Q3 2014 HIGHLIGHTS October 29, 2014
2
This document contains certain forward-looking statements. Forward-looking statements can generally be identified by the use of statements that include such words as “believe”, “expect”, “anticipate”, “intend”, “plan”, “forecast”, “likely”, “may”, “will”, “could”, “should”, “suspect”, “outlook”, “projected”, “continue” or other similar words or phrases. Specifically, forward-looking statements in this document include, but are not limited to, certain expectations about capital costs and expenditures; capital project commissioning and completion dates; sufficiency of working capital and capital project funding; production of nickel, cobalt, oil and gas, and power; production costs and the global market for nickel. Forward-looking statements are not based on historic facts, but rather on current expectations, assumptions and projections about future events, including commodity and product prices and demand; realized prices for production; earnings and revenues; development and exploratory wells and enhanced oil recovery in Cuba; environmental rehabilitation provisions; availability of regulatory approvals; compliance with applicable environmental laws and regulations; the impact of regulations related to greenhouse gas emissions and credits; debt repayments; collection of accounts receivable; and certain corporate objectives, goals and plans for 2014. By their nature, forward-looking statements require the Corporation to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that those assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. The Corporation cautions readers of this document not to place undue reliance on any forward-looking statement as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Key factors that may result in material differences between actual results and developments and those contemplated by this document include global economic and market conditions, and business, economic and political conditions in Canada, Cuba, Madagascar, and the principal markets for the Corporation’s products. Other such factors include, but are not limited to, uncertainties in the development, construction, ramp-up and operation of large mining, processing and refining projects; risks related to the availability of capital to undertake capital initiatives; changes in capital cost estimates in respect of the Corporation’s capital initiatives; risks associated with the Corporation’s joint-venture partners; expectations of the timing of financial completion at the Ambatovy Joint Venture; risk of future non-compliance with financial covenants; potential interruptions in transportation; political, economic and other risks of foreign operations; the Corporation’s reliance on key personnel and skilled workers; the possibility of equipment and other unexpected failures; the potential for shortages of equipment and supplies; risks associated with mining, processing and refining activities; uncertainty of gas supply for electrical generation; uncertainties in oil and gas exploration; risks related to foreign exchange controls on Cuban government enterprises to transact in foreign currency; risks associated with the United States embargo on Cuba and the Helms-Burton legislation; risks related to the Cuban government’s and Malagasy government’s ability to make certain payments to the Corporation; risks related to exploration and development programs; uncertainties in reserve estimates; risks associated with access to reserves and resources; uncertainties in environmental rehabilitation provisions estimates; risks related to the Corporation’s reliance on partners and significant customers; risks related to the Corporation’s corporate structure; foreign exchange and pricing risks; uncertainties in commodity pricing; credit risks; competition in product markets; the Corporation’s ability to access markets; risks in obtaining insurance; uncertainties in labour relations; uncertainty in the ability of the Corporation to enforce legal rights in foreign jurisdictions; uncertainty regarding the interpretation and/or application of the applicable laws in foreign jurisdictions; risks associated with future acquisitions; uncertainty in the ability of the Corporation to obtain government permits; risks associated with governmental regulations regarding greenhouse gas emissions; risks associated with government regulations and environmental, health and safety matters; uncertainties in growth management; interest rate risk; risks related to political or social unrest or change and those in respect of indigenous and community relations; risks associated with rights and title claims; and certain corporate objectives, goals and plans for 2014; and the Corporation’s ability to meet other factors listed from time to time in the Corporation’s continuous disclosure documents. Readers are cautioned that the foregoing list of factors is not exhaustive and should be considered in conjunction with the risk factors described in the Corporation’s other documents filed with the Canadian securities authorities. The Corporation may, from time to time, make oral forward-looking statements. The Corporation advises that the above paragraph and the risk factors described in this document and in the Corporation’s other documents filed with the Canadian securities authorities including, but not limited to, the Corporation’s Annual Information Form for the year ended December 31, 2013 should be read for a description of certain factors that could cause the actual results of the Corporation to differ materially from those in the oral forward-looking statements. The forward-looking information and statements contained in this document are made as of the date hereof and the Corporation undertakes no obligation to update publicly or revise any oral or written forward-looking information or statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. The forward-looking information and statements contained herein are expressly qualified in their entirety by this cautionary statement.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
David Pathe President and CEO
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STRATEGIC HIGHLIGHTS
Financial Discipline Operational Achievements Cost Reductions
Cost Reductions
• Sherritt implements staff restructuring subsequent to the quarter
Moa
• Established new quarterly production record
• Finalized technology supply contract for acid plant
Ambatovy
• Set quarterly production record
• Achieved second consecutive quarter of positive EBITDA
• Issued updated Technical Report
Oil and Gas
• Commenced development drilling program on the PSC extension lands
• Workover on one Yumuri well completed subsequent to quarter end
Power
• Benefiting from increased production from Boca de Jaruco plant with no unscheduled maintenance
Successfully Completed Complex Refinancing in October
• Reduced debt by $425M
o Issued $250M notes due in 2022 and will use proceeds plus cash on hand to redeem $275M notes due in 2015
o Paid down $400M of outstanding 2018 and 2020 notes
• Extended debt maturity profile with no principal payments due until 2018
• Announced normal course issuer bid
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MOA: STRONG QUARTER DRIVEN BY RECORD PRODUCTION AND HIGHER METAL PRICES
Q3 2014 Highlights • Record quarterly production • Average realized metal prices increased year over year • Adjusted EBITDA grew by 253% ($20 million) compared to Q3 2013 • Executed the key technology supply contract for the acid plant project • Production returned to normal levels following move to new mining area in Q1
Production Volume (Sherritt’s attributable share) C1 costs – Nickel (1)
(1) C1 costs, or net direct cash costs, includes direct costs such as mining, refining and processing, and is net of by-products. This excludes indirect costs such items as administration expenses and financing expenses.
0
1
2
3
4
5
6
1
(US$
/lb)
$4.76 $5.25 $5.18
$4.83
Q3 2013 Q3 2014 YTD 2013 YTD 2014
4,573
446
4,614
438
0
1,000
2,000
3,000
4,000
5,000
Finished Nickel Finished Cobalt
(Ton
nes)
Q3 2013 Q3 2014
6
AMBATOVY: RAMPING UP THE WORLD’S LARGEST LATERITIC FINISHED NICKEL OPERATION
Quarterly Nickel Production (100% basis)
Q3 2014 Highlights • Record quarterly production • C1 nickel costs consistent with previous guidance for current throughput levels • Positive adjusted EBITDA for second consecutive quarter • Improvement in autoclave operating hours reflects increased mechanical reliability • Q3 PAL throughput was 974,775 tonnes or 66% of nameplate capacity (exceeds 58% in Q2) • Throughput limited by (i) annual scheduled maintenance and (ii) process limitations relating to raw liquor
neutralization circuit and counter current decantation wash circuit
0
2,000
4,000
6,000
8,000
10,000
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
(Ton
nes)
7
AMBATOVY: RAMPING UP THE WORLD’S LARGEST LATERITIC FINISHED NICKEL OPERATION
Counter Current Decantation
B
A
Raw Liquor Neutralization
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AMBATOVY: ALL RESOURCES FOCUSED ON THE PAL SYSTEM
Mining
Port & Rail
Utilities Systems
Refinery
PAL Systems Work focused on CCD
Production Component
Q4 2014 • Commission second ore thickener • Install forced dilution system in CCD#2 • Significant planned maintenance
2015 • No major maintenance planned for H1 2015 • Target 90% production for 90 days by end of second
quarter
Road Map to Increasing PAL Production Throughput and Achieving Financial Completion
Status
Area of focus Solid-liquid separation carried out by counter-current decantation (CCD)
}
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AMBATOVY: 5 CERTIFICATES AWAY FROM FINANCIAL COMPLETION
Physical Facilities
Certificate
Mining Certificate
Production Certificate
Port Capacity Certificate
Pipeline Capacity
Certificate
Environmental Certificate
Marketing Certificate
Efficiency Certificate
Legal and Other Conditions Certificate
Financial Certificate
FINANCIAL COMPLETION
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AMBATOVY: UPDATED TECHNICAL REPORT
$0
$2
$4
$6
$8
$10
$12
50% 70% 90% 100%
Aver
age
C1 C
osts
(U
S$/lb
)
$9 - $11
$ 3 - $5 $4 - $6
$6 - $8
Targeted C1 Costs
Key Takeaways
• Reserves increased and overall grades for reserves decreased from 0.94% Ni to 0.85% Ni and 0.08% Co to 0.07% Co
• Estimated metal content is marginally higher as a result of greater ore tonnages despite lower overall grades
• Report’s mine plan is based on 5.85 million tonnes per year sent to autoclaves
• Ambatovy still expected to have attractive profitability and cash flow profile over 30-year life
• C1 costs remain in line with guidance
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LONG-TERM FUNDAMENTALS REMAIN STRONG FOR NICKEL
• Nickel market remains in surplus position with LME inventories at record highs
• Strong demand for nickel continues
• Nickel market anticipated to move from surplus to deficit in near term due to:
o continuation of Indonesian ban on nickel ore exports
o future supply growth of major projects is inadequate
Nickel Market Synopsis
Nickel Supply and Demand Outlook
Source: Wood Mackenzie
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OIL AND GAS: WORK BEGINS ON EXTENDING PRODUCTION PROFILE
Production and Sales Volumes Operating Costs
0
2
4
6
8
10
1
($ p
er b
arre
l)
Q3 2013 Q3 2014 YTD 2013 YTD 2014
$6.59
$9.98
$6.58
$8.12
Q3 2014 Highlights • Production and costs negatively impacted by workover • Average-realized price for Cuban oil decreased by $1.09 per barrel year over year due to market pricing • Adjusted EBITDA declined by 18% • Launched drilling program in extended PSC area in Cuba as we await approval for four additional blocks
o Activated Sherritt’s second drilling rig o First drilling well completed in September o Second drilling well completed in October o One additional well to be drilled in 2014 with a minimum of four more planned for 2015
20,445
11,403
19,412
10,607
0
5,000
10,000
15,000
20,000
25,000
Gross working-interest -Cuba
Total net working-interest
(boe
pd)
Q3 2013 Q3 2014
13
POWER: BENEFITING FROM INCREASED PRODUCTION
Q3 2014 Highlights • Electricity production increased 72% when compared to the prior year due to incremental production
from Boca de Jaruco project • Average-realized price of electricity was 7% higher than the same period last year • Operating costs decreased by 49% compared to the same period last year due to increased production
and reduced gas turbine scheduled maintenance
Production Volumes (33 1/3 basis)
0
5
10
15
20
25
30
1
($/M
Wh)
Q3 2013 Q3 2014 YTD 2013 YTD 2014
$26.01
$13.39
$24.97
$15.37
Operating Costs
130
223
0
50
100
150
200
250
1
Elec
tric
ity (G
Wh)
Q3 2013 Q3 2014
14
Strategic Priority Initiatives Completed Near-Term Objectives
EXECUTING AGAINST OUR STATED PRIORITIES
Focus on core nickel business • Sold Coal business • Moa JV – Technology services
contract in place for 2,000 tonne per day acid plant
• Ambatovy JV – Additional technical team to support process control issues
• Moa JV – complete acid plant • Ambatovy target is for 90%
production for 90 days by end of second quarter
Maximize value and life of Oil and Gas business
• Received PSC extension • Commenced drilling in new area
• Receive approvals for four additional exploration blocks
Improve capital allocation and strengthen balance sheet
• Completed comprehensive refinancing
• Maintain adequate liquidity
• Establish Normal Course Issuer Bid
Pursue cost reduction and efficiencies • Implemented staff restructuring subsequent to the quarter
• Nickel recovery at Ambatovy near design
• Continued focus on operational excellence and cost efficiencies
Improve stakeholder communication • Increased investor outreach • Enhancing disclosure • Increased investor outreach
2014 OUTLOOK
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Original
2014E Outlook
Outlook as of
September 30, 2014
PRODUCTION VOLUMES (tonnes) Mixed sulphides (tonnes, Ni+Co contained, 100% basis) Moa Joint Venture 38,000 37,000 Ambatovy Joint Venture 44,000 – 50,000 39,000 – 44,000 Total 82,000 – 88,000 76,000 – 81,000
Nickel, finished (tonnes, 100% basis) Moa Joint Venture 34,000 33,500 Ambatovy Joint Venture 40,000 – 45,000 37,000 – 41,000 Total 74,000 – 79,000 70,500 – 74,500
Cobalt, finished (tonnes, 100% basis) Moa Joint Venture 3,350 3,350 Ambatovy Joint Venture 3,300 – 3,800 2,700 – 3,100 Total 6,650 – 7,150 6,050 – 6,450
Oil – Cuba (gross working-interest, bopd) 19,000 19,000 Oil and Gas – All operations (net working-interest, boepd) 11,200 11,200 Electricity (GWh, 33 1/3% basis) 750 750 CAPITAL SPENDING ($MM) Metals – Moa Joint Venture (50% basis), Fort Site (100% basis) 70 55 Metals – Ambatovy Joint Venture (40% basis) 34 34 Oil and Gas 73 94 Power (33 1/3% basis) 4 4 Capital Spending (excluding Corporate) 181 187
Production volumes for the Moa Joint Venture have been revised for mixed sulphides and nickel reflecting actual production for the first nine months.
Dean Chambers EVP and CFO
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Q3 2013 Q3 2014
Adjusted Revenue ($ millions)
$59 $79 Q3 2013 Q3 2014
Adjusted EBITDA ($ millions) Adjusted Continuing Operating
Cash Flow ($ Per Share)
Q3 2014: REFLECTS SOLID UNDERLYING OPERATIONAL PROGRESS
Q3 2013 Q3 2014
$13(1)
$78.9
$302
$92 $0.15
$0.12 $195 $59
Notes: (1) On August 1, 2014, the Corporation received a favourable arbitration settlement decision related to a contract dispute with a port operator that arose during the time the Corporation operated Coal Valley Resources Inc.
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Q3 2014: NET LOSS FROM CONTINUING OPERATIONS SIMILAR TO Q2 2014
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STRENGTHENING THE BALANCE SHEET
$250 $250 $250
$275
0
100
200
300
400
500
600
2014 2015 2016 2017 2018 2019 2020 2021 2022
($ m
illio
ns)
Current After debt reduction and refinancing
$400
$500
Notes
(1) Amounts at September 30, 2014 have been adjusted to reflect the purchase of $275 million of 7.75% debentures due October 15, 2015, $150 million of 8.00% debentures due November 15, 2018, and $250 million 7.50% debentures due September 24, 2020, issuance of $250 million of 7.875% Senior Unsecured Notes due October 11, 2022, and related fees. These transactions will be completed in the fourth quarter.
Cash & short term investments Total debt Long-term debt to total assets
980.3
2,214.0
39%
Debt refinancing completed reduced debt by $425 million, extends maturities and reduces principal amounts outstanding.
504.0
1,785.0
34%
($ millions, except as noted, as at) September 30, 2014 September 30, 2014 Adjusted (1)
Debenture/Notes Maturity Profile
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ADDITIONAL FINANCIAL DISCLOSURE
Updating Calculation of Oil & Gas Unit Operating Costs • Commencing this quarter, Sherritt is reporting average unit operating costs for Cuba on a gross barrel
basis for its Oil and Gas business • Approach is more relevant as operating costs represent costs to produce gross volumes • Average unit operating costs for Cuba now determined by dividing operating costs incurred by gross
production instead of net production • Does not impact P&L or cash flow
20
Q3 – Pre and Post Update Q3 YTD – Pre and Post Update
$15.15
$8.12
$12.48
$6.58
$15.56
$8.55
$12.62
$6.84
02468
1012141618
Q3 YTD 2014(Pre)
Q3 YTD 2014(Post)
Q3 YTD 2013(Pre)
Q3 YTD 2013(Post)
($ p
er b
arre
l)
Q3 Cuba Q3 Total
$19.24
$9.98
$12.50
$6.59
$19.41
$10.32
$12.86
$6.96
0
5
10
15
20
25
Q3 2014 (Pre) Q3 2014 (Post) Q3 2013 (Pre) Q3 2013 (Post)
($ p
er b
arre
l
Q3 Cuba Q3 Total
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Sherritt International Corporation 1133 Yonge Street, Toronto, Ontario, Canada M4T 2Y7 Media & Investor Relations Sean McCaughan Telephone: 416.935.2451 Toll-Free: 1.800.704.6698 Email: [email protected] Website: www.sherritt.com