situated approximately 500 kilometers north of Toronto in Temiskaming Shores, a location strategically chosen to support North America's expanding electric vehicle (EV) supply chain.
The grant is part of the US' broader strategy to reduce its reliance on foreign sources of essential minerals used in the defense and technology sectors. The funding will be used to build a cobalt sulfate refinery, and Electra says it will be the only one of its kind in North America dedicated to producing battery-grade materials for lithium-ion batteries.
The cash injection follows earlier investments in Canadian mining projects from the Department of Defense. Fortune Minerals (TSX:FT,OTCQB:FTMDF) and Lomiko Metals (TSXV:LMR,OTCQB:LMRMF) were the recipients of the funds, which were accompanied by additional investments from the Canadian government.
Canada has also contributed US$3.6 million to support Electra's battery materials recycling technology.
Electra paused construction of the cobalt plant last year due to a downturn in prices and higher-than-expected costs. CEO Trent Mell noted that the firm is in talks to get more funding from the Canadian government.
“We’re not in a free market, with China subsidizing producers and overproducing. I think it’s essential that, if we’re going to build our own domestic supply chain, we have this financial support,” he told Bloomberg on Tuesday (August 20).
The new facility will contribute to the regional EV supply chain by providing a steady source of cobalt.
It also coincides with other efforts to streamline and improve EV facilities in Ontario, such as automaker Honda’s (NYSE:HMC) plans to invest approximately C$15 billion to establish an assembly plant in the region.
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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.
Editorial Dislcosure: Fortune Minerals is a client of the Investing News Network. This article is not paid-for content.
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Cobalt Market Forecast and Cobalt Stocks to Buy in 2024
Cobalt Market Update: Q1 2024 in Review
The cobalt market put on a mixed performance in the first quarter of 2024 as metal prices stalled and contracted, while sulfate and hydroxide values increased.
The sector is divided into three segments. Cobalt metal is used as an alloy to strengthen and harden, while cobalt hydroxide is used in lithium-ion batteries, electronics and paint pigments.
Lastly, cobalt sulfate is used to make storage batteries, electroplating baths and some animal feed.
After reaching a second all-time price high in 2022 — US$82,200 per metric ton (MT) — cobalt metal prices have been retracting. They spent the first month of the year locked at the US$29,134.30 level, but sank to a three year low of US$27,215 on April 15. By the end of the quarter, cobalt metal had seen a 2.01 percent erosion in value.
Although cobalt metal prices declined during Q1, Benchmark Mineral Intelligence Pricing Analyst Roman Aubry noted that the rest of the market exhibited strength during the first 90 days of 2024.
“Benchmark has only seen a price decline for cobalt metal in Q1 of 2024; most of our cobalt grades have seen a slight positive trend on the back of rising cobalt hydroxide prices,” he told the Investing News Network (INN) via email.
What factors impacted cobalt supply and demand in Q1?
According to the US Geological Survey's latest report on cobalt, mine supply of the battery metal ballooned in 2023, growing 16.75 percent year-over-year, from 197,000 MT in 2022 to 230,000 MT in 2023.
The vast majority (170,000 MT) was mined in the Democratic Republic of Congo (DRC). In fact, the five largest cobalt mines in the world are located in the African nation.
As Adam Webb, product director at Benchmark Mineral Intelligence, explained during a late March webinar, the cobalt deposits in the DRC are much richer compared to anywhere else globally.
These high-grade areas have attracted the attention of Chinese mining companies, particularly China Molybdenum (SHA:603993,OTC Pink:CMCLF), which is now the largest cobalt producer in the DRC and the world.
With cobalt demand projected to increase by 60 to 70 percent by 2040, the DRC is projected to play a vital role in the energy transition. The country will be responsible for filling most of the additional 214,000 MT of cobalt demand expected by 2030, as it is the only country that can deliver this level of cobalt supply growth, explained Webb.
As Aubry, a colleague of Webb, noted in an email to INN, most of this increased cobalt supply originating in the DRC will end up in electric vehicles (EVs), which is a positive trend for the market.
“It’s hard to understate just how much demand will be added to the cobalt market by the EV industry,” he said. “Already it has become the largest demand sector, and its dominance is only set to grow.”
This sentiment was reiterated in the latest edition of the International Energy Agency's (IEA) Global EV Outlook, which forecasts a significant surge in EV sales, with one in five cars sold worldwide expected to be electric this year.
The report notes that global EV sales are projected to top 17 million by the end of 2024, with China leading the charge with roughly 10 million units. Europe and the US are also seeing increased growth in EV adoption, despite a generally weak outlook for passenger car sales. The report attributes this growth to substantial investment in the EV supply chain, ongoing policy support and declines in prices for EVs and batteries. Under current policies, nearly one in three cars in China and one in five in the US and EU are expected to be electric by 2030.
“The continued momentum behind electric cars is clear in our data, although it is stronger in some markets than others,” wrote IEA Executive Director Fatih Birol. “Rather than tapering off, the global EV revolution appears to be gearing up for a new phase of growth. The wave of investment in battery manufacturing suggests the EV supply chain is advancing to meet automakers’ ambitious plans for expansion.”
Sustained growth in the EV space helped to catalyze cobalt chemical prices during the second month of the year.
“From mid-February onwards, we saw an uptick in demand for cobalt chemicals, particularly from cobalt sulphate, as nickel-cobalt-manganese (NCM) battery cathode manufacturers began to restock their cobalt chemical reserves, in anticipation for increased demand from Tier 1 cell suppliers for high-end EV models,” said Aubry.
Cobalt surplus seen lasting into 2025
Although the long-term outlook for cobalt remains positive, Aubry pointed to various near-term challenges.
“The cobalt market is presently very bearish; the source of this is a significant oversupply of cobalt hydroxide,” he said. “Our forecasting team estimates the cobalt oversupply to be around 12,400 tonnes in 2024.”
The Benchmark team expects this surplus position to last into 2025.
Another factor that could weigh on the cobalt market and prices is battery chemistry, according to Aubry.
“Currently the biggest threat to cobalt is the adoption of lithium-iron-phosphate (LFP) chemistries for EVs; China in particular has been rapidly increasing LFP production,” he explained. “Despite this, cobalt demand overall is expected to go up considerably even if LFP displaces NCM chemistries significantly due to the sheer potential of EV growth.”
Benchmark projects that NCM batteries will “maintain over 40 percent market share, particularly in the west where consumers value distance covered in a single charge.”
“The EV market is set to take off further in the coming years, and critical components, like cobalt, will quickly see their demand rise much faster than the supply can match,” said Aubry. “By 2030, a significant supply gap will form, and if the market does not sufficiently adapt, we may see cobalt prices exceed the heights of 2022.”
While cobalt-containing batteries are likely to retain a broad chunk of the market despite LFP growth, one headwind that has the potential to disrupt output is mined supply. “The biggest pain point in cobalt is in mining capacity more than refining. In that aspect, additional refining capacity will certainly help alleviate some of this pressure; however, there is still a fundamental difference in what the demand is for the market compared to what is supplied. While refining capacity may increase prices for some cobalt grades, it may in turn hurt others,” noted Aubry.
Don’t forget to follow us @INN_Resource for real-time news updates.
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Cobalt Market Update: Q2 2024 in Review
Prices for cobalt metal continued to contract in Q2 on the back of oversupply. Meanwhile, values for alloy-grade cobalt saw some growth due to increased demand in the aerospace and defense sectors.
Starting the 90 day session at US$28,551.80 per tonne, prices for cobalt metal shed 4.93 percent through Q2, ending the period at US$27,143.90. “We've seen prices for standard grade kind of draw down to eight year lows, despite the energy transition demand in the space that's been moving forward,” said Alex Cook, senior price reporter at Fastmarkets.
At Fastmarkets' Lithium Supply and Battery Raw Materials event, Cook noted that increased production in the Democratic Republic of Congo (DRC), Indonesia and China outpaced demand growth and impeded price momentum.
Reiterating that point in a July report, Cook and Angeline Shi, also of Fastmarkets, note that China’s CMOC Group (OTC Pink:CMCLF,SHA:603993) produced 54,024 tonnes of cobalt metal in the first half of the year, achieving 83 percent of its annual guidance of 60,000 to 70,000 tonnes. This surge, which added to an already oversupplied market, was reportedly driven by the expansion of CMOC’s TFM mine, along with increased monthly output at the KFM mines in the DRC.
As Cook explained, Fastmarkets expects cobalt metal prices to trend lower through the third quarter of 2024.
Cobalt metal price graph, June 2022 to April 2024.
Chart via Fastmarkets.
While cobalt metal prices remained muted in Q2, Cook noted that there is a growing price discrepancy between the value of cobalt metal, or standard-grade material, and alloy-grade material.
The spread between alloy-grade and standard-grade cobalt has widened to its largest point since 2009. Strong demand from the US aerospace sector has created a premium for approved aerospace brands amid supply tightness, he noted.
“We are seeing alloy grade at a premium,” Cook told the audience at the Fast markets event. “The main demand source at the moment is aerospace demand, and military defense applications as well.”
Additionally, a 25 percent US tariff on Chinese cobalt metal is somewhat restricting long-term imports. While some have opted to pay the tariff, Cook sees that trend as unsustainable.
He also highlighted a discrepancy between low standard-grade and high standard-grade prices. Supply disruptions for some western brands have created a small premium, with deals clustering around the higher end of the range. The rapid expansion of production capacity for Chinese brands has increased their availability, further widening the range.
Oversupply creating cobalt price pressure
Last year, global cobalt mine supply jumped 16.75 percent year-over-year, rising from 197,000 tonnes in 2022 to 230,000 in 2023. Both the DRC and Indonesia saw significant production increases, with the DRC's output climbing from 144,000 tonnes in 2022 to 170,000 in 2023 — that amounts to 74 percent of global supply. Indonesian production grew from 9,600 tonnes to 17,000 tonnes during the same timeframe, making up 8 percent of supply.
With higher mine output from the DRC and Indonesia, and increased refinery production in China, Fastmarkets is forecasting a 10,000 tonne surplus for 2024, which will add to price headwinds. This despite China’s State Reserve Bureau (SRB) making a strategic cobalt acquisition of 15,000 tonnes for delivery by the end of the year.
“Initially the (stockpiling) provided a boost to standard-grade prices; (however), the low end has since fallen to levels seen before the SRB purchase,” explained Cook. Moving forward, the SRB's 15,000 tonne acquisition could be offset by heightened production in China through the second half of the year.
Elsewhere, high copper prices are likely to keep cobalt by-product production in the DRC at elevated levels.
Indonesian cobalt supply is the result of high-pressure acid leaching (HPAL), a process used to extract nickel and cobalt from laterite ore bodies. Fastmarkets expects this space to grow significantly in the next decade.
“An increase in Indonesian HPAL capacity will more than double its share of cobalt mine supply by 2028," said Cook. “Indonesia will account for 19 percent of mine supply by 2028.”
With this increased production in the DRC and Indonesia, Fastmarkets anticipates that the market will take in an additional 52,000 tonnes of cobalt supply by 2028.
On the demand side, the battery segment will continue to drive growth. In 2023, batteries accounted for 73 percent of global cobalt demand, and according to Fastmarkets, demand from the sector is projected to rise at a CAGR of 12.5 percent between 2023 and 2028. This increase will boost the battery sector's share of demand to 81 percent.
In contrast, demand growth from superalloys and other sectors is expected to be much lower. These segments have estimated CAGRs of 4.4 percent and 2 percent, respectively.
Low prices weighing on western cobalt supply
Outside the DRC and Indonesia, cobalt mines have been impacted by weak prices.
“Those low prices that we've seen have really started to threaten the development of western cobalt capacity,” said Cook.
“Already over the last 12 to 18 months, we've seen a US cobalt mine having to be shuttered because of the low price environment — the breakeven cost is far higher than the market price," he added.
In April, cobalt- and nickel-focused Jervois Global (TSXV:JRV,ASX:JRV,OTCQB:JRVMF) suspended final construction and full concentrator commissioning at its Idaho Cobalt Operations (ICO).
“ICO’s mineral resource and reserve is the largest and highest grade confirmed cobalt orebody in the US and when commissioned will represent the country’s only primary cobalt mine supply,” the company said.
“Jervois has determined that not mining ICO cobalt at cyclically low prices, will preserve the optionality and inherent strategic value of ICO for shareholders and key stakeholders including local communities and the State of Idaho. The company also views not mining ICO at current prices is consistent with US Government critical mineral policy objectives.”
ICO isn't the only cobalt endeavor that has sidelined by a changing environment.
In late June, BASF (OTCQX:BFFAF,FWB:BASF) decided against a US$2.6 billion investment in a nickel and cobalt refinery. Although the move was largely attributed to increasing global availability of nickel, cobalt will be affected too.
BASF initially announced the plan with Eramet (EPA:ERA) in 2020, and the refinery project was expected to output 42,000 tonnes of nickel and 5,000 tonnes of cobalt annually for BASF.
What factors will move the cobalt market in 2024?
The cobalt market saw more stability in late June as some excess supply was absorbed.
“Prices continued their steady decline in June due to persistent oversupply from mines in the Democratic Republic of Congo and Indonesia,” FocusEconomics' July Consensus Forecast reads. “Against this backdrop of low prices, several hedge funds have recently entered the cobalt market as buyers, providing some support to pricing.”
Overall, Fastmarkets expects to see demand for cobalt increase in 2024, but believes this increased demand will not be enough to offset rising supply, leading to another year of surplus.
“(For) alloy grade it’s a little bit different,” said Cook. “We're seeing the opposite in that demand is actually increasing far above the availability of supply.” However, he did note that alloy demand is a small segment of the cobalt market.
“Our research team expects cobalt supply to continue to increase year-on-year, dominated by China. We are expecting China’s refined cobalt supply capacity to increase as well,” said Cook.
While Fastmarkets sees continued price pressure and bearishness in the cobalt industry for the remainder of the year, FocusEconomics has painted a more optimistic picture.
“Prices will surge from current levels by year-end on the back of resilient demand for electric vehicles (EVs), as well as speculative buying from hedge funds and planned stockpiling in China,” its report states. “In the longer term, prices will increase further as the metal is used in electronic applications and lithium-ion batteries, which are widely used in EVs.”
FocusEconomics panelists are projecting that cobalt prices will reach US$34,526 in Q4.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Top 3 Canadian Cobalt Stocks in 2024
The first months of 2024 saw cobalt take a bearish stance, constrained by excess supply and eroding demand.
Cobalt prices faced many headwinds at the beginning of the year, and they pulled the value of the battery metal down by 2.01 percent between January and the end of March. After starting the calendar year at US$29,134 per metric ton (MT), cobalt metal prices had fallen to US$28,548 by the end of the three month session.
The sluggish market conditions were attributed to reduced demand from the battery sector and oversupply of material. As a result, prices remained under pressure, with limited signs of improvement expected in the near term.
“Electric vehicle and electronic batteries still comprise a large portion of cobalt demand, although the power battery production landscape in China encountered challenges in the past year,” a January report from S&P Global Commodity Insights states. “A notable decline in growth rates, particularly in the production of batteries with a nickel-manganese-cobalt chemistry, has led market sources to hold a cautiously optimistic outlook for Q1.”
Concerns over the economic impact of the Russia-Ukraine conflict have also added to the market uncertainty.
The first 30 days of Q2 haven’t offered relief to the cobalt market, with prices falling below US$28,000 in mid-April.
These tough market conditions were reflected in the performance of the sector’s exploration and mining companies. However, despite the challenges, three companies have been able to make gains in the current market.
Below is a look at the three top cobalt stocks on the TSX and TSXV by share price performance so far this year. All year-to-date and share price information was obtained on May 1, 2024, using TradingView’s stock screener, and all companies listed had market caps above C$10 million at that time. Read on to learn more about their activities.
1. Electra Battery Materials (TSXV:ELBM)
Year-to-date gain: 15.38 percent; market cap: C$32.94 million; current share price: C$0.60
Canada-based exploration and development company Electra states it is actively involved in processing low-carbon, ethically sourced battery materials. The company is working to develop North America's sole cobalt sulfate refinery while operating a black mass recycling demonstration plant. Black mass is obtained from end-of-life lithium-ion batteries.
Electra is also progressing exploration efforts at its Iron Creek cobalt and copper project in the Idaho Cobalt Belt, and expanding its cobalt sulfate processing capabilities in Bécancour, Québec.
In early February, Electra released an update on its black mass demonstration plant near Toronto. The overview notes that recent optimizations have enhanced the recovery of lithium, nickel, cobalt and other essential minerals, improving the quality of saleable end products. Further optimization studies will include metal recovery from internal recycling streams, and Electra said preliminary lab results suggest positive prospects for isolating cobalt from nickel in the leach liquor.
On February 9, the company received a C$5 million investment from the Canadian government for the construction of its cobalt sulfate refinery. The refinery, which will be situated in Temiskaming Shores, Ontario, aims to supply roughly 5 percent of the world's battery-grade cobalt essential for electric vehicles. The C$5 million grant is being dispersed through the Federal Economic Development Initiative for Northern Ontario.
“Canada has surpassed China as the top jurisdiction in the global battery supply chain, given its strength in raw materials mining and processing,” Trent Mell, Electra’s CEO, said. “Today’s investment from the Government of Canada means that Northern Ontario will seize the economic opportunities created by Canada’s transition to a green economy.”
Shares of Electra reached a year-to-date high of C$0.97 on February 15.
2. FPX Nickel (TSXV:FPX)
Year-to-date gain: 6.67 percent; market cap: C$87.67 million; current share price: C$0.32
FPX Nickel is currently advancing its Decar nickel district in BC, Canada. The property comprises four key targets, with the Baptiste deposit being the primary focus, alongside the Van target.
FPX Nickel also has three other nickel projects in BC and one in the Yukon, Canada. While nickel extraction is its main focus, the company plans to produce cobalt as a by-product from future mining operations at the Baptiste site.
In mid-January, FPX secured a C$14.4 million strategic equity investment from Sumitomo Metal Mining Canada, a subsidiary of Japanese nickel miner Sumitomo Metal Mining (TSE:5713).
Martin Turenne, president and CEO of FPX, noted that Sumitomo's investment is a substantial validation of Baptiste, highlighting Sumitomo Metal Mining's expertise in nickel production and supply chain diversification.
Shortly after the Sumitomo news, FPX announced the “company’s three strategic investors have fully exercised their participation rights to re-establish their respective initial ownership interest in FPX’s issued and outstanding common shares.” The exercise resulted in the completion of an additional private placement, where a total of 8,981,971 common shares were issued to the strategic investors at C$0.48 each, generating C$4,311,346 in proceeds.
With approximately C$45 million on hand, including the proceeds, FPX expects to be fully funded for its 2024 and 2025 activities. Shares of FPX spiked following the news and reached a year-to-date high of C$0.40 on February 5.
Investor Kit
3. Sherritt International (TSX:S)
Year-to-date gain: 5 percent; market cap: C$123.16 million; current share price: C$0.31
Sherritt International is a leading global player in hydrometallurgical processes for nickel and cobalt extraction. At its Moa joint venture, located in Cuba, Sherritt is pursuing a 25 year expansion program to boost annual mixed sulfide precipitate output by 20 percent, equating to 6,500 MT of nickel and cobalt.
On January 15, Sherritt announced it was implementing organization-wide cost-cutting measures to enhance operations in response to market conditions. Part of these efforts included a corporate restructuring and a 10 percent reduction in Canadian staff. In February, the company released its 2023 results and 2024 guidance. In the report, Sherritt notes that total cobalt production on a 100 percent basis was 2,876 MT, “slightly below their annual guidance ranges.”
For 2024, the company is anticipating an uptick in nickel and cobalt production “due to increased feed of mixed sulphides from the Moa mine site to the refinery as a result of access to additional ore sources.”
Sherritt shares marked a year-to-date high on April 10 of C$0.36.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: FPX Nickel is a client of the Investing News Network. This article is not paid-for content.
Sherritt Appoints Shelley Brown to its Board of Directors
Sherritt International Corporation ("Sherritt" or the "Corporation") (TSX:S) is pleased to announce the appointment of Shelley Brown to its Board of Directors effective today. Ms. Brown's appointment and significant experience will provide a seamless succession following the resignation of Anna Ladd-Kruger who is reducing her board commitments in order to take up full time study at the University of British Columbia.
"We are delighted to have Shelley join our Board," commented Sir Richard Lapthorne, Chair of Sherritt's Board of Directors. "With her distinguished career, marked by considerable accomplishments and numerous accolades, Shelley will be an invaluable addition to Sherritt's Board."
Sir Richard Lapthorne, continued, "In addition, I would like to thank Anna for her contributions to Sherritt and wish her every success in her academic endeavours."
Ms. Brown brings considerable experience to Sherritt's Board. As a Senior Audit Partner with Deloitte LLP she worked with a number of the firm's major audit clients including multi-national mining and oil and gas companies listed in both Canada and the U.S. During her time in public practice, she served as the Director for Audit Services in Saskatchewan and also as Regional Managing Partner in Saskatchewan. Ms. Brown has over 30 years of board experience including serving on the boards of Stantec Incorporated and Inter Pipeline Limited. She previously served as the Chair of the Canadian Institute of Chartered Accountants. In 2013, she was appointed as the first Chair of CPA Canada. Ms. Brown is the recipient of numerous awards recognizing her accomplished career including receiving Lifetime Achievement Awards from the CPA Institutes of British Columbia and Saskatchewan and in 2018, she was named as a member of the Order of Canada for her contributions to her profession and her community.
About Sherritt International
Sherritt is a world leader in using hydrometallurgical processes to mine and refine nickel and cobalt – metals deemed critical for the energy transition. Sherritt's Moa Joint Venture has a current estimated mine life of 25 years and has embarked on an expansion program focused on increasing annual mixed sulphide precipitate production by approximately 20% of contained nickel and cobalt. The Corporation's Power division, through its ownership in Energas S.A., is the largest independent energy producer in Cuba with installed electrical generating capacity of 506 MW, representing approximately 10% of the national electrical generating capacity in Cuba. The Energas facilities are comprised of two combined cycle plants that produce low-cost electricity from one of the lowest carbon emitting sources of power in Cuba. Sherritt's common shares are listed on the Toronto Stock Exchange under the symbol "S".
View source version on businesswire.com: https://www.businesswire.com/news/home/20240805611817/en/
For further information, please contact:
Tom Halton
Director, Investor Relations and Corporate Affairs
Email: investor@sherritt.com
Telephone: (416) 935-2451
www.sherritt.com
News Provided by Business Wire via QuoteMedia
ASX Retraction Statement
High-Tech Metals Limited (ASX: HTM) (High-Tech, HTM or the Company), refers to the announcement dated 6 September 2023 regarding the Company’s acquisition of the Norpax Nickel Sulphide Deposit (Norpax).
Retraction
High-Tech hereby retracts the reference to Norpax, specifically the historical non-JORC compliant resource. The Company emphasises that investors should not place reliance on these statements, as the results cannot currently be reported under the JORC (2012) Code. The Company has not independently validated the previous exploration results of Norpax and therefore is not to be regarded as reporting, adopting or endorsing those results.
Click here for the full ASX Release
This article includes content from High-Tech Metals, licensed for the purpose of publishing on Investing News Australia. This article does not constitute financial product advice. It is your responsibility to perform proper due diligence before acting upon any information provided here. Please refer to our full disclaimer here.
Sherritt Reports Second Quarter 2024 Results; Metals and Power Deliver Strong Performance; Net Direct Cash Cost Significantly Improved
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
Sherritt International Corporation ("Sherritt", the "Corporation") (TSX: S), a world leader in using hydrometallurgical processes to mine and refine nickel and cobalt metals deemed critical for the energy transition today reported its financial results for the three and six months ended June 30, 2024. All amounts are in Canadian dollars unless otherwise noted.
Leon Binedell, President and CEO of Sherritt commented, "We are encouraged by the strong operational turnaround and improved performance delivered by both our Metals and Power businesses in line with our plans developed last year in response to the market decline and operational challenges experienced. At Metals, nickel, cobalt and fertilizer production benefitted from improved operating reliability and increased mixed sulphides availability as we begin to see the positive impacts of the slurry preparation plant commissioned earlier this year. Notably, our net direct cash cost of US$5.75 per pound was a significant improvement and with our continued focus on operating stability, margin improvement and cash generation, we see the potential to realize further cost improvements ahead. At Power, we continue to achieve increased production and improved utilization. We are pleased to announce an additional well is scheduled to be drilled this year which will increase our output further. The additional supply of gas in Power has resulted in a materially higher dividend of $5.1 million received in Canada this quarter and we expect to continue receiving higher dividends going forward."
Mr. Binedell continued, "With nickel and cobalt both facing headwinds and prices considered at or near the bottom, our lower operating costs and the advancements in operational improvements we have made, place us in a strong position to weather these near-term market uncertainties unlike many non-Chinese linked suppliers which have already announced their exit from the market. Once these near-term market uncertainties abate, we will ultimately capitalize on the future growth opportunities ahead with strong demand expected over the medium-term for the responsibly sourced critical minerals we produce."
SECOND QUARTER 2024 SELECTED DEVELOPMENTS
- Sherritt's share (1) of finished nickel and cobalt production at the Moa Joint Venture ("Moa JV") was 3,383 tonnes and 342 tonnes, respectively.
- Sherritt's share of finished nickel and cobalt sales was 3,791 tonnes and 390 tonnes, respectively. Nickel sales volumes exceeded production volumes on continued strong spot sales which are expected to continue in the second half of the year, driving progress on reducing nickel inventory.
- Net direct cash cost ("NDCC") (2) was US$5.75/lb benefitting from lower mining, processing and refining costs per pound of nickel sold ("MPR/lb"), the largest component of NDCC (2) , which improved 15% compared to Q2 2023. Compared to Q1 2024, NDCC (2) continued to improve as expected decreasing by 21%.
- Received $5.1 million of dividends in Canada from Energas during the quarter. Based on current 2024 guidance estimates for production volumes, unit operating costs (2) and spending on capital (2) disclosed in the Outlook section of the MD&A, Sherritt expects total dividends in Canada from Energas to exceed $10.0 million in 2024 (3) .
- Electricity production was 205 GWh benefitting from increased gas supply from the two wells that went into production at the end of Q2 2023.
- Electricity unit operating cost (2) was $42.74/MWh reflecting timing of higher scheduled maintenance, partly offset by higher sales volume.
- 2024 guidance for production volumes, unit operating costs/NDCC (1) and spending on capital (1) remain unchanged.
- Net loss from continuing operations was $11.5 million, or $(0.03) per share primarily due to lower average-realized prices (2) for nickel, cobalt and fertilizers, partly offset by higher nickel sales volumes.
- Adjusted net loss from continuing operations (2) was $10.0 million or $(0.03) per share, which primarily excludes a non-cash $5.3 million revaluation loss on the net receivable pursuant to the Cobalt Swap (4) on updates to valuation assumptions and a $3.4 million unrealized gain on nickel put options.
- Adjusted EBITDA (2) was $13.0 million.
- Available liquidity in Canada as at June 30, 2024 was $55.9 million supported by $27.0 million received from the Moa JV as full repayment of short-term working capital advances primarily offset by $7.8 million used for operating activities at Power to support scheduled maintenance activities, a $9.4 million interest payment on Second Lien Notes and a $10.8 million payment on rehabilitation and closure costs related to legacy Oil and Gas assets in Spain.
- Sherritt's syndicated revolving-term credit facility was amended to extend its maturity by one year from April 30, 2025 to April 30, 2026 and change the EBITDA-to-Interest Expense covenant as defined in the agreement. There were no other significant changes to the terms, financial covenants or restrictions.
- Purchased put options on 3,876 tonnes of nickel, or 646 tonnes per month, at an exercise price of US$8.16/lb at a cost of $2.2 million for a six-month period starting from June 1, 2024. Any settlements will be paid in cash monthly based on the average monthly nickel price on the London Metal Exchange ("LME"). The economic hedging strategy provides Sherritt with full exposure to upward changes in nickel prices, while protecting against downward changes in nickel prices by providing a minimum price of US$8.16/lb on approximately 25% of expected nickel production from the Moa JV during the six-month period. In July, Sherritt received $0.4 million upon settlement of the June 2024 in-the-money put option.
- Opportunistically repurchased $1.5 million of 10.75% unsecured PIK option notes ("PIK Notes") at a 50% discount.
- Released the Corporation's 2023 Sustainability Report marking the 16th year of sustainability reporting and outlining significant progress made during the year toward its ESG goals and highlighting achievements made during the year including maintaining conformity with the LME's Track B Responsible Sourcing Requirements.
- Completed a 10% workforce reduction at its Corporate office in Q2 2024 in addition to the Canada-wide restructuring completed in Q1 2024. Annual cost savings from these cumulative employee and other cost reductions are expected to be $15.0 million per year.
- Phase two of the Moa JV expansion continues with commissioning and ramp up expected in the first half of 2025.
- Advanced the mixed hydroxide precipitate processing project ("MHP Project") with the commencement of an engineering study and continued batch test work and process flowsheet development, which yielded very positive results for metal recoveries and impurity removals.
(1) | References to "Sherritt's share" is consistent with the Corporation's definition of reportable segments for financial statement purposes. Sherritt's share of "Metals" includes the Corporation's 50% interest in the Moa JV, its 100% interest in the utility and fertilizer operations in Fort Saskatchewan ("Fort Site") and its 100% interests in subsidiaries established to buy, market and sell certain of the Moa JV's nickel and cobalt production and the Corporation's cobalt inventory received under the Cobalt Swap agreement ("Metals Marketing"). Sherritt's share of Power includes the Corporation's 33⅓% interest in Energas S.A. ("Energas"). References to Corporate and Other and Oil and Gas includes the Corporation's 100% interest in these businesses. Corporate and Other refers to the Corporate office and Technologies. References to Fort Site directly is to the Corporation's interest in its 100% interest in the utility and fertilizer operations. |
(2) | Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release. |
(3) | Refer to the risks related to Sherritt's corporate structure in the Corporation's 2023 Annual Information Form for further information on risks related to dividends in Canada from Energas. |
(4) | For additional information on the Cobalt Swap, see Note 12 – Advances, loans receivable and other financial assets of the consolidated financial statements for the year ended December 31, 2023. |
DEVELOPMENTS SUBSEQUENT TO THE QUARTER
Subsequent to the quarter end:
- The Moa JV received approval for US$12 million of foreign currency financing from a Cuban bank to support international payments related to construction of the Sixth Leach Train, the primary component of phase two of the expansion project.
- Elected not to pay cash interest due July 2024 of $3.5 million and added the payment-in-kind interest to the principal amount owed to noteholders on its 10.75% unsecured PIK notes.
Q2 2024 FINANCIAL HIGHLIGHTS
For the three months ended | For the six months ended | |||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||
$ millions, except per share amount | June 30 | June 30 | Change | June 30 | June 30 | Change | ||||||||
Revenue | $ | 51.4 | $ | 93.5 | (45%) | $ | 80.2 | $ | 152.1 | (47%) | ||||
Combined revenue (1) | 163.2 | 197.0 | (17%) | 290.9 | 384.4 | (24%) | ||||||||
(Loss) earnings from operations and joint venture | (1.9) | 2.2 | (186%) | (24.3) | 23.8 | (202%) | ||||||||
Net (loss) earnings from continuing operations | (11.5) | 0.3 | nm (2) | (52.4) | 13.9 | (477%) | ||||||||
Net (loss) earnings for the period | (11.5) | 0.3 | nm | (52.0) | 13.6 | (482%) | ||||||||
Adjusted EBITDA (1) | 13.0 | 14.2 | (8%) | 6.5 | 55.4 | (88%) | ||||||||
Adjusted net (loss) earnings from continuing operations (1) | (10.0) | (2.5) | (300%) | (34.6) | 11.3 | (406%) | ||||||||
Net (loss) earnings from continuing operations ($ per share) | (0.03) | 0.00 | nm | (0.13) | 0.03 | (533%) | ||||||||
Adjusted net (loss) earnings from continuing operations ($ per share) (1) | (0.03) | (0.01) | (200%) | (0.08) | 0.02 | (500%) | ||||||||
Cash (used) provided by continuing operations for operating activities | (37.8) | 32.0 | (218%) | (24.8) | 41.9 | (159%) | ||||||||
Combined free cash flow (1) | (27.0) | 5.6 | (582%) | (11.2) | 34.9 | (132%) | ||||||||
Average exchange rate (CAD/US$) | 1.368 | 1.343 | 2% | 1.359 | 1.348 | 1% |
(1) | Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release. |
(2) | Not meaningful ("nm"). |
2024 | 2023 | ||||||||||
$ millions, as at | June 30 | December 31 | Change | ||||||||
Cash and cash equivalents | |||||||||||
Canada | $ | 25.5 | $ | 21.5 | 19% | ||||||
Cuba (1) | 105.4 | 96.3 | 9% | ||||||||
Other | 1.4 | 1.3 | 8% | ||||||||
132.3 | 119.1 | 11% | |||||||||
Loans and borrowings | 369.9 | 355.6 | 4% | ||||||||
The Corporation's share of cash and cash equivalents in the Moa Joint Venture, not included in the above balances: | $ | 8.5 | $ | 5.9 | 44% |
(1) | As at June 30, 2024, $104.2 million of the Corporation's cash and cash equivalents was held by Energas (December 31, 2023 - $93.9 million). |
Cash and cash equivalents as at June 30, 2024 were $132.3 million, decreasing from $144.4 million as at March 31, 2024.
As at June 30, 2024, total available liquidity in Canada, which is composed of cash and cash equivalents in Canada of $25.5 million and available credit facilities of $30.4 million was $55.9 million decreasing from $67.9 million as at March 31, 2024 as expected. Available liquidity in Canada during the quarter was supported by $27.0 million received from the Moa JV as full repayment of short-term working capital advances, and $5.1 million of dividends from Energas received in Canada. These receipts were primarily offset by $7.8 million used for operating activities at Power primarily to support scheduled maintenance activities, a $9.4 million interest payment on Second Lien Notes and a $10.8 million payment on rehabilitation and closure costs related to legacy Oil and Gas assets in Spain. The receipt of the Moa JV advance repayment is reflected in cash provided by investing activities.
Moa JV's cash and cobalt distributions to the Corporation are determined based on available cash in excess of liquidity requirements. Determinants of liquidity include anticipated nickel and cobalt prices, planned spending on capital at the Moa JV including growth capital, working capital needs, expected financing and other expected liquidity requirements. Available cash is also impacted by changes in working capital primarily related to changes in inventory, and timing of receipts and payments, including receipts on nickel and cobalt sales subsequent to shipment. Based on the midpoint of the Moa JV's 2024 guidance ranges for production volumes, unit operating costs (1) and spending on capital (1) disclosed in the Outlook section of the MD&A, and the first half 2024 nickel and cobalt average reference prices of US$8.00/lb and US$13.50/lb, respectively, Sherritt expects to receive approximately $50.0 million in Cobalt Swap distributions (including both Sherritt's share and GNC's redirected share). As defined by the agreement, any short fall in the annual minimum payment amount will be added to the following year. With the full repayment of the short-term working capital advances to the Moa JV received in the second quarter of 2024, Sherritt expects the joint venture will commence dividends pursuant to the Cobalt Swap during the fourth quarter of 2024. Refer to the risks related to Sherritt's corporate structure in the Corporation's 2023 Annual Information Form for further information on risks related to distributions from the Moa JV.
In Power, based on 2024 guidance estimates for production volumes, unit operating costs (1) and spending on capital (1) disclosed in the Outlook section of the MD&A, Sherritt expects total dividends in Canada from Energas to exceed $10.0 million in 2024. Refer to the risks related to Sherritt's corporate structure in the Corporation's 2023 Annual Information Form for further information on risks related to dividends in Canada from Energas.
During the quarter, Sherritt purchased put options on 3,876 tonnes of nickel, or 646 tonnes per month, at an exercise price of US$8.16/lb at a cost of $2.2 million for a six-month period starting from June 1, 2024. Any settlements will be paid in cash monthly based on the average monthly nickel price on the LME. The economic hedging strategy provides Sherritt with full exposure to upward changes in nickel prices, while protecting against downward changes in nickel prices by providing a minimum price of US$8.16/lb on approximately 25% of expected nickel production from the Moa JV during the six-month period. In July, Sherritt received $0.4 million upon settlement of the June 2024 in-the-money put option.
Sherritt's syndicated revolving-term credit facility was amended to extend its maturity by one year from April 30, 2025 to April 30, 2026 and change the EBITDA-to-Interest Expense covenant as defined in the agreement. The amendment included terms to transition the interest rate of bankers' acceptance plus 4.00% to CORRA plus 4.00%. There were no other significant changes to the terms, financial covenants or restrictions.
At the Second Lien Note interest payment date in April 2024, the Corporation was not required to make a mandatory redemption of Second Lien Notes as it did not have Excess Cash Flow as defined in the Second Lien Notes indenture agreement for the two-quarter period ended December 31, 2023. Additionally, for the two-quarter period ended June 30, 2024, the Corporation did not have Excess Cash Flow as defined in the Second Lien Notes indenture agreement and, therefore, will not be required to make a mandatory redemption with its October 2024 interest payment.
As at June 30, 2024, the Corporation was in compliance with all its debt covenants.
Subsequent to the quarter end:
- The Moa JV received approval for US$12 million of foreign currency financing from a Cuban bank to support international payments related to construction of the Sixth Leach Train, the primary component of phase two of the expansion project.
- Elected not to pay cash interest due July 2024 of $3.5 million and added the payment-in-kind interest to the principal amount owed to noteholders on its PIK notes.
(1) | Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release. |
REVIEW OF OPERATIONS
Metals
For the three months ended | For the six months ended | |||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||
$ millions (Sherritt's share), except as otherwise noted | June 30 | June 30 | Change | June 30 | June 30 | Change | ||||||||
FINANCIAL HIGHLIGHTS (1) | ||||||||||||||
Revenue | $ | 150.6 | $ | 185.6 | (19%) | $ | 265.7 | $ | 362.1 | (27%) | ||||
Cost of sales | 144.5 | 182.2 | (21%) | 275.6 | 326.7 | (16%) | ||||||||
(Loss) earnings from operations | 2.7 | 3.8 | (29%) | (18.3) | 34.8 | (153%) | ||||||||
Adjusted EBITDA (2) | 18.0 | 18.6 | (3%) | 10.5 | 63.1 | (83%) | ||||||||
CASH FLOW (1) | ||||||||||||||
Cash provided by continuing operations for operating activities (2) | $ | 21.2 | $ | 38.8 | (45%) | $ | 52.4 | $ | 101.8 | (49%) | ||||
Free cash flow (2) | 13.5 | 22.7 | (41%) | 35.2 | 76.1 | (54%) | ||||||||
PRODUCTION VOLUMES (tonnes) | ||||||||||||||
Mixed Sulphides | 4,095 | 3,783 | 8% | 8,147 | 7,533 | 8% | ||||||||
Finished Nickel | 3,383 | 3,268 | 4% | 6,980 | 6,751 | 3% | ||||||||
Finished Cobalt | 342 | 331 | 3% | 684 | 698 | (2%) | ||||||||
Fertilizer | 60,355 | 52,224 | 16% | 117,419 | 110,215 | 7% | ||||||||
NICKEL RECOVERY (3) (%) | 88% | 85% | 4% | 87% | 85% | 2% | ||||||||
SALES VOLUMES (tonnes) | ||||||||||||||
Finished Nickel | 3,791 | 3,188 | 19% | 7,814 | 6,532 | 20% | ||||||||
Finished Cobalt | 390 | 1,064 | (63%) | 752 | 1,795 | (58%) | ||||||||
Fertilizer | 60,682 | 63,384 | (4%) | 84,591 | 93,263 | (9%) | ||||||||
AVERAGE-REFERENCE PRICE (4) (US$ per pound) | ||||||||||||||
Nickel | $ | 8.35 | $ | 10.12 | (17%) | $ | 7.94 | $ | 10.94 | (27%) | ||||
Cobalt | 13.34 | 15.27 | (13%) | 13.59 | 16.46 | (17%) | ||||||||
AVERAGE-REALIZED PRICE (2) (CAD) | ||||||||||||||
Nickel ($ per pound) | $ | 11.25 | $ | 13.58 | (17%) | $ | 10.55 | $ | 15.06 | (30%) | ||||
Cobalt ($ per pound) | 14.32 | 16.36 | (12%) | 14.41 | 17.48 | (18%) | ||||||||
Fertilizer ($ per tonne) | 574.70 | 709.67 | (19%) | 528.73 | 663.94 | (20%) | ||||||||
UNIT OPERATING COST (2) (US$) | ||||||||||||||
Nickel - net direct cash cost (US$ per pound) | $ | 5.75 | $ | 7.22 | (20%) | $ | 6.50 | $ | 6.88 | (6%) | ||||
SPENDING ON CAPITAL (2) (CAD) | ||||||||||||||
Sustaining | $ | 7.4 | $ | 13.6 | (46%) | $ | 14.8 | $ | 19.5 | (24%) | ||||
Growth | 0.4 | 2.5 | (84%) | 2.4 | 6.2 | (61%) | ||||||||
$ | 7.8 | $ | 16.1 | (52%) | $ | 17.2 | $ | 25.7 | (33%) |
(1) | The Financial Highlights, and cash flow amounts for Metals combine the operations of the Moa JV, Fort Site and Metals Marketing. Breakdowns of revenue, Adjusted EBITDA, and the components of free cash flow (cash provided (used) by continuing operations for operating activities and Property, plant and equipment expenditures) for each of these operations are included in the Combined Revenue, Adjusted EBITDA and Free cash flow reconciliations, respectively, in the Non-GAAP and other financial measures section of this press release. |
(2) | Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release. |
(3) | The nickel recovery rate measures the amount of finished nickel that is produced compared to the original nickel content of the ore that was mined. |
(4) | Reference sources: Nickel – LME. Cobalt - Average standard-grade cobalt price published per Argus. |
Revenue
Metals revenue in Q2 2024 was $150.6 million compared to $185.6 million in Q2 2023. Revenue in the current year period was lower primarily due to lower average-realized prices (1) for nickel, cobalt and fertilizer and the timing of receipts and sales of cobalt by Sherritt under the Cobalt Swap agreement, partly offset by higher nickel sales volumes. In Q2 2024 the average-realized prices (1) for nickel, cobalt and fertilizers were $11.25/lb, $14.32/lb and $574.70/tonne, 17%, 12% and 19% lower, respectively, compared to the same period in the prior year.
Nickel revenue in Q2 2024 was $94.0 million compared to $95.5 million in Q2 2023. Finished nickel sales volumes in Q2 2024 were 19% higher than Q2 2023 and exceeded production volumes as Metals continued reducing its inventory with strong spot sales which are expected to continue in the second half of the year, driving progress on reducing nickel inventory.
Cobalt revenue in Q2 2024 was $12.3 million compared to $38.4 million in Q2 2023. Lower revenue was primarily due to the timing of receipts and sales of cobalt under the Cobalt Swap and lower average-realized prices (1) . For more information regarding the timing of Cobalt Swap distributions in 2024, refer to the Cobalt Swap sales section below.
Fertilizer revenue in Q2 2024 was $34.8 million compared to $45.0 million in Q2 2023. In addition to lower average-realized prices (1) , sales volumes for Q2 2024 were 4% lower compared to Q2 2023.
Cobalt Swap sales
For 2024, Cobalt Swap distributions are anticipated to start in the fourth quarter of the year whereas in 2023, Sherritt had received 100% of the annual maximum amount of cobalt (2,082 tonnes) and had sold approximately 85% of that cobalt by the end the first half of the year.
While the timing of receipts and sales of cobalt under the Cobalt Swap results in variances in cobalt sales volumes, revenue and cost of sales for Sherritt, they do not have a material impact on earnings from operations, average-realized prices (1) , cobalt by-product credits, or NDCC (1) as the variance in revenue and costs of Sherritt's share of cobalt under the Cobalt Swap is offset by Sherritt's share of revenue and costs of the Moa JV and the cost of cobalt sold on volumes of cobalt redirected from GNC (2) is determined based on the in-kind value of cobalt calculated as the cobalt reference price from the month preceding distribution less a mutually agreed selling cost adjustment.
Moa JV's cash and cobalt distributions to the Corporation are determined based on available cash in excess of liquidity requirements. Determinants of liquidity include anticipated nickel and cobalt prices, planned spending on capital at the Moa JV including growth capital, working capital needs, expected financing and other expected liquidity requirements. Available cash is also impacted by changes in working capital primarily related to changes in inventory, and timing of receipts and payments, including receipts on nickel and cobalt sales subsequent to shipment. Based on the midpoint of the Moa JV's 2024 guidance ranges for production volumes, unit operating costs (1) and spending on capital (1) disclosed in the Outlook section of the MD&A, and the first half 2024 nickel and cobalt average reference prices of US$8.00/lb and US$13.50/lb, respectively, Sherritt expects to receive approximately $50 million in Cobalt Swap distributions (including both Sherritt's share and GNC's redirected share). As defined by the agreement, any short fall in the annual minimum payment amount will be added to the following year. With the full repayment of the short-term working capital advances to the Moa JV received in the second quarter of 2024, Sherritt expects the joint venture will commence dividends pursuant to the Cobalt Swap during the fourth quarter of 2024. Refer to the risks related to Sherritt's corporate structure in the Corporation's 2023 Annual Information Form for further information on risks related to distributions from the Moa JV.
Production
Mixed sulphides production at the Moa JV in Q2 2024 was 4,095 tonnes, up 8% from the Q2 2023 primarily due to lower unplanned maintenance and improved ore quality being fed to the processing plant following the completion of the new Slurry Preparation Plant ("SPP") in Q1 2024.
During the second quarter of 2024, the annual refinery maintenance shutdown occurred and has been factored into the Corporation's 2024 guidance with higher production expected in the second half of the year. The planned annual maintenance shutdown also took place during the second quarter in 2023.
Sherritt's share of finished nickel and cobalt production in Q2 2024 was 3,383 tonnes and 342 tonnes, each 4% and 3% higher, respectively, than Q2 2023, primarily as a result of improved mixed sulphides availability.
Fertilizer production in Q2 2024 of 60,355 tonnes was 16% higher compared to Q2 2023 in line with higher nickel production, implementation of operational improvements, and due to the unplanned ammonia plant maintenance that occurred in the prior year period.
NDCC (1)
NDCC (1) per pound of nickel sold was US$5.75/lb in Q2 2024 compared to US$7.22/in Q2 2023. NDCC (1) significantly improved as expected, primarily as a result of lower MPR/lb and lower third-party feed costs partly offset by lower cobalt and net fertilizer by-product credits (3) . MPR/lb was 15% lower in Q2 2024 compared to Q2 2023 primarily due to lower sulphur and natural gas prices, lower purchased sulphuric acid, lower maintenance costs and the impact of higher nickel production and sales volumes. In Q2 2024 lower average-realized prices (1) and sales volumes for cobalt and fertilizers resulted in lower by-product credits.
Compared to Q1 2024, NDCC (1) continued to improve as expected decreasing by 21%. Sherritt maintains its 2024 guidance range for NDCC (1) at US$5.50 to US$6.00/lb.
Spending on capital (1)
Sustaining spending on capital in Q2 2024 was $7.4 million compared to $13.6 million in Q2 2023. Sustaining spending on capital is lower as a result of timing of spending and consistent with lower annual guidance.
With the SPP completed and operating during Q1, growth spending on capital in Q2 2024 of $0.4 million was primarily related to spending on the second phase of the Moa JV expansion program.
(1) | Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release. |
(2) | General Nickel Company S.A. ("GNC") |
(3) | Cobalt by-product credits include Sherritt's share of cobalt revenue per pound of nickel sold only. |
Expansion program and strategic developments
Moa JV expansion program update
Phase two of the Moa JV's expansion program, the Processing Plant, is continuing to advance. During the second quarter of 2024 civil construction and structural erection was completed and piping installation commenced.
Subsequent to the end of the second quarter of 2024, the Moa JV received approval for US$12 million of foreign currency financing from a Cuban bank to support international payments related to construction of the Sixth Leach Train, the primary component of phase two of the expansion project.
Phase two commissioning and ramp up remains scheduled for 2025 with Sherritt expecting to commence the ramp up during the first half of the year. With completion of phase two, annual mixed sulphide precipitate production is expected to further increase toward the combined expansion target, including the new SPP, of approximately 20% of contained nickel and cobalt and is expected to fill the refinery to nameplate capacity to maximize profitability from the joint venture's own mine feed, displacing lower margin third-party feeds and increasing overall finished nickel and cobalt production.
Strategic developments
Sherritt, through its MHP Project, is advancing a flowsheet to produce high-purity nickel and cobalt sulphates and reduce sodium sulphate effluent, a key environmental challenge for the downstream industry. The MHP Project provides a strategic opportunity to expand Sherritt's current business into the production of nickel and cobalt sulphates, a key intermediary product required in the electric vehicle battery supply chain, where a current significant gap exists in North America. Sherritt's technical expertise and innovative processing solutions are key differentiators and enablers towards the Corporation's near-term strategic focus to expand its midstream processing capacity of critical minerals to fill this gap in North America in line with governments' objectives and incentives.
During the quarter, Sherritt commenced an engineering study and continued batch test work and process flowsheet development, which yielded very positive results for metal recoveries and impurity removals. A small scale continuous solvent extraction ("SX") pilot is planned for H2 2024 and process development work is expected to be completed by year end. Sherritt also continued its external engagement with governments and potential customers and funding partners, with a goal to reach agreement on key commercial and project parameters, including site identification, by year end.
Power
For the three months ended | For the six months ended | |||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||
$ millions (33 ⅓% basis), except as otherwise noted | June 30 | June 30 | Change | June 30 | June 30 | Change | ||||||||
FINANCIAL HIGHLIGHTS | ||||||||||||||
Revenue | $ | 11.8 | $ | 10.9 | 8% | $ | 23.8 | $ | 21.2 | 12% | ||||
Cost of sales | 9.3 | 6.5 | 43% | 13.3 | 9.9 | 34% | ||||||||
Earnings from operations | 1.2 | 3.3 | (64%) | 8.3 | 9.2 | (10%) | ||||||||
Adjusted EBITDA (1) | 1.8 | 4.0 | (55%) | 9.4 | 10.4 | (10%) | ||||||||
CASH FLOW | ||||||||||||||
Cash (used) provided by continuing operations for operating activities (1) | $ | (7.8) | $ | 2.3 | (439%) | $ | 1.9 | $ | 6.7 | (72%) | ||||
Free cash flow (1) | (9.3) | 1.7 | (647%) | (2.2) | 5.4 | (141%) | ||||||||
PRODUCTION AND SALES | ||||||||||||||
Electricity (GWh (2) ) | 205 | 172 | 19% | 415 | 330 | 26% | ||||||||
AVERAGE-REALIZED PRICE (1) | ||||||||||||||
Electricity ($/MWh (2) ) | $ | 52.00 | $ | 57.25 | (9%) | $ | 51.62 | $ | 57.77 | (11%) | ||||
UNIT OPERATING COSTS (1) | ||||||||||||||
Electricity ($/MWh) | 42.74 | 34.13 | 25% | 29.81 | 27.08 | 10% | ||||||||
SPENDING ON CAPITAL (1) | ||||||||||||||
Sustaining | $ | 1.5 | $ | 0.6 | 150% | $ | 4.1 | $ | 1.3 | 215% | ||||
(1) | Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release. |
(2) | Gigawatt hours ("GWh"), Megawatt hours ("MWh"). |
Revenue in Q2 2024 was $11.8 million, up 8% compared to Q2 2023, primarily due to higher production. The increase in electricity production is a result of additional gas from two wells that went into production at the end of Q2 2023.
As a key partner in supporting the Cuban government's plans to increase power production, Sherritt continues to work with its Cuban partners to increase gas supply and an additional well is scheduled to be drilled in the third quarter which is expected to provide additional electricity production in the second half of the year.
Unit operating costs (1) in Q2 2024 were $42.74/MWh compared to $34.13/MWh in Q2 2023 primarily driven by the timing of scheduled maintenance activities which were completed in Q2 2024, partly offset by higher sales volumes.
Spending on capital (1) in Q2 2023 was $1.5 million primarily driven by maintenance activities.
Sherritt received $5.1 million of dividends in Canada from Energas during the quarter. Based on 2024 guidance estimates for production volumes, unit operating costs (1) and spending on capital (1) disclosed in the Outlook section of the MD&A, Sherritt expects total dividends in Canada from Energas to exceed $10.0 million in 2024. Refer to the risks related to Sherritt's corporate structure in the Corporation's 2023 Annual Information Form for further information on risks related to dividends in Canada from Energas.
(1) | Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release. |
OUTLOOK
2024 guidance for production volumes, unit operating costs and spending on capital remains unchanged.
CONFERENCE CALL AND WEBCAST
Sherritt will hold its conference call and webcast July 30, 2024 at 10:00 a.m. Eastern Time to review its second quarter 2024 results. Dial-in and webcast details are as follows:
North American callers, please dial: | 1 (800) 717-1738 Passcode: 88402 | ||||||
International callers, please dial: | 1 (289) 514-5100 Passcode: 88402 | ||||||
Live webcast: |
Please dial in 15 minutes before the start of the call to secure a line. Alternatively, listeners can access the conference call and presentation via the webcast available on Sherritt's website.
An archive of the webcast and replay of the conference call will also be available on the website.
FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")
Sherritt's condensed consolidated financial statements and MD&A for the three and six months ended June 30, 2024 are available at www.sherritt.com or on SEDAR+ at www.sedarplus.ca . and should be read in conjunction with this news release. Financial and operating data can also be viewed in the investor relations section of Sherritt's website.
NON-GAAP AND OTHER FINANCIAL MEASURES
Management uses the following non-GAAP and other financial measures in this press release and other documents: combined revenue, adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"), average-realized price, unit operating cost/net direct cash cost (NDCC), adjusted net earnings/loss from continuing operations, adjusted net earnings/loss from continuing operations per share, spending on capital, combined cash provided (used) by continuing operations for operating activities and combined free cash flow.
Management uses these measures 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/or evaluate the results of its underlying business. These measures are intended to provide additional information, not to replace International Financial Reporting Standards ("IFRS") measures, and 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.
The non-GAAP and other financial measures are reconciled to their most directly comparable IFRS measures in the Appendix below.
ABOUT SHERRITT INTERNATIONAL CORPORATION
Sherritt is a world leader in using hydrometallurgical processes to mine and refine nickel and cobalt – metals deemed critical for the energy transition. Sherritt's Moa Joint Venture has a current estimated mine life of 25 years and has embarked on an expansion program focused on increasing annual mixed sulphide precipitate production by approximately 20% of contained nickel and cobalt. The Corporation's Power division, through its ownership in Energas S.A., is the largest independent energy producer in Cuba with installed electrical generating capacity of 506 MW, representing approximately 10% of the national electrical generating capacity in Cuba. The Energas facilities are comprised of two combined cycle plants that produce low-cost electricity from one of the lowest carbon emitting sources of power in Cuba. Sherritt's common shares are listed on the Toronto Stock Exchange under the symbol "S".
FORWARD-LOOKING STATEMENTS
This press release 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 include, but are not limited to, statements regarding strategies, plans and estimated production amounts resulting from expansion of mining operations at the Moa Joint Venture; growing and increasing nickel and cobalt production; the Moa Joint Venture expansion program update as it relates to the Processing Plant; statements set out in the "Outlook" section of this press release; certain expectations regarding production volumes and increases, inventory levels, operating costs, capital spending and intensity; sales volumes; revenue, costs and earnings; the availability of additional gas supplies to be used for power generation; the amount and timing of dividend distributions from the Moa JV, including in the form of finished cobalt or cash under the Cobalt Swap; sales of finished cobalt and associated receipts related to cobalt received pursuant to the Cobalt Swap; the amount and timing of dividend distributions from Energas; growing shareholder value; expected annualized employee and other Corporate office-related cost savings; sufficiency of working capital management and capital project funding; strengthening the Corporation's capital structure and amounts of certain other commitments.
Forward-looking statements are not based on historical facts, but rather on current expectations, assumptions and projections about future events, including commodity and product prices and demand; the level of liquidity and access to funding; share price volatility;; nickel, cobalt and fertilizer production results and realized prices; current and future demand products produced by Sherritt; global demand for electric vehicles and the anticipated corresponding demand for cobalt and nickel; revenues and net operating results; environmental risks and liabilities; compliance with applicable environmental laws and regulations; advancements in environmental and greenhouse gas (GHG) reduction technology; GHG emissions reduction goals and the anticipated timing of achieving such goals, if at all; statistics and metrics relating to Environmental, Social and Governance (ESG) matters which are based on assumptions or developing standards; environmental rehabilitation provisions; risks related to the U.S. government policy toward Cuba; current and future economic conditions in Cuba; the level of liquidity and access to funding; Sherritt share price volatility; and certain corporate objectives, goals and plans for 2024. 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 the 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 press release 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, commodity risks related to the production and sale of nickel cobalt and fertilizers; security market fluctuations and price volatility; level of liquidity of Sherritt, including access to capital and financing; the ability of the Moa Joint Venture to pay dividends; the risk to Sherritt's entitlements to future distributions (including pursuant to the Cobalt Swap) from the Moa JV; risks related to Sherritt's operations in Cuba; risks related to the U.S. government policy toward Cuba, including the U.S. embargo on Cuba and the Helms-Burton legislation; political, economic and other risks of foreign operations, including the impact of geopolitical events on global prices for nickel, cobalt, fertilizers, or certain other commodities; 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; risk of future non-compliance with debt restrictions and covenants; risks related to environmental liabilities including liability for reclamation costs, tailings facility failures and toxic gas releases; compliance with applicable environment, health and safety legislation and other associated matters; risks associated with governmental regulations regarding climate change and greenhouse gas emissions; risks relating to community relations; maintaining social license to grow and operate; uncertainty about the pace of technological advancements required in relation to achieving ESG targets; risks to information technologies systems and cybersecurity; identification and management of growth opportunities; the ability to replace depleted mineral reserves; risks associated with the Corporation's joint venture partners; variability in production at Sherritt's operations in Cuba; risks associated with mining, processing and refining activities; risks associated with the operation of large projects generally; risks related to the accuracy of capital and operating cost estimates; the possibility of equipment and other failures; potential interruptions in transportation; uncertainty of gas supply for electrical generation; reliance on key personnel and skilled workers; growth opportunity risks; uncertainty of resources and reserve estimates; the potential for shortages of equipment and supplies, including diesel; supplies quality issues; risks related to the Corporation's corporate structure; foreign exchange and pricing risks; credit risks; competition in product markets; future market access; interest rate changes; risks in obtaining insurance; uncertainties in labour relations; legal contingencies; risks related to the Corporation's accounting policies; 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; the ability to accomplish corporate objectives, goals and plans for 2024; and the ability to meet other factors listed from time to time in the Corporation's continuous disclosure documents.
The Corporation, together with its Moa Joint Venture, is pursuing a range of growth and expansion opportunities, including without limitation, process technology solutions, development projects, commercial implementation opportunities, life of mine extension opportunities and the conversion of mineral resources to reserves. In addition to the risks noted above, factors that could, alone or in combination, prevent the Corporation from successfully achieving these opportunities may include, without limitation: identifying suitable commercialization and other partners; successfully advancing discussions and successfully concluding applicable agreements with external parties and/or partners; successfully attracting required financing; successfully developing and proving technology required for the potential opportunity; successfully overcoming technical and technological challenges; successful environmental assessment and stakeholder engagement; successfully obtaining intellectual property protection; successfully completing test work and engineering studies, prefeasibility and feasibility studies, piloting, scaling from small scale to large scale production, procurement, construction, commissioning, ramp-up to commercial scale production and completion; and securing regulatory and government approvals. There can be no assurance that any opportunity will be successful, commercially viable, completed on time or on budget, or will generate any meaningful revenues, savings or earnings, as the case may be, for the Corporation. In addition, the Corporation will incur costs in pursuing any particular opportunity, which may be significant.
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, including without limitation the "Managing Risk" section of the Management's Discussion and Analysis for the three and six months ended June 30, 2024 and the Annual Information Form of the Corporation dated March 21, 2024 for the period ending December 31, 2023, which is available on SEDAR+ at www.sedarplus.ca .
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 press release 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 press release 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.
APPENDIX – NON-GAAP AND OTHER FINANCIAL MEASURES
Management uses the measures below 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/or evaluate the results of its underlying business. These measures are intended to provide additional information, not to replace IFRS measures, and 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.
The non-GAAP and other financial measures are reconciled to the most directly comparable IFRS measure as presented in the consolidated financial statements for the three and six months ended June 30, 2024.
Combined revenue
The Corporation uses combined revenue as a measure to help management assess the Corporation's financial performance across its core operations. Combined revenue includes the Corporation's consolidated revenue, less Oil and Gas revenue, and includes the revenue of the Moa JV within the Metals reportable segment on a 50% basis. Revenue of the Moa JV is included in share of earnings of Moa Joint Venture, net of tax, as a result of the equity method of accounting and excluded from the Corporation's consolidated revenue.
Revenue at Oil and Gas is excluded from Combined revenue as the segment is not currently exploring for or producing oil and gas and its financial results relate to ancillary drilling services, provided to a customer and CUPET, and environmental rehabilitation costs for legacy assets, which are not reflective of the Corporation's core operating activities or revenue generation potential. The exclusion of revenue at Oil and Gas from Combined revenue represented a change in the composition of Combined revenue during the three months ended December 31, 2023 to better reflect the Corporation's core operating activities and revenue generation potential and the prior year measure has been restated for comparative purposes.
Management uses this measure to reflect the Corporation's economic interest in its operations prior to the application of equity accounting to help allocate financial resources and provide investors with information that it believes is useful in understanding the scope of Sherritt's business, based on its economic interest, irrespective of the accounting treatment.
The table below reconciles combined revenue to revenue per the financial statements:
For the three months ended | For the six months ended | ||||||||||||
2024 | 2023 | 2024 | 2023 | ||||||||||
$ millions | June 30 | June 30 | Change | June 30 | June 30 | Change | |||||||
Revenue by reportable segment | |||||||||||||
Metals (1) | $ | 150.6 | $ | 185.6 | (19%) | $ | 265.7 | $ | 362.1 | (27%) | |||
Power | 11.8 | 10.9 | 8% | 23.8 | 21.2 | 12% | |||||||
Corporate and Other | 0.8 | 0.5 | 60% | 1.4 | 1.1 | 27% | |||||||
Combined revenue | $ | 163.2 | $ | 197.0 | (17%) | $ | 290.9 | $ | 384.4 | (24%) | |||
Adjustment for Moa Joint Venture | (117.8) | (107.6) | (222.0) | (238.5) | |||||||||
Adjustment for Oil and Gas | 6.0 | 4.1 | 11.3 | 6.2 | |||||||||
Financial statement revenue | $ | 51.4 | $ | 93.5 | (45%) | $ | 80.2 | $ | 152.1 | (47%) |
(1) | Revenue of Metals for the three months ended June 30, 2024 is composed of revenue recognized by the Moa JV of $117.8 million (50% basis), which is equity-accounted and included in share of earnings of Moa JV, net of tax, coupled with revenue recognized by Fort Site of $31.9 million and Metals Marketing of $0.9 million, both of which are included in consolidated revenue (for the three months ended June 30, 2023 - $107.6 million, $38.5 million and $39.5 million, respectively). Revenue of Metals for the six months ended June 30, 2024 is composed of revenue recognized by the Moa JV of $222.0 million (50% basis), coupled with revenue recognized by Fort Site of $40.8 million and Metals Marketing of $2.9 million (for the six months ended June 30, 2023 - $238.5 million, $53.7 million and $69.9 million, respectively). |
Adjusted EBITDA
The Corporation defines Adjusted EBITDA as (loss) earnings from operations and joint venture, which excludes net finance expense, income tax expense and loss from discontinued operations, net of tax, as reported in the financial statements for the period, adjusted for: depletion, depreciation and amortization; impairment losses on non-current non-financial assets and investments; and gains or losses on disposal of property, plant and equipment of the Corporation and the Moa JV. The exclusion of impairment losses eliminates the non-cash impact of the losses.
Earnings/loss from operations at Oil and Gas (net of depletion, depreciation and amortization, if applicable) is deducted from/added back to Adjusted EBITDA as the segment is not currently exploring for or producing oil and gas and its financial results relate to ancillary drilling services, provided to a customer and CUPET, and environmental rehabilitation costs for legacy assets, which are not reflective of the Corporation's core operating activities or cash generation potential. The adjustment for earnings/loss from operations at Oil and Gas (net of depletion, depreciation and amortization, if applicable) represented a change in the composition of Adjusted EBITDA during the three months ended December 31, 2023 to better reflect the Corporation's core operating activities and cash generation potential and the prior year measure has been restated for comparative purposes.
Management uses Adjusted EBITDA internally to evaluate the cash generation potential of Sherritt's operating divisions on a combined and segment basis as an indicator of ability to fund working capital needs, meet covenant obligations, service debt and fund capital expenditures, as well as provide a level of comparability to similar entities. Management believes that Adjusted EBITDA provides useful information to investors in evaluating the Corporation's operating results in the same manner as management and the Board of Directors.
The tables below reconcile (loss) earnings from operations and joint venture per the financial statements to Adjusted EBITDA:
$ millions, for the three months ended June 30 | 2024 | ||||||||||||||||||||
Metals (1) | Power | Oil and | Corporate | Adjustment | Total | ||||||||||||||||
Earnings (loss) from operations and joint venture | |||||||||||||||||||||
per financial statements | $ | 2.7 | $ | 1.2 | $ | 1.7 | $ | (6.9 | ) | $ | (0.6 | ) | $ | (1.9 | ) | ||||||
Add (deduct): | |||||||||||||||||||||
Depletion, depreciation and amortization | 2.9 | 0.6 | 0.1 | 0.1 | - | 3.7 | |||||||||||||||
Oil and Gas earnings from operations, net of | |||||||||||||||||||||
depletion, depreciation and amortization | - | - | (1.8 | ) | - | - | (1.8 | ) | |||||||||||||
Adjustments for share of earnings of Moa Joint Venture: | |||||||||||||||||||||
Depletion, depreciation and amortization | 11.9 | - | - | - | - | 11.9 | |||||||||||||||
Impairment of property, plant and equipment | 0.5 | - | - | - | - | 0.5 | |||||||||||||||
Net finance expense | - | - | - | - | 0.1 | 0.1 | |||||||||||||||
Income tax expense | - | - | - | - | 0.5 | 0.5 | |||||||||||||||
Adjusted EBITDA | $ | 18.0 | $ | 1.8 | $ | - | $ | (6.8 | ) | $ | - | $ | 13.0 | ||||||||
$ millions, for the three months ended June 30 | 2023 (Restated) | ||||||||||||||||||||
Metals (1) | Power | Oil and | Corporate | Adjustment | Total | ||||||||||||||||
Earnings (loss) from operations and joint venture | |||||||||||||||||||||
per financial statements | $ | 3.8 | $ | 3.3 | $ | 1.5 | $ | (8.6 | ) | $ | 2.2 | $ | 2.2 | ||||||||
Add (deduct): | |||||||||||||||||||||
Depletion, depreciation and amortization | 3.3 | 0.7 | - | 0.2 | - | 4.2 | |||||||||||||||
Oil and Gas earnings from operations, net of | |||||||||||||||||||||
depletion, depreciation and amortization | - | - | (1.5 | ) | - | - | (1.5 | ) | |||||||||||||
Adjustments for share of earnings of Moa Joint Venture: | |||||||||||||||||||||
Depletion, depreciation and amortization | 11.5 | - | - | - | - | 11.5 | |||||||||||||||
Net finance income | - | - | - | - | (3.0 | ) | (3.0 | ) | |||||||||||||
Income tax expense | - | - | - | - | 0.8 | 0.8 | |||||||||||||||
Adjusted EBITDA | $ | 18.6 | $ | 4.0 | $ | - | $ | (8.4 | ) | $ | - | $ | 14.2 | ||||||||
$ millions, for the six months ended June 30 | 2024 | |||||||||||||||||||||
Metals (2) | Power | Oil and | Corporate | Adjustment | Total | |||||||||||||||||
(Loss) earnings from operations and joint venture | ||||||||||||||||||||||
per financial statements | $ | (18.3 | ) | $ | 8.3 | $ | (0.6 | ) | $ | (13.9 | ) | $ | 0.2 | $ | (24.3 | ) | ||||||
Add: | ||||||||||||||||||||||
Depletion, depreciation and amortization | 5.3 | 1.1 | 0.1 | 0.5 | - | 7.0 | ||||||||||||||||
Oil and Gas loss from operations, net of | ||||||||||||||||||||||
depletion, depreciation and amortization | - | - | 0.5 | - | - | 0.5 | ||||||||||||||||
Adjustments for share of earnings of Moa Joint Venture: | ||||||||||||||||||||||
Depletion, depreciation and amortization | 23.0 | - | - | - | - | 23.0 | ||||||||||||||||
Impairment of property, plant and equipment | 0.5 | - | - | - | - | 0.5 | ||||||||||||||||
Net finance income | - | - | - | - | (1.1 | ) | (1.1 | ) | ||||||||||||||
Income tax expense | - | - | - | - | 0.9 | 0.9 | ||||||||||||||||
Adjusted EBITDA | $ | 10.5 | $ | 9.4 | $ | - | $ | (13.4 | ) | $ | - | $ | 6.5 | |||||||||
$ millions, for the six months ended June 30 | 2023 (Restated) | ||||||||||||||||||||
Metals (2) | Power | Oil and | Corporate | Adjustment | Total | ||||||||||||||||
Earnings (loss) from operations and joint venture | |||||||||||||||||||||
per financial statements | $ | 34.8 | $ | 9.2 | $ | 0.1 | $ | (18.6 | ) | $ | (1.7 | ) | $ | 23.8 | |||||||
Add (deduct): | |||||||||||||||||||||
Depletion, depreciation and amortization | 5.6 | 1.2 | 0.1 | 0.5 | - | 7.4 | |||||||||||||||
Oil and Gas earnings from operations, net of | |||||||||||||||||||||
depletion, depreciation and amortization | - | - | (0.2 | ) | - | - | (0.2 | ) | |||||||||||||
Adjustments for share of earnings of Moa Joint Venture: | |||||||||||||||||||||
Depletion, depreciation and amortization | 22.7 | - | - | - | - | 22.7 | |||||||||||||||
Net finance income | - | - | - | - | (2.6 | ) | (2.6 | ) | |||||||||||||
Income tax expense | - | - | - | - | 4.3 | 4.3 | |||||||||||||||
Adjusted EBITDA | $ | 63.1 | $ | 10.4 | $ | - | $ | (18.1 | ) | $ | - | $ | 55.4 |
(1) | Adjusted EBITDA of Metals for the three months ended June 30, 2024 is composed of Adjusted EBITDA at Moa JV of $11.8 million (50% basis), Adjusted EBITDA at Fort Site of $7.2 million and Adjusted EBITDA at Metals Marketing of $(1.0) million (for the three months ended June 30, 2023 - $20.8 million, $4.9 million and $(7.1) million, respectively). |
(2) | Adjusted EBITDA of Metals for the six months ended June 30, 2024 is composed of Adjusted EBITDA at Moa JV of $9.8 million (50% basis), Adjusted EBITDA at Fort Site of $2.3 million and Adjusted EBITDA at Metals Marketing of $(1.6) million (for the six months ended June 30, 2023 - $65.8 million, $8.0 million and $(10.7) million, respectively). |
Average-realized price
Average-realized price is generally calculated by dividing revenue by sales volume for the given product in a given segment. The average-realized price for power excludes by-product and other revenue, as this revenue is not earned directly for power generation. Transactions by a Moa JV marketing company, included in other revenue, are excluded.
Management uses this measure, and believes investors use this measure, to compare the relationship between the revenue per unit and direct costs on a per unit basis in each reporting period for nickel, cobalt, fertilizer and power and provide comparability with other similar external operations.
Average-realized price for fertilizer is the weighted-average realized price of ammonia and various ammonium sulphate products.
Average-realized price for nickel and cobalt are expressed in Canadian dollars per pound sold, while fertilizer is expressed in Canadian dollars per tonne sold and electricity is expressed in Canadian dollars per megawatt hour sold.
The tables below reconcile revenue per the financial statements to average-realized price:
$ millions, except average-realized price and sales volume, for the three months ended June 30 | 2024 | |||||||||||||||||||||
Metals | ||||||||||||||||||||||
Nickel | Cobalt | Fertilizer | Power | Other (1) | Adjustment | Total | ||||||||||||||||
Revenue per financial statements | $ | 94.0 | $ | 12.3 | $ | 34.8 | $ | 11.8 | $ | 16.3 | $ | (117.8 | ) | $ | 51.4 | |||||||
Adjustments to revenue: | ||||||||||||||||||||||
By-product and other revenue | - | - | - | (1.1 | ) | |||||||||||||||||
Revenue for purposes of average-realized price calculation | 94.0 | 12.3 | 34.8 | 10.7 | ||||||||||||||||||
Sales volume for the period | 8.3 | 0.9 | 60.7 | 205 | ||||||||||||||||||
Volume units | Millions of | Millions of | Thousands | Gigawatt | ||||||||||||||||||
Average-realized price (2)(3)(4) | $ | 11.25 | $ | 14.32 | $ | 574.70 | $ | 52.00 |
$ millions, except average-realized price and sales volume, for the three months ended June 30 | 2023 | |||||||||||||||||||||
Metals | ||||||||||||||||||||||
Nickel | Cobalt | Fertilizer | Power | Other (1) | Adjustment | Total | ||||||||||||||||
Revenue per financial statements | $ | 95.5 | $ | 38.4 | $ | 45.0 | $ | 10.9 | $ | 11.3 | $ | (107.6 | ) | $ | 93.5 | |||||||
Adjustments to revenue: | ||||||||||||||||||||||
By-product and other revenue | - | - | - | (1.0 | ) | |||||||||||||||||
Revenue for purposes of average-realized price calculation | 95.5 | 38.4 | 45.0 | 9.9 | ||||||||||||||||||
Sales volume for the period | 7.0 | 2.4 | 63.4 | 172 | ||||||||||||||||||
Volume units | Millions of | Millions of | Thousands | Gigawatt | ||||||||||||||||||
Average-realized price (2)(3)(4) | $ | 13.58 | $ | 16.36 | $ | 709.67 | $ | 57.25 |
$ millions, except average-realized price and sales volume, for the six months ended June 30 | 2024 | |||||||||||||||||||||
Metals | ||||||||||||||||||||||
Nickel | Cobalt | Fertilizer | Power | Other (1) | Adjustment | Total | ||||||||||||||||
Revenue per financial statements | $ | 181.8 | $ | 23.9 | $ | 44.7 | $ | 23.8 | $ | 28.0 | $ | (222.0 | ) | $ | 80.2 | |||||||
Adjustments to revenue: | ||||||||||||||||||||||
By-product and other revenue | - | - | - | (2.4 | ) | |||||||||||||||||
Revenue for purposes of average-realized price calculation | 181.8 | 23.9 | 44.7 | 21.4 | ||||||||||||||||||
Sales volume for the period | 17.2 | 1.7 | 84.6 | 415 | ||||||||||||||||||
Volume units | Millions of | Millions of | Thousands | Gigawatt | ||||||||||||||||||
Average-realized price (2)(3)(4) | $ | 10.55 | $ | 14.41 | $ | 528.73 | $ | 51.62 |
$ millions, except average-realized price and sales volume, for the six months ended June 30 | 2023 | |||||||||||||||||||||
Metals | ||||||||||||||||||||||
Nickel | Cobalt | Fertilizer | Power | Other (1) | Adjustment | Total | ||||||||||||||||
Revenue per financial statements | $ | 216.9 | $ | 69.2 | $ | 61.9 | $ | 21.2 | $ | 21.4 | $ | (238.5 | ) | $ | 152.1 | |||||||
Adjustments to revenue: | ||||||||||||||||||||||
By-product and other revenue | - | - | - | (2.1 | ) | |||||||||||||||||
Revenue for purposes of average-realized price calculation | 216.9 | 69.2 | 61.9 | 19.1 | ||||||||||||||||||
Sales volume for the period | 14.4 | 4.0 | 93.3 | 330 | ||||||||||||||||||
Volume units | Millions of | Millions of | Thousands | Gigawatt | ||||||||||||||||||
Average-realized price (2)(3)(4) | $ | 15.06 | $ | 17.48 | $ | 663.94 | $ | 57.77 |
(1) | Other revenue includes revenue from the Oil and Gas and Corporate and Other reportable segments. |
(2) | Average-realized price may not calculate exactly based on amounts presented due to foreign exchange and rounding. |
(3) | Power, average-realized price per MWh. |
(4) | Fertilizer, average-realized price per tonne. |
Unit operating cost/Net direct cash cost
With the exception of Metals, which uses NDCC, unit operating cost is generally calculated by dividing cost of sales as reported in the financial statements, less depreciation, depletion and amortization in cost of sales, the impact of impairment losses, gains and losses on disposal of property, plant, and equipment and exploration and evaluation assets and certain other non-production related costs, by the number of units sold.
Metals' NDCC is calculated by dividing cost of sales, as reported in the financial statements, adjusted for the following: depreciation, depletion, amortization and impairment losses in cost of sales; cobalt by-product, fertilizer and other revenue; cobalt gain/loss; and other costs primarily related to the impact of opening and closing inventory values, by the number of finished nickel pounds sold in the period.
Unit operating costs for nickel and electricity are key measures that management and investors uses to monitor performance. NDCC of nickel is a widely-used performance measure for nickel producers. Management uses unit operating costs/NDCC to assess how well the Corporation's producing mine and power facilities are performing and to assess overall production efficiency and effectiveness internally across periods and compared to its competitors.
Unit operating cost (NDCC) for nickel is expressed in U.S. dollars per pound sold, while electricity is expressed in Canadian dollars per megawatt hour sold.
The tables below reconcile cost of sales per the financial statements to unit operating cost/NDCC:
$ millions, except unit cost and sales volume, for the three months ended June 30 | 2024 | ||||||||||||||||
Metals | Power | Other (1) | Adjustment | Total | |||||||||||||
Cost of sales per financial statements | $ | 144.5 | $ | 9.3 | $ | 4.6 | $ | (116.6 | ) | $ | 41.8 | ||||||
Less: | |||||||||||||||||
Depletion, depreciation and amortization in cost of sales | (14.8 | ) | (0.5 | ) | |||||||||||||
129.7 | 8.8 | ||||||||||||||||
Adjustments to cost of sales: | |||||||||||||||||
Cobalt by-product, fertilizer and other revenue | (56.6 | ) | - | ||||||||||||||
Impact of opening/closing inventory and other (2) | (8.1 | ) | - | ||||||||||||||
Cost of sales for purposes of unit cost calculation | 65.0 | 8.8 | |||||||||||||||
Sales volume for the period | 8.3 | 205 | |||||||||||||||
Volume units | Millions of | Gigawatt | |||||||||||||||
Unit operating cost (3)(4) | $ | 7.87 | $ | 42.74 | |||||||||||||
Unit operating cost (US$ per pound) (NDCC) (5) | $ | 5.75 |
$ millions, except unit cost and sales volume, for the three months ended June 30 | 2023 | ||||||||||||||||
Metals | Power | Other (1) | Adjustment | Total | |||||||||||||
Cost of sales per financial statements | $ | 182.2 | $ | 6.5 | $ | 6.4 | $ | (99.0 | ) | $ | 96.1 | ||||||
Less: | |||||||||||||||||
Depletion, depreciation and amortization in cost of sales | (14.7 | ) | (0.4 | ) | |||||||||||||
167.5 | 6.1 | ||||||||||||||||
Adjustments to cost of sales: | |||||||||||||||||
Cobalt by-product, fertilizer and other revenue | (90.1 | ) | - | ||||||||||||||
Cobalt gain | (1.9 | ) | - | ||||||||||||||
Impact of opening/closing inventory and other (2) | (6.1 | ) | - | ||||||||||||||
Cost of sales for purposes of unit cost calculation | 69.4 | 6.1 | |||||||||||||||
Sales volume for the period | 7.0 | 172 | |||||||||||||||
Volume units | Millions of | Gigawatt | |||||||||||||||
Unit operating cost (3)(4) | $ | 9.87 | $ | 34.13 | |||||||||||||
Unit operating cost (US$ per pound) (NDCC) (5) | $ | 7.22 |
$ millions, except unit cost and sales volume, for the six months ended June 30 | 2024 | ||||||||||||||||
Metals | Power | Other (1) | Adjustment | Total | |||||||||||||
Cost of sales per financial statements | $ | 275.6 | $ | 13.3 | $ | 12.9 | $ | (232.5 | ) | $ | 69.3 | ||||||
Less: | |||||||||||||||||
Depletion, depreciation and amortization in cost of sales | (28.3 | ) | (0.9 | ) | |||||||||||||
247.3 | 12.4 | ||||||||||||||||
Adjustments to cost of sales: | |||||||||||||||||
Cobalt by-product, fertilizer and other revenue | (83.9 | ) | - | ||||||||||||||
Impact of opening/closing inventory and other (2) | (11.5 | ) | - | ||||||||||||||
Cost of sales for purposes of unit cost calculation | 151.9 | 12.4 | |||||||||||||||
Sales volume for the period | 17.2 | 415 | |||||||||||||||
Volume units | Millions of | Gigawatt | |||||||||||||||
Unit operating cost (3)(4) | $ | 8.82 | $ | 29.81 | |||||||||||||
Unit operating cost (US$ per pound) (NDCC) (5) | $ | 6.50 |
$ millions, except unit cost and sales volume, for the six months ended June 30 | 2023 | ||||||||||||||||
Metals | Power | Other (1) | Adjustment | Total | |||||||||||||
Cost of sales per financial statements | $ | 326.7 | $ | 9.9 | $ | 14.1 | $ | (195.3 | ) | $ | 155.4 | ||||||
Less: | |||||||||||||||||
Depletion, depreciation and amortization in cost of sales | (28.2 | ) | (0.9 | ) | |||||||||||||
298.5 | 9.0 | ||||||||||||||||
Adjustments to cost of sales: | |||||||||||||||||
Cobalt by-product, fertilizer and other revenue | (145.2 | ) | - | ||||||||||||||
Cobalt gain | (2.4 | ) | |||||||||||||||
Impact of opening/closing inventory and other (2) | (17.1 | ) | - | ||||||||||||||
Cost of sales for purposes of unit cost calculation | 133.8 | 9.0 | |||||||||||||||
Sales volume for the period | 14.4 | 330 | |||||||||||||||
Volume units | Millions of | Gigawatt | |||||||||||||||
Unit operating cost (3)(4) | $ | 9.29 | $ | 27.08 | |||||||||||||
Unit operating cost (US$ per pound) (NDCC) (5) | $ | 6.88 |
(1) | Other is composed of the cost of sales of the Oil and Gas and Corporate and Other reportable segments. |
(2) | Other is primarily composed of royalties and other contributions, sales discounts, effect of average exchange rate changes and other non-cash items. |
(3) | Unit operating cost/NDCC may not calculate exactly based on amounts presented due to foreign exchange and rounding. |
(4) | Power, unit operating cost price per MWh. |
(5) | Unit operating costs in US$ are converted at the average exchange rate for the period. |
Adjusted net earnings/loss from continuing operations and adjusted net earnings/loss from continuing operations per share
The Corporation defines adjusted net earnings/loss from continuing operations as net earnings/loss from continuing operations less items not reflective of the Corporation's current or future operational performance. These adjusting items include, but are not limited to, inventory write-downs/obsolescence, impairment of assets, gains and losses on the acquisition or disposal of assets, unrealized foreign exchange gains and losses, gains and losses on financial assets and liabilities and other one-time adjustments that have not occurred in the past two years and are not expected to recur in the next two years. While some adjustments are recurring (such as unrealized foreign exchange (gain) loss and revaluations of allowances for expected credit losses (ACL)), management believes that they do not reflect the Corporation's current or future operational performance.
Net earnings/loss from continuing operations at Oil and Gas is deducted from/added back to adjusted earnings/loss from continuing operations as the segment is not currently exploring for or producing oil and gas and its financial results relate to ancillary drilling services, provided to a customer and CUPET, and environmental rehabilitation costs for legacy assets, which are not reflective of the Corporation's core operating activities or future operational performance. The adjustment for net earnings/loss from continuing operations at Oil and Gas represented a change in the composition of adjusted net earnings/loss from continuing operations during the three months ended December 31, 2023 to better reflect the Corporation's core operating activities and future operational performance and the prior year measure has been restated for comparative purposes.
Adjusted net earnings/loss from continuing operations per share is defined consistent with the definition above and divided by the Corporation's weighted-average number of common shares outstanding.
Management uses these measures internally and believes that they provide investors with performance measures with which to assess the Corporation's current or future operational performance by adjusting for items or transactions that are not reflective of its current or future operational performance.
The tables below reconcile net (loss) earnings from continuing operations and net (loss) earnings from continuing operations per share, both per the financial statements, to adjusted net (loss) earnings from continuing operations and adjusted net (loss) earnings from continuing operations per share, respectively:
For the three months ended June 30 | $ millions | 2024 | $ millions | 2023 | ||||||||||||
Net (loss) earnings from continuing operations | $ | (11.5 | ) | $ | (0.03 | ) | $ | 0.3 | $ | - | ||||||
Adjusting items: | ||||||||||||||||
Sherritt - Unrealized foreign exchange loss - continuing operations | - | - | 0.2 | - | ||||||||||||
Corporate and Other - Gain on repurchase of notes | (0.7 | ) | - | (2.2 | ) | - | ||||||||||
Corporate and Other - Unrealized gain on nickel put options | (3.4 | ) | (0.01 | ) | - | - | ||||||||||
Metals - Moa JV - Impairment of property, plant and equipment | 0.5 | - | - | - | ||||||||||||
Metals - Moa JV - Inventory write-down/obsolescence | 1.6 | - | 1.1 | - | ||||||||||||
Metals - Fort Site - Inventory write-down | - | - | 0.8 | - | ||||||||||||
Metals - Metals Marketing - Inventory write-down | - | - | 1.1 | - | ||||||||||||
Metals - Metals Marketing - Cobalt gain | - | - | 1.9 | - | ||||||||||||
Power - Loss (gain) on revaluation of GNC receivable | 7.9 | 0.02 | (4.7 | ) | (0.01 | ) | ||||||||||
Power - (Gain) loss on revaluation of Energas payable | (2.6 | ) | (0.01 | ) | 0.8 | - | ||||||||||
Oil and Gas - Net loss from continuing operations, net of | ||||||||||||||||
unrealized foreign exchange gain/loss | (1.9 | ) | - | (2.0 | ) | - | ||||||||||
Total adjustments, before tax | $ | 1.4 | $ | - | $ | (3.0 | ) | $ | (0.01 | ) | ||||||
Tax adjustments | 0.1 | - | 0.2 | - | ||||||||||||
Adjusted net loss from continuing operations | $ | (10.0 | ) | $ | (0.03 | ) | $ | (2.5 | ) | $ | (0.01 | ) |
For the six months ended June 30 | $ millions | 2024 | $ millions | 2023 | ||||||||||||
Net (loss) earnings from continuing operations | $ | (52.4 | ) | $ | (0.13 | ) | $ | 13.9 | $ | 0.03 | ||||||
Adjusting items: | ||||||||||||||||
Sherritt - Unrealized foreign exchange loss - continuing operations | - | - | 1.1 | - | ||||||||||||
Sherritt's share - Severance related to restructuring | 3.5 | 0.01 | - | - | ||||||||||||
Corporate and Other - Unrealized gain on nickel put options | (3.4 | ) | (0.01 | ) | - | - | ||||||||||
Corporate and Other - Gain on repurchase of notes | (0.7 | ) | - | (3.5 | ) | (0.01 | ) | |||||||||
Metals - Moa JV - Impairment of property, plant and equipment | 0.5 | - | - | - | ||||||||||||
Metals - Moa JV - Inventory write-down/obsolescence | 2.5 | 0.01 | 1.4 | - | ||||||||||||
Metals - Fort Site - Inventory write-down | 0.9 | - | 0.8 | - | ||||||||||||
Metals - Metals Marketing - Inventory write-down | - | - | 1.1 | - | ||||||||||||
Metals - Metals Marketing - Cobalt gain | - | - | 2.4 | 0.01 | ||||||||||||
Power - Loss (gain) on revaluation of GNC receivable | 18.4 | 0.05 | (13.2 | ) | (0.03 | ) | ||||||||||
Power - (Gain) loss on revaluation of Energas payable | (4.0 | ) | (0.01 | ) | 8.4 | 0.02 | ||||||||||
Oil and Gas - Net loss (earnings) from continuing operations, net of | ||||||||||||||||
unrealized foreign exchange gain/loss | 0.4 | - | (1.1 | ) | - | |||||||||||
Total adjustments, before tax | $ | 18.1 | $ | 0.05 | $ | (2.6 | ) | $ | (0.01 | ) | ||||||
Tax adjustments | (0.3 | ) | - | - | - | |||||||||||
Adjusted net (loss) earnings from continuing operations | $ | (34.6 | ) | $ | (0.08 | ) | $ | 11.3 | $ | 0.02 |
Spending on capital
The Corporation defines spending on capital for each segment as property, plant and equipment and intangible asset expenditures on a cash basis adjusted to the accrual basis in order to account for assets that are available for use by the Corporation and the Moa Joint Venture prior to payment and includes adjustments to accruals. The Metals segment's spending on capital includes the Fort Site's expenditures, plus the Corporation's 50% share of the Moa Joint Venture's expenditures, which is accounted for using the equity method for accounting purposes.
Combined spending on capital is the aggregate of each segment's spending on capital or the Corporation's consolidated property, plant and equipment and intangible asset expenditures and the property, plant and equipment and intangible asset expenditures of the Moa Joint Venture on a 50% basis, all adjusted to the accrual basis.
Combined spending on capital is used by management, and management believes this information is used by investors, to analyze the Corporation and the Moa Joint Venture's investments in non-current assets that are held for use in the production of nickel, cobalt, fertilizers, oil and gas and power generation.
The tables below reconcile property, plant and equipment and intangible asset expenditures per the financial statements to combined spending on capital, expressed in Canadian dollars:
$ millions, for the three months ended June 30 | 2024 | ||||||||||||||||||
Metals | Power | Other (1) | Combined | Adjustment | Total | ||||||||||||||
Property, plant and equipment expenditures (2) | $ | 7.7 | $ | 1.5 | $ | - | $ | 9.2 | $ | (7.6 | ) | $ | 1.6 | ||||||
Intangible asset expenditures (2) | - | - | - | - | - | - | |||||||||||||
7.7 | 1.5 | - | 9.2 | $ | (7.6 | ) | $ | 1.6 | |||||||||||
Adjustments: | |||||||||||||||||||
Accrual adjustment | 0.1 | - | - | 0.1 | |||||||||||||||
Spending on capital | $ | 7.8 | $ | 1.5 | $ | - | $ | 9.3 | |||||||||||
$ millions, for the three months ended June 30 | 2023 | ||||||||||||||||||
Metals | Power | Other (1) | Combined | Adjustment | Total | ||||||||||||||
Property, plant and equipment expenditures (2) | $ | 16.1 | $ | 0.6 | $ | - | $ | 16.7 | $ | (12.6 | ) | $ | 4.1 | ||||||
Intangible asset expenditures (2) | - | - | 0.2 | 0.2 | - | 0.2 | |||||||||||||
16.1 | 0.6 | 0.2 | 16.9 | $ | (12.6 | ) | $ | 4.3 | |||||||||||
Adjustments: | |||||||||||||||||||
Accrual adjustment | - | - | - | - | |||||||||||||||
Spending on capital | $ | 16.1 | $ | 0.6 | $ | 0.2 | $ | 16.9 | |||||||||||
$ millions, for the six months ended June 30 | 2024 | ||||||||||||||||||||
Metals | Power | Other (1) | Combined | Adjustment | Total | ||||||||||||||||
Property, plant and equipment expenditures (2) | $ | 17.2 | $ | 4.1 | $ | - | $ | 21.3 | $ | (16.0 | ) | $ | 5.3 | ||||||||
Intangible asset expenditures (2) | - | - | 0.2 | 0.2 | - | 0.2 | |||||||||||||||
17.2 | 4.1 | 0.2 | 21.5 | $ | (16.0 | ) | $ | 5.5 | |||||||||||||
Adjustments: | |||||||||||||||||||||
Accrual adjustment | - | - | (0.1 | ) | (0.1 | ) | |||||||||||||||
Spending on capital | $ | 17.2 | $ | 4.1 | $ | 0.1 | $ | 21.4 | |||||||||||||
$ millions, for the six months ended June 30 | 2023 | ||||||||||||||||||||
Metals | Power | Other (1) | Combined | Adjustment | Total | ||||||||||||||||
Property, plant and equipment expenditures (2) | $ | 25.7 | $ | 1.3 | $ | - | $ | 27.0 | $ | (19.3 | ) | $ | 7.7 | ||||||||
Intangible asset expenditures (2) | - | - | 1.1 | 1.1 | - | 1.1 | |||||||||||||||
25.7 | 1.3 | 1.1 | 28.1 | $ | (19.3 | ) | $ | 8.8 | |||||||||||||
Adjustments: | |||||||||||||||||||||
Accrual adjustment | - | - | (0.7 | ) | (0.7 | ) | |||||||||||||||
Spending on capital | $ | 25.7 | $ | 1.3 | $ | 0.4 | $ | 27.4 |
(1) | Includes property, plant and equipment and intangible asset expenditures of the Oil and Gas and Corporate and Other reportable segments. |
(2) | Total property, plant and equipment expenditures and total intangible asset expenditures as presented in the Corporation's condensed consolidated statements of cash flow. |
Combined cash provided (used) by continuing operations for operating activities and combined free cash flow
The Corporation defines cash provided (used) by continuing operations for operating activities by segment as cash provided (used) by continuing operations for operating activities for each segment calculated in accordance with IFRS and adjusted to remove the impact of cash provided (used) by wholly-owned subsidiaries. Combined cash provided (used) by continuing operations for operating activities is the aggregate of each segment's cash provided (used) by continuing operations for operating activities including the Corporation's 50% share of the Moa JV's cash provided (used) by continuing operations for operating activities, which is accounted for using the equity method of accounting and excluded from consolidated cash provided (used) by continuing operations for operating activities.
The Corporation defines free cash flow for each segment as cash provided (used) by continuing operations for operating activities by segment, less cash expenditures on property, plant and equipment and intangible assets, including exploration and evaluation assets. Combined free cash flow is the aggregate of each segment's free cash flow or the Corporation's consolidated cash provided (used) by continuing operations for operating activities, less consolidated cash expenditures on property, plant and equipment and intangible assets, including exploration and evaluation assets, less distributions received from Moa JV, plus cash provided (used) by continuing operations for operating activities for the Corporation's 50% share of the Moa JV, less cash expenditures on property, plant and equipment and intangible assets for the Corporation's 50% share of the Moa JV.
The Corporate and Other segment's cash used by continuing operations for operating activities is adjusted to exclude distributions received from Moa JV. Distributions from the Moa JV excluded from Corporate and Other are included in the Adjustment for Moa Joint Venture to arrive at total cash provided (used) by continuing operations for operating activities per the financial statements.
The Metals segment's free cash flow includes the Fort Site and Metals Marketing's free cash flow, plus the Corporation's 50% share of the Moa JV's free cash flow, which is accounted for using the equity method for accounting purposes.
Combined cash provided (used) by continuing operations for operating activities and combined free cash flow are used by management, and management believes this information is used by investors, to analyze cash flows generated from operations and assess its operations' ability to provide cash or its use of cash, and in the case of combined free cash flow, after funding cash capital requirements, to service current and future working capital needs and service debt.
The tables below reconcile combined cash provided (used) by continuing operations for operating activities to cash provided (used) by continuing operations per the financial statements to combined free cash flow:
$ millions, for the three months ended June 30 | 2024 | |||||||||||||||||||||||||||
Metals (1)(2) | Power | Oil and | Corporate | Combined | Adjustment | Total | ||||||||||||||||||||||
Cash provided (used) by continuing operations for operating activities | $ | 21.2 | $ | (7.8 | ) | $ | (14.8 | ) | $ | (16.4 | ) | $ | (17.8 | ) | $ | (20.0 | ) | $ | (37.8 | ) | ||||||||
Less: | ||||||||||||||||||||||||||||
Property, plant and equipment expenditures | (7.7 | ) | (1.5 | ) | - | - | (9.2 | ) | 7.6 | (1.6 | ) | |||||||||||||||||
Intangible expenditures | - | - | - | - | - | - | - | |||||||||||||||||||||
Free cash flow | $ | 13.5 | $ | (9.3 | ) | $ | (14.8 | ) | $ | (16.4 | ) | $ | (27.0 | ) | $ | (12.4 | ) | $ | (39.4 | ) |
$ millions, for the three months ended June 30 | 2023 (Restated) | ||||||||||||||||||||||||||
Metals (1)(2) | Power | Oil and | Corporate | Combined | Adjustment | Total | |||||||||||||||||||||
Cash provided (used) by continuing operations for operating activities | $ | 38.8 | $ | 2.3 | $ | 0.2 | $ | (18.8 | ) | $ | 22.5 | $ | 9.5 | $ | 32.0 | ||||||||||||
Less: | |||||||||||||||||||||||||||
Property, plant and equipment expenditures | (16.1 | ) | (0.6 | ) | - | - | (16.7 | ) | 12.6 | (4.1 | ) | ||||||||||||||||
Intangible expenditures | - | - | (0.2 | ) | - | (0.2 | ) | - | (0.2 | ) | |||||||||||||||||
Free cash flow | $ | 22.7 | $ | 1.7 | $ | - | $ | (18.8 | ) | $ | 5.6 | $ | 22.1 | $ | 27.7 |
$ millions, for the six months ended June 30 | 2024 | |||||||||||||||||||||||||||
Metals (3)(4) | Power | Oil and | Corporate | Combined | Adjustment | Total | ||||||||||||||||||||||
Cash provided (used) by continuing operations for operating activities | $ | 52.4 | $ | 1.9 | $ | (18.8 | ) | $ | (25.2 | ) | $ | 10.3 | $ | (35.1 | ) | $ | (24.8 | ) | ||||||||||
Less: | ||||||||||||||||||||||||||||
Property, plant and equipment expenditures | (17.2 | ) | (4.1 | ) | - | - | (21.3 | ) | 16.0 | (5.3 | ) | |||||||||||||||||
Intangible expenditures | - | - | (0.2 | ) | - | (0.2 | ) | - | (0.2 | ) | ||||||||||||||||||
Free cash flow | $ | 35.2 | $ | (2.2 | ) | $ | (19.0 | ) | $ | (25.2 | ) | $ | (11.2 | ) | $ | (19.1 | ) | $ | (30.3 | ) |
$ millions, for the six months ended June 30 | 2023 (Restated) | |||||||||||||||||||||||||||
Metals (3)(4) | Power | Oil and | Corporate | Combined | Adjustment | Total | ||||||||||||||||||||||
Cash provided (used) by continuing operations for operating activities | $ | 101.8 | $ | 6.7 | $ | 1.2 | $ | (46.7 | ) | $ | 63.0 | $ | (21.1 | ) | $ | 41.9 | ||||||||||||
Less: | ||||||||||||||||||||||||||||
Property, plant and equipment expenditures | (25.7 | ) | (1.3 | ) | - | - | (27.0 | ) | 19.3 | (7.7 | ) | |||||||||||||||||
Intangible expenditures | - | - | (1.1 | ) | - | (1.1 | ) | - | (1.1 | ) | ||||||||||||||||||
Free cash flow | $ | 76.1 | $ | 5.4 | $ | 0.1 | $ | (46.7 | ) | $ | 34.9 | $ | (1.8 | ) | $ | 33.1 |
(1) | Cash provided by continuing operations for operating activities for the Moa JV, Fort Site and Metals Marketing was $20.0 million, $0.7 million and $0.5 million, respectively, for the three months ended June 30, 2024 (June 30, 2023 - $22.6 million, $(17.6) million and $33.8 million, respectively). |
(2) | Property, plant and equipment expenditures and intangible expenditures for the Moa JV, Fort Site and Metals Marketing was $7.5 million, $0.2 million and nil, respectively, for the three months ended June 30, 2024 (June 30, 2023 - $12.6 million, $3.5 million and nil, respectively). |
(3) | Cash provided by continuing operations for operating activities for the Moa JV, Fort Site and Metals Marketing was $35.1 million, $12.0 million and $5.3 million, respectively, for the six months ended June 30, 2024 (June 30, 2023 - $53.4 million, $(5.2) million and $53.6 million, respectively). |
(4) | Property, plant and equipment expenditures and intangible expenditures for the Moa JV, Fort Site and Metals Marketing was $16.0 million, $1.2 million and nil, respectively, for the six months ended June 30, 2024 (June 30, 2023 - $19.3 million, $6.4 million and nil, respectively). |
View source version on businesswire.com: https://www.businesswire.com/news/home/20240726932840/en/
For further investor information contact:
Tom Halton
Director, Investor Relations and Corporate Affairs
Telephone: (416) 935-2451
Toll-free: 1 (800) 704-6698
E-mail: investor@sherritt.com
Sherritt International Corporation
Bay Adelaide Centre, East Tower
22 Adelaide St. West, Suite 4220
Toronto, ON M5H 4E3
www.sherritt.com
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