Investor Presentation

Transcription

1 Investor Presentation May 2017 SHERRITT INTERNATIONAL CORPORATION 1

2 Forward-looking statements This presentation contains certain forward-looking statements. Forward-looking statements can generally be identified by the use of statements that include such words as believe, expect, anticipate, intend, plan, forecast, likely, may, will, could, should, suspect, outlook, potential, projected, continue or other similar words or phrases. Specifically, forward-looking statements in this document include, but are not limited to, statements set out in the Outlook sections of this presentation and certain expectations about capital costs and expenditures; production volumes; capital project completion and ramp up dates; future price of key commodities; sales volumes; revenue, costs, and earnings; sufficiency of working capital and capital project funding; results of on-going discussions regarding the partnership structure and future financing arrangements at the Ambatovy Joint Venture; results of discussions regarding timing of ongoing Cuban payments; completion of development and exploration wells; and amounts of certain joint venture commitments. Forward-looking statements are not based on historic facts, but rather on current expectations, assumptions and projections about future events. By their nature, forward-looking statements require the Corporation to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that those assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. The Corporation cautions readers of this presentation not to place undue reliance on any forward-looking statement as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. These risks, uncertainties and other factors include, but are not limited to changes in the global price for nickel, cobalt, oil and gas or certain other commodities, share-price volatility, level of liquidity and access to capital resources, access to financing, risk of future non-compliance with debt restrictions and covenants; risks associated with the Corporation s joint venture partners; discrepancies between actual and estimated production; variability in production at Sherritt s operations in Madagascar and Cuba; potential interruptions in transportation; uncertainty of gas supply for electrical generation; uncertainty of exploration results and Sherritt s ability to replace depleted mineral and oil and gas reserves; the Corporation s reliance on key personnel and skilled workers; the possibility of equipment and other failures; the potential for shortages of equipment and supplies; risks associated with mining, processing and refining activities; uncertainty of resources and reserve estimates; uncertainties in environmental rehabilitation provisions estimates; risks related to the Corporation s corporate structure; political, economic and other risks of foreign operations; risks related to Sherritt s operations in Madagascar and Cuba; risks related to the U.S. government policy toward Cuba, including the U.S. embargo on Cuba and the Helms- Burton legislation; risks related to amounts owed to the Corporation by the Malagasy and Cuban governments; risks related to the accuracy of capital and operating cost estimates; reliance on significant customers; foreign exchange and pricing risks; compliance with applicable environment, health and safety legislation and other associated matters; risks associated with governmental regulations regarding greenhouse gas emissions; maintaining the Corporation s social license to grow and operate; risks relating to community relations; credit risks; shortage of equipment and supplies; competition in product markets; future market access; interest rate changes; risks in obtaining insurance; uncertainties in labour relations; uncertainty in the ability of the Corporation to enforce legal rights in foreign jurisdictions; uncertainty regarding the interpretation and/or application of the applicable laws in foreign jurisdictions; legal contingencies; risks related to the Corporation s accounting policies; risks associated with future acquisitions; uncertainty in the ability of the Corporation to obtain government permits; failure to comply with, or changes to, applicable government regulations; bribery and corruption risks, including failure to comply with the Corruption of Foreign Public Officials Act or applicable local anti-corruption law; uncertainties in growth management; risks related to information technology systems; and certain corporate objectives, goals and plans for 2017; and the Corporation s ability to meet other factors listed from time to time in the Corporation s continuous disclosure documents. Readers are cautioned that the foregoing list of factors is not exhaustive and should be considered in conjunction with the risk factors described in this presentation and in the Corporation s other documents filed with the Canadian securities authorities. The Corporation may, from time to time, make oral forward-looking statements. The Corporation advises that the above paragraph and the risk factors described in this presentation and in the Corporation s other documents filed with the Canadian securities authorities should be read for a description of certain factors that could cause the actual results of the Corporation to differ materially from those in the oral forwardlooking statements. The forward-looking information and statements contained in this presentation are made as of the date hereof and the Corporation undertakes no obligation to update publicly or revise any oral or written forward-looking information or statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. The forward-looking information and statements contained herein are expressly qualified in their entirety by this cautionary statement. Non-GAAP Measures Management uses combined results, Adjusted EBITDA, average-realized price, unit operating cost, adjusted earnings, adjusted operating cash flow per share, free cash flow and Net Investment in Ambatovy to monitor the financial performance of the Corporation and its operating divisions and believes these measures enable investors and analysts to compare the Corporation s financial performance with its competitors and evaluate the results of its underlying business. These measures do not have a standard definition under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. As these measures do not have a standardized meaning, they may not be comparable to similar measures provided by other companies. SHERRITT INTERNATIONAL CORPORATION 2

3 Well positioned to capture market share as LME spec nickel and cobalt to feed the anticipated battery and EV revolution 1 A low cost producer of LME specification cobalt and nickel: every briquette worldwide is made using Sherritt technology 2 A 90 year track record with unique operating capabilities to exploit laterites, which are the future of nickel 3 Cuba s largest independent oil producer and most efficient power producer 4 Successfully carried out balance sheet initiatives in 2016 and 2017 to extend maturities and reduce debt SHERRITT INTERNATIONAL CORPORATION 3

4 1 A low cost producer of LME quality nickel and cobalt SHERRITT INTERNATIONAL CORPORATION 4

5 1 Even the slow adoption scenario for EVs creates significant new demand for nickel and cobalt EV market penetration (as a % of new cars sold) EV battery market size (GWh) 100% % % % % % Conservative view 2025 Optimistic view Conservative view 2025 Optimistic view EV PHEV HEV Start stop vehicles Traditional ICE EV PHEV HEV Other The EV market is becoming a key part of the automotive industry and will drive the growth in battery demand High energy density needs both nickel and cobalt Note: - Conservative vs. optimistic view: depends on how fast EVs are adopted in key markets like China, Europe and the US SHERRITT INTERNATIONAL CORPORATION - PHEV: Plug-in Hybrid Electric Vehicle, HEV: Hybrid Electric Vehicle 5

6 Kt 1 Long term growth in nickel expected to come from battery demand 2016 Nickel demand 31% 1,400 1,200 1, CAGR: +10% % Nickel demand in non-stainless Nickel demand in stainless % +3% +2% +2% Batteries Non-ferrous alloys Alloy steel Plating Others Nickel is used in lithium-ion batteries (e.g. nickel accounts for 80% of the LiNiCoAIO2 cathode used for the Tesla Model S or 33.3% of the LiNiMnCoO2 cathode used for the Tesla Powerwall) Source: CRU SHERRITT INTERNATIONAL CORPORATION 6

7 Kt 1 this demand is mostly met by Class I nickel but new nickel supply is expected to be FeNi and NPI New nickel production consists mostly of FeNi and NPI 3,000 2,500 2,000 1,500 1, Ferronickel and NPI Others Briquettes Refined metal High quality nickel Today stocks of Class I nickel remain high because of the increased availability of NPI, FeNi and other Class II products suitable for stainless steel making But the strong forecast demand for Class I units could lead to a shortage of high purity products The incentive nickel price to build additional Class I nickel capacity is estimated to be US$30,000 - US$50,000 per tonne of Ni In the medium to long term, a gap could emerge between Class I and Class II nickel prices, with non-lme material subject to significant discounts Class I nickel supply is capex intensive and takes time to bring into full production Source: CRU SHERRITT INTERNATIONAL CORPORATION 7

8 Adj. EBITDA (C$ M) Sherritt is a Global Top 10 nickel operator: sensitivity to nickel prices (LTM basis / Moa at 50% + Ambatovy at 12%) Moa Ambatovy at 12% Metals $47 $56 40 $33 $ $4 $10 $8 $9 0 (10) LTM avg reference price (US$4.56/lb) ($2) Spot price (US$4.08/lb) Analysts consensus for 2017 (US$4.87/lb) Nickel price (US$/lb) Assumptions: Other commodity prices unchanged LTM nickel production of 20,972 tonnes of finished nickel (Sherritt s share with Ambatovy at 12%) Operating costs and Capex unchanged, presenting LTM adj. EBITDA assuming different nickel scenarios Note: Average reference nickel price of US$4.56/lb, spot and consensus as of 5/8/17 SHERRITT INTERNATIONAL CORPORATION 8

9 Rebased on Sherritt equity trading has typically followed nickel Sherritt share price vs. nickel performance Nickel Sherritt Global nickel supply/demand market balance (kt) (7) (15) (93) Wood Mackenzie, Sherritt Source: Note: 2017 year end forecasts for supply/demand and stocks SHERRITT INTERNATIONAL CORPORATION 9

10 Millions of vehicles Co demand for EVs (Kt) 1 Cobalt: also an EV demand story Annual EV production and cobalt demand for EVs EVs PHEVs HEVs Co demand 0 30kt of cobalt expected to be consumed by electric vehicles in 2025 (vs. 8kt in 2016) The outlook for cobalt is very positive, especially in non-metallurgical applications Source: CRU Note: PHEV: Plug-in Hybrid Electric Vehicle, HEV: Hybrid Electric Vehicle SHERRITT INTERNATIONAL CORPORATION 10

11 1 Sherritt is a Global Top 10 cobalt operator Cobalt sources Mine production by country (2016) 2% 37% Canada: 3% Russia: 5% 61% Cuba: 5% (3% Sherritt) DRC: 61% Philippines: 3% Copper mines by-product Nickel mines by-product Primary cobalt mines Madagascar: 3% Australia: 5% Battery customers starting to demand evidence of origin of production ensuring that no DRC artisanal cobalt enters the supply chain Sherritt operates around 6% of the world s cobalt (c. 15% of total cobalt supply ex. DRC) Source: CRU, Sherritt SHERRITT INTERNATIONAL CORPORATION 11

12 Adj. EBITDA (C$ M) 1 Cobalt contribution and sensitivity Contribution to Metals Q revenue LTM Adj. EBITDA sensitivity to cobalt prices (1) Moa 14% 3% Nickel Cobalt $59 $69 25% 58% Fertilizers Other $33 $37 Ambatovy 28% 3% 69% Nickel Cobalt Fertilizers $10 $4 LTM avg realized price Analysts consensus for 2017 Cobalt price (US$/lb) Moa Ambatovy at 12% Metals The recent cobalt price rally is one of the key drivers of the cash flow generation this year A US$1/lb change in the nickel price equals a US$8/lb cash change in the cobalt price at Moa and a US$15/lb change at Ambatovy (1) All production numbers and other variables unchanged, analysts consensus of US$19.23/lb for 2017 SHERRITT INTERNATIONAL CORPORATION 12

13 2 A 90 year track record with unique operating capabilities SHERRITT INTERNATIONAL CORPORATION 13

14 2 Growth through innovation rather than exploration Global operations Metals Oil and Gas Power Commercial operations developed with Sherritt technologies Over 35 commercial operations globally have utilized Sherritt technology and know-how (Barrick, Norilsk, Umicore, HudBay, Teck, Outukumpu, Anglo) Every nickel and cobalt briquette produced globally meets LME specification and is from Sherritt supplied technology SHERRITT INTERNATIONAL CORPORATION 14

15 2 Moa JV (50%) and Fort Site (100%) - steady and profitable production Key highlights The oldest and lowest cost HPAL asset globally A vertically integrated mining, processing and refining enterprise with 60+ years HPAL experience at Moa and Class I refinery at Fort Site >15 years of proven reserve life based on operating permit Cash flow positive on an annual basis at most points in the nickel cycle Unit operating costs (US$/lb) (1) $3.88 $3.42 $ e Production (tonnes) (1) Capital expenditure ($ M) 17,132 16,771 16,455 16,853 16,464 16,750 $64 $33 $38 1,896 1,660 1,605 1,867 1,847 1, e Nickel Cobalt e (1) Mid point of 2017 guidance range SHERRITT INTERNATIONAL CORPORATION 15

16 2 Ambatovy 12% JV - Long life asset with a clarified shareholding structure Key highlights Potential to be the world s largest finished nickel laterite project, with 25+ years mine life remaining LME specification nickel and cobalt Agreement in principle announced in May to remove the uncertainty around the project Unit operating costs (US$/lb) (1) $4.83 $4.27 $ e Production (12%, tonnes) (1) Capital expenditure ($ M) 4,446 5,672 5,053 6,000 $61 3,018 $24 $ e Nickel Cobalt e (1) Mid point of 2017 guidance range SHERRITT INTERNATIONAL CORPORATION 16

17 C1 Cash Costs (US$/lb) 2 Nickel cash cost curve and our positioning 2017 Nickel industry, normal C1 cash cost grouped by operation and ranked by cash cost (C1) existing operations and base case 10 25th percentile = US$ th percentile = US$ Moa = US$3.25 (Q1 2017) Ambatovy = US$3.93 (Q1 2017) 0 Moa guidance: Ambatovy guidance: (5) 0 1,000 2,000 3,000 4,000 Mlbs NPI (<15% Ni content) Source: Wood Mackenzie, Dataset: Q SHERRITT INTERNATIONAL CORPORATION 17

18 3 Cuba s largest independent oil producer and most efficient power producer SHERRITT INTERNATIONAL CORPORATION 18

19 3 Oil & Gas - A profitable and predictable history, with future production dependent on Block 10 Largest independent oil producer in Cuba 20+ year history in the country 209 wells drilled since 1992, 86% found oil Approximately 676,000 m drilled since million barrels produced Q production of 8,163 bopd (NWI) 46 wells still producing, mainly from PSCs expiring Vertically integrated, own and operate 2 rigs Strong contribution to adjusted EBITDA Low unit operating costs Benchmark realized prices to Gulf Coast Fuel Oil No. 6 Price, with GCF 6 ranging between 65 85% of WTI Total production (NWI, boepd) (1) 11,158 9,483 6, e Cuba unit operating costs ($/bbl) (1) $9.53 $9.75 $ e Capital expenditure ($ M) $73 $55 $ e New drilling on Block 10 targeting another 20 year reservoir (1) Mid point of 2017 guidance range SHERRITT INTERNATIONAL CORPORATION 19

20 3 Power Largest independent power producer in Cuba Sherritt Power operates in Cuba through its 33 1/3 % interest in Energas S.A. Aggregate net power capacity of 506MW with 3 facilities: Varadero West, Puerto Escondido and Boca de Jaruco New pipeline to the Puerto Escondido facility is now operational Strong adjusted cash flow generation Conditional sales agreement: loan to be repaid by Energas ($196M as at March 31, 2017; 8% annual interest rate) Limited capital expenditure Power generation (33 1/3 % basis, GWh) (1) e Unit operating costs ($/MWh) (1) $21.00 $22.94 $ e Capital expenditure ($ M) (2) Potential upside Cuba s cleanest power, in a country where power consumption is growing $4 $6 $ e Resilient cash flow generation from operations + loan repayment (1) Mid point of 2017 guidance range SHERRITT INTERNATIONAL CORPORATION (2) 2016: including pipeline construction 20

21 4 Successfully carried out balance sheet initiatives to extend maturities and reduce debt SHERRITT INTERNATIONAL CORPORATION 21

22 4 No maturity until Q and $1.4bn in debt to be eliminated from Sherritt balance sheet Liquidity Strategy Q liquidity: $301 million cash and short -term investments Operate Metals and Power businesses to be free cash flow neutral or better Corporate costs: approximately $85-90 million annually, being mostly interest on debentures ($60M) Ambatovy - Agreement in principle $1.4 billion in debt to be eliminated from Sherritt s balance sheet Ambatovy s capital structure realigned to its economic interest Retain exposure to a long life asset with upside potential over its remaining 27 year mine life Resolution of long negotiation process will allow focus on other opportunities Debenture/Notes Maturity Schedule ($ M) Bond Extension Completed in year extension of the maturity dates No maturity until Nov Senior unsecured notes Ambatovy partner loan SHERRITT INTERNATIONAL CORPORATION 22

23 4 Balance sheet cash from Dec. 31, 2015 to March 31, 2017 In million of dollars $72.1 $435.4 $14.1 ($84.6) ($40.2) ($65.7) ($14.8) ($6.7) $309.6 $300.7 Dec. 31, Cash, cash equivalents and short term investments Adjusted operating cash flow (ex. Corporate) Corporate Working capital change Capital expenditure Debt Repayment Fees paid on debenture extension Other Dec. 31, Cash, cash equivalents and short term investments March 31, Cash, cash equivalents and short term investments SHERRITT INTERNATIONAL CORPORATION 23

24 Key takeaways $301 million in cash and short-term investments, and no long term debt maturity before Q Improved cobalt prices should drive cash flow generation through the year, even in a weak nickel environment A long operating track record through all phases of the cycle The largest and best established foreign mining and energy business in Cuba SHERRITT INTERNATIONAL CORPORATION 24

25 Appendices SHERRITT INTERNATIONAL CORPORATION 25

26 Cash cost (NDCC) drivers for Moa and Ambatovy Moa Ambatovy NDCC Q4 2016: US$3.80/lb Q1 2017: US$3.25/lb NDCC Q4 2016: US$3.10/lb Q1 2017: US$3.93/lb Mining, processing and refining costs Mining, processing and refining costs 2% 3% 18% 20% 14% 17% 18% 18% 20% 20% 9% 8% 19% 14% Q Q Diesel Coal / fuel oil / electricity Other fixed costs Labour and contractors Maintenance Other variable costs Sulphur / acid 5% 5% 9% 10% 6% 5% 7% 7% 25% 35% 35% 28% 13% 10% Q Q Diesel Coal / fuel oil / electricity Other fixed costs Labour and contractors Maintenance Other variable costs Sulphur By-product credits By-product credits Q Q Cobalt by-product credits (0.10) (0.12) Q Q Cobalt by-product credits Other credits / (costs) (incl. fertilizers) SHERRITT INTERNATIONAL CORPORATION 26

27 Ambatovy - Agreement in principle - Advantages of a 12% interest vs. exit 12 for 12 Exit $1.4 billion Ambatovy partner loan eliminated from Sherritt s balance sheet $1.4 billion elimination would take time and might be contested Continuity of a strong and stable partnership Retain operatorship and reputation for leading, low cost HPAL operations Retain a long-dated option to higher nickel prices over Ambatovy s remaining 27 years of mine life Ambiguity around portion of unfunded cash calls owed by Sherritt (40% of US$173M = US$69M) Risk of becoming a defaulting shareholder High degree of uncertainty as a managed exit would have required negotiations with different stakeholders Sherritt s banks Bondholders Reduced exposure to long-term nickel price recovery SHERRITT INTERNATIONAL CORPORATION 27

28 GWI BOPD Cumulative Free Cash Flow $CAD MM Free Cash Flow $CAD MM FCF contribution from Cuba oil assets 45,000 $4,500 $450 40,000 $4,000 $400 35,000 $3,500 $350 30,000 $3,000 $300 25,000 $2,500 $250 20,000 $2,000 $200 15,000 $1,500 $150 10,000 $1,000 $100 5,000 $500 $50 0 $0 $0 (5,000) (10,000) ($500) ($1,000) VDW PE/YU Other Free Cash Flow Cumulative Free Cash Flow ($50) ($100) Realized price ($/bbl) Note: Cumulative FCF starting point represents cumulative consolidated FCF while the bars are all Cuba GWI production / CF/ capex SHERRITT INTERNATIONAL CORPORATION 28

29 2017 strategic priorities 2017 strategic priorities Q status update Uphold global operational leadership in finished nickel laterite production Optimize opportunities in Cuban energy business First quarter NDCC of US$3.25/lb at the Moa JV represents cash costs at the 30th percentile, while Ambatovy NDCC of US$3.93/lb fell short of its target, due to lower production Production guidance for the year remains in place Improvements to EHSS activities continue. The Lost Time Incident rate in Q was an improvement over the 2016 average First well results provided constructive data to optimize the drilling of the second well, again targeting the Lower Veloz formation Future capital allocation will be based on results from this new well Preserve liquidity and build balance sheet strength Cuban energy payments received were US$37.6 million in the first quarter of 2017, an improvement over Q payments received of US$18.3 million Free cash flow generation of $12.6 million from Metals and $12 million from Power in the first quarter of 2017 SHERRITT INTERNATIONAL CORPORATION 29

30 Sherritt International Corporation 181 Bay Street, 26th Floor, Brookfield Place Toronto, Ontario, Canada M4T 2Y7 Investor Relations Flora Wood Telephone: Toll-Free: SHERRITT Website: INTERNATIONAL CORPORATION 30