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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sherritt International Corporation's Third Quarter 2018 Results Release Conference Call. [Operator Instructions]I would like to remind everyone that this conference call is being recorded today, Thursday, November 1, 2018, at 9 a.m. Eastern Time.I will now like to turn the conference over to Joe Racanelli, Director of Investor Relations and Communications. Please go ahead, sir.
Thank you. Good morning, everyone. And I'd like to remind everyone that we have put out our press release, MD&A and financials that are available from our website at sherritt.com. We will be using a presentation this morning and that is also available via our website.And during today's presentation, we will be making some forward-looking statements, and those risks associated with these statements are detailed in our presentation.With me are Sherritt's CEO, David Pathe; our Chief Operating Officer, Steve Wood; and our Chief Financial Officer, Andrew Snowden; and they will be reviewing our Q3 results and operational performance.Please go ahead, David.
All right. Well, thank you, Joe, and good morning to everyone from me as well. And thanks for joining us once again this morning.You all have seen our Q3 release come out last night, a number of highlights coming out that we will talk about over the next few minutes here. Beginning of the year, we did set out a number of priorities that we said we are going to try and make some progress on and we have seen some significant progress on those, particularly in this third quarter this year. So we will try and highlight some of that for you.Most notably, the Moa Joint Venture, we have seen our nickel production up 10% year-over-year, really delivering on with the stronger production that we said we would see in the second half of this year. We are still on track to produce significantly higher production at Moa in the second half of this year. We had said previously that we would be at the lower range of our guidance, but for the supply disruption from our hydrogen sulfide, H2S, provider which I will a little bit more about in a few minutes, we would have been on track for that low end of the guidance.From a cost perspective, another strong quarter per costs, $2.16 a pound and that's despite some upward pressure on input commodity prices like sulfur and fuel oil as well as a lower cobalt byproduct credit. It's the sixth consecutive quarter that we are in the lowest quartile of Class 1 nickel producers.Finally, we did say we'd finish this quarter with a stronger cash position and that has come true as well despite the decline in nickel and cobalt prices where our cash position was up about $10 million in the quarter to finish around $207 million.I'm now going to just touch briefly on sort of nickel and cobalt markets for a moment before then turning it over to Steve to talk about some operational results and Andrew to talk about a few financial matters as we typically do. I will then come back again once at the end of the call and touch on 2 or 3 matters in a bit more detail before we take your calls.From a market perspective, tougher quarter than what we have seen in the last few quarters. As you look at the graph on Page 6 there, we have seen continued volatility in nickel and cobalt prices and that graph there shows you the movement in prices since the beginning of the year. Nickel prices are off about 25% from their highest earlier in the year when we briefly touched $7 and cobalt was retreated as well. A number of factors for that, the average reference price in the quarter for us on nickel was about $6 a pound, cobalt price was just over $35, $35 and change.Despite the lower trend in commodity prices, we have seen inventory stocks coming down and stronger growth in the electric vehicle market and I will highlight that for you here in just a moment. Nickel is currently trading at about $5.25, $5.30 a pound, cobalt is just under $35, a little under our Q3 reference prices. We have seen a lot of volatility impacted by a number of things from currency crisis to stronger U.S. dollar, certainly fears of global trade wars in the U.S.-China tariff situation outweighing on base metals across the board and we have seen that across the base metal sector.Volatility in the cobalt price has been driven a bit by some pullback from the big run-up that we have seen in cobalt prices in the last 8 months, a bit of softer demand in the near term here and a bit of an increase in production out of the DRC. In the near term, we still think this volatility is going to continue as we have seen as a lot of volatility in the nickel price in the last few years, but the underlying fundamentals in terms of supply and demand for actual physical metal, particularly for Class 1 metal that we produce, we still think are quite compelling and more encouraging than they have been in quite some time.Turning the page over to Slide 7, this highlights what's happening in global inventories of Class 1 nickel in the last few years. We have talked about this numerous times in the past, inventories maxed out between the LME and the Shanghai Futures Exchange at somewhere around 450,000 tonnes. Those inventories started coming down in late 2016 and with more conviction in 2017. That pace of decline is further accelerated in 2018 and we have actually seen a decline in global inventories of over 40% year-to-date in 2018.We think this is indicative of the global nickel market that is now in deficit with actual nickel consumption outstripping nickel production, particularly in Class 1 nickel as we produce. A lot of that increase in nickel demand and consumption has been driven by stainless steel, but the longer-term play hereon we think for Class 1 nickel continues to be electric batteries for electric vehicles and we have seen that trend continue apace as it has been forecast to do for the last couple of years. Battery still form a relatively small market of global nickel demand, but the anticipated future demand is so far materializing as forecast.The last side of that chart on Page 8 there shows you year-over-year changes in electric vehicle sales in different jurisdictions. This continues to very much be a China-driven story. China still working towards an electric vehicle market of 15 million vehicle a year annually by 2030 and that's what you see highlighted in terms of future anticipated demand in years to come in the bar chart in the right-hand side of that page. Very much China followed by European driven story and from what we are seeing over there, that is so far materializing on its expected pace.As I said, I will come back and highlight on a few more matters related specifically to share. But now I'm going to turn it over to Steve and let him walk you through our operational performance in the quarter.
Okay. Thanks, Dave. As always, I would like to start our conversation today with a review of our safety performance. In the quarter, we continued our improved performance and our lost time injury frequency actually continue to drop and that puts us clearly in the lowest quartile of our peers. We are continuing to work on fatal risk prevention, leadership in the field and process safety management, that is our focus areas there. And in the quarter, our injury statistics continue to improve and we remain committed to all employees going home safely every day throughout the year.Now turning over to our production results, I would like to start with Moa first on Slide 10. On a 50% basis, Moa produced 4,457 tonnes of nickel and 465 tonnes of cobalt in the quarter. And as you can see from the chart on Page 10, the cobalt production was similar to last years, due largely to the third party feed that we used in the quarter having a higher nickel to cobalt ratio. I would just like to remind you that we sourced third party feed when capacity at the refinery in Fort Saskatchewan is available and when the economics make sense and they did in this case.I should point out that the nickel to cobalt ratio in the mixed sulfides that are produced at Moa provide the bulk of our feed for the refinery in Fort Saskatchewan. We are well within the normal range that we produce from there.Our nickel production in the quarter grew by 10% from last year and the improvement was due to a number of factors mainly at the mine and that was mainly due to new mining equipment that had been deployed early in the quarter and it increased our output at the mine and continues to improve our production reliability and predictability from Moa.Despite our strong performance in Q3, I would like to remind everyone that production was impacted by a plant shutdown that we had in the acid plant at Moa and that shutdown meant that we had to temporarily increase the purchase of sulfuric acid from third parties to complete our processing at Moa. These added costs were offset by improved production and they were coupled with higher sulfur and energy cost and resulted in an NDCC of $2.16 per pound of finished nickel and that reflects in the quarter, our cobalt byproduct credit of $3.63 which is up from $3.10 of last year.Turning now to Page 11, we continue to be a low cost nickel producer. With the nickel prices expected to climb in the coming years, the advantages of being a low cost, high purity producer will become more apparent in our financial results over the next several quarters.If we look at the NDCC cost curve, you see on the slide, on Page 11, we can see that Moa's NDCC for the first 9 months of the year was $1.96 per pound and puts us in the lowest quartile. And this was achieved even with the production challenges we experienced in the first half of the year that we've referred to before where we had the heaviest rains we've experienced in more than 20 years and a onetime rail service disruption by our transportation provider in Western Canada. The quarter also marks the sixth consecutive quarter that Moa's NDCC has been in the lowest cost quartile.I'd like to move on to Slide 11 now and talk about our initiatives to optimize production at Moa. We continue to execute our plans to optimize at Moa and to achieve operational excellence there. The Q3 production success is evidence that we're on the right path. First, we're improving the availabilities of our mobile equipment fleet. I refer to the new equipment that we did get in the quarter. We got a total of 29 new haul trucks, 3 new excavators and 2 loaders. And the new equipment is maintained by the supplier and with a guaranteed level of availability, making the mine more reliable and predictable.The result in the quarter is expected to carry forward as well. We also have the delivery of 24 more haul trucks under the same arrangement plan for the first quarter or early in the first quarter of next year and we'll continue to work on improving our maintenance that will further enhance our mine production at Moa.Another action underway to improve mine performance is the construction of a new slurry preparation plant, dump pocket, and that will make haulage distances shorter and improve our ore quality and increase and improve throughput at the plant. The dump pocket is approaching completion and we expect to commission it in the coming weeks with full benefit realized in the New Year.Finally, we've done a lot of work in the area of organizational effectiveness. In simple terms, we have been working on increasing our capability to deliver on our plans to achieve operational excellence that I was referring to earlier by aligning our management organization with those plants.In other words, we have the right people in the right role, doing the right things. We've clarified accountabilities and authorities and matched the best people to those roles with many of these people having come from other organizations, bringing knowledge and best practices that will continue to move us towards excellence in our operations. We're starting to see the impact on the bottom line and expect to continue to see the improvements as a result in the New Year.Now moving onto oil and gas on Slide 13. We produced 1,536 barrels of oil equivalent per day on a net working interest basis in the quarter. This total marked a decline of approximately 80% from last year, when we produced 7,658 barrels of oil equivalent per day. The decrease was due to a number of factors, most notable of which was the expiration of the Varadero West production sharing contract in November of last year as well as the decline in profit oil percentage from 45% to 6% at PE/Yumuri.The decrease was also due to the natural decline of the maturing fields that we operate in and as is to be expected, the decrease in the number of barrels produced had a negative impact on our unit cost. And our unit cost in Cuba for the quarter were $18.84 per barrel, which is up from the $8.98 of last year as a result. Unit costs were also negatively affected by the weakening Canadian dollar.Now turning over to the power production, on Slide 14, we produced 191 gigawatts of electricity in the quarter, and that's down marginally from last year when we produced 210 gigawatts in the same period. The decline was largely due to reduced availability of natural gas and we used that natural gas to produce the electricity.As with the oil and gas division, the unit costs were negatively impacted by de-appreciation of the Canadian dollar relative to the U.S. currency, as labor expenses are denominated in U.S. dollars.Now I'd just like to make very brief update on Ambatovy. On Slide 15, you will see that our efforts at Ambatovy, the efforts that the management team there is undertaking, have largely centered on improving production particularly through acid plant improvements and autoclave reliability. And they're reflected in a number of initiatives including the replacement of a second economizer and completion of repairs on equipment that were damaged by the cyclone earlier in the year and continued corrosion prevention program.Most of these efforts had a bearing on production results in the quarter, in particular they had a plant shutdown to replace the second economizer. Equally significant, they encountered some oxidizing ore that has since been resolved and production at Ambatovy has improved considerably in quarter four thus far.Given that recent progress, the team there is still cautiously optimistic about reaching their production targets for the year. The NDCC guidance at Ambatovy has been adjusted to reflect the lower cobalt prices and higher input cost.Finally, I would like to remind everyone that with the restructuring of our ownership interest in Ambatovy, we remain committed to serving as their operator through to at least 2024, and we do not anticipate any cash in or out in the near term.With that, that concludes my review of the operational results. I'll now turn it over to Andrew, our CFO, who will review our Q3 financial results.
Thank you, Steve, and good morning, everyone.I'll start my comments on Slide 17, with a review of our liquidity and cash movement during the quarter. You can see from this slide, that our cash balance increased, and this is cash and short-term investments, increased by about $10 million during the quarter to close at September at $207 million.Then the main driver behind that increase you can see on this waterfall chart, I'll just make a few comments. One, in total we received approximately $16 million from the Moa Joint Venture. That came in 2 forms during the quarter. Firstly, a repayment on some long-term advances we had provided to Moa of around $11 million. And then secondly, around $5 million of dividends and those dividends we received actually marked the first time we've received dividends from Moa for approximately 3 years.These dividends were possible because of the full repayment on the working capital facility and the advantages that I just mentioned and I expect now going forward that all of the cash flows coming out of Moa and for the foreseeable future will be in the form of these dividends.Secondly, the other kind of large positive here is roughly $20 million of positive working capital changes during the quarter. And there were 2 main factors driving that. Firstly, some pre-buys on our fertilizer sales out of the Fort site and specifically we received advance payment for fertilizer sales, which will occur in the month of October, during the course of Q4, but that cash was generally received in advance during the end of Q3 and that has been reflected in the working capital balance.Secondly, we did receive around $14 million of collections on our energy business from Cuba and so covering both oil and gas and power. But despite those collections, our overdue balance did increase by approximately $10 million during the quarter to close at September as being $147 million overdue.Now why we expect we'll collect all of these overdue receivables from our Cuban partner. The timing of these receipts is uncertain and continues to be uncertain, and then that timing that will impact the cash movement through the course of the third quarter, particularly as we have higher interest payments in Q4.Turning now to Slide 18. This slide really is a response to a number of questions that we've received in recent quarters on how our EBITDA that we generate from our various businesses gets reflected within our cash flow and ensures cash balance.So I do want to take a few minutes just to clarify a few items both on this slide and the next slide around the flow of cash and this is, as many on the call know, more complex than most of our peers primarily because of the legal structures, which we operate in and also some of the accounting rules, which we're required to follow, which results in our joint ventures being equity accounted for.So this Slide 18 really shows how and summarizes how cash is generated from our operations. Those at our recent Analyst Investor Day back in the second quarter of this year will be familiar with this slide, which really just summarizes some of the key movements of cash from our businesses through to Sherritt and I'll spend a few minutes now and just touching on a few of these points.Firstly, starting at the Fort site, the flow of cash flow down and I made reference to this already in the previous slide, relates to cash received for the sale of fertilizers from the ammonia plant that we operate at the Fort site. Generally speaking, most of our sales happen in May and October of each year, but the majority of the cash balance or the cash received does occur generally in the third and fourth quarter of each year. And so there is seasonality both in terms of the revenue that's recognized on that business and the timing of cash flows.For the Moa Joint Venture, as I mentioned, this is equity accounted for, and so we don't consolidate any of Moa's cash on to our balance sheets and the inclusion of cash generated by Moa is based on actually the movements of cash in one of 3 forms I've highlighted here on the slide. Firstly, cash can flow from Moa to Sherritt through repayment on the working capital facility that we provide to Moa. That working capital facility has now been fully repaid and you'll notice from our results that during the year, and this is primarily in the first and second quarter, we received $25 million on the working capital facility. And then we received another $10 million on advances in the third quarter.So going forward, now all of the free cash flow generated by Moa will come to Sherritt in really 1 of 2 forms. One would be a repayment on the expansion loan and secondly dividends. I'm reasonably agnostic in terms of where the cash -- which of these 2 options the cash comes to Sherritt on just because we get the same amount of cash from the Moa JV either way. But based on the terms of expansion loan, I don't expect that there'll be any repayments on that in the foreseeable future and that most of the cash flow coming from Moa to Sherritt will be in the form of dividends.I do just want to highlight though that the Moa Joint Venture is not included in the references we make to overdue receivables. And the cash we received from the Moa Joint Venture is always timely and in line with the dividends declared by the Moa JV Board. And that's because the customers that we sell or the Moa JV sells is nickel and cobalt to our international customers and we receive that cash in offshore bank accounts to outside of Cuba.On Oil and Gas, not much to really talk about there. Based on the oil that we produce each month, we provide invoices to the Cuban government based on the contractual terms that we have in place. And then we receive cash payments on those invoices or albeit the timing of those cash receipts is difficult to predict based on foreign currency availability within Cuba.Next on to power. For the power business, we do consolidate a third of power within our consolidated financial statements and so a third of the Energas cash balance is included within our consolidated cash balance. The flow of cash from power comes in 1 of 3 forms and these are summarized on this slide. First is repayment from accounts payable. This is where Sherritt incur certain costs such as paying expats or other services on behalf of Energas and Energas would reimburse Sherritt for those costs.Secondly, cash paid to Sherritt as part of conditional sales agreements. And that really references the capital costs, which Sherritt has incurred to construct the power plants in Cuba over the years. And to date, the capital costs that we've incurred for Varadero and the PE power plants have been fully repaid and the amounts are outstanding solely related to the steam turbine expansion at Boca. And until that gets repaid, all of the cash flow generated by Boca is paid to Sherritt preferentially as the repayment on the conditional sales agreements.The final flow of cash from power to Sherritt is in the form of dividends. And right now given that the bulk of cash will come in the form of payments on a conditional sales agreement, the dividends really come from the Varadero and PE power plants where the capital costs have been fully repaid. Now all of these cash flows from the Energas business to Sherritt are subject to Cuban foreign currency availability and similar to my comment on oil and gas, the timing of that is difficult to predict.And then the final comment I'll make on this slide is relating to Ambatovy and Steve already made this comment actually that over the next few years we do not expect that we'll be putting any cash into Ambatovy or receiving any cash out of Ambatovy.Turning now to Slide 19, and I know this is quite a busy slide. So I'll keep my comments on this slide fairly brief. The purpose of this slide is really to help our investors and analysts understand how the adjusted EBITDA we report, which was $41 million for the quarter, really translates into the cash that we see on Sherritt's balance sheet. So you can see from this slide that this $41 million of EBITDA equates to roughly $80 million of operating cash flow and the differences there primarily relate to interest paid during the quarter of $8 million and taxes paid of approximately $9 million during the quarter.About $17 million of operating cash flow across our various business units comes to Sherritt in various different ways as I described on the previous slide, but primarily one of the differences between what you see here in operating cash flow and the cash that comes to Sherritt is the fact that the Moa JV's equity accounted for and we receive cash flows from that business through dividends and you can see that highlighted on this slide. There is also of course capital expenditure which impacts our cash balance.So hopefully this slide provides a bit more detail and I won't walk through every number here, but the reference point for investors and analysts to really reconcile, EBITDA through to the $10 million increase in Sherritt's cash balance during the quarter.And I'll finish my remarks on the next 2 slides, Slides 20 and 21, just making a few remarks about the changes to our guidance which Dave mentioned earlier. Firstly, it's Moa. Since the first quarter of this year, we've been guiding that we'll be producing at the low-end of the range for the guidance which we released. And so we were tracking and obviously had strong Q3, which would have allowed us to achieve this, tracking towards a 31,500 nickel production annually.As Dave mentioned and Dave will provide a bit more detail on this shortly, we were impacted in October by a H2S supply disruption, which resulted in reduced nickel production in the month of October. And as a result of that we've reduced our nickel guidance for the year and from that 31,500 which we were expecting down to 30,500- to 31,000-tonne range. And we've also updated on NDCC balance and that's predominantly because of this reduction in production, but also a result of softening in the cobalt prices and our NDCC guidance has increased by about $0.15 as a result of that.And finally, on Slide 21, just a few comments on the updates to our CapEx guidance. Moa, you'll see that we've reduced our CapEx guidance down by about $10 million and this is on a Sherritt share basis. And this is really due to a reassessment of our capital projects and a deferral of some of this capital now into 2019.Oil and Gas, our capital has been increased by about $4 million for the year. And this is a result of the extended drilling, which has required a Block 10, and again Dave will make some more comments on this shortly.So on that note, I'll hand over back to Dave.
All right. Thanks, Andrew. Just before we take your questions, and there are a couple of or 2 matters here I'd like to just provide a bit more color and context around. The first, as Andrew mentioned, is this disruption of our hydrogen sulfide or H2S supply that we've been dealing with here in October at the Fort. H2S, it's a reagent that we use in the refining process to remove impurities from the finished nickel and cobalt, including precipitating out traces of zinc and copper that turn up in ore.We were notified during the month by our supplier that they had received a stop delivery order from the provincial regulator and the order was issued because the supplier's emergency response plan was not compliant with the provincial regulations. We have had been dealing with the same supplier for over 20 years and H2S was delivered to the site via pipeline from their facility to ours. Anyway as a result of this disruption, the production was reduced for a number of days in October. We are putting in place redundancy plans and the capacity to receive H2S by railcar as well as by way of pipeline, but subsequent to that the stop order was subsequently lifted by the regulator and the suppliers resumed delivery of H2S to us.The Fort is now back up and operating at full capacity, but there was varied days that we're at less capacity and that is really what has derailed us from achieving that low end of the production guidance for finished nickel and finished cobalt for the year. I do want to note that it obviously has no effect on mixed sulfide production in Cuba. So the mine in Cuba continues to run well and we do have now quite a significant inventory of mixed sulfide production and we will continue to carry that through the year, which will keep the Fort well supplied through the balance of the fourth quarter and well into 2019 based on production of the mine in Moa.I also want to talk to you for a moment about Block 10. You will all have seen the news on where we stand on Block 10. As we talked about at the end of the second quarter, we resumed drilling on the new site track in July following spending the first half of the year identifying the technological solution to overcome the lost circulation zones that we are experiencing in the upper reservoir. Those of you who have been following this will recall that we actually have an upper zone and a lower zone and we are targeting the lower zone as that's where we had oil discovery from a well previously back in 1994 that tested briefly at about 3,700 barrel a day rate.Drilling continues today. Over the last 3 months, we have drilled down through the upper reservoir and through the areas where we encountered the loss of circulation in past attempts. It was here that we deployed the expandable casing technology that we had identified at the beginning of the year as the solution to it and give us the extra casing capacity to overcome those zones. That expandable casing was successfully deployed and achieved its objective in terms of getting us through the upper zone and down drilling on beyond and down towards the lower reservoir.Since deploying the casing we did resume drilling. Between the upper zone and the lower zone, you do counter 2 other zones in the geological formation as a result of this fold and thrust geology that we have been working with in Cuba for the last 20 years and in the form of what is known as Constancia and then the lower Vega Alta. We drilled down through the Constancia down into the lower Vega Alta and we are not far off where we anticipated seeing the lower reservoir. We are expecting to encounter the lower reservoir around 5,100 meters and we were down past 5,000 when we had some wellbore instability in the Constancia that caused us to back up and begin re-drilling from the bottom of the expandable casing.So that's the drilling that is underway now. Then it gets through the Constancia and seal that less stable zone in behind the next string of casing and then be drilling on down into the reservoir from there.Our current plans we expect is about 60 to 90 days now to complete the drilling and as soon as we have more news to share with you on that, you can be confident that we'll be back to you with that.Lastly, I wanted to just touch on capital allocation and growth strategies. We have had a number of questions on this over the last few weeks, particularly as optimism around nickel prices for the longer term here continues to grow and people asking what our plan and approach is to growth opportunities. So I want to speak and I have a couple of points for you on capital allocation, our approach to capital allocation.The priority for the last few years has clearly been on debt reduction and that continues to be our top priority. We paid off I think somewhere north of $2 million in debt, we eliminated north of $2 million in debt on our balance sheet in the last few years and seeing those debt levels continue to come down is our intention. The reality is we have not had a lot of discretionary capital to apply in the last few years and that these prices, that still hasn't really changed. What discretionary capital we have had, we have used for debt reduction.The only real growth capital spending we have seen in the last few years was on the construction of the acid plant. And that plant in Cuba is not up and running well. It had an IRR north of 50% and a payback in less than 2 years and it is performing as expected.We have also done a lot of work in the last few years internally to bring more focus and then discipline to our approach to capital allocations and we apply that now to ensure that the investments we need to make into our businesses to maintain safety and production and you're seeing the benefits of that in some of the initiatives to achieve greater stable and predictability in our production and some of the initiatives that Steve was telling you about.We are investing in the drilling in Block 10 to demonstrate that there is a viable business opportunity there for the next 20 years. But any further investment beyond that will be time to collections of our accounts receivable in the oil and power business and cash flow from our nickel business won't be going to further drilling in Cuba beyond this well.Lastly, I just want to talk about Ambatovy and you've seen that our intention is still no cash in and no cash-out. You'll note in our press release that we did highlight that the escrow account that was set up at the time of the restructuring has now been fully drawn subsequent to quarter end. That escrow account fulfills our obligations for equity contributions to the project that we made to our partners as part of the restructuring that was completed at the end of last year. Whether Ambatovy needs more cash from its shareholders at this point in time and going forward from here is obviously a function of future commodity prices and future production. But from our perspective is we look at capital allocation here at this point in time given that that capital structure of the Ambatovy project at the moment in the long timeline before there is cash available for distribution to shareholders in that project, additional capital allocation to the Ambatovy joint venture at this point in time is not a priority for us, I would say.That highlights what we wanted to and covers what we want to highlight for you this morning. We are pleased with the progress we are seeing in the Moa Joint Venture, in particular in terms of its ability to generate cash flow and deliver on its production plants, that's where our focus will continue to be going forward as we work through these current market conditions.With all of that said now, operator, we would be happy to take any questions anybody may have.
[Operator Instructions]. Your first question comes from the line of Orest Wowkodaw from Scotiabank.
Couple of questions from me. First of all, David, you touched on it briefly here at the end about Ambatovy, but I am not sure I really understand. So the escrow account is effectively consumed at Ambatovy. At this commodity price there could be, I assume, next year we could see situation where there is a cash call to Ambatovy. Are you saying that you're not planning to meet those cash calls and should we assume then that the consequence of not making any cash calls is that your ownership would get diluted from the current 12% or am I just misunderstanding?
I think the way to look at it right now, Orest, what I can tell you is that there is obviously the possibility that Ambatovy will need more cash and it may will be okay for the next few months, but the reality is as you know and I am sure you have in the back of your mind, the reality and the rubber will hit the road for Ambatovy when the amortization is scheduled and the project financing kicks back in June of next year. I think what you will see happen between now and then is there will be more conversations amongst the partners and there will be more conversations with the senior lenders on that amortization schedule given that that project financing down there is non-recourse with the partners and none of the partners are particularly keen to put more cash in at this point in time. But from our perspective, at the moment it's true that based on what little discretionary capital we have to allocate and the opportunities we have to deploy what cash we are going to generate here in the near term in our other businesses and towards that reduction is that allocating additional cash to Ambatovy at this point in time is probably the least attractive of all the opportunities we have to deploy capital. And so we'll see how the conversations with the lenders play out and how conversations with the partners come out. But under the current structure and in the current situation, there is no incentive from our perspective to allocate more capital to Ambatovy and dilution could turn out to be a consequence of that, but there are quite a number of conversations to be had in the next 6 months before we see how plays out.
And those discussions with the project lenders, are those underway or is that still have to get going because those always seem to take a while?
They do always seem to take a while, but there are conversations underway already. There have been regular communication really over the last 12 months and some meetings already on near and longer-term cash requirements for the project.
And then just to shifting gears on Cuban overdue receivables. I mean, they keep -- it seems like they keep going up quarter after quarter to now almost $150 million. What's the strategy here in terms of reversing that and actually collecting this cash? And do the Cubans have the ability to actually pay you or could we see some kind of restructuring here as this balance continues to build?
So it is obviously a live issue for us and has been for several quarters now as those balances have continued to grow over the last 12 or 18 months. I mean, you're right, it is getting to be a larger number. Just for context again, it's not as big a number as it has been and compared to where it went after the financial crisis when we did restructure those receivables and ultimately we made a whole lot on them. But we are -- I am in Cuba regularly, others, Elvin Saruk and others are in Cuba regularly. Cuba has had a difficult time economically in the last 12 or 18 months with the chill of the Trump administration on new investment in Cuba, low nickel prices, low sugar prices, a weaker tourism season on the basis of fewer Americans traveling, higher oil prices, lower domestic oil production is all the affecting the way they are approaching their business at the moment. I'm just trying to get over the last bit of cold here. Our approach now, and I think we're helped somewhat by the fact that the Moa Joint Venture now has cash available for distribution to shareholders and we continue to have talks with the Cubans about trying to find a solution where we could potentially try and capture some of their hard currency flows out of Moa and reallocate that towards the joint venture. I'm back in Cuba again next week trying to make some progress on that, but it is slow making progress on this in Cuba. They are also desperate and keen to see their domestic oil production increase, and I'm hoping as we have some success coming up here on Block 10 an opportunity for further investment to increase domestic oil production, that will also create some incentive for further collection on that. But it is still a live issue for us. And we're talking to them about a variety of alternatives in terms of how we ultimately get, recover these receivables. They are still absolutely keen to reassure us that they recognize that that is the money they owe us and it is their intention to make us whole on that. They've work with us on these sorts of issues in the past and we continue to work with them on these now.
But is that something we should see a resolution on, on the next couple months or could this sort of take another year or 2?
I'd love to be able to put a time line on for you, Orest, and I don't have a specific answer for you for that. I'm hoping that it is in the months ahead here when we'll get a better sense of it each time we go down there. But I don't have a date by which I can say this is the date we'll have a solution for them. We did see collections in the third quarter. We've seen some cash come in again in the fourth quarter. And we continue to work to them and towards trying to find some more sustainable solution to see these receivable balances start coming back down over time.
Your next question comes from the line of Jacques Wortman from Eight Capital.
Two quick questions from me, guys. What was or I guess what will be the total CapEx associated with the new fleet that was deployed in Q3 at Moa and how much of the 2018 CapEx will be pushed into the 2019? That's the first question. And the second one, I guess, would be with respect to Ambatovy. It continues to struggle with production bottlenecks and higher energy and silver costs, but these cost pressures aside, is there any visibility on when the ongoing production issues might be resolved and the operations might ramp up to something approaching nameplate capacity? The highest production level was 2015 as I understand it and it has just sort of trended down from there. And I'm just wondering if there's any light at the end of the tunnel with respect to Ambatovy because it is dragging on your adjusted EBITDA and earnings per share.
I think I'm going to get Andrew to just talking about the -- give you a bit more detail on the capital and then we can talk about Ambatovy in a moment.
Yes, thanks, Dave, and thanks, Jacques, for the -- from a capital perspective, the Moa JV incurred and it was in the region of $20 million in the year for some additional trucks which arrived after the kind of late second quarter and which allowed us or allowed the mines to be able to perform better during the quarter of Q3.
And how much of your CapEx have you pushed into 2019? I think, Andrew, you made reference to that being one of the reasons why the CapEx was lower in 2018 with your new guidance.
Yes, roughly and the numbers I gave you, Jacques, has just been on trucks with 100% number. You'll see from our guidance change, our guidance has declined by $20 million on 100% basis or $10 million from a share perspective. And I would say the majority of that has been deferred into 2019.
Your next question comes from the line of Greg Barnes from TD Securities.
Dave, there has been a lot of chatter in the last week or so about the Chinese Tsingshan I think building a nickel sulfate plant in Indonesia to produce it from laterite ore. Given your experience at Sherritt, how technically feasible do you see that?
Thanks, Greg. Jacques, we did have a second question from you on Ambatovy and I'll come back to that in a moment. I just don't want to lose sight of your question there. You're right Greg, for the benefit of everybody else in the call, stainless steel company out of China that has been active in Indonesia in the last few years, building ferronickel and nickel pig iron facilities has recently announced that they are intending to build in Indonesia an HPAL nickel plant that will produce an intermediary Class 1 nickel product that could ultimately be taken back to China and converted to nickel and cobalt sulfate, and hopefully into -- for battery production domestically in China. And the initial capital numbers and timeline to construction they put on that from -- for I think of 50,000 tonne a year plant are quite aggressive compared to what the past experience has been. We've been looking at that. There is not a tremendous amount of detail available yet publicly from what we've been able to come across in terms of what that plant and their plans encompass in terms of the basic HPAL units compared to supporting utilities like acid production or what the plants are for tailings challenge management and disposal. As far as we know, from the technology provided that they're using in China that our technology people have some familiarity with that there is no breakthrough technology here that is radically different from what has been done in HPAL in the past. But we don't have a lot of specifics yet in terms of how they've arrived at the, I think, $700 million budget that they put out for this. Our technologies people continue to try and look at what's been -- what information there is out there publicly, and to try and put together what it is they're doing. But this is obviously much more aggressive budget and timeline to Ambatovy production than -- to nickel and cobalt production than Ambatovy or other HPAL facilities have been able to deliver on in the past. Clearly, some capital savings comes from not having to build a full metals refinery. They will be producing an intermediary product like an oxide or hydroxide that can ultimately then be more easily converted to a sulfate. But it is certainly an interesting development that we'll be continuing to see how that develops and see what more information we can learn on it. But certainly compared to past history, those are much more aggressive capital than the numbers and time line to production numbers than the world has seen thus far.
But it is technically feasible to do what they're planning to do?
The process as best as we can understand it in terms of actually processing ore into nickel and cobalt intermediary products is not dissimilar to what is done at other HPAL facilities in the world as best as we can understand it today. So there isn't a new revolutionary technology there. It's a question of can they do it on the -- for the cost and timeline that they're talking about, which obviously hasn't been achieved before. It does illustrate that there is a concern I think in China in particular about the future availability of Class 1 nickel supply to ultimately meet anticipated future demand in nickel and cobalt for anticipated battery production into the next decade. And we're certainly seeing that from battery makers in China in terms of that long-term concern and I think this is evidence that that concern from their perspective is real. If I can take a moment, I want to just come back and cover Jacques question there as well. Jacques, you asked about Ambatovy, I can give you a little context on that. I mean, obviously the challenges at Ambatovy in the last couple of years and that has been around equipment reliability and consistency in production numbers. We talked a bit about this when you and others were out at the Fort Saskatchewan in terms of plants there. There's ongoing efforts on the ground with the management team down there to improve equipment reliability and on-time and with something like 220 different circuits there on getting that preventative maintenance regimes right and other initiatives to improve asset reliability and dependability. That is going to take some time and I think that process will be on going through 2019 and beyond and there's obviously a history there of unexpected and unanticipated, aren't expected events from storms to equipment failures adversely affecting production. From our perspective, I mean, I think the efforts that are happening on the ground there are the right things that need to be done and we continue to watch that and see that develop. But from our perspective, with the way the production profile is going there and that the structure of the debt, it is less material to us today given that there's a -- within a pretty wide range of production down there, there's -- and no cash coming out of Ambatovy to shareholders anytime soon based on the cash sweeps for the lenders, and not much incentive for us to put cash in.
[Operator Instructions]. Your next question comes from line of Kevin Cohen from Imperial Capital.
I guess kind of turning to Block 10 and just kind of thinking about the strategic outlook there. It has certainly been a bit of a delayed process. What's kind of the outlook in terms of your confidence level on ultimately the first well being commercial and then a second well and perhaps a strategic transaction in 2019? I know it's a little bit difficult to say, but little bit of a disappointment to again in the just reported result on that front.
Yes, well, our view in the quality of the reservoir is unaffected by any of our drilling activities so far this year. We have always liked the reservoir in part because we actually have seen oil out of the reservoir at least for a brief period of time 20 years ago from this well that we drilled from the jack out in the bay and none of the drilling challenges that we have encountered in the last 12 or 18 months have changed our view on that. Overcoming the last circulation zones and getting through that upper reservoir, upper zone that we achieved in the second quarter, having successfully deployed that expandable casing technology was a big success for us. We were actually quite pleased with that. The sloughing off that we had in the hole here and the wellbore instability that we encountered in the third quarter here is not an uncommon occurrence particularly in drilling in new areas, as you get to know the geology better. For future hole drilling, this will affect where we determine, where we pause and set casing given that we know now how long these sections take to time out and it is not an insurmountable challenge or is a mysterious run expected as the last circulation challenges that were encountered in the upper reservoir. So our degree of confidence in terms of our ability to ultimately reach total depth in this well hole and get into that bottom reservoir and see what's there continues to grow. And as we look ahead to 2019 and once we get this well on production, there will be a testing period of several weeks and months when we see what kind of oil flow rates we see out of the well, and how well those flow rates flow up, that will then -- and then how well they stand up over time will enable us to do more sophisticated math on what the returns look like on subsequent drill holes as well as develop a more comprehensive and executable plan for what subsequent drilling looks like based on all the learning that has come from this more of an exploratory well on the Block and then we will be looking at how does a drilling campaign get financed with the possibility of bringing in partners as we have talked about in the past to fund that drilling capital on an earning basis. So there will be more detail on that I hope over the course of next year as we have some drilling success here ideally in the next 60 to 90 days. But the plans are for longer-term plans that we have talked about for development of that asset and realizing and demonstrating some value in the oil business over the long term remain unaffected from our drilling activities in the past quarter.
So I guess to put it more simply or a different way to look at, is your confidence level over 50% that ultimately the company will be able to declare at least 2 wells commercial and then look for a strategic transaction or there is just not enough information to know either way to try to attach any sort of particular, actual, quantifiable probability?
We don't have -- there is nothing really new. Our confidence and our ability to get into that -- into the lower reservoir continues to grow having successfully traversed the upper reservoir, and there is no change in our confidence level in how much or with the extent of which there is oil in the lower reservoir because we're not there yet and until we actually get into the reservoir and see some flow rates, I really don't have any new information to give you in terms of what our confidence level is there. We went into this well and took this well on because we were pretty confident that there was oil there based on the discovery 20 years ago. But now until we can actually get a bit in the well into there and start putting it on production and seeing some oil flow and some flow rates, there is really nothing that we can add to what we have been talking about the last couple of quarters. The priority is to get on with the drilling and get into that reservoir and see what we have got there.
And then going back to another person's question just about the overdue receivable, which -- today's exchange rate is, call it almost CAD 185 million. What is the thought about being a little bit more proactive out, maybe even monetizing and selling it to a different party just as part of generating liquidity and ultimately a way to address the '21s among other potential uses?
We have looked at opportunities to monetize that, discounting or factor it. The reality is that there is nobody that is looking to take on Cuban credit risk that has the level of comfort or confidence in it that we do. So given now that we still ultimately believe that we can collect on that compared to the rates at which it could be monetized at this point in time, we still don't think that is as attractive because we haven't really realized enough to make it worthwhile.
And it is my last question. Thank you for your patience. I guess from a very high level of view of looking at nickel and demand continues to outpace supply, but pricing continues to somewhat languish. Is this just a dollar currency headwind or is there something else going on or is the market fearful of demand out of China perceptively in 2019 or what do you think is kind of the disconnect, just looking at nominal nickel prices versus the macro picture which looks really positive?
I don't have any one magic answer for you for that. I think there is a number of factors at play that are affecting base metals across the board at the moment because I think the underlying supply and demand fundamentals for physical nickel in particular are better today than the price reflects. But I think in the last few quarters you have seen sentiment turn quite negative on global growth generally and China growth, you have seen some disappointing industrial data out of China in the last few weeks. I think the potential for a protracted trade war between the U.S. and China and what impact that has on Chinese growth rates over the next few years is weighing pretty heavily. Strong U.S. dollar is always generally an inverse relationship to commodity prices. So I think that it's kind of a confluence of events at the moment that have caused sentiment to be quite bearish. But as I said, I still think that even today in the perspective go-forward prospects of the nickel market are better than the today's market price reflects. And the announcement of the stainless steel company made in Indonesia a couple of weeks ago that Greg was asking about I think have raised some questions for people in the near term here as well. But ultimately I still believe that nickel prices ultimately have to reflect supply and demand fundamentals for physical nickel and we still think that is a pretty good picture.
And given the disconnect between physical supply and demand and sort of sentiment and the opportunity it creates for the company to continue to repurchase debt below par, what are the thoughts on that just given the liquidity picture being over $200 at this point? Is the appetite subdued, cautious or how do you guys think about that?
Looking at opportunities to do it are as attractive to us, we're just trying to make sure we do have a handle on where our cash position is going to go in the near term here, but that will be an ongoing conversation internally here as we see how cash comes in both on the receivables and in nickel receipts. Obviously the nickel price has been declining. We are down to $5.25 or $5.30 I think this morning. So that's off 20% or 25% in last 2 or 3 months. So we do want to make sure that that trend isn't going to get a lot worse before it gets better, but then as we see how our cash position unfolds looking at opportunities to continue to proactively work those debt levels down will be where our focus will be.
And there are no further questions at this time. I will now turn the call back over to David Pathe for closing remarks.
Well, I will just thank everybody once again for joining us. We will be back before the end of the year with updates on ongoing cobalt price that affects the warrants and as other operations and events unfold. In any event, we will speak to you again in this form when we release our Q4 results in February of next year. Thanks very much for joining us again this morning. Speak to you soon.
This concludes today's conference call. You may now disconnect.