2017 annual general meetings2.q4cdn.com/343762060/files/doc_presentations/... · management uses...

SHERRITT INTERNATIONAL CORPORATION 1

2017 Annual General Meeting

June 13, 2017


Forward-looking statements

This presentation contains certain forward-looking statements. Forward-looking statements can generally be identified by the use of statements that include such words as “believe”, “expect”, “anticipate”, “intend”,

“plan”, “forecast”, “likely”, “may”, “will”, “could”, “should”, “suspect”, “outlook”, “potential”, “projected”, “continue” or other similar words or phrases. Specifically, forward-looking statements in this document may

include, but are not limited to, statements set out in the “Outlook” sections of this presentation and certain expectations about capital costs and expenditures; production volumes; capital project completion and

ramp up dates; future price of key commodities; sales volumes; revenue, costs, and earnings; sufficiency of working capital and capital project funding; results of on-going discussions regarding the partnership

structure and future financing arrangements at the Ambatovy Joint Venture; results of discussions regarding timing of ongoing Cuban payments; completion of development and exploration wells; and amounts of

certain joint venture commitments.

Forward-looking statements are not based on historic facts, but rather on current expectations, assumptions and projections about future events. By their nature, forward-looking statements require the

Corporation to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that those

assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections.

The Corporation cautions readers of this presentation not to place undue reliance on any forward-looking statement as a number of factors could cause actual future results, conditions, actions or events to differ

materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. These risks, uncertainties and other factors include, but are not limited to changes in the global price

for nickel, cobalt, oil and gas or certain other commodities, share-price volatility, level of liquidity and access to capital resources, access to financing, risk of future non-compliance with debt restrictions and

covenants; risks associated with the Corporation’s joint venture partners and the liability to finalize and close on a revised partnership structure; discrepancies between actual and estimated production; variability

in production at Sherritt’s operations in Madagascar and Cuba; potential interruptions in transportation; uncertainty of gas supply for electrical generation; uncertainty of exploration results and Sherritt’s ability to

replace depleted mineral and oil and gas reserves; the Corporation’s reliance on key personnel and skilled workers; the possibility of equipment and other failures; the potential for shortages of equipment and

supplies; risks associated with mining, processing and refining activities; uncertainty of resources and reserve estimates; uncertainties in environmental rehabilitation provisions estimates; risks related to the

Corporation’s corporate structure; political, economic and other risks of foreign operations; risks related to Sherritt’s operations in Madagascar and Cuba; risks related to the U.S. government policy toward Cuba,

including the U.S. embargo on Cuba and the Helms-Burton legislation; risks related to amounts owed to the Corporation by the Malagasy and Cuban governments; risks related to the accuracy of capital and

operating cost estimates; reliance on significant customers; foreign exchange and pricing risks; compliance with applicable environment, health and safety legislation and other associated matters; risks associated

with governmental regulations regarding greenhouse gas emissions; maintaining the Corporation’s social license to grow and operate; risks relating to community relations; credit risks; shortage of equipment and

supplies; competition in product markets; future market access; interest rate changes; risks in obtaining insurance; uncertainties in labour relations; uncertainty in the ability of the Corporation to enforce legal

rights in foreign jurisdictions; uncertainty regarding the interpretation and/or application of the applicable laws in foreign jurisdictions; legal contingencies; risks related to the Corporation’s accounting policies; risks

associated with future acquisitions; uncertainty in the ability of the Corporation to obtain government permits; failure to comply with, or changes to, applicable government regulations; bribery and corruption risks,

including failure to comply with the Corruption of Foreign Public Officials Act or applicable local anti-corruption law; uncertainties in growth management; risks related to information technology systems; and

certain corporate objectives, goals and plans for 2017; and the Corporation’s ability to meet other factors listed from time to time in the Corporation’s continuous disclosure documents. Readers are cautioned that

the foregoing list of factors is not exhaustive and should be considered in conjunction with the risk factors described in this presentation and in the Corporation’s other documents filed with the Canadian securities

authorities.

•The Corporation may, from time to time, make oral forward-looking statements. The Corporation advises that the above paragraph and the risk factors described in this presentation and in the Corporation’s other

documents filed with the Canadian securities authorities should be read for a description of certain factors that could cause the actual results of the Corporation to differ materially from those in the oral forward-

looking statements. The forward-looking information and statements contained in this presentation are made as of the date hereof and the Corporation undertakes no obligation to update publicly or revise any oral

or written forward-looking information or statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. The forward-looking information and

statements contained herein are expressly qualified in their entirety by this cautionary statement.

Non-GAAP Measures

Management uses combined results, Adjusted EBITDA, average-realized price, unit operating cost, adjusted earnings, adjusted operating cash flow per share, free cash flow and Net Investment in Ambatovy to

monitor the financial performance of the Corporation and its operating divisions and believes these measures enable investors and analysts to compare the Corporation’s financial performance with its

competitors and evaluate the results of its underlying business. These measures do not have a standard definition under IFRS and should not be considered in isolation or as a substitute for measures of

performance prepared in accordance with IFRS. As these measures do not have a standardized meaning, they may not be comparable to similar measures provided by other companies.


A low cost nickel and cobalt producer, with a 20 year energy business in Cuba

Strengthening the balance sheet: extended maturity dates and reduced debt

• Cash position of $301M as at March 31, 2017

• $86M expended to repay $99M of loans and borrowings since January 2016

• First public debt maturity date extended from 2018 to 2021

Core nickel business achievements

• Agreement in principle reached on key features of Ambatovy JV restructuring

• Moa JV acid plant construction completed on time and under budget, delivering

NDCC savings of US$0.50/lb

Extending the life of our Cuban energy business

• Extension of the Varadero power facilities until 2023

• Oil production better than expected in 2016 and YTD, strong free cash flow

generation

• Block 10 drilling underway

1

2

3


Key trends in the nickel and cobalt markets


The nickel price has suffered more, and recovered less

than copper or gold

0

200

400

600

800

1,000

1,200

1,400

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

US

$/o

z

US

$/lb

Nickel Copper Gold

US$1,265/oz

US$7.65/lb

US$3.11/lb

US$1,160/oz

US$5.37/lb

US$1,250/oz

US$4.36/lb

US$1,237/oz

US$4.48/lb

US$2.49/lb US$2.21/lb

US$2.61/lb

(8%)

(30%)

(20%)

(20%) +3%

+18%

+8% (1%)

(11%)

0

200

400

600

800

1,000

1,200

1,400

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1/2/2014 1/2/2015 1/2/2016 1/2/2017

US

$/o

z

US

$/lb

Nickel Copper Gold

Average reference prices

2014 2015 2016 2017

Source: Capital IQ data to June 9, 2017


Nickel cash cost curve and our positioning 40% of the industry is underwater at current price level

(5)

0

5

10

0 1,000 2,000 3,000 4,000

C1 C

ash

Co

sts

(U

S$/lb

)

Mlbs

2017 Nickel industry, normal C1 cash cost grouped by operation and ranked by cash cost (C1)

existing operations and base case

Source: Wood Mackenzie, Dataset: Q1 2017

Ambatovy = US$3.93

(Q1 2017)

25th percentile

= US$2.88

50th percentile

= US$3.78

Moa = US$3.25

(Q1 2017)

Moa guidance: 3.20-3.70

Ambatovy guidance: 3.10-3.70

Spot price: US$4.00/lb


A continuing focus on liquidity


No maturity until Q4 2021 and $1.4bn in debt to be

eliminated from Sherritt balance sheet

Liquidity

• 3-year bond extension completed in July - no maturity until Nov 2021

• Ambatovy JV project debt principal payment deferrals totaling US$565 million over 3 years

• $86M expended to repay $99M of loans and borrowings since January 2016 (as at Q1 2017)

• Ending cash of $301 million as of March 31, 2017

Ambatovy Agreement in Principle

• $1.4 billion in debt to be eliminated from Sherritt’s balance sheet upon closing

• Sherritt’s ownership to be realigned to its 12% economic interest

• Retain exposure to a long life asset with upside potential over its remaining 27 year mine life


Our operations


Nickel and Cobalt Production Steady production at Moa and ramp-up challenges at Ambatovy

17,132 16,771 16,455 16,853 16,464 16,750

1,896 1,660 1,605 1,867 1,847 1,825

2012 2013 2014 2015 2016 2017e

683

3,018

4,446

5,672 5,053

6,000

59 250 350 416 393 474

2012 2013 2014 2015 2016 2017e

Moa (50%) (tonnes)

Ambatovy (12%) (tonnes)

Nickel Cobalt Ambatovy production shown on a 12% basis to reflect

proposed revised structure


A steady downward trend in NDCC despite

quarterly fluctuations

$4.94 $4.86 $4.99

$3.88

$3.42 $3.25

$7.04

$4.83

$4.27

$3.93

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

2012 2013 2014 2015 2016 Q1 2017

U.S

.$/lb N

i

Moa JV & Fort Site Ambatovy JV

• Moa JV third acid plant now in operation, with ~US$0.50/lb improvement for Moa expected in 2017


Cuban oil production has generated over $1 billion in

free cash flow since inception

• Very low unit operating costs (in the $CAD 7-13/bbl range over the past 5 years)

• Second well to be drilled later this year at Block 10

Cu

mu

lati

ve

Fre

e C

as

h F

low

$C

AD

M

Note: Cumulative FCF starting point represents cumulative consolidated FCF of 1996-1998

($250)

$0

$250

$500

$750

$1,000

$1,250

($50)

$0

$50

$100

$150

$200

$250

(10,000)

(5,000)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Fre

e C

as

h F

low

$C

AD

MM

GW

I B

OP

D

Varadero PE/YU Other Free Cash Flow Cumulative Free Cash Flow


Cuban power generation: steady production and

strong EBITDA generation

• Extension of the Varadero power facilities until 2023

• Cash also due to Sherritt from CSA payments (Conditional Sales Agreement: loan from Sherritt to

Energas $196M as at March 31, 2017; 8% annual interest rate)

Power generation (331/3% basis, GWh)

EBITDA ($M)

847 902 894

217

2014 2015 2016 Q1 2017

24.8

30.0 29.5

9.2

2014 2015 2016 Q1 2017


A changing demand source for nickel and cobalt


After 5 years of surplus production, the nickel market is

expected to experience multiple years of deficit

Global nickel supply/demand market balance (kt)

Source: Wood Mackenzie

0

200

400

600

800

1,000

1,200

1,400

1,600

(150)

(100)

(50)

0

50

100

150

200

250

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

To

tal sto

cks (

kt)

kt

Annual deficit/surplus Total stocks


Even under conservative assumptions the EV market is

expected to grow to >10 million car sales per year by 2025

The EV market is becoming a key part of the automotive industry and will drive the growth in

battery demand

0

10

20

30

40

50

60

70

80

90

2015 2025Conservative view

2025Optimistic view

Millio

ns o

f v

eh

icle

s

Electric and hybrid vehicles Traditional cars

Increasing EV market penetration (annual vehicle sales)

• Conservative vs. optimistic view depends on how fast EVs are adopted in

key markets like China, Europe and the US


Today the nickel market is driven by stainless steel

31%

69%

Non-stainless Stainless

• Class I has to compete against NPI and Ferronickel as demand for Class I products is still

catching up to supply

• Thus, Class I nickel does not benefit from a full premium compared to lower quality products

48%

52%

NPI and ferronickel High quality nickel

Nickel supply Nickel demand

Source: CRU


But low grade nickel for stainless has no ability to

supply the growing battery market

As new Class I nickel supply is capital intensive and takes time (7-10 years) to bring into

full production, this shortage could lead to a premium for Class I nickel products

• Today stocks of Class I nickel remain high (~380,000 tonnes)

• Strong forecast demand from batteries for Class I units could lead to a shortage of high purity products

• Nickel content is one of the key enablers of the high energy batteries used in most electric vehicles

− Depending on the technology the nickel content is typically in the 10 kg – 80kg range per electric

vehicle

− Conservative estimate of 10.5 million EVs in 2025 would result in battery demand for Class I nickel of

420,000 tonnes per annum (assuming 40 kg per vehicle)

Source: CRU, LME


The cobalt price response is already well underway

• A limited supply cobalt market (~125,000 tonnes per annum) with no price elasticity has caused a doubling of

prices with no sign of slowdown

Cobalt price performance (US$/lb)

$9

$11

$13

$15

$17

$19

$21

$23

$25

$27

1/2/2015 1/2/2016 1/2/2017

Cobalt

Source: LME


EVs will also increase the demand for cobalt but the

cobalt supply dynamic has its own challenges

Cobalt sources Mine production by country (2016)

Source: CRU

Most cobalt production is mined as a by-product and 61% of the total supply comes from

the Democratic Republic of Congo (DRC), a country with a high geopolitical risk profile

61%

37%

2%

Copper mines by-product

Nickel mines by-product

Primary cobalt mines

Cuba: 5%

DRC: 61%

Russia: 5%

Australia: 5%

Philippines:

3%

Madagascar: 3%

Canada: 3%


Sustainability & Strategic Priorities


Demonstrating sustainability leadership

Learn more: sustainability.sherritt.com

2016 KPIs

Named to Corporate Knights’ 2017

Future 40 Corporate Leaders in

Canada

• Beat all injury frequency

targets

• Zero high-severity

environmental incidents

• 4 worker fatalities – corrective

action underway

• 4% decreased in GHGs

• 45% drop in community

grievances

• $750 million to host

communities and countries

Exemplary emergency response to

Hurricane Matthew in Cuba:

• No major production losses

• Praise from the UN’s Secretary-

General


Our 2017 strategic priorities

Uphold global operational leadership

in finished nickel laterite production

Optimize opportunities in Cuban

energy business

Preserve liquidity and build balance

sheet strength

2017 strategic priorities Q1 2017 status update

• First quarter NDCC of US$3.25/lb at the Moa JV represents

cash costs at the 30th percentile, while Ambatovy NDCC of

US$3.93/lb fell short of its target, due to lower production

• Improvements to EHSS activities continue. The Lost Time

Incident rate in Q1 2017 was an improvement over the 2016

average

• First well results provided constructive data to optimize the

drilling of the second well, again targeting the Lower Veloz

formation

• Future capital allocation will be based on results from this

new well

• Cuban energy payments received were US$37.6 million in

the first quarter of 2017, an improvement over Q4 2016

payments received of US$18.3 million

• Free cash flow generation of $12.6 million from Moa and

Fort Site and $12 million from Power in the first quarter of

2017


Sherritt International Corporation

181 Bay Street, 26th Floor, Brookfield Place

Toronto, Ontario, Canada M4T 2Y7

Investor Relations

Flora Wood

Telephone: 416.935.2457 Toll-Free: 1.800.704.6698 Email: [email protected]

Website: www.sherritt.com

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