Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nickel production was strong in the quarter, with sales exceeding production, reducing inventory.
- Second quarter net direct cash costs improved to USD5.75 per pound, benefiting from lower mining, processing, and refining costs.
- Electricity production increased by 19% year-over-year due to additional gas from new wells.
- Sherritt received $5 million in dividends from Energas in Canada, contributing to a liquidity of $56 million at quarter end.
- The company released its 16th annual sustainability report, highlighting commitments to safety, carbon intensity reduction, and community impact.
Negative Points
- Consolidated revenue for the second quarter was $51.4 million, significantly lower than $93.5 million in Q2 2023.
- Average realized prices for nickel, cobalt, and fertilizers were lower year-over-year by 17%, 12%, and 19%, respectively.
- Net loss from continuing operations was $11.5 million, or a loss of $0.03 per share.
- Lower cobalt sales due to the timing of the Cobalt Swap distributions impacted revenue.
- Unit operating costs for electricity production were higher due to scheduled maintenance activities.
Q & A Highlights
Q: Can you provide some color as to your option for cash availability in 2026 when your second lien debt comes due?
A: We have not provided guidance on 2025 or '26 in terms of production volumes and operating costs. Nickel and cobalt prices will have a profound impact on our cash generation. Under current market conditions, we will generate less cash flow between now and the end of 2026. However, we are creating operational stability and reducing operating costs to generate positive cash flows. We are also proactive in understanding market conditions and will engage with financing partners and debt holders as needed. (Leon Binedell, President, Chief Executive Officer, Director)
Q: Are you in conversations with your debt partners for rolling over the debt or other options?
A: Those would be private conversations, and we have not publicly disclosed anything related to that. We are proactive in understanding market conditions and will engage with financing partners and debt holders as needed. (Leon Binedell, President, Chief Executive Officer, Director)
Q: Can you provide any color on your fertilizer production expectations for 2024 and the pricing environment?
A: We have achieved stability in our fertilizer production and expect to have good volumes to sell into the fall season. The market is reasonably good, with pricing off the peaks of previous years. We expect similar levels of market action in the second half of the year. (Leon Binedell, President, Chief Executive Officer, Director)
Q: What are the key changes in liquidity during the quarter?
A: Key changes include $27 million of cash provided by the Moa Joint Venture, $5.1 million of cash dividends from Energas, $9.4 million used to pay interest on the second lien notes, $7.8 million used by Power for scheduled maintenance, and $10.8 million used for rehabilitation and closure costs related to legacy oil and gas assets in Spain. (Yasmin Gabriel, Chief Financial Officer)
Q: What actions are you taking to mitigate the impacts from lower nickel and cobalt prices?
A: We purchased put options on 3,876 tonnes of nickel at an exercise price of USD8.16 per pound for a 6-month period starting June 1. We completed a 10% workforce reduction at our corporate office and reduced other corporate office-related costs, expecting annual cost savings of approximately $15 million. We extended our syndicated revolving credit facility to April 30, 2026, and received favorable amendments to certain covenants. (Yasmin Gabriel, Chief Financial Officer)
Q: Can you provide an update on the Moa Joint Venture expansion project?
A: Phase 2 of the Moa Joint Venture expansion project continued to advance during the quarter. Civil construction and structural erection were completed, and piping installation commenced. We received approval for USD12 million of foreign currency financing from a Cuban bank to support international payments for the completion of the Sixth Leach Train. We expect commissioning of Phase 2 in 2025 with ramp-up in the first half of the year. (Elvin Saruk, Senior Vice President - Oil and Gas and Power, Head - Growth Projects)
Q: What are your expectations for dividends from Energas and the Cobalt Swap agreement?
A: We expect to begin receiving distributions under the Cobalt Swap agreement in the fourth quarter this year, with expected distributions of approximately $50 million. At Power, we anticipate receiving additional dividends in Canada from Energas, with total dividends for 2024 expected to exceed $10 million. We expect dividends in future years to be significantly higher than 2024. (Yasmin Gabriel, Chief Financial Officer)
Q: What are your plans for the MHP refinery project?
A: The MHP refinery project is making positive advancements with the commencement of an engineering study and continued batch test work and process flow sheet development. We are focusing on completing flow sheet design and conducting a small-scale continued solvent extraction pilot in the second half of the year. External engagement is also continuing with governments and potential customers and funding partners. (Leon Binedell, President, Chief Executive Officer, Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
