Sherritt’s second-quarter net loss per share widens by 119%

JOHANNESBURG (miningweekly.com) – As nickel prices remained under pressure in the three months to June 30, with reference prices averaging $4/lb, TSX-listed diversified miner Sherritt International has reported a 119% wider net loss a share from continuing operations in the second quarter, which translates to a 44% wider net loss a share year-on-year for the first half of 2016.

The Toronto-based miner recorded an adjusted net loss of C$103.6-million, or C$0.35 a share, for the period under review. Year-on-year, the half-year net loss plunged to C$151.4-million, or C$0.52 a share.

Combined revenue dropped by 24% year-on-year to C$204.1-million in the second quarter and by 28% year-on-year to C$395.4-million for the half-year under review.

Sherritt, however, remains optimistic about signs of a rally in the nickel price, with news of Philippine mine shutdowns in process, or expected with new government environmental regulation.

The company noted that LME nickel prices had averaged $4.60/lb to date, which was up 30% from the low of $3.50/lb in the first quarter.

"We are encouraged by the recent strengthening of the nickel price and continue to believe that having more than 60% of global nickel production underwater on a cash margin basis is not sustainable in the long term," said Sherritt president and CEO David Pathe in a note to shareholders on Tuesday.

"We also made significant progress in the quarter in protecting our balance sheet as we reduced recourse debt levels and made progress on extending our bond maturities."

Pathe noted that the company’s Moa joint venture (JV) operations performed well in the quarter, with a net direct cash cost (NDCC) of C$2.94/lb, making Moa one of the few high-pressure and leaching operations globally to perform near the lowest quartile of cash cost.

Sherritt added that the Moa JV had commenced operation of the third acid plant in July, which was expected to further reduce NDCC by about $0.50/lb, starting in the fourth quarter, with the full benefit to be realised in 2017.

The company further highlighted that the Moa JV’s NDCC of C$2.94/lb, and that of Ambatovy, which was C$5.12/lb, were both year-on-year improvements, despite Ambatovy’s lower production rate.

Cash, cash equivalents and short-term investments at the end of the second quarter were C$312.6-million, representing a quarter-on-quarter drop of C$57.4-million from March 31. Sherritt noted that the main drivers for this were C$17.4-million spent to repurchase debentures, C$20-million spent in interest payments on the debentures, and lower-than-expected receipts from the Cuban energy business.

“Sherritt is in the process of extending the maturities of its debentures by three years to 2021, 2023 and 2025,” said the company, adding that the noteholder meeting to approve the transaction was held earlier on Monday, with support received from more than 94% of noteholders, which was more than 99% of votes cast.

OUTLOOK
Meanwhile, with better-than-expected Cuban oil production in the first half of the year, and the results of a successful workover in the second quarter, Cuban oil production guidance has been increased on both a gross working interest and net working interest basis to 15 000 bbl/d and 9 200 bbl/d, respectively.

Sherritt also noted that Gulf Coast Fuel Oil 6 prices increased by 47% from the average reference price in the first quarter of the year.

The company has reduced the production guidance for Ambatovy to a range of between 42 000 t and 45 000 t finished nickel, and between 2 900 t and 3 300 t finished cobalt, on a 100% basis, in light of year-to-date production.

Sherritt has also reduced its capital spending guidance to $7-million, as seismic processing activity in oil and gas, which is expected to be performed on block 8A, has been deferred to 2017, while the focus remains on drilling the first well in block 10.