High-Tech Metals Limited (ASX:HTM) focuses on its Canadian cobalt asset in the Kenora Mining District. The company’s Werner Lake project has received no previous modern exploration, creating blue-sky potential as High-Tech leverages new technologies and techniques. High-Tech Metals is a well-structured entity from a capital perspective, with a highly experienced team of experts leading the company towards its goals. Toby Hughes was recently appointed to lead the exploration team and improve the value of the Werner Lake project.
The Werner Lake project is near the Ontario-Manitoba border and is on the Werner Lake Geological Belt, known for hosting cobalt-copper and base metal deposits. The region has undergone continual exploration and production since cobalt was discovered in 1921.
The Werner Lake project is near the Ontario-Manitoba border and is on the Werner Lake Geological Belt, known for hosting cobalt-copper and base metal deposits. The region has undergone continual exploration and production since cobalt was discovered in 1921.
High-Tech’s project was explored in the 1930s and 1940s, then was taken into production in the 1990s. Results from historical exploration and production informed the project’s current JORC-compliant resource estimate of 720,000 pounds (lbs) at 0.52 percent cobalt. While encouraging, the team also believes there is a significant exploration of upside potential by leveraging modern tools and techniques.
This High-Tech Metals profile is part of a paid investor education campaign.*
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High-Tech Metals Limited (ASX:HTM) is an exploration and development mining company focusing on its Canadian cobalt asset in the Kenora Mining District. The company’s Werner Lake project has received no previous modern exploration, creating blue-sky potential as High-Tech leverages new technologies and techniques. Additionally, High-Tech Metals is a well-structured entity from a capital perspective, with a highly experienced team of experts leading the company towards its goals. Toby Hughes was appointed to lead the exploration team and improve the value of the Werner Lake project.
Cobalt is widely used in various applications due to its unique high-temperature and magnetic properties. Historically, cobalt has been used in jet turbines, electroplating and alloyed with nickel to make powerful magnets. Now, cobalt demand is skyrocketing as electric vehicles (EVs) increasingly take a big chunk of the market. EVs are projected to consume 320 kilotons of cobalt by 2030, about 84 percent of the total cobalt demand.
The Werner Lake project is near the Ontario-Manitoba border and is on the Werner Lake Geological Belt, known for hosting cobalt-copper and base metal deposits. The region has undergone continual exploration and production since cobalt was discovered in 1921.
Canada has the sixth largest cobalt reserves globally and both Ontario and Newfoundland and Labrador produce more than 1,000 metric tonnes of cobalt annually. In addition, Canada hosts many of the world’s top mining jurisdictions due to its mining-friendly policies, which will allow High-Tech Metals to streamline exploration and move towards production.
High-Tech’s project was explored in the 1930s and 1940s, then was taken into production in the 1990s. Results from historical exploration and production informed the project’s current JORC-compliant resource estimate of 720,000 pounds (lbs) at 0.52 percent cobalt. While encouraging, the team also believes there is a significant exploration of upside potential by leveraging modern tools and techniques.
High-Tech Metals has taken steps to expand its portfolio, securing an agreement to acquire the Norpax Deposit and an option to purchase the Reynar Lake Project, located in Ontario, Canada. The projects are directly west and adjoin the company’s Werner Lake Project The Norpax Nickel Sulphide Deposit has a historical non-JORC compliant resource of 1.01 million tonnes of 1.2 percent nickel and 0.5 percent copper. The Reynar Lake Project is highly prospective for nickel, copper and cobalt which could potentially provide HTM with additional landholding and increase its cobalt resource and explore for additional nickel sulphide mineralisation.
The company’s cobalt project sits on the Ontario-Manitoba border in the Kenora Mining District, a region known for cobalt, copper and other base metals. The Werner Lake project has some historical exploration and production but has not received any exploration using modern technologies and techniques. High-Tech Metals is currently preparing for its initial geophysics exploration campaign.
Charles Thomas is an executive director and founding partner of GTT Ventures a leading boutique corporate advisory firm based in Australia. Thomas holds a Bachelor of Commerce from UWA majoring in corporate finance. Thomas has worked in the financial service industry for more than 17 years and has extensive experience in capital markets as well as the structuring of corporate transactions. Thomas has significant experience sitting on numerous ASX boards spanning the mining, resources and technology space. Thomas is currently non-executive director of Chase Mining Corporation (ASX:CML), non-executive chairman of Viking Mines Ltd (ASX.VKA) and executive chairman of Marquee Resources Limited (ASX:MQR).
Sonu Cheema is a director at Cicero Group Pty Ltd and has over 12 years of experience working with public and private companies in Australia and abroad. Roles and responsibilities include financial control, preparation of statutory financial reporting, investor relations, initial public offers (IPO), reverse takeovers (RTO), management of capital raising activities, project management and audit management. Cheema currently serves as a non-executive director and company secretary for Avira Resources (ASX:AVW) and Austin Metals (ASX:AYT).
Quinton Meyers has over six years of experience working in the equities markets in the capacity of a stockbroker, company secretary and accountant for multiple ASX-listed companies gaining exposure to the resource, oil and gas and technology sectors. During this time, Meyers has worked on multiple initial public offers, reverse takeovers, equity capital markets transactions, while developing his knowledge of the ASX Listing Rules and Corporations Act.
Meyers holds a Bachelor of Commerce in accounting and finance from Curtin University, a Graduate Diploma in financial planning and is a member of the Chartered Accountants Australian & New Zealand.
Toby Hughes is a professional geologist having worked in mineral exploration for more than 40 years, with experience in orogenic and epithermal systems, volcanogenic massive sulphides, and Cu-Ni-Co. He has worked for several years on and around the Werner Lake deposit, with additional experience in cobalt exploration within the Bear Magmatic Province, NT, Cobalt, ON and China. As a consultant, he has held senior positions with junior and senior mining companies across Canada, Argentina, China, Columbia, Ghana, Guyana, Mongolia, Peru, Venezuela, and the USA exploring for precious, base metal, industrial minerals and diamonds. Hughes is a graduate of The University of Dundee, Scotland (Honours B.Sc. Geology) and a registered professional geoscientist in Ontario.
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
Sherritt International Corporation ("Sherritt" or the "Corporation") (TSX:S) today announced voting results of its 2024 Annual Meeting of Shareholders held May 9, 2024.
A total of 156,740,611 common shares or 39.45% of Sherritt's issued and outstanding common shares were represented virtually or by proxy at the meeting. Shareholders voted in favour of all items of business put forth at the meeting, including the re-appointment of Deloitte LLP as external auditors and the non-binding advisory resolution known as "Say on Pay."
Election of Directors
Each of the seven director nominees listed in the management information circular for the 2024 Shareholders' meeting were individually elected as directors of Sherritt to serve until the next annual general meeting of the company or until his or her successor is elected or appointed:
Nominee | Total Votes For | % for | Total Votes Against | % Against |
Leon Binedell | 145,243,512 | 95.05% | 7,557,228 | 4.95% |
Louise Blais | 147,687,395 | 96.65% | 5,113,345 | 3.35% |
Steven Goldman | 147,698,298 | 96.78% | 4,909,497 | 3.22% |
Dr. Peter Hancock | 131,099,033 | 85.80% | 21,701,707 | 14.20% |
Anna Ladd-Kruger | 147,572,037 | 96.58% | 5,228,703 | 3.42% |
Sir Richard Lapthorne | 113,810,078 | 74.48% | 38,990,662 | 25.52% |
Chih-Ting Lo | 132,954,224 | 87.01% | 19,846,516 | 12.99% |
The full Report of Voting Results has been filed on SEDAR+ at www.sedarplus.ca .
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 20% of contained nickel and cobalt (100% basis). 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/20240509033473/en/
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
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 months ended March 31, 2024. All amounts are in Canadian currency unless otherwise noted.
Leon Binedell, President and CEO of Sherritt commented, "The first quarter saw a continuation in depressed nickel market conditions, however more recently, conditions gradually improved and we are pleased to see the market gaining traction. These conditions contributed towards our success in reducing our opening nickel inventory with strong nickel sales. Our available liquidity in Canada improved from the year end, reversing the negative trend from the second half of 2023. We achieved this despite our previously disclosed expectations that the first quarter would be our highest NDCC quarter in 2024. We saw improved mining, processing and refining cost from the strong actions taken in response to market conditions including our restructuring early in the year and increased production year over year and expect improved operating performance and lower NDCC over the rest of the year in line with our guidance."
Mr. Binedell continued, "Growing geopolitical competition over critical minerals has led to new sanctions being implemented on Russian produced metals and potential trade measures in the nickel market being contemplated against China and Indonesia. We are closely monitoring these developments and their implications for advancing the build-out of regionalized supply chains and influencing future pricing.
Against this market backdrop, Sherritt is in a strong position with its technical expertise and innovative processing solutions which are key differentiators and enablers towards our near-term strategic focus to expand midstream processing capacity of critical minerals for the EV supply chain in North America. I am excited by the recent advancements our team has made on our MHP midstream processing flowsheet, aimed to significantly reduce sodium sulphate effluent, a significant environmental challenge for the industry, while still ensuring low GHG emissions and energy intensity. We believe this project is an important step to help unlock the processing value chain for the North American EV sector while also providing a catalyst for future domestic mine production. We look forward to accelerating this project throughout 2024, with near-term efforts focused on site identification, customer and partnership arrangements, and further process development and project definition."
FIRST QUARTER 2024 SELECTED DEVELOPMENTS
(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 Technologies and Oil and Gas includes the Corporation's 100% interest in these businesses. References to Fort Site directly is to the Corporation's interest in its 100% interest in the utility and fertilizer operations. 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. |
(2) | Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release. |
(3) | Cobalt by-product credits include Sherritt's share of cobalt revenue per pound of nickel sold only. |
DEVELOPMENTS SUBSEQUENT TO THE QUARTER
Subsequent to the quarter end:
Q1 2024 FINANCIAL HIGHLIGHTS
$ millions, except as otherwise noted, for the three months ended March 31 | 2024 | 2023 | Change | |||||||
Revenue | $ | 28.8 | $ | 58.6 | (51 | %) | ||||
Combined revenue (1) | 127.7 | 187.4 | (32 | %) | ||||||
(Loss) earnings from operations and joint venture | (22.4 | ) | 21.6 | (204 | %) | |||||
Net (loss) earnings from continuing operations | (40.9 | ) | 13.6 | (401 | %) | |||||
Net (loss) earnings | (40.5 | ) | 13.3 | (405 | %) | |||||
Adjusted EBITDA (1) | (6.5 | ) | 41.2 | (116 | %) | |||||
Adjusted net (loss) earnings from continuing operations (1) | (24.6 | ) | 13.3 | (285 | %) | |||||
Net (loss) earnings from continuing operations ($ per share) (basic and diluted) | (0.10 | ) | 0.03 | (433 | %) | |||||
Cash provided by continuing operations for operating activities | 13.0 | 9.8 | 33 | % | ||||||
Combined free cash flow (1) | 15.8 | 35.7 | (56 | %) | ||||||
Average exchange rate (CAD/US$) | 1.349 | 1.353 | N/A | |||||||
(1) | Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release. |
$ millions, as at | 2024 | 2023 | Change | ||||||
Cash and cash equivalents | |||||||||
Canada | $ | 37.5 | $ | 21.5 | 74 | % | |||
Cuba (1) | 105.9 | 96.3 | 10 | % | |||||
Other | 1.0 | 1.3 | (23 | %) | |||||
144.4 | 119.1 | 21 | % | ||||||
Loans and borrowings | 371.3 | 355.6 | 4 | % | |||||
The Corporation's share of cash and cash equivalents in the Moa Joint Venture, not included in the above balances: | $ | 11.2 | $ | 5.9 | 90 | % | |||
(1) | As at March 31, 2024, $103.1 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 March 31, 2024 were $144.4 million, increasing from $119.1 million as at December 31, 2023. During Q1 2024, Sherritt received $11.3 million proceeds from operating activities from Fort Site including the impact of receipts from strong fertilizer pre-sales and timing of working capital payments and drew an additional $11.0 million on its revolving credit facility due to timing of receipts and disbursements. These amounts were offset primarily by payments of $3.7 million for property, plant and equipment and $7.4 million on rehabilitation and closure costs related to legacy Oil and Gas Spain assets.
Sherritt also began receiving repayment of the advances made for short-term working capital purposes at the Moa JV with an initial repayment of $3.0 million. Advances to the Moa JV under its credit facility with the Corporation are to the two non-Cuban operating companies of the Moa JV, are interest bearing at the Corporation's borrowing rates and are expected to be fully repaid during the first half of 2024. Sherritt does not expect to advance further amounts to the Moa JV under its credit facility in 2024.
Upon repayment of the advances outstanding by the Moa JV, and subject to the Moa JV's available liquidity to support operations and expected liquidity requirements, the joint venture will be eligible to commence payment of cobalt dividends pursuant to the Cobalt Swap. At current spot nickel prices and given the prioritization of the joint venture to repay its outstanding advances, as previously disclosed, the Corporation expects that under the Cobalt Swap, the cobalt dividends are anticipated to commence in the second half the year and will not meet the annual maximum amount in 2024. As defined by the agreement, any short fall in the annual minimum payment amount will be added to the following year.
As at March 31, 2024, total available liquidity in Canada, which is composed of cash and cash equivalents in Canada and available credit facilities of $30.4 million was $67.9 million increasing from $63.0 million as at December 31, 2023.
Subsequent to the quarter end:
REVIEW OF OPERATIONS
Reportable segment update
As a result of the organization-wide restructuring in January 2024, the former Technologies reportable segment and Corporate reportable segment were combined into a single Corporate and Other reportable segment, which includes the Corporation's management of its joint operations and subsidiaries and general corporate activities related to public companies, including business and market development, growth and external technical services activities, as well as management of cash, publicly-traded debt and government relations. Segmented information for the prior year was restated for comparative purposes to reflect the new Corporate and Other reportable segment. In the current year period, expenses incurred to support and enhance Metals' operations and business and market development, formerly reported within Technologies, are recognized within the Metals reportable segment.
Metals
$ millions (Sherritt's share), except as otherwise noted, for the three months ended March 31 | 2024 | 2023 | Change | ||||||||
FINANCIAL HIGHLIGHTS (1) | |||||||||||
Revenue | $ | 115.1 | $ | 176.5 | (35 | %) | |||||
Cost of sales | 131.1 | 144.5 | (9 | %) | |||||||
(Loss) earnings from operations | (21.0 | ) | 31.0 | (168 | %) | ||||||
Adjusted EBITDA (2) | (7.5 | ) | 44.5 | (117 | %) | ||||||
CASH FLOW (1) | |||||||||||
Cash provided by continuing operations for operating activities | $ | 31.2 | $ | 69.5 | (55 | %) | |||||
Free cash flow (2) | 21.7 | 59.9 | (64 | %) | |||||||
PRODUCTION VOLUMES (tonnes) | |||||||||||
Mixed Sulphides | 4,052 | 3,750 | 8 | % | |||||||
Finished Nickel | 3,597 | 3,483 | 3 | % | |||||||
Finished Cobalt | 342 | 367 | (7 | %) | |||||||
Fertilizers | 57,064 | 57,991 | (2 | %) | |||||||
NICKEL RECOVERY (3) (%) | 85 | % | 88 | % | (3 | %) | |||||
SALES VOLUMES (tonnes) | |||||||||||
Finished Nickel | 4,023 | 3,344 | 20 | % | |||||||
Finished Cobalt | 362 | 731 | (50 | %) | |||||||
Fertilizer | 23,909 | 29,879 | (20 | %) | |||||||
AVERAGE-REFERENCE PRICES (US$ per pound) | |||||||||||
Nickel (4) | $ | 7.52 | $ | 11.77 | (36 | %) | |||||
Cobalt (4) | 13.89 | 17.56 | (21 | %) | |||||||
AVERAGE REALIZED PRICE (2) | |||||||||||
Nickel ($ per pound) | $ | 9.90 | $ | 16.47 | (40 | %) | |||||
Cobalt ($ per pound) | 14.51 | 19.11 | (24 | %) | |||||||
Fertilizer ($ per tonne) | 412.05 | 566.93 | (27 | %) | |||||||
UNIT OPERATING COSTS (2) (US$ per pound) | |||||||||||
Nickel - net direct cash cost | $ | 7.24 | $ | 6.46 | 12 | % | |||||
SPENDING ON CAPITAL (2) | |||||||||||
Sustaining | $ | 7.4 | $ | 5.9 | 25 | % | |||||
Expansion | 2.0 | 3.7 | (46 | %) | |||||||
9.4 | 9.6 | (2 | %) | ||||||||
(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 – London Metal Exchange. Cobalt - Average standard-grade cobalt price published per Argus. |
Revenue
Metals revenue in Q1 2024 was $115.1 million compared to $176.5 million in Q1 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 Q1 2024 the average-realized prices (1) for nickel, cobalt and fertilizers were $9.90/lb, $14.51/lb and $412.05/tonne, 40%, 24% and 27% lower, respectively, compared to the same period in the prior year.
Nickel revenue in Q1 2024 was $87.8 million compared to $121.4 million in Q1 2023. Finished nickel sales volumes in Q1 2024 were 20% higher than Q1 2023 and exceeded production volumes as Metals reduced its opening inventory with strong spot sales.
Cobalt revenue in Q1 2024 was $11.6 million compared to $30.8 million in Q1 2023. Cobalt revenue on the Cobalt Swap sales was $0.9 million in Q1 2024 compared to $29.8 million in Q1 2023. Higher Moa JV cobalt revenue of $10.7 million in Q1 2024 compared to $1.0 million in Q1 2023, partly offsetting the lower Cobalt Swap revenue.
Fertilizer revenue in Q1 2024 was $9.9 million compared to $16.9 million in Q1 2023. Fertilizer sales volume was 20% lower on delayed demand ahead of the spring planting season.
Cobalt Swap sales
During Q1 2024, and for the remainder of 2024, Sherritt anticipates variances in cobalt sales volumes, revenue and cost of sales as a result of the timing of receipts of cobalt and their subsequent sale by Sherritt under the Cobalt Swap agreement. In 2023, Sherritt began receiving and selling 100% of the available cobalt in Q1 and received the annual maximum amount of cobalt (2,082 tonnes) by the end of Q2. In the current year, Sherritt expects to begin receiving cobalt under the Cobalt Swap in the second half of the year.
As a result, sales of cobalt will be recognized by the Moa JV at Sherritt's 50% share until such time as Sherritt begins receiving cobalt from the Cobalt Swap. While this will result in variances in cobalt sales volumes, revenue and cost of sales, it will not have a material impact on earnings from operations, average-realized prices (1) , cobalt by-product credits, or NDCC (1) .
Production
Mixed sulphides production at the Moa JV in Q1 2024 was 4,052 tonnes, up 8% from the 3,750 tonnes produced in Q1 2023 benefitting from lower unplanned maintenance activities, improved ore blends and grades and additional processing capacity and efficiencies resulting from the completion of the SPP.
Sherritt's share of finished nickel and cobalt production in Q1 2024 was 3,597 tonnes and 342 tonnes, 3% higher and 7% lower, respectively, than Q1 2023. Finished nickel production during the quarter increased due to higher nickel rich third-party feed processed partly offset by weather-related shipping delays in delivering Moa mixed sulphides feed to the refinery and reduced production rates to mitigate feed contaminants. Finished cobalt production was lower consistent with higher nickel-to-cobalt ratio in available feed processed. The delayed shipment of mixed sulphides was received at the refinery in April.
Fertilizer production in Q1 2024 of 57,064 tonnes was 2% lower compared to Q1 2023.
NDCC (1)
NDCC (1) per pound of nickel sold was US$7.24/lb in Q1 2024 compared to US$6.46/lb in Q1 2023; however, NDCC (1) was 8% lower than in Q4 2023 improving quarter over quarter. During Q1 2024, NDCC (1) was impacted by higher-cost opening inventory sold in addition to lower cobalt and fertilizer by-product credits (2) . NDCC (1) improved to average US$6.82/lb during the last month of the quarter and continues to trend lower. Importantly, mining, processing and refining costs per pound of nickel sold ("MPR/lb"), the largest cost component of NDCC (1) , improved 13% from Q1 2023. Lower MPR/lb costs were primarily due to lower sulphur, natural gas and diesel prices, lower maintenance costs and the impact of higher nickel sales volumes, partly offset by the higher opening inventory costs. The Cobalt Swap did not have a significant impact on NDCC (1) in either of the comparative periods.
Higher year-over-year NDCC (1) was expected during the first quarter and factored into the Corporation's 2024 outlook for NDCC (1) which Sherritt continues to expect will be within a range of US$5.50 to US$6.00/lb implying a 20% decrease from 2023.
Spending on capital (1)
Sustaining spending on capital in Q1 2024 was $7.4 million, compared to $5.9 million in Q1 2023 with modestly higher spending during the current year quarter.
Growth spending on capital in Q1 2024 was $2.0 million most of which was related to spending on the second phase of the Moa JV expansion.
(1) | Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of this press release. |
(2) | 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
The first phase of the Moa JV expansion program, the SPP, was commissioned and has been operating at design capacity since the end of January.
The second phase, the Processing Plant, is underway and
The overall timing and budget to reach target production remains unchanged and is on schedule for an expected end of year 2024 completion with commissioning and ramp up in 2025. With completion of phase two of the expansion, annual mixed sulphide precipitate production is expected to increase by 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's technical expertise and innovative processing solutions are key differentiators and enablers towards the Corporation's near-term strategic focus to expand midstream processing capacity of critical minerals for the electric vehicle supply chain in North America.
During the quarter, Sherritt advanced its MHP midstream processing flowsheet for production of nickel and cobalt sulphate while also reducing sodium sulphate effluent which is a key environmental challenge for the industry. Project focus in 2024 will be on site identification, customer and partnership arrangements, and further process development and project definition.
Power
$ millions (Sherritt Share, 33⅓% basis), except as otherwise noted, for the three months ended March 31 | 2024 | 2023 | Change | ||||||
FINANCIAL HIGHLIGHTS | |||||||||
Revenue | $ | 12.0 | $ | 10.3 | 17 | % | |||
Cost of sales | 4.0 | 3.4 | 18 | % | |||||
Earnings from operations | 7.1 | 5.9 | 20 | % | |||||
Adjusted EBITDA (1) | 7.6 | 6.4 | 19 | % | |||||
CASH FLOW | |||||||||
Cash provided by continuing operations for operating activities | $ | 9.7 | $ | 4.4 | 120 | % | |||
Free cash flow (1) | 7.1 | 3.7 | 92 | % | |||||
PRODUCTION AND SALES | |||||||||
Electricity (GWh (2) ) | 210 | 158 | 33 | % | |||||
AVERAGE-REALIZED PRICE (1) | |||||||||
Electricity (per MWh (2) ) | $ | 51.25 | $ | 58.33 | (12 | %) | |||
UNIT OPERATING COST (1) | |||||||||
Electricity (per MWh) | $ | 17.12 | $ | 19.37 | (12 | %) | |||
SPENDING ON CAPITAL (1) | |||||||||
Sustaining | $ | 2.6 | $ | 0.7 | 271 | % | |||
(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 for Q1 2024 of $12.0 million was 17% higher than Q1 2023 primarily due to higher production resulting in higher sales of 210 GWh compared to 158 GWh in the prior year period, partly offset by lower average-realized price (1) . Higher production was a result of higher gas availability as a result of the two wells that went into production at the end of the second quarter of 2023 and better equipment availability.
As a key partner in supporting the Cuban government's plans to increase power production, Sherritt continues to work with its Cuban partners to drill additional wells which will increase gas supply for additional electricity production.
Unit operating costs (1) for the three months ended March 31, 2024 were $17.12/MWh, 12% lower than Q1 2023 primarily as a result of higher electricity production and sales volume relative to maintenance costs during the periods.
Spending on capital (1) of $2.6 million in Q1 2024 was primarily driven by timing of maintenance activities at Varadero.
(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 May 9, 2024 at 10:00 a.m. Eastern Time to review its first quarter 2024 results. Dial-in and webcast details are as follows:
North American callers, please dial: | 1 (800) 717-1738 Passcode: 00402 | |||||
International callers, please dial: | 1 (289) 514-5100 Passcode: 00402 | |||||
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
Sherritt's condensed consolidated financial statements and MD&A for the three months ended March 31, 2024 are available at www.sherritt.com 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 or on SEDAR+ at www.sedarplus.ca .
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 Slurry Preparation Plant and 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 effect of maintenance challenges at the Moa mine, refinery and fertilizer operations; the timing of repayments of the revolving line of credit by the Moa JV, 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; 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 months ended March 31, 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 months ended March 31, 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:
$ millions, for the three months ended March 31 | 2024 | 2023 | Change | ||||||||
Revenue by reportable segment | |||||||||||
Metals (1) | $ | 115.1 | $ | 176.5 | (35 | %) | |||||
Power | 12.0 | 10.3 | 17 | % | |||||||
Corporate and Other | 0.6 | 0.6 | - | ||||||||
Combined revenue | $ | 127.7 | $ | 187.4 | (32 | %) | |||||
Adjustment for Moa Joint Venture | (104.2 | ) | (130.9 | ) | |||||||
Adjustment for Oil and Gas | 5.3 | 2.1 | 152 | % | |||||||
Revenue per financial statements | $ | 28.8 | $ | 58.6 | (51 | %) | |||||
(1) | Revenue of Metals for the three months ended March 31, 2024 is composed of revenue recognized by the Moa JV of $104.2 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 $8.9 million and revenue recognized by Metals Marketing of $2.0 million, which are included in consolidated revenue (for the three months ended March 31, 2023 - $130.9 million, $15.2 million and $30.4 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 March 31 | 2024 | ||||||||||||||||||||||
Metals (1) | Power | Oil and | Corporate | Adjustment | Total | ||||||||||||||||||
(Loss) earnings from operations and joint venture | |||||||||||||||||||||||
per financial statements | $ | (21.0 | ) | $ | 7.1 | $ | (2.3 | ) | $ | (7.0 | ) | $ | 0.8 | $ | (22.4 | ) | |||||||
Add: | |||||||||||||||||||||||
Depletion, depreciation and amortization | 2.4 | 0.5 | - | 0.4 | - | 3.3 | |||||||||||||||||
Oil and Gas loss from operations, net of | |||||||||||||||||||||||
depletion, depreciation and amortization | - | - | 2.3 | - | - | 2.3 | |||||||||||||||||
Adjustments for share of earnings of Moa Joint Venture: | |||||||||||||||||||||||
Depletion, depreciation and amortization | 11.1 | - | - | - | - | 11.1 | |||||||||||||||||
Net finance income | - | - | - | - | (1.2 | ) | (1.2 | ) | |||||||||||||||
Income tax expense | - | - | - | - | 0.4 | 0.4 | |||||||||||||||||
Adjusted EBITDA | $ | (7.5 | ) | $ | 7.6 | $ | - | $ | (6.6 | ) | $ | - | $ | (6.5 | ) | ||||||||
$ millions, for the three months ended March 31 | 2023 (Restated) | ||||||||||||||||||||
Metals (1) | Power | Oil and | Corporate | Adjustment | Total | ||||||||||||||||
Earnings (loss) from operations and joint venture | |||||||||||||||||||||
per financial statements | $ | 31.0 | $ | 5.9 | $ | (1.4 | ) | $ | (10.0 | ) | $ | (3.9 | ) | $ | 21.6 | ||||||
Add (deduct): | |||||||||||||||||||||
Depletion, depreciation and amortization | 2.3 | 0.5 | 0.1 | 0.3 | - | 3.2 | |||||||||||||||
Oil and Gas loss from operations, net of | |||||||||||||||||||||
depletion, depreciation and amortization | - | - | 1.3 | - | - | 1.3 | |||||||||||||||
Adjustments for share of earnings of Moa Joint Venture: | |||||||||||||||||||||
Depletion, depreciation and amortization | 11.2 | - | - | - | - | 11.2 | |||||||||||||||
Net finance expense | - | - | - | - | 0.4 | 0.4 | |||||||||||||||
Income tax expense | - | - | - | - | 3.5 | 3.5 | |||||||||||||||
Adjusted EBITDA | $ | 44.5 | $ | 6.4 | $ | - | $ | (9.7 | ) | $ | - | $ | 41.2 | ||||||||
(1) | Adjusted EBITDA of Metals for the three months ended March 31, 2024 is composed of Adjusted EBITDA at Moa JV of $(2.0) million (50% basis), Adjusted EBITDA at Fort Site of $(4.9) million, and Adjusted EBITDA at Metals Marketing of $(0.6) million (for the three months ended March 31, 2023 - $45.0 million, $3.1 million and $(3.6) 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 March 31 | 2024 | ||||||||||||||||||||
Metals | |||||||||||||||||||||
Nickel | Cobalt | Fertilizer | Power | Other (1) | Adjustment | Total | |||||||||||||||
Revenue per financial statements | $ | 87.8 | $ | 11.6 | $ | 9.9 | $ | 12.0 | $ | 11.7 | $ | (104.2) | $ | 28.8 | |||||||
Adjustments to revenue: | |||||||||||||||||||||
By-product and other revenue | - | - | - | (1.4) | |||||||||||||||||
Revenue for purposes of average-realized price calculation | 87.8 | 11.6 | 9.9 | 10.6 | |||||||||||||||||
Sales volume for the period | 8.9 | 0.8 | 23.9 | 210 | |||||||||||||||||
| Volume units | Millions of | Millions of | Thousands | Gigawatt | |||||||||||||||||
Average-realized price (2)(3)(4) | $ | 9.90 | $ | 14.51 | $ | 412.05 | $ | 51.25 | |||||||||||||
$ millions, except average-realized price and sales volume, for the three months ended March 31 | 2023 | ||||||||||||||||||||||
Metals | |||||||||||||||||||||||
Nickel | Cobalt | Fertilizer | Power | Other (1) | Adjustment | Total | |||||||||||||||||
Revenue per financial statements | $ | 121.4 | $ | 30.8 | $ | 16.9 | $ | 10.3 | $ | 10.1 | $ | (130.9 | ) | $ | 58.6 | ||||||||
Adjustments to revenue: | |||||||||||||||||||||||
By-product and other revenue | - | - | - | (1.1 | ) | ||||||||||||||||||
Revenue for purposes of average-realized price calculation | 121.4 | 30.8 | 16.9 | 9.2 | |||||||||||||||||||
Sales volume for the period | 7.4 | 1.6 | 29.9 | 158 | |||||||||||||||||||
| Volume units | Millions of | Millions of | Thousands | Gigawatt | |||||||||||||||||||
Average-realized price (2)(3)(4) | $ | 16.47 | $ | 19.11 | $ | 566.93 | $ | 58.33 | |||||||||||||||
(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/NDCC
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 March 31 | 2024 | |||||||||||||||||
Metals | Power | Other (1) | Adjustment | Total | ||||||||||||||
Cost of sales per financial statements | $ | 131.1 | $ | 4.0 | $ | 8.3 | $ | (115.9 | ) | $ | 27.5 | |||||||
Less: | ||||||||||||||||||
Depletion, depreciation and amortization in cost of sales | (13.5 | ) | (0.5 | ) | ||||||||||||||
117.6 | 3.5 | |||||||||||||||||
Adjustments to cost of sales: | ||||||||||||||||||
Cobalt by-product, fertilizer and other revenue | (27.3 | ) | - | |||||||||||||||
Impact of opening/closing inventory and other (2) | (3.4 | ) | - | |||||||||||||||
Cost of sales for purposes of unit cost calculation | 86.9 | 3.5 | ||||||||||||||||
Sales volume for the period | 8.9 | 210 | ||||||||||||||||
| Volume units | Millions of | Gigawatt | ||||||||||||||||
Unit operating cost (3)(4) | $ | 9.80 | $ | 17.12 | ||||||||||||||
Unit operating cost (US$ per pound) (NDCC) (5) | $ | 7.24 | ||||||||||||||||
$ millions, except unit cost and sales volume, for the three months ended March 31 | 2023 | |||||||||||||||||
Metals | Power | Other (1) | Adjustment | Total | ||||||||||||||
Cost of sales per financial statements | $ | 144.5 | $ | 3.4 | $ | 7.7 | $ | (96.3 | ) | $ | 59.3 | |||||||
Less: | ||||||||||||||||||
Depletion, depreciation and amortization in cost of sales | (13.5 | ) | (0.5 | ) | ||||||||||||||
131.0 | 2.9 | |||||||||||||||||
Adjustments to cost of sales: | ||||||||||||||||||
Cobalt by-product, fertilizer and other revenue | (55.1 | ) | - | |||||||||||||||
Cobalt gain | (0.5 | ) | - | |||||||||||||||
Impact of opening/closing inventory and other (2) | (11.0 | ) | - | |||||||||||||||
Cost of sales for purposes of unit cost calculation | 64.4 | 2.9 | ||||||||||||||||
Sales volume for the period | 7.4 | 158 | ||||||||||||||||
| Volume units | Millions of | Gigawatt | ||||||||||||||||
Unit operating cost (3)(4) | $ | 8.74 | $ | 19.37 | ||||||||||||||
Unit operating cost (US$ per pound) (NDCC) (5) | $ | 6.46 | ||||||||||||||||
(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 table 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:
2024 | 2023 | |||||||||||||||
For the three months ended March 31 | $ millions | $/share | $ millions | $/share | ||||||||||||
Net (loss) earnings from continuing operations | $ | (40.9 | ) | $ | (0.10 | ) | $ | 13.6 | $ | 0.03 | ||||||
Adjusting items: | ||||||||||||||||
Sherritt - Unrealized foreign exchange loss - continuing operations | - | - | 0.9 | - | ||||||||||||
Sherritt's share - Severance related to restructuring | 3.5 | 0.01 | - | - | ||||||||||||
Corporate and Other - Gain on repurchase of notes | - | - | (1.3 | ) | - | |||||||||||
Metals - Moa JV - Inventory write-down/obsolescence | 0.9 | - | 0.3 | - | ||||||||||||
Metals - Fort Site - Inventory write-down/obsolescence | 0.9 | - | - | - | ||||||||||||
Power - Loss (gain) on revaluation of GNC receivable | 10.5 | 0.02 | (8.5 | ) | (0.02 | ) | ||||||||||
Power - (Gain) loss on revaluation of Energas payable | (1.4 | ) | - | 7.6 | 0.02 | |||||||||||
Oil and Gas - Net loss from continuing operations, net of | ||||||||||||||||
unrealized foreign exchange gain/loss | 2.3 | 0.01 | 0.9 | - | ||||||||||||
Total adjustments, before tax | $ | 16.7 | $ | 0.04 | $ | (0.1 | ) | $ | - | |||||||
Tax adjustments | (0.4 | ) | - | (0.2 | ) | - | ||||||||||
Adjusted net (loss) earnings from continuing operations | $ | (24.6 | ) | $ | (0.06 | ) | $ | 13.3 | $ | 0.03 |
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 March 31 | 2024 | |||||||||||||||||||||
Metals | Power | Other (1) | Combined | Adjustment | Total | |||||||||||||||||
Property, plant and equipment expenditures (2) | $ | 9.5 | $ | 2.6 | $ | - | $ | 12.1 | $ | (8.4 | ) | $ | 3.7 | |||||||||
Intangible asset expenditures (2) | - | - | 0.2 | 0.2 | - | 0.2 | ||||||||||||||||
9.5 | 2.6 | 0.2 | 12.3 | $ | (8.4 | ) | $ | 3.9 | ||||||||||||||
Adjustments: | ||||||||||||||||||||||
Accrual adjustment | (0.1 | ) | - | (0.1 | ) | (0.2 | ) | |||||||||||||||
Spending on capital | $ | 9.4 | $ | 2.6 | $ | 0.1 | $ | 12.1 | ||||||||||||||
$ millions, for the three months ended March 31 | 2023 | ||||||||||||||||||||
Metals | Power | Other (1) | Combined | Adjustment | Total | ||||||||||||||||
Property, plant and equipment expenditures (2) | $ | 9.6 | $ | 0.7 | $ | - | $ | 10.3 | $ | (6.7 | ) | $ | 3.6 | ||||||||
Intangible asset expenditures (2) | - | - | 0.9 | 0.9 | - | 0.9 | |||||||||||||||
9.6 | 0.7 | 0.9 | 11.2 | $ | (6.7 | ) | $ | 4.5 | |||||||||||||
Adjustments: | |||||||||||||||||||||
Accrual adjustment | - | - | (0.7 | ) | (0.7 | ) | |||||||||||||||
Spending on capital | $ | 9.6 | $ | 0.7 | $ | 0.2 | $ | 10.5 | |||||||||||||
(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 March 31 | 2024 | |||||||||||||||||||||||||||
Metals (1)(2) | Power | Oil and | Corporate | Combined | Adjustment | Total | ||||||||||||||||||||||
Cash provided (used) by continuing operations for operating activities | $ | 31.2 | $ | 9.7 | $ | (4.0 | ) | $ | (8.8 | ) | $ | 28.1 | $ | (15.1 | ) | $ | 13.0 | |||||||||||
Less: | ||||||||||||||||||||||||||||
Property, plant and equipment expenditures | (9.5 | ) | (2.6 | ) | - | - | (12.1 | ) | 8.4 | (3.7 | ) | |||||||||||||||||
Intangible expenditures | - | - | (0.2 | ) | - | (0.2 | ) | - | (0.2 | ) | ||||||||||||||||||
Free cash flow | $ | 21.7 | $ | 7.1 | $ | (4.2 | ) | $ | (8.8 | ) | $ | 15.8 | $ | (6.7 | ) | $ | 9.1 | |||||||||||
$ millions, for the three months ended March 31 | 2023 (Restated) | |||||||||||||||||||||||||||
Metals (1)(2) | Power | Oil and | Corporate | Combined | Adjustment | Total | ||||||||||||||||||||||
Cash provided (used) by continuing operations for operating activities | $ | 69.5 | $ | 4.4 | $ | 1.0 | $ | (28.0 | ) | $ | 46.9 | $ | (37.1 | ) | $ | 9.8 | ||||||||||||
Less: | ||||||||||||||||||||||||||||
Property, plant and equipment expenditures | (9.6 | ) | (0.7 | ) | - | - | (10.3 | ) | 6.7 | (3.6 | ) | |||||||||||||||||
Intangible expenditures | - | - | (0.9 | ) | - | (0.9 | ) | - | (0.9 | ) | ||||||||||||||||||
Free cash flow | $ | 59.9 | $ | 3.7 | $ | 0.1 | $ | (28.0 | ) | $ | 35.7 | $ | (30.4 | ) | $ | 5.3 | ||||||||||||
(1) | Cash provided by continuing operations for operating activities for the Moa JV, Fort Site and Metals Marketing was $15.1 million, $11.3 million and $4.8 million, respectively, for the three months ended March 31, 2024 (for the three months ended March 31, 2023 - $37.3 million, $12.4 million and $19.8 million, respectively). |
(2) | Property, plant and equipment expenditures for the Moa JV, Fort Site and Metals Marketing was $8.5 million, $1.0 million and nil, respectively, for the three months ended March 31, 2024 (for the three months ended March 31, 2023 - $6.7 million, $2.9 million and nil, respectively). |
View source version on businesswire.com: https://www.businesswire.com/news/home/20240507561635/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
News Provided by Business Wire via QuoteMedia
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“Batteries are becoming better, cheaper and more abundant — these are the three things that are driving forward what I think is the mega trend of our times."
— Simon Moores, Benchmark Mineral Intelligence
"The current EV penetration rate means demand for cobalt will continue to grow, with nickel-cobalt-manganese technologies remaining the dominant cathode type."
— Cameron Hughes, Benchmark Mineral Intelligence
"The sheer absolute growth in EV sales will mean that EV-related cobalt demand will continue to accelerate in the years to come."
— Andries Gerbens, Darton Commodities
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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.
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.
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 has been used as a blue coloring agent in pottery, glass and ceramics for thousands of years.
However, more recently, demand from high-tech sectors has overshadowed traditional cobalt uses. Today, this critical metal is an essential ingredient in electric vehicle (EV) batteries, energy storage systems, metal alloys and more.
The lithium-ion battery sector in particular has become a major source of cobalt demand, and analysts expect that this sector will drive the cobalt market going forward. At the same time, cobalt supply could tighten substantially due to human rights abuses in the Democratic Republic of Congo (DRC), where most cobalt is produced.
Given those factors, many investors are now wondering how to invest in cobalt. To help those interested in the sector, we’ve put together a brief guide on cobalt supply and demand and different investing options.
Cobalt is mainly produced as a by-product of copper and nickel, with the DRC supplying the bulk of the world’s cobalt. Most DRC cobalt comes from an area known as the Central African Copper Belt, which hosts most of the country's cobalt-hosting deposits. The country also holds nearly half of global cobalt reserves, cementing its dominance.
Cobalt is produced in about a dozen countries. The DRC put out 170,000 metric tons (MT) in 2023, far ahead of runner-up Indonesia’s 17,000 MT. Russia (8,800 MT) and Australia (4,600 MT) were the third and fourth largest, respectively.
As noted, DRC cobalt is facing increasing scrutiny. While cobalt is not a conflict mineral, some human rights groups are pushing for it to receive that designation. Many DRC cobalt operations are dangerous, poorly managed and involve child labor, and these human rights groups believe end users should be sourcing the metal elsewhere.
As of early 2024, cobalt was in a supply overhang as increased production out of the DRC and Indonesia has not been taken up by demand, which took a hit in 2023 on the back of sliding sales for EVs. Fastmarkets analysts are "forecasting an ongoing and widening surplus in the global cobalt market in 2024".
It’s tough to say exactly when and by how much cobalt demand will rebound in the coming years, but as noted, the lithium-ion battery market will be a huge driver of that demand.
"Falling cobalt prices may lead OEMs in certain markets to reconsider lower nickel NCM batteries, with higher cobalt content, due to the potential cost savings," notes Fastmarkets in its report.
For investors interested in cobalt, and there are two main ways to gain exposure.
The first option is cobalt futures which can found on the London Metal Exchange. These futures are quoted in US dollars per MT. Contracts range over a span of 15 months, allowing investors to make bets on the metal over varying time periods. Typically futures trading is done by more sophisticated investors.
The second option is to invest in cobalt-focused companies. Benchmark Mineral Intelligence Chief Data Officer Caspar Rawles has recommended that any investor interested in investing in cobalt look at copper and nickel companies that are mining or exploring for cobalt, “unless (they) are lucky enough to find a (junior with a) deposit that is primarily cobalt.”
He added, “I think the key for smaller companies is to be targeting value-added products further downstream than simply a concentrate, such as cobalt sulfate, targeting the battery supply chain.”
For ideas on cobalt stocks to invest in, check out our list of the biggest producers of the metal — these are some of the largest names in the sector. You can also read our overview of Canadian cobalt companies that have seen year-to-date gains, and our list of the biggest cobalt stocks on the ASX by market cap.
This is an updated version of an article originally published by the Investing News Network in 2010.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
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.
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.
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.
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.
Cobalt is a silver-gray metal that is often produced as a by-product of nickel and copper mining. It does not occur as a separate metal anywhere in the world, and must be produced by reductive smelting, or from the metallic ore cobaltite, which is made of cobalt, sulfur and arsenic.
Historically, cobalt oxides were used to impart a blue pigment to glass, porcelain and paints, hence the still-used cobalt blue paint. The metal is also used to produce superalloys, as cobalt imparts qualities such as corrosion and wear resistance, which are useful in applications such as airplanes, orthopedics and prosthetics.
Today cobalt is most famously used in the rechargeable lithium-ion batteries that run everything from smartphones to EVs.
The majority of cobalt production comes out of the DRC, which was responsible for producing 130,000 MT of the material in 2022. For perspective, the second largest cobalt-producing country, Russia, reported output of 8,900 MT the same year; third place Australia produced 5,900 MT of the material.
As the lithium-ion battery and EV supply chains garner global attention, companies are trying to limit their exposure to cobalt produced from the DRC, which is known for human rights abuses and sometimes child labor in its mining industry.
In response to this trend, many countries with cobalt are attempting to create domestic cobalt and EV supply chains in the hope of attracting companies looking to avoid DRC-sourced cobalt. This can be seen in the up-and-coming battery corridor in Ontario, Canada, as well as in the US-based Idaho cobalt belt.
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.
