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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Sherritt International Fourth Quarter 2021 Results Conference Call and Webcast. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, Thursday, February 10, 2022 at 10 a.m. Eastern Standard Time.I will now turn the presentation over to Joe Racanelli, Director of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining us today. Before we begin, I want to point out a couple of items. Our financial results, MD&A and financial statements were released last night and are available from our website as well as from SEDAR. We will be using a presentation today as customary and a copy of that is available from our website. And in our presentation today and in our discussion, we will be making some forward-looking statements, and those statements are available on Page 3 of the presentation.In addition, we will be making reference to certain non-GAAP financial measures, and details on these measures and reconciliations to them are -- and to the most comparable, I should say, IFRS measures are included in the appendix of our presentation.With that, I'd like to introduce and turn the call over to Leon Binedell, our CEO. He's joined today as well by Steve Wood, our Chief Operating Officer; and Yasmin Gabriel, as if you recall, was appointed our CFO in August of last year. So please go ahead, Leon.
Thank you, Joe, and good morning, everyone, and thank you for joining us today. Q4 was a particularly busy quarter for Sherritt and marked by progress on a number of fronts. Operationally, we had strong refined nickel and cobalt production in Q4 and were able to meet our targets for the year. Financially, we generated our highest adjusted EBITDA and highest net earnings from operations since Q4 2017. Our unit cost at the Moa Joint Venture also showed improvement, reaching the lowest levels in 3 years.From a strategic perspective, we launched an expansion plan for the first time in more than 10 years and completed a number of important first steps. I'll expand on our growth strategy and the benefits it will deliver in my remarks on the outlook for Sherritt.On the leadership front, we appointed experienced and well-qualified individuals to our Board and senior management team, naming Dr. Peter Hancock as a Director; and naming Elvin Saruk as the Head of Growth; Dan Rusnell as the head of our Metals business; and Greg Honig is the Head of Technologies & Marketing.Peter's experience in the mining industry and technology research is welcomed addition to our Board, given Tim Baker's decision not to stand for reelection in 2021. These developments are indicative of the momentum we are building. We ended the year pivoting towards growth and expansion backed by favorable market conditions and a strong outlook for nickel and cobalt in particular. We expect to build on this momentum through 2022 and beyond. Before I turn the call over to Steve for a more detailed discussion about our operating performance in Q4, I would be remiss if I did not point out, as announced late last year that Steve has decided to retire at the end of April after a long and successful mining career.Steve has provided invaluable guidance on shared operations over the years and I'm grateful for the support and the many contributions he has made as a key member of our senior leadership team. As a driving force behind our purpose and promises, Steve's legacy at Sherritt will be remembered for his commitment to safety, sustainability and operating excellence. On behalf of everyone at Sherritt, I'd like to extend Steve our best wishes for his upcoming retirement and look forward to his active role during our transition. Over to you, Steve.
Okay. Thanks, Leon, for those kind words, and good morning, everyone. I'd like to start my discussion today with a comment on safety. We've devoted considerable efforts over the past several years to fostering an environment in which best practices for employee health and safety are employed. That has resulted in Sherritt regularly ranking in the lowest quartile for incident rates in our peer group. And we continued that performance in the fourth quarter. We had a lost time injury rate of 0.14, which compares well to the 0.12 for the same period of 2020.I'll now turn to our production results for the quarter on Slide 6. I'll begin with our share of the Moa JV. As you can see from Slide 6, nickel and cobalt production in the fourth quarter were marked by a strong recovery from our performance in the third quarter. On a 50% basis, the Moa JV produced 4,266 tonnes of finished nickel and 476 tonnes of finished cobalt in the fourth quarter. This represents an increase of 6% for each metal produced in the comparable period in 2020.Production in the fourth quarter will -- in which we implemented enhanced measures to mitigate the spread of COVID-19 enabled us to reach our finished nickel and cobalt targets for the year. On a full year basis, finished nickel production for 2021 was 15,592 tonnes, largely flat from last year when we finished cobalt -- while we finished cobalt, which was up at 1,763 tonnes, up 6%, largely because of the higher cobalt-to-nickel ratio and the mixed sulfide feed. As noted, production results for the full year were impacted by a number of developments related to COVID-19. The most notable being the extended 13-day full facility shutdown at the refinery in Fort Saskatchewan due to reduced contractor availability and delays in the shipment of mixed sulfides from Moa.Unplanned maintenance activities at the refinery in Fort Saskatchewan in the third quarter also had a bearing on our production totals for the year. Each of these impacts are behind us as the Q4 totals demonstrate. I'll now turn to our unit costs on -- at the Moa JV on Slide 7. The net direct cash cost was $3.60 per pound of nickel sold, and that's down 19% from 4.47% in the fourth quarter of the prior year. NDCC in fact, for Q4 2021 was the lowest since the fourth quarter of 2018. The improvement was principally due to the 82% increase in realized cobalt prices. And the increase was more than offset the higher MPR costs, particularly the input cost for sulfur, fuel prices and natural gas, which rose, respectively, 146%, 72% and 76% in Q4 of 2021 from the same period of the previous year.On a full year basis, NDCC was $4.11 per pound in 2021, meaning that we beat our guidance for the year. NDCC for 2021 was down 2% from the previous year despite the significant rise in those input costs, as mentioned, but offset by lower labor costs due to the impact of Cuba's currency unification. I'll now turn to our Power division on Slide 8. We produced 130 gigawatts of electricity in the fourth quarter, and that's down 10% from the previous year when we produced 144 gigawatts in the fourth quarter. The decrease relative to the previous year was driven by the scheduling of maintenance activities that had been previously deferred on account of limited liquidity availability and reduced availability of spare parts.Unit operating costs in the fourth quarter were $22.72, and that's down 15% from the $26.73 for the previous year. The year-over-year decrease was primarily attributable to reduced spending on maintenance and the effect of Cuba's unification of its currencies in lowering labor and third-party service costs.I'd like to wrap up my discussion on the power business by pointing out that we continue to be in discussion with our Cuban partners to expedite the payment of overdue receivables, increase availability of natural gas needed for power production activities and extend the power generation agreement with Energas, which is currently slated to expire in March of 2023. To that end, we completed a feasibility study in the fourth quarter, detailing the economic benefits of extending the power agreement. The feasibility study was approved by the shareholders of Energas and will be submitted to the Cuban authorities within the coming days for final review. Approval is expected before the year-end.On Slide 9, I'd like to note that Sherritt's commitment to ESG is significant. In fact, you can expect Sherritt to build on our recent progress in the years to come, particularly with respect to the upgraded targets we announced last year -- last fall. As you can see from the slide, some of these targets include achieving net zero greenhouse emissions by 2050, obtaining 15% of overall energy from renewable sources from -- by 2030, reducing nitrogen oxide emission intensity by 10% by 2024 and increasing the number of women in our workforce to 36% by 2030.Achieving the climate and environment targets will require innovation, investments, considerable effort and leveraging of evolving technologies. We've identified opportunities to reduce carbon emissions significantly and examples of some of the near-term efforts include making use of solar power and electric vehicles. We will provide updates on progress towards our targets on a regular basis going forward. Now that concludes my remarks on operational performance. Earlier, Leon noted that I will be retiring by the end of April. And I'd like to take this opportunity to thank Sherritt's employees, it's a Board and our partners for their generous support over the years. Their collaboration, commitment and counsel has enabled us to strengthen the company and position it for much success for many years to come.I'll now turn the call over to Yasmin for a discussion on our financial results.
Thank you, Steve, and good morning, everyone. I'll begin with a discussion of 2 of our key financial metrics, adjusted EBITDA and net earnings from continuing operations. You can see on Slide 11 that we generated $46.4 million of adjusted EBITDA in Q4 2021, a total that marked our highest since Q4 2017. This strong performance was also reflected in our net earnings from continuing operations, which at $14.4 million was also our highest since the fourth quarter of 2017. Our strong financial results in Q4 2021 were driven by higher realized nickel, cobalt and fertilizer prices, strong nickel and cobalt production and our efforts to reduce costs.Now turning to our liquidity position. At the end of Q4 2021, our total liquidity improved by $10 million. However, our cash and cash equivalents, which totaled $145.6 million was down from $163.4 million at the start of the quarter, as you can see on Slide 12. The lower cash position and the amount held in Canada were driven by a number of developments in Q4, including cash interest payments on our second-lien notes of almost $15 million and by the deferral of expected distributions from the moa Joint Venture.Distributions totaling $8.1 million were deferred in Q4 to January of this year, as Moa Joint Venture Board exercise caution and assess the impact of delays in product deliveries caused by the flooding in B.C. and congestion at the port in Vancouver in November.In Q4, we completed an early renewal of our credit facility to strengthen our available liquidity and to provide flexibility in funding our growth strategy, which Leon will provide an update on shortly. The amendment increased the amount of available credit by $30 million to a total of $100 million and allows us to utilize the facility to fund capital expenditures. The maturity of the facility was extended to April 2024.Looking at our distributions more closely on Slide 13. Our Moa Joint Venture has been a reliable distributor of cash over the years with USD 98 million distributed to Sherritt since Q1 2019. During this time, Sherritt also received USD 34 million of dividend redirections from its partner, GNC. Although amounts have varied over this period due to fluctuations in commodity prices, the Moa Joint Ventures low-cost operations and dependable production typically results in quarterly distributions.And as you can see on this slide, there is a strong correlation between distributions and nickel and cobalt prices. A $1 increase in the nickel reference price results in an increase of approximately USD 30 million higher Moa Joint Venture operating cash flow, while a $5 increase in the cobalt reference price resulted in approximately $15 million increase in the Moa Joint Venture operating cash flow. And both of these amounts are on a 50% basis. The amount of dividends to be distributed to each partner is decided by the Moa Joint Venture Board on a quarterly basis, and there are a number of factors that go into the decision-making process.This includes available cash, prevailing metals prices and planned capital expenditures. When we factor in our recent performance, strong nickel and cobalt price outlook and expected Moa Joint Venture liquidity requirements, and that includes our planned CapEx, we anticipate additional dividends in Q1 and expect to continue to see strong distributions in 2022 compared to the CAD 36 million we received in 2021.Now turning now to Slide 14. With the completion of the balance sheet initiative in 2020, we improved our capital structure by eliminating $300 million in total debt, saving [ $15 ] million in annual cash interest and extended our debt maturity and as you can see on this slide, under this improved structure, our first debt maturity is almost 5 years out with our second lien notes coming due in November 2026.We remain focused on further strengthening our balance sheet, and we have a number of opportunities to grow our cash position and meet our debt obligations. One key element will be converting our overdue receivables from our Cuban energy partner into cash as this represents more than 50% of our second lien notes.Although the timing of Cuban energy receipts will continue to be challenged in the near term by restrictions on tourism as a result of COVID-19 and the ongoing impact of U.S. sanctions, we are focusing on opportunities to utilize the Moa Joint Venture to settle the outstanding receivables. This will allow us to collect sooner and is something we are actively working on with our Cuban partners.In the medium term, we'll generate incremental cash flow from expansion at our Moa Joint Venture, better positioning us to benefit from the strong pricing outlook for both nickel and cobalt. And finally, there's a potential for transformational cash flow growth through the commercialization of opportunities within our technologies business. Our commitment to executing on these opportunities should make clear that achieving balance sheet strength continues to be a key strategic priority to Sherritt.That concludes my review of our financial highlights. I will now turn the call back to Leon for his closing remarks.
Thank you, Yasmin. As you've heard, we've entered 2021 with considerable momentum. Encouraging market conditions gives us confidence that we will be able to extend our momentum through 2022 and beyond. As you can see from Slide 16, nickel prices since the start of the new year continued to be strong, reaching a high of USD 10.89 a pound on January 20 and reaching those levels today again. Cobalt prices have also been on the same -- climbing to above USD 34 a pound. Higher prices for both commodities were driven by strong demand, reports of consumer stockpiling and reduced availability of supply. Conditions supporting these price levels are expected to remain in place in the near term and most analysts have forecasted strong nickel and cobalt prices through the end of 2022.The impact of growing demand and consumer stockpiling is apparent when we look at the nickel inventory levels. As you can see from Slide 17, combined inventory levels on the LME and the Shanghai Futures Exchange have dropped by more than 60% over the past 12 months to below 100,000 tonnes, the lowest level since December 2019. This decline continued into 2022 and now stands at approximately 85,000 tonnes. Currently, industry analysts are expecting market tightness through the end of the year. This encouraging backdrop helps put context around our expansion strategy and why we are excited about both our near-term and longer-term prospects. Accelerating expansion at the Moa Joint Venture will entail 3 key elements outlined on Slide 18 that upon completion, will grow nickel and cobalt production by up to 20%, for a combined 34,000 -- over the combined 34,700 tonnes produced last year. The first element of the expansion will focus on the completion of a new slurry preparation plant at the mine that will reduce ore haulage distances, improve ore sorting, improve feed quality to the processing plant and reduce the carbon intensity at the mine.The second element of the expansion will focus on completing a previously suspended expansion of the Moa processing plant and upgrading some utilities to facilitate increased mixed sulfide production at Moa. The last element relates to upgrading of equipment at the refinery in Fort Saskatchewan to increase production capacity to approximately 41,000 tonnes per annum. In tandem with growing our mixed sulfide production, we also plan to extend the mine life at Moa to beyond 2040. Our plan consists of converting some of the more than 158 million tonnes of measured and indicated resources into reserves, by changing our mine cut-off grade and optimizing our mine plan and blending of mine materials. Test work was completed in Q4, and these are being translated into the mining software for optimization.We'll be issuing a new 43-101 technical report later this year once all approvals and mine planning has been completed. This new focus on growth marks a change for Sherritt and one that we are truly excited about. We've already started to make significant headway in our strategy, as outlined on Slide 19. In Q4, the Moa JV completed a feasibility study for the slurry preparation plant or SPP and received approval for capital spend from its Board. The SPP is estimated to cost USD 27 million and be completed by early 2024. It will deliver the benefits starting by mid-2024, including increasing annual mixed sulfide production by approximately 1,700 tonnes for a capital intensity per nickel tonnes of approximately $18,000 per annual tonne. And it also underpins the broader expansion of Moa. The total budget for the expansion strategy, including the SPP, is slated to be in the range of $20,000 to $25,000 per annual tonne of nickel capacity increased. We anticipate the remaining projects to be approved early in the second half of the year and anticipate to see the benefits from the broader expansion commencing in 2025. We'll continue to provide updates on the progress in the coming quarters. While completion of SPP and the broader expansion will deliver a number of longer-term benefits, our near-term performance can be measured by the guidance for 2022 we issued a couple of weeks ago.A summary is presented on Slide 20. At the Moa JV, our production targets for refined nickel and cobalt are consistent with performance over the past 10 years. We have taken a conservative approach to our guidance for NDCC or net direct cash cost, given the inflationary pressures on input costs and the limited visibility we have on fertilizer pricing, which like cobalt prices are key byproduct credits. With respect to planned capital spend, the CAD 75 million target for sustaining activities exclude announced plan for our expansion.We anticipate providing fulsome growth in details with our Q1 results. Spending on capital in 2022 is planned for the replacement of mine and plant equipment, fertilizer handling upgrades, tailings management and includes amounts deferred from 2021 due to the impact of COVID-19 on disrupting logistics and suppliers and contractor availability. Funding considerations for planned spending on capital in '22 as Yasmin mentioned, includes operating cash flow, the recently amended credit facility, vendor financing and -- amongst others.Our targets at the Power business are consistent with recent performance and reflect the anticipated levels of gas supply from our Cuban partners. As Steve noted, we continued our discussions with our Cuban partners to extend the power generation agreement at Energas and submitted formal application in this regard. The current agreement is expected to expire in March 2023, but we expect that to be renewed. In conclusion, I would like to thank you for your time today. And as you have heard, Sherritt started 2022 with strong momentum. We finished 2021 by hitting our production targets and improving on our cost targets and made progress on our growth strategy that will deliver benefits starting in 2024 and strengthen our relationships with our Cuban partners. Just as important, the favorable outlook for nickel and cobalt prices continued in the new year, suggesting stronger distributions from our Moa Joint Venture in 2022. With that, I will now hand over the call to the operator to take questions.
[Operator Instructions] And our first question comes from the line of Greg Barnes from TD Securities.
Leon, the cut-off grade of more, I assume you're looking at lowering the cut-off grade to bring resources into reserves. Is that being driven by the efficiencies you're seeing with the expansion coming through?
Thank you for your call -- your question, Greg. The cut-off grade historically was pegged at a fixed cut-off grade under the Cuban regulations. And what we're looking to do and have worked with the Cuban authorities to implement is to have an economic cut of grade, which reflects us with the nickel prices and the grade variability within the ore body that maximizes the conversion of resources to reserves. We have a pretty reasonable handle on what that would mean, given we understand the economic cut-off grade, but now working through the mechanics of getting that approved through their regulations and optimizing the mine plan based on recent additional test work we've conducted.So it's really not lowering the grade per se as matching the grade in terms of how we've operated in the past in effect.
So you did operate to that noneconomic cut-off grade, I guess, or the regulatory cut-off grade to this point?
Yes, we've been allowed to operate essentially outside of the regulatory cut-off grade to a more economic cut-off grade in recent times.
And our next question is from Gordon Lawson of Paradigm Capital.
And congratulations on another great quarter, and thank you for the Phase 2 update. I was wondering if you could disclose a little more color regarding the remaining components versus existing components and specifically the sulphuric acid plants and other infrastructure at Fort Saskatchewan?
Sure thing. We'll be providing a lot more detail on the full scope in the coming quarters, Gord. But in terms of the overall utilities at Fort Saskatchewan, there's very little to be done from an operating perspective, it's more through the actual process. At Moa, it requires a bit more around the acid plant in particular. So that is the principal utility that would need some upgrades to facilitate the expansion of Moa, but we'll provide the full details of the scope as we announce the full capital cost at the end of Q1.
Okay. And switching over, could you talk about your progress on the treatment of copper concentrate? And what sort of contractual arrangements you're targeting with respect to clients?
Sorry on copper concentrates?
Yes.
With regards to copper, we continue to look at ways to improve that concentrate feed and the ability to -- increase the scalability of the product. There's a number of technology works currently being considered that has gone through test work, and we will be able to announce the results of the during the course of this year.
And our next question is from Orest W from Scotiabank.
A couple of questions for me on the proposed expansion as well. Last quarter, you had talked about CapEx costs for the expansion below USD 20,000 a tonnes. Now in the disclosure talks about $20,000 to $25,000. I'm just wondering if that change is -- is that just inflation driven? Or has the scope changed at all in terms of what you're doing? And then also I had a question around financing for the project. And you've talked about the fact that you've got, I think, $79 million of cash trapped in Cuba at Energas. Is that available to use for the Moa expansion? I'm just wondering if that is a source of funding.
Thanks for your questions, Orest and dialing in today. First, just to correct, when we first announced the expansion intensity, we were guiding somewhere in that range of $20,000 to $25,000 an annual tonnes of nickel. So it remains within that range. And we will be providing the exact capital intensity of that, which really is going to get driven around the mine optimization and what we see the throughput. The capacity limits of the facilities, I think, is reasonably well understood. It will come down to our expectations of how the optimized mine plan will perform through those facilities ultimately in terms of the output. In terms of the available cash in Energas in Cuba. As Yasmin mentioned, we are in continued conversations with our Cuban partners on finding avenues to maximize the use of that as well as the receivable. We have in the past been able to utilize some of the available liquidity through Energas swaps with the Moa Joint Venture, where Energas essentially funds domestic spend. It is something that we continue to consider for capital and have had discussions with our Cuban partners at all levels around extending that type of arrangement into capital and not just operating cost. So it is a potential source it is a matter of getting these details sorted out with our partners.
Okay. And then during the expansion years, call it, for the next couple of years, do you anticipate that there will be no dividends from Moa during that time because the cash flow will just be reinvested in the expansion?
No. I think based on prevailing commodity prices, we're anticipating stronger dividends this year than we did last year despite where our capital spend is. I think Yasmin might just comment on some of the funding options that's available that will facilitate cash flows over the medium term.
Thanks Leon. Our Moa Joint Venture is set up to be self-funded, and it does hold sufficient cash reserves to fund its capital requirements. We mentioned the strong outlook for nickel prices, and that will allow the joint venture to fund a portion of the expansion capital, and that's allowing us to move forward with our expansion projects currently. We mentioned the amended and expanded credit facility. That also provides an opportunity for the Moa joint venture to finance growth CapEx.
Okay. So if you approve the project, the Moa JV still expect -- you still expect it to pay out dividends even in -- with that CapEx spend?
Yes. Yes, we are expecting dividends with that CapEx spend.
Okay. And then just final question. The -- Leon, did I hear you say that the USD 27 million cost estimate related to, I think it was the slurry budget, is not in the CapEx guidance for the year?
That is correct. Yes. So the CAD 75 million that's in there is the sustaining capital and other capital spend outside of those specifically tied to the expansion plan that we mentioned.
Okay. So that USD 27 million that's expected to be invested this year?
It's expected to be invested over the course of the implementation of that slurry preparation plant. So roughly a 2-year time frame from sort of Q1 this year through Q1 2024. That's the sort of spread of that. We'll provide a more detailed outline of expected cash curves on that with our Q1 results, but it's reasonable to assume that it's sort of an average spend over the next 2 years on that front. And that USD 27 million is on a 100% basis.
Okay. So with the Q1 results when we should expect sort of full project details?
We are anticipating to provide much greater clarity on the capital details at that call.
And our next question is from Tony Robson from Global Mining Research.
I suspect you'll probably say wait till the end of the year, the quarter 1 release, but it will ask anyway. Your mid-'24 delivery date for the debottleneck for Moa Bay. Any risk to that and potential delays on government permits, things like that outside of your control? Or conversely, given nickel price is obviously high, there's demand there for nickel. Can you beat your provisional estimates?
Sure. Thank you for your question, Tony. In terms of the time line for the slurry preparation plant that we provided, that time line, I think, is reasonably robust in terms of expectation of where that comes into play and delivering the results by the middle of '24. In the near term, we are equally exposed as everybody else on unexpected consequences from COVID-19 on supply chains. We have a pretty good understanding of what the implications are based on the information at hand today and what's transpired to date. In terms of the balance of the expansion, we're working through the list of the procurement items, long-lead items to ensure that we can get those resolved and understood, given the current landscape on supply chains before we fully commit to what that expected outcome is going to be. And we're getting closer and closer to be able to do that. But those time lines, I think, are reasonably -- reasonable estimates given the risk profile at present.
And our next question is from Booker Smith from Imperial Capital.
I was just wondering if you guys could comment on the Bloomberg sanctions tag on both of your bonds, and if you've made any progress on removing those 2. I know in the past, we've spoken about how they're not exactly accurate. And it could be a real conversation ender for prospective investors. So I was wondering if you have any update on that?
Thank you for your question. I think we've highlighted this in the past. We have essentially exhausted our efforts with Bloomberg to try and get that tag removed. It's not factual, it's not accurate. And when we do engage with potential investors and with our bondholders, we do highlight that on a continuous basis, but we have been unable to have that change and there's an unwillingness to take this matter further forward on the side of Bloomberg.
What is their view exactly? Why are they pushing back so much?
Booker, as you and I talked about, I mean, they have their own internal compliance related process and protocols, and they're following that. We've had a number of conversations with them as to why we think it's inappropriate. If you do look at the fine print, they do advise anyone looking into our bond to make their own decisions and disclosures. And as Leon just pointed out, we do have conversations with bondholders to provide that context for anyone looking at that. So thanks for the question, Booker. But -- at this stage, it's there, and we continue on making progress with that in place.
And there are no further questions on queue. I will turn the call back over to the management for closing remarks.
Thank you, operator, and thank you for everyone for dialing in today. As you've heard, we're gaining momentum. The markets are looking favorable for 2022 and beyond. We're looking forward to sharing more details about our expansion in the upcoming quarters. And thank you for your interest in Sherritt, and have a good day.
And this concludes today's conference call. Thank you for participating. You may now disconnect.