Sherritt to ramp up 2017 capex as it resumes oil & gas drilling, Ambatovy charges

VANCOUVER (miningweekly.com) – Diversified miner Sherritt International says it expects to increase capital expenditure (capex) on new mining development and fleet upgrades this year.

The Toronto-headquartered company said the majority of its $129-million capex budget for this year will be focused on completing the first Block 10 well and drilling off a second well within its assets along the north coast of Cuba.

Sherritt said forecast expenditure for Block 10 drilling and testing activities will account for about 75% of the capex this year for its oil and gas segment.

Increased capex has also been allocated to expand the mining fleet and undertake further mine development work at the Ambatovy Joint Venture (JV) – one of the world’s largest, vertically integrated, nickel mining, processing and refining operations using lateritic ore.

Sherritt, which owns a 40% stake in Ambatovy, in Madagascar, is the operator of the mine and refining facilities and has as its partners Sumitomo Corporation and Korea Resources Corporation (Kores). By agreement with the partners, Sherritt is not considered to be a defaulting shareholder under the shareholders agreement for amounts not funded through March 10, 2017, after a further extension was granted on Thursday. Discussions continue regarding the partnership structure and future funding arrangements.

Sherritt has not funded any cash calls since achieving financial completion, with total post-completion funding provided by Sumitomo and Kores of $173-million as at December 31. This includes $20-million in the fourth quarter and $143-million in the full year 2016.

Sherritt, meanwhile, expects lower capital spending at the Moa JV, in Cuba, because of the completion and commissioning of the third acid plant in 2016.

The company expects to lift finished nickel output to between 81 000 t and 86 000 t this year, up from 75 033 t in 2016. Cobalt output is also expected to rise to 7 300 t and 7 900 t, up from the 6 967 t produced in 2016, while oil output in Cuba is expected to fall to between 11 500 bbl/d and 12 500 bbl/d.

CHALLENGING YEAR
“[2016] was about sticking to our strategic priority of liquidity preservation, negotiating a three-year extension of maturities on our public debentures and entering into an Ambatovy lender agreement to defer principal payments for three years.

“We have pushed out our first public debenture maturity to late 2021 and markets for our products have moved off the multiyear lows we saw in the first half of the year. I look forward to a year in which we expect increased production at our HPAL [high pressure acid leach] nickel operations and results from our first oil drilling in Block 10 in Cuba,” president and CEO David Pathe stated.

In the second half of 2016, the maturity dates of the three senior unsecured debentures (C$720-million principal value) were each extended by three years to 2021, 2023 and 2025. In the same timeframe, the Ambatovy JV financing lenders agreed to up to six principal payment deferrals totalling $565.1-million (100% basis), which are to be repaid on a schedule starting in 2021, or earlier, subject to cash flow generation.

The company on Thursday reported a net loss of C$378.9-million for the year ended December 31, an improvement on the net loss of C$2.1-billion reported for 2015. Sherritt reported an adjusted net loss from continuing operations of C$81.3-million in the fourth quarter, compared with an adjusted net loss from continuing operations of C$113.8-million a year earlier.

Full-year revenue was down 22% at C$262.3-billion.

Sherritt’s TSX-listed stock on Friday lost as much as 12% to change hands at C$1.15 apiece.