TORONTO, ONTARIO--(Marketwired - Oct. 30, 2013) -
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
All amounts are Canadian dollars unless otherwise indicated
Sherritt International Corporation ("Sherritt" or the "Corporation") (TSX:S) today reported earnings of $1.1 million ($0.00 per share, basic), compared to a net loss of $22.6 million ($0.08 per share, basic) for third-quarter 2012.
Earnings were higher quarter-over-quarter largely as a result of the impact of changes in the Ambatovy call option (a $11.2 million non-cash gain in third-quarter 2013 compared to a $3.2 million non-cash loss in third-quarter 2012), a $27.0 million expense in third-quarter 2012 (related to the redemption of Sherritt's 8.25% Senior Unsecured Debentures Series B due October 24, 2014), and higher finished metals sales volumes in third-quarter 2013. These factors that increased relative earnings were partially offset by the impact of lower nickel and export coal prices, as well as higher administrative expenses and lower royalties in Coal.
Adjusted operating cash flow per share for second quarter 2013 was $0.20 per share, compared to $0.30 per share in third- quarter 2012 and up from second-quarter 2013 ($0.18 per share).
Consolidated Highlights
- Spending on capital and intangibles relating to operations totaled $35.5 million for third-quarter 2013, compared to $48.5 million in third-quarter 2012.
- Cash, cash equivalents and short-term investments were $370.8 million at September 30, 2013.
- Sales volumes for third-quarter 2013 (Sherritt's share) totaled 10.1 million pounds of finished nickel, 1.0 million pounds of finished cobalt, 5.4 million tonnes of thermal coal, 1.0 million barrels of oil and 130 GWh of electricity.
- Sales volumes in third-quarter 2013 do not include sales from the Ambatovy Joint Venture. Finished metal sold from the Ambatovy Joint Venture will not be categorized as sales volumes until the declaration of commercial production, defined as 70% of ore throughput of nameplate capacity in the Pressure Acid Leach (PAL) circuit, averaged over a thirty-day period. During third-quarter 2013, Ambatovy had pre-commercial sales of approximately 13.5 million pounds (100% basis) of finished nickel and approximately 1.0 million pounds (100% basis) of finished cobalt.
Operating Highlights
- The Moa Joint Venture partners have reached agreement to proceed with a third acid plant at the Moa, Cuba facilities. The new 2,000 tonne per day plant is expected to reduce the net direct cash cost of nickel by approximately 20%, largely by eliminating the requirement for purchased acid. Construction is scheduled to begin in second-quarter 2014, and initial production from the facility is expected in third-quarter 2015.
- The progress of the ramp-up at Ambatovy was impeded during third-quarter 2013 by mechanical challenges. As a result, ore throughput in the PAL circuit was similar to second-quarter 2013. Despite lower autoclave availability during the quarter, improved volumetric flow rates, higher ore grade and improved metallurgical recoveries in the PAL circuit resulted in higher mixed sulphides production relative to second-quarter 2013. Ambatovy finished metal production was lower than the previous quarter, as the combined impact of a net drawdown of mixed sulphides inventory in the previous quarter and an increase in in- process inventory during third-quarter 2013, more than offset the increase in mixed sulphides production.
- Third-quarter 2013 consolidated finished metal production (including production from both the Moa and Ambatovy Joint Ventures) was significantly higher than the prior-year period due to the addition of Ambatovy production and production increases at the Moa Joint Venture (relative to both the prior-year period and second-quarter 2013).
- The net direct cash cost of nickel at the Moa Joint Venture for third-quarter 2013 was comparable to the prior-year period, and was $0.46 per pound (8%) lower than second-quarter 2013.
- Coal production volumes were lower in both the Prairie Operations and Mountain Operations relative to the prior-year period, due to a planned production response to reduced customer demand and the termination of the contract mining business in January 2013 in the mine-mouth Prairie Operations, and to sustained weaker international thermal coal prices in Mountain Operations.
- In Oil, gross-working interest production levels in Cuba were maintained during the quarter as the natural reservoir decline rates were largely offset by the addition of production from new wells and an established program of workovers and optimization of existing wells.
- To reflect lower-than-expected actual production to September 30, 2013, estimated full-year 2013 Ambatovy production was reduced for mixed sulphides (by 15% or 5,000 tonnes, 100% basis), finished nickel (by 16% or 5,000 tonnes, 100% basis), and finished cobalt (by 21% or 600 tonnes, 100% basis).
| SUMMARY FINANCIAL DATA | Nine months ended | |||||
| September 30, | ||||||
| ($ millions unless otherwise noted) | Q3 2013 | Q3 2012 | 2013 | 2012 | ||
| Revenue | 286.2 | 341.5 | 911.2 | 1,078.0 | ||
| Adjusted EBITDA(1) | 84.8 | 115.9 | 270.8 | 400.0 | ||
| Earnings from operations and associate and joint venture | 27.3 | 45.1 | 106.8 | 203.7 | ||
| Net earnings (loss) | 1.1 | (22.6 | ) | 13.5 | 50.6 | |
| Basic and diluted earnings (loss) per share ($ per share) | 0.00 | (0.08 | ) | 0.05 | 0.17 | |
| Net working capital balance(2) | 721.9 | 1,023.6 | 721.9 | 1,023.6 | ||
| Spending on capital and intangibles(3) | 35.5 | 48.5 | 140.6 | 152.2 | ||
| Total assets | 6,648.4 | 6,798.8 | 6,648.4 | 6,798.8 | ||
| Shareholders' equity | 3,708.3 | 3,655.8 | 3,708.3 | 3,655.8 | ||
| Long-term debt to total assets (%) | 33 | 34 | 33 | 34 | ||
| Weighted-average number of shares (millions) | ||||||
| Basic | 296.9 | 296.4 | 296.7 | 296.2 | ||
| Diluted | 297.3 | 297.0 | 297.1 | 296.8 | ||
- For additional information see the 'Non-GAAP Measure - Adjusted EBITDA' section of this release.
- Net working capital is calculated as total current assets less total current liabilities.
- Spending on capital and intangibles includes accruals and does not include spending on the Ambatovy Joint Venture or service concession arrangements.
| SUMMARY SALES DATA | Nine months ended | |||
| September 30, | ||||
| (units as noted) | Q3 2013 | Q3 2012 | 2013 | 2012 |
| Sales volumes | ||||
| Nickel - Moa Joint Venture (thousands of pounds, 50% basis)(1) | 10,095 | 8,590 | 27,338 | 28,060 |
| Cobalt - Moa Joint Venture (thousands of pounds, 50% basis)(1) | 1,035 | 949 | 2,777 | 3,096 |
| Thermal coal - Prairie Operations (millions of tonnes) | 4.6 | 7.6 | 15.5 | 22.5 |
| Thermal coal - Mountain Operations (millions of tonnes) | 0.8 | 0.9 | 2.6 | 2.7 |
| Oil (boepd, net working-interest production) | 11,403 | 11,408 | 11,255 | 11,511 |
| Electricity (GWh, 33 1/3% basis) | 130 | 154 | 443 | 466 |
| Realized prices | ||||
| Nickel ($/lb)(1) | 6.42 | 7.20 | 7.01 | 7.94 |
| Cobalt ($/lb)(1) | 13.26 | 12.55 | 12.56 | 13.54 |
| Thermal coal - Prairie Operations ($/tonne) | 18.40 | 17.47 | 18.26 | 17.55 |
| Thermal coal - Mountain Operations ($/tonne) | 86.29 | 100.32 | 88.62 | 102.66 |
| Oil ($/boe) | 69.63 | 69.81 | 68.96 | 72.74 |
| Electricity ($/MWh) | 43.47 | 41.20 | 42.48 | 41.49 |
- Sales volumes and average realized prices do not include the impact of the Ambatovy Joint Venture.
Review of Operations
| METALS | Nine months ended | ||||||||
| September 30, | |||||||||
| ($ millions unless otherwise noted) | Q3 2013 | Q3 2012 | 2013 | 2012 | |||||
| Production | |||||||||
| Mixed sulphides (Ni+Co contained, tonnes) | |||||||||
| Moa Joint Venture (50% basis) | 4,957 | 4,750 | 13,693 | 14,285 | |||||
| Ambatovy Joint Venture (40% basis) | 2,622 | 1,358 | 8,055 | 1,601 | |||||
| Total | 7,579 | 6,108 | 21,748 | 15,886 | |||||
| Nickel (tonnes) | |||||||||
| Moa Joint Venture (50% basis) | 4,573 | 3,909 | 12,343 | 12,693 | |||||
| Ambatovy Joint Venture (40% basis) | 2,183 | 917 | 7,369 | 917 | |||||
| Total | 6,756 | 4,826 | 19,712 | 13,610 | |||||
| Cobalt (tonnes) | |||||||||
| Moa Joint Venture (50% basis) | 446 | 436 | 1,225 | 1,410 | |||||
| Ambatovy Joint Venture (40% basis) | 161 | 64 | 627 | 64 | |||||
| Total | 607 | 500 | 1,852 | 1,474 | |||||
| Fertilizer (tonnes) | |||||||||
| Moa Joint Venture (50% basis) | 25,344 | 22,323 | 68,177 | 71,734 | |||||
| Fort Site (100% basis) | 39,108 | 44,742 | 122,902 | 129,216 | |||||
| Ambatovy Joint Venture (40% basis) | 6,027 | - | 21,159 | - | |||||
| Total | 70,479 | 67,065 | 212,238 | 200,950 | |||||
| Sales(1) | |||||||||
| Nickel (thousands of pounds, 50% basis) | 10,095 | 8,590 | 27,338 | 28,060 | |||||
| Cobalt (thousands of pounds, 50% basis) | 1,035 | 949 | 2,777 | 3,096 | |||||
| Fertilizer (tonnes) | |||||||||
| Moa Joint Venture (50%) | 12,083 | 14,839 | 50,739 | 59,812 | |||||
| Fort Site (100%) | 16,041 | 5,612 | 78,828 | 58,560 | |||||
| Total | 28,124 | 20,451 | 129,567 | 118,372 | |||||
| Reference prices(1) | |||||||||
| Nickel (US$/lb) | 6.31 | 7.40 | 6.97 | 8.04 | |||||
| Cobalt (US$/lb)(2) | 13.42 | 13.06 | 12.82 | 13.96 | |||||
| Realized prices(1) | |||||||||
| Nickel ($/lb) | 6.42 | 7.20 | 7.01 | 7.94 | |||||
| Cobalt ($/lb) | 13.26 | 12.55 | 12.56 | 13.54 | |||||
| Unit operating costs (US$/lb)(1) | |||||||||
| Mining, processing and refining costs | 6.10 | 6.48 | 6.70 | 6.55 | |||||
| Third-party feed costs | 0.18 | 0.06 | 0.18 | 0.10 | |||||
| Cobalt by-product credits | (1.31) | (1.39) | (1.24) | (1.49) | |||||
| Other | 0.15 | (0.02) | (0.06) | (0.28) | |||||
| Net direct cash costs of nickel (NDCC)(3) | 5.12 | 5.13 | 5.58 | 4.88 | |||||
| Natural gas ($/GJ) | 2.48 | 2.27 | 3.07 | 2.13 | |||||
| Fuel oil (US$/tonne) | 618 | 629 | 626 | 676 | |||||
| Sulphur (US$/tonne) | 201 | 263 | 222 | 266 | |||||
| Sulphuric acid (US$/tonne) | 144 | 184 | 150 | 188 | |||||
| Revenue | |||||||||
| Nickel | $ | 64.8 | $ | 61.9 | $ | 191.5 | $ | 222.8 | |
| Cobalt | 13.7 | 11.9 | 34.9 | 41.9 | |||||
| Fertilizer, other | 15.3 | 15.8 | 81.7 | 82.2 | |||||
| Metal marketing(4) | 11.0 | - | 21.0 | - | |||||
| Total revenue | 104.8 | 89.6 | 329.1 | 346.9 | |||||
| Adjusted EBITDA (5) | 8.9 | 17.2 | 43.1 | 94.1 | |||||
| Depletion, depreciation and amortization | 9.6 | 8.7 | 30.1 | 26.0 | |||||
| Earnings (loss) from operations and associate | (0.7) | 8.5 | 13.0 | 68.1 | |||||
| Spending on capital (1) | 7.1 | 6.3 | 21.6 | 18.3 | |||||
- Sales volumes, reference and realized prices, unit operating costs and spending on capital do not include the impact of the Ambatovy Joint Venture.
- Average Metal Bulletin - Low Grade Cobalt published price.
- Net direct cash costs of nickel (NDCC) after cobalt and other by-product credits.
- Under the Ambatovy Joint Venture agreements, the Corporation established a marketing organization to buy, market and sell certain Ambatovy nickel production.
- For additional information see the 'Non-GAAP Measure - Adjusted EBITDA' section of this release.
Consolidated production of mixed sulphides (which is presented on a contained nickel + cobalt basis) of 16,469 tonnes (100% basis) was 28% (3,574 tonnes) higher than third-quarter 2012 resulting from the addition of Ambatovy production and higher production at Moa. Mixed sulphides production at Moa during the period established a new joint venture quarterly production record.
Third-quarter 2013 consolidated finished metal production was higher than the prior-year period due to both the addition of Ambatovy production and higher production at the Moa Joint Venture due to the timing of the annual maintenance turnaround at the refinery (in second-quarter 2013 versus third-quarter 2012). Consolidated finished nickel production of 14,604 tonnes (100% basis) was 44% (4,493 tonnes) higher than third-quarter 2012, and third-quarter 2013 finished cobalt production of 1,297 tonnes (100% basis), was 26% (265 tonnes) higher than the prior-year period.
Consolidated fertilizer production of 104,864 tonnes (100% basis) was 17% (15,478 tonnes) higher for third-quarter 2013 compared to the prior-year period, primarily reflecting the addition of Ambatovy production.
Consolidated sales volumes of finished nickel, finished cobalt and fertilizer for third-quarter 2013 reflect sales only from the Moa Joint Venture and Fort Site operations. Finished metal and fertilizer sold from the Ambatovy Joint Venture will not be categorized as sales volumes until the declaration of commercial production, defined as 70% of ore throughput of nameplate capacity in the Pressure Acid Leach (PAL) circuit, averaged over a thirty-day period. Third-quarter 2013 finished nickel sales volumes from the Moa Joint Venture were 18% (1.5 million lbs, 50% basis), and finished cobalt sales volumes were 9% (0.1 million lbs, 50% basis) higher than the prior-year period reflecting the production trend. Fertilizer sales volumes (50% Moa Joint Venture, 100% Fort Site), were 38% (7,673 tonnes) higher for third-quarter 2013 compared to the prior-year period, reflecting strong fall season sales and higher product availability due to increased inventory availability.
For accounting purposes, all revenues from the sale of Ambatovy nickel and cobalt will be capitalized until commercial production is reached. During third-quarter 2013, Ambatovy sold approximately 13.5 million pounds (100% basis) of finished nickel and approximately 1.0 million pounds (100% basis) of finished cobalt. Finished nickel products averaged in excess of 99.9% purity in third-quarter 2013 with only silicon slightly above the limit for the ASTM B39-79 (2013) LME specification. During the same period, finished cobalt products averaged above 99.9% purity - in excess of both the highest quality standard (99.8%) and the 99.3% LME specification.
The average nickel reference price was 15% (US$1.09 per pound) lower in third-quarter 2013 compared to the prior-year period, due to a persistent market surplus that has been sustained by a lack of material production capacity closures. The average cobalt reference price was slightly higher (3% or US$0.36 per pound) compared to the prior-year period, reflecting increased industrial demand and the impact of electricity outages in key supply regions. The impact of the lower nickel reference price on realized prices was partially offset by the weaker Canadian dollar relative to the U.S. dollar. The impact of the foreign exchange movement, combined with higher reference pricing for cobalt, increased the average realized cobalt price period-over-period.
The NDCC of nickel at the Moa Joint Venture for third-quarter 2013 was comparable to the prior-year period, but continued the downward trend in 2013. The third-quarter 2013 NDCC was 8% (US$0.46 per lb) lower than second-quarter 2013, reflecting the unit impact of higher production (as fixed costs are spread across a larger number of production units), as well as lower input commodity costs (primarily sulphuric acid, sulphur and fuel oil).
Spending on capital in third-quarter 2013 for the Moa Joint Venture was 13% ($0.8 million, 50% basis) higher than the prior year-period, due to higher planned spending in 2013.
The Moa Joint Venture partners have reached agreement to proceed with a third acid plant at the Moa, Cuba facilities. This new plant is expected to reduce the NDCC by approximately 20%. The 2,000 tonne per day plant will enhance the efficiency of the operations by providing sufficient acid production capacity to eliminate all sulphuric acid purchases at the current rate of production (38,000 tonnes per annum of mixed sulphides) and will accommodate future acid requirements for subsequent expansions (up to a total facility capacity of 46,000 tonnes per annum of mixed sulphides). Construction is scheduled to begin in second-quarter 2014, and initial production from the facility is expected in third-quarter 2015. The Moa Joint Venture has obtained project financing for the estimated capital cost of the plant (US$65 million) from a Cuban financial institution.
Ambatovy Update
Mechanical challenges faced in the ramp-up of the facilities during third-quarter 2013 impeded progress in increasing the ore throughput in the PAL circuit during the quarter. In third-quarter 2013, average ore throughput in the pressure acid leach (PAL) circuit of 39% was largely similar to second-quarter 2013. Planned and unplanned maintenance activity on the autoclaves reduced the operating hours 13% (721 hours) compared to second-quarter 2013. One of the two autoclaves affected during the period has been returned to service, and the second is expected to be on-line by year-end. Despite lower autoclave availability during the quarter, improved volumetric flow rates, higher ore grade and improved metallurgical recoveries in the PAL circuit resulted in higher mixed sulphides production relative to second-quarter 2013.
Finished nickel production for third-quarter 2013 was 23% (1,676 tonnes, 100% basis) lower and finished cobalt production was 35% (220 tonnes, 100% basis) lower than second-quarter 2013. The variances were largely due to the combined impact of a net drawdown of mixed sulphides inventory in the previous quarter and an increase in in-process inventory during third- quarter 2013.
Total capital costs for Ambatovy remained US$5.3 billion (100% basis), below the US$5.5 billion (100% basis) estimate.
Total project costs (including operating costs, financing charges, working capital and foreign exchange, net of pre-commercial sales revenue) in third-quarter 2013 were US$150.2 million (100% basis) and were net of pre-commercial sales revenue of US$96.3 million (100% basis). This compares to a total project cost credit of US$10.4 million (100% basis) in second-quarter 2013, net of US$129.9 million (100% basis) of pre-commercial sales revenue. Cumulative total project costs to September 30, 2013 were US$7.0 billion (100% basis), including financing charges, working capital and foreign exchange, and will continue to vary until commercial production is declared. The most significant variability in total project costs is most likely to arise from the working capital component and the offsetting production revenue component (which is netted from these costs).
In third-quarter 2013, a total of US$153.0 million (100% basis) in funding was provided by the Ambatovy Joint Venture partners. Sherritt's 40% share of the funding was US$61.2 million ($63.8 million), and was sourced from cash on hand.
The Ambatovy operations are expected to reach commercial production in 2013, which is the point at which all operating costs, net of revenue, cease to be capitalized. Commercial production is defined as 70% of ore throughput of nameplate capacity in the PAL circuit, averaged over a 30-day period.
| COAL | Nine months ended | |||||
| September 30, | ||||||
| ($ millions unless otherwise noted) | Q3 2013 | Q3 2012 | 2013 | 2012 | ||
| Production (millions of tonnes) | ||||||
| Prairie Operations - owned mines | 4.8 | 5.1 | 15.9 | 15.4 | ||
| Prairie Operations - contract mine | - | 2.2 | - | 7.5 | ||
| Mountain Operations | 0.7 | 0.9 | 2.3 | 2.7 | ||
| Total production | 5.5 | 8.2 | 18.2 | 25.6 | ||
| Sales (millions of tonnes) | ||||||
| Prairie Operations - owned mines | 4.6 | 4.9 | 15.5 | 14.6 | ||
| Prairie Operations - contract mine | - | 2.7 | - | 7.9 | ||
| Mountain Operations | 0.8 | 0.9 | 2.6 | 2.7 | ||
| Total sales | 5.4 | 8.5 | 18.1 | 25.2 | ||
| Realized prices ($/tonne) | ||||||
| Prairie Operations(1) | 18.40 | 17.47 | 18.26 | 17.55 | ||
| Mountain Operations | 86.29 | 100.32 | 88.62 | 102.66 | ||
| Unit operating costs ($/tonne) | ||||||
| Prairie Operations(1) | 14.43 | 15.22 | 13.97 | 14.95 | ||
| Mountain Operations | 79.95 | 84.57 | 86.72 | 87.12 | ||
| Revenue | ||||||
| Prairie Operations | ||||||
| Mining revenue | 91.2 | 140.3 | 302.9 | 417.6 | ||
| Coal royalties | 9.2 | 10.1 | 29.0 | 30.9 | ||
| Potash royalties | 1.9 | 3.0 | 8.8 | 9.8 | ||
| Mountain Operations and other assets | 72.7 | 83.7 | 230.6 | 274.7 | ||
| Total revenue | 175.0 | 237.1 | 571.3 | 733.0 | ||
| Adjusted EBITDA (2) | ||||||
| Prairie Operations | 22.5 | 33.9 | 95.9 | 103.7 | ||
| Mountain Operations and other assets | 2.9 | 10.4 | 1.0 | 34.1 | ||
| Total Adjusted EBITDA | 25.4 | 44.3 | 96.9 | 137.8 | ||
| Depletion, depreciation and amortization | 28.6 | 39.4 | 84.3 | 97.4 | ||
| Earnings (loss) from operations | (3.2 | ) | 4.9 | 34.6 | 40.4 | |
| Spending on capital | ||||||
| Prairie Operations | 5.1 | 23.6 | 37.6 | 50.3 | ||
| Mountain Operations and other assets | 5.7 | 4.7 | 35.9 | 44.6 | ||
| Total spending on capital | 10.8 | 28.3 | 73.5 | 94.9 | ||
- Prairie Operations realized pricing and unit operating costs exclude royalties and the results of the char and activated carbon businesses.
- For additional information see the 'Non-GAAP Measure - Adjusted EBITDA' section of this release.
Production volumes for third-quarter 2013 in Prairie Operations owned mines were 6% (0.3 million tonnes) lower than the prior-year period primarily due to weaker customer demand at the Sheerness mine and an extended outage at the Boundary Dam power station. Total production (owned mines + contract mine) was 34% (2.5 million tonnes) lower than in third-quarter 2012, due to the exclusion of production volumes from the Highvale mine with the termination of the contract mining business in January 2013. Mountain Operations production volumes in third-quarter 2013 were 22% (0.2 million tonnes) lower than the prior-year period, reflecting the impact of an optimized production plan, which was implemented in response to sustained weak international coal prices.
Sales volumes for third-quarter 2013 in Prairie Operations owned mines were 6% (0.3 million tonnes) lower compared to the prior-year period, reflecting the production trends. Total sales volumes (owned mines + contract mine) were 39% (3.0 million tonnes) lower than in third-quarter 2012, due to the exclusion of sales volumes from the Highvale mine with the termination of the contract mining business in January 2013. Mountain Operations sales volumes in third-quarter 2013 were substantially unchanged from third-quarter 2012 as a drawdown in inventory offset lower production volumes.
Average realized pricing (excluding royalties, char and activated carbon) for third-quarter 2013 at Prairie Operations was 5% ($0.93 per tonne) higher than the prior-year quarter, reflecting both the impact of an increase in general contract price escalators as well as revised pricing, due to a contract extension at the Paintearth mine. Realized pricing at Mountain Operations was 14% ($14.03 per tonne) lower than third-quarter 2012, as a result of weaker international thermal coal reference pricing.
Unit operating costs at Prairie Operations were 5% ($0.79 per tonne) lower in third-quarter 2013 primarily due to exiting the contract mining business in January 2013. Excluding the impact of the contract mining business, unit operating costs were marginally higher due to mining conditions at the Paintearth and Sheerness mines and dragline maintenance at the Boundary Dam mine. Unit operating costs at Mountain Operations were 5% ($4.62 per tonne) lower than in third-quarter 2012, as a result of cost reduction initiatives and an optimized mine plan which have resulted in a focus on lower cost mining areas, a reduction in the use of contractors, as well as higher equipment availability and productivity.
Royalties for third-quarter 2013 were 15 % ($2.0 million) lower than the prior-year period. Coal royalties were 9% ($0.9 million) lower than the prior-year quarter, reflecting the timing of mining activities in royalty assessable areas at the Paintearth mine. Potash royalties, which can represent up to 25% of the royalty portfolio, were 37% ($1.1 million) lower than third-quarter 2012, primarily due to weaker market pricing for potash.
Spending on capital at Prairie Operations for third-quarter 2013 was 78% ($18.5 million) lower than second-quarter 2013, due to cost reduction initiatives and expenditure deferrals in support of a long-standing capital discipline of maintaining spending within a business' cash flow generation. Spending on capital at Mountain Operations was 21% ($1.0 million) higher than second- quarter 2013, reflecting the timing of equipment arrivals at the Coal Valley mine.
| OIL AND GAS | Nine months ended | ||||
| September 30, | |||||
| ($ millions unless otherwise noted) | Q3 2013 | Q3 2012 | 2013 | 2012 | |
| Production (boepd)(1) | |||||
| Gross working-interest - Cuba(2), (3) | 20,445 | 20,557 | 20,144 | 20,481 | |
| Net working-interest(4) | |||||
| Cuba - cost recovery | 2,870 | 2,746 | 2,825 | 2,907 | |
| Cuba - profit oil | 7,909 | 8,015 | 7,793 | 7,908 | |
| Cuba - total | 10,779 | 10,761 | 10,618 | 10,815 | |
| Spain | 294 | 297 | 305 | 343 | |
| Pakistan | 330 | 350 | 332 | 353 | |
| Total net working-interest | 11,403 | 11,408 | 11,255 | 11,511 | |
| Reference prices (US$/bbl) | |||||
| U.S. Gulf Coast Fuel Oil No.6 | 92.94 | 97.30 | 93.59 | 100.97 | |
| Brent crude | 111.61 | 110.14 | 109.43 | 112.89 | |
| Realized prices | |||||
| Cuba ($/bbl) | 70.27 | 70.69 | 69.66 | 73.59 | |
| Spain ($/bbl) | 114.91 | 110.67 | 110.41 | 112.42 | |
| Pakistan ($/boe) | 8.35 | 7.95 | 8.30 | 8.10 | |
| Weighted average ($/boe) | 69.63 | 69.81 | 68.96 | 72.74 | |
| Unit operating costs | |||||
| Cuba ($/bbl) | 12.50 | 11.81 | 12.48 | 12.38 | |
| Spain ($/bbl) | 33.88 | 52.86 | 24.70 | 48.49 | |
| Pakistan ($/boe) | 4.68 | 3.80 | 5.54 | 3.56 | |
| Weighted average ($/boe) | 12.86 | 12.72 | 12.62 | 13.29 | |
| Revenue | 74.2 | 74.2 | 216.5 | 232.7 | |
| Adjusted EBITDA (5) | 58.4 | 58.6 | 171.5 | 182.2 | |
| Depletion, depreciation and amortization | 17.5 | 16.6 | 51.4 | 51.9 | |
| Earnings from operations | 40.9 | 42.0 | 120.1 | 130.3 | |
| Spending on capital (6) | 14.5 | 11.4 | 37.8 | 32.3 | |
- Oil production is stated in barrels of oil per day ("bopd"). Natural gas production is stated in barrels of oil equivalent per day ("boepd"), which is converted at 6,000 cubic feet per barrel.
- In Cuba, Oil and Gas delivers all of its gross working-interest oil production to Union Cubapetroleo (CUPET) at the time of production. Gross working- interest oil production excludes: (i) production from wells for which commercial viability has not been established in accordance with production- sharing contracts, and (ii) working-interest of other participants in the production-sharing contracts.
- Gross working-interest oil production is allocated between Oil and Gas and CUPET in accordance with production-sharing contracts. The Corporation's share, referred to as 'net working-interest oil production', includes: (i) cost recovery oil (based upon the recoverable capital and operating costs incurred by Oil and Gas under each production-sharing contract), and (ii) a percentage of profit oil (gross working-interest production remaining after cost recovery oil is allocated to Oil and Gas). Cost recovery pools for each production-sharing contract include cumulative recoverable costs, subject to certification by CUPET, less cumulative proceeds from cost recovery oil allocated to Oil and Gas. Cost recovery revenue equals capital and operating costs eligible for recovery under the production-sharing contracts.
- Net working-interest production (equivalent to net sales volume) represents the Corporation's share of gross working-interest production.
- For additional information see the 'Non-GAAP Measure - Adjusted EBITDA' section of this release.
- Exploration and evaluation spending incurred prior to the technical feasibility and commercial viability of extracting the resources is recorded as an intangible asset.
Gross working-interest (GWI) oil production in Cuba was marginally (1% or 112 bopd) lower in third-quarter 2013 compared to the prior-year period, primarily due to natural reservoir declines, which were largely offset by the impact of production increases from new wells drilled and the optimization of production from existing wells. A 5% (124 bopd) increase in cost-recovery oil production in Cuba during third-quarter 2013 was primarily due to a decline in oil reference pricing compared to the prior-year period. Third-quarter 2013 production in Spain was unchanged from the prior-year period. Third-quarter 2013 production in Pakistan was 6% (20 boepd) lower than the prior-year quarter, due to natural reservoir declines.
The average-realized price for oil produced in Cuba in third-quarter 2013 was marginally lower (1% or $0.42 per barrel) as the impact of lower reference pricing (4% or $4.36 per barrel) was largely offset by a weaker Canadian dollar relative to the U.S. dollar. Average-realized pricing for oil produced in Spain was 4% ($4.24 per barrel) higher in third-quarter 2013 compared to the prior-year quarter, reflecting the impact of higher reference pricing and a weaker Canadian dollar relative to the U.S. dollar.
Unit operating costs in Cuba during third-quarter 2013 were 6% ($0.69 per barrel) higher in third-quarter 2013 compared to the prior-year period, due to higher labour, fuel, electricity, and insurance costs, which were partially offset by lower production chemical costs. The unit operating cost in Spain was 36% ($18.98 per barrel) lower, compared to the prior-year period, following the introduction of third-party production to the production facility in October 2012, which was partially offset by the impact of a weaker Canadian dollar relative to the Euro.
Spending on capital for third-quarter 2013 was 27% ($3.1 million) higher compared to the prior-year period, primarily due to an increase in exploration spending in the United Kingdom North Sea Prospect Area, where a seismic program was completed in July 2013. The results of this program are currently under evaluation. During third-quarter 2013, one well was drilled and completed and is currently being evaluated. A second development well was initiated during the quarter and is expected to be completed in fourth-quarter 2013.
| POWER | Nine months ended | ||||
| September 30, | |||||
| ($ millions unless otherwise noted) | Q3 2013 | Q3 2012 | 2013 | 2012 | |
| Electricity sold (GWh, 33 1/3% basis) | 130 | 154 | 443 | 466 | |
| Realized price ($/MWh) | 43.47 | 41.20 | 42.48 | 41.49 | |
| Unit operating cost ($/MWh) | |||||
| Base(1) | 20.59 | 13.78 | 18.41 | 14.90 | |
| Non-base(2) | 5.42 | 1.03 | 6.56 | 1.38 | |
| Total unit cash operating costs | 26.01 | 14.81 | 24.97 | 16.28 | |
| Net capacity factor (%) | 66 | 67 | 65 | 67 | |
| Revenue | 14.7 | 18.8 | 44.2 | 53.0 | |
| Adjusted EBITDA (3) | 3.7 | 6.5 | 1.7 | 18.2 | |
| Depletion, depreciation and amortization | 2.3 | 3.0 | 7.6 | 8.3 | |
| Impairment of property, plant and equipment | - | - | 7.3 | - | |
| Earnings (loss) from operations | 1.4 | 3.5 | (13.2 | ) | 9.9 |
| Spending on capital (33 1/3% basis)(4) | 2.6 | 1.7 | 6.4 | 4.2 | |
| Spending on SCAs (33 1/3% basis)(5) | 7.5 | 9.7 | 17.8 | 24.6 | |
| Total spending on capital and SCAs | 10.1 | 11.4 | 24.2 | 28.8 | |
- Base costs relate to the operations in Cuba and do not include the impairment of receivables that relates to the operations in Madagascar.
- Costs incurred at the Boca de Jaruco and Puerto Escondido facilities that otherwise would have been capitalized if these facilities were not accounted for as service concession arrangements. Excludes a credit adjustment in third-quarter 2013 related to pipeline costs incurred during that year.
- For additional information see the 'Non-GAAP Measure - Adjusted EBITDA' section of this release.
- Spending on capital includes sustaining capital at the Varadero site as well as capitalized interest relating to the 150 MW Boca de Jaruco Combined Cycle Project.
- Service Concession Arrangement ("SCA") spending is primarily related to the 150 MW Boca de Jaruco Combined Cycle Project. Sherritt provides 100% of the funding for the 150 MW Boca de Jaruco Combined Cycle Project and accounts for the Project as an SCA. As a result, two thirds of the project spending (relating to the non-Sherritt partners' share) is recorded as a loan receivable. The remaining one third of project spending (Sherritt's share) is recorded as a construction cost, and is offset by the same amount recorded as construction revenue.
Electricity production for third-quarter 2013 was 16% (24 MWh, 33 1/3% basis) lower than third-quarter 2012, primarily due to an increase in maintenance activities.
The average realized price of electricity was 6% ($2.27 per MWh) higher in third-quarter 2013 compared to the prior-year period, primarily due to the impact of the weaker Canadian dollar relative to the U.S. dollar.
Total unit operating costs were 76% ($11.20 per MWh) higher in third-quarter 2013 compared to the prior-year period; base unit operating costs increased by 49% ($6.81 per MWh) primarily due to an increase in maintenance, freight and duty costs and lower production. Non-base unit operating costs increased 426% ($4.39 per MWh) in the same comparable periods primarily as a result of scheduled major inspections at the Boca de Jaruco facilities.
Spending on capital and service concession arrangements (SCA) for third-quarter 2013 was 11% ($1.3 million) lower than the prior-year period resulting from lower SCA spending due to the 150 MW Boca de Jaruco Combined Cycle project nearing start-up, which was partially offset by the combined impact of a modest increase in facilities and equipment spending and higher capitalized interest on the 150 MW Boca de Jaruco Combined Cycle Project.
150 MW Boca de Jaruco Combined Cycle Project
Spending on the Project for the quarter was 23% ($2.2 million, 33 1/3% basis) lower than in third-quarter 2012 as the Project is nearing start-up. The Project is still expected to be operational by the end of the year and to remain within the total cost estimate of $297 million. The Combined Cycle unit is expected to operate at 40% of capacity, until gas supply issues are resolved.
CASH, DEBT AND FINANCING
Cash, cash equivalents and short-term investments were $370.8 million at September 30, 2013. This does not include cash, cash equivalents and short-term investments of $56.5 million (100% basis) held by the Moa Joint Venture or $70.2 million (100% basis) held by the Ambatovy Joint Venture.
Total long-term debt at September 30, 2013 was $2.1 billion, including approximately $0.9 billion related to non-recourse Ambatovy partner loans to Sherritt. At September 30, 2013, Sherritt had approximately $0.6 billion of credit available under various facilities.
Outlook
Projected production volumes, royalties and spending on capital for full-year 2013 are shown below.
| Projected for the year ending | ||
| (units as noted) | December 31, 2013 | |
| Production volumes | ||
| Mixed sulphides (tonnes, Ni+Co contained, 100% basis) | ||
| Moa Joint Venture | 38,000 | |
| Ambatovy Joint Venture | 29,000 | |
| Total | 67,000 | |
| Nickel, finished (tonnes, 100% basis) | ||
| Moa Joint Venture | 34,000 | |
| Ambatovy Joint Venture | 26,000 | |
| Total | 60,000 | |
| Cobalt, finished (tonnes, 100% basis) | ||
| Moa Joint Venture | 3,350 | |
| Ambatovy Joint Venture | 2,200 | |
| Total | 5,550 | |
| Coal - Prairie Operations (millions of tonnes) | 22 | |
| Coal - Mountain Operations (millions of tonnes) | 3.2 | |
| Oil - Cuba (gross working-interest, bopd) | 19,500 | |
| Oil - All operations (net working-interest, boepd) | 11,200 | |
| Electricity (GWh, 33 1/3% basis) | 600 | |
| Royalties ($ millions) | ||
| Coal | 35 | |
| Potash | 12 | |
| Spending on capital ($ millions) | ||
| Metals - Moa Joint Venture (50% basis), Fort Site (100% basis)(1) | 38 | |
| Metals - Ambatovy Joint Venture (40% basis) | 29 | |
| Coal - Prairie Operations | 58 | |
| Coal - Mountain Operations | 48 | |
| Oil and Gas - Cuba(2) | 54 | |
| Oil and Gas - Other(2) | 13 | |
| Power (33 1/3% basis)(3) | 8 | |
| Spending on capital (excluding Projects and Corporate) | 248 | |
| Spending on projects | ||
| Power - 150 MW Boca de Jaruco ($ millions, 100% basis)(4) | 51 | |
- Spending on capital relating to the Corporation's 50% share of the Moa Joint Venture and to the Corporation's 100% interest in the fertilizer and utilities assets in Fort Saskatchewan.
- Exploration and evaluation spending incurred prior to the technical feasibility and commercial viability of extracting the resources is recorded as an intangible asset.
- Spending on capital for Power includes sustaining capital at the Varadero site as well as capitalized interest in respect of the 150 MW Boca de Jaruco Combined Cycle Project.
- Sherritt provides 100% of the funding for the 150 MW Boca de Jaruco Combined Cycle Project and accounts for the Project as a "Service Concession Arrangement". As a result, two thirds of the project spending (relating to the non-Sherritt partners' share) is recorded as a loan receivable. The remaining one third of project spending (Sherritt's share) is recorded as a construction cost.
The last 2013 Outlook on production, royalties and spending on capital was presented in July 2013 ("second-quarter 2013 Outlook"). The only material changes to the second-quarter 2013 Outlook relate to the Ambatovy Joint Venture in the Metals business. Estimated 2013 Ambatovy production was reduced for mixed sulphides (by 15% or 5,000 tonnes, 100% basis), finished nickel (by 16% or 5,000 tonnes, 100% basis), and finished cobalt (by 21% or 600 tonnes, 100% basis). The adjustments reflect lower-than-expected actual production to September 30, 2013.
Non-GAAP Measure - Adjusted EBITDA
As a result of the change in accounting for the Moa Joint Venture under IFRS 11, the Corporation revised its definition of Adjusted EBITDA to include the results of the Corporation's share of earnings or loss in associate and joint venture, to provide a measure that is reasonable consistent with historical measures. As Adjusted EBITDA does not have a standardized meaning, it may not be comparable to similar measures provided by other companies.
The Corporation defines Adjusted EBITDA as earnings (loss) from operations, associate and joint venture as reported in the financial statements, adjusted for depletion, depreciation and amortization; impairment charges for property, plant and equipment, intangible assets, goodwill and investments; and gain or loss on disposal of property, plant and equipment of the Corporation, associate and joint venture.
Adjusted Operating Cash Flow
The Corporation defines adjusted operating cash flow as cash provided by operating activities before the net change in non- cash working capital, as provided in the financial statements for the period.
About Sherritt
Sherritt is a world leader in the mining and refining of nickel from lateritic ores with projects and operations in Canada, Cuba, Indonesia and Madagascar. The Corporation is the largest thermal coal producer in Canada and is the largest independent energy producer in Cuba, with extensive oil and power operations on the island. Sherritt licenses its proprietary technologies and provides metallurgical services to mining and refining operations worldwide. The Corporation'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", "projected", "continue" or other similar words or phrases. Specifically, forward-looking statements in this document include statements respecting certain future expectations about capital expenditures; sufficiency of working capital and capital project funding; capital project commissioning and completion dates; earnings and revenues; and production volumes. These forward-looking statements are not based on historic facts, but rather on current expectations, assumptions and projections about future events. By their nature, forward-looking statements require the Corporation to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that those assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. The Corporation cautions readers of this 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.
Key factors that may result in material differences between actual results and developments and those contemplated by this press release include global economic conditions, and business, economic and political conditions in Canada, Cuba, Madagascar, Indonesia, and the principal markets for the Corporation's products. Other such factors include, but are not limited to, uncertainties in the development, construction and ramp-up of large mining, processing and refining projects; risks related to the availability of capital to undertake capital initiatives; changes in capital cost estimates in respect of the Corporat ion's capital initiatives; risks associated with the Corporation's joint-venture partners; future non-compliance with financial covenants; potential interruptions in transportation; political, economic and other risks of foreign operations; the Corporation's reliance on key personnel and skilled workers; the possibility of equipment and other unexpected failures; the potential for shortages of equipment and supplies; risks associated with mining, processing and refining activities; uncertainty of gas supply for electrical generation; uncertainties in oil and gas exploration; risks related to foreign exchange controls on Cuban government enterprises to transact in foreign currency; risks associated with the United States embargo on Cuba and the Helms-Burton legislation; risks related to the Cuban government's ability to make certain payments to the Corporation; drilling and development programs; uncertainties in reserve estimates; risks associated with access to reserves and resources; uncertainties in environmental rehabilitation provisions estimates; the Corporation's reliance on significant customers; risks related to the Corporation's corporate structure; foreign exchange and pricing risks; uncertainties in commodity pricing; credit risks; competition in product markets; the Corporation's ability to access markets; risks in obtaining insurance; uncertainties in labour relations; uncertainties in pension liabilities; the ability of the Corporation to enforce legal rights in foreign jurisdictions; risks associated with future acquisitions; the ability of the Corporation to obtain government permits; risks associated with government regulations and environmental, health and safety matters; uncertainties in growth management and other factors listed from time to time in the Corporation's continuous disclosure documents. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve assessments based on certain estimates or assumptions. Readers are cautioned that the foregoing list of factors is not exhaustive and should be considered in conjunction with the risk factors described in this press release and the Corporation's other documents filed with the Canadian securities authorities.
The Corporation may, from time to time, make oral forward-looking statements. The Corporation advises that the above paragraph and the risk factors described in this 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.
Contact Information:
Investor Relations
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investor@sherritt.com
www.sherritt.com