Sherritt International Corporation

MESSAGE FROM THE PRESIDENT & CEO 

From a commodity price perspective, 2016 was another challenging year 
for Sherritt and the products we make. The 2016 average reference price 
for nickel was US$4.36/lb, representing a year-over-year decline of 19%. 
This weakening in the price of nickel, our primary product, is even more 
dramatic in light of the 30% decline we saw in 2015 over 2014. The 2016 
average reference price for cobalt, a by-product of our nickel mining, was 
US$11.77/lb, down 9% year-over-year and the 2016 average price of Gulf 
Coast Fuel Oil 6, the reference price used for our Cuban oil operations, was down 21% 
year-over-year. 

In 2016, we took proactive measures to advance our three strategic priorities: upholding our 
global operations leadership in finished nickel laterite production, extending the life of our Cuban 
energy business and preserving liquidity and building balance sheet strength.  

We are a low-cost nickel producer, and our assets and our technology have made us a leader in 
the mining, processing and refining of lateritic nickel. At last year’s average reference price, 
approximately 27% of the world’s nickel production was underwater on a cash margin basis 
whereas our Net Direct Cash Cost (NDCC) of nickel was US$3.42/lb and US$4.27/lb at our Moa 
JV in Cuba and our Ambatovy JV in Madagascar, respectively. While our cash costs in these 
operations puts us in the second lowest quartile, our goal is to achieve the additional reductions 
needed to put us in the lowest quartile of global nickel producers.  

We took a significant step in reducing our production costs at our Moa JV as our new sulphuric 
acid plant fulfilled all performance tests and was fully commissioned in October, coming in on 
time and under budget.  We expect to realize cost benefits in 2017 and beyond, as the new acid 
plant combined with output from our existing two acid plants eliminates the need to import 
sulphuric acid.  

Last year, our Cuban energy business was a prime contributor of operating cash flow, 
generating $84.4 million for fiscal 2016. Our unit operating costs for oil in Cuba remain 
competitive at $9.75/barrel for the full year. We allocated capital to our drilling program and 
commenced drilling on Block 10 in the second half of the year to extend the life of our oil 
business. Our Cuban power generation business contributed $29.5 million in Adjusted EBITDA 
to Sherritt for the year, and on December 15, 2016, we received approval from the Cuban 
Executive Committee to extend the contract terms of our Varadero power facilities by five years, 
to 2023. 

In the second half of 2016, we negotiated extensions of the maturity dates of the three senior 
unsecured debentures, totalling $720 million in principal value, by three years to 2021, 2023 and 
2025, and the deferral of six semi-annual principal payments for the Ambatovy JV project 
financing, totalling US$565.1 million, on a 100% basis. The deferred principal payments are now 
due in 2021 or earlier, if certain cash generation criteria are met. Over the course of the year we 
used $65.7 million to repay loans and borrowings, and had $309.6 million in cash, cash 
equivalents and short-term investments at fiscal year-end. 

Continued on page 2 

 
 
 
 
 
 
 
 
 
 
Continued from page 1 

We continue our discussions on capital structure with our partners in the Ambatovy JV, 
Sumitomo Corporation and Korea Resources Corporation, regarding our late 2015 decision to 
cease funding the project due to current structure of the cash flows. Under the current “40 for 
12” model, 70% of Sherritt’s share of future distributions from the Ambatovy JV, of which we 
own 40%, go towards repayment of non-recourse loans. This sharing mechanism leaves us with 
only the remaining 30% of the distributions owed to us, or effectively a 12% economic interest in 
the Ambatovy JV.  Sherritt provided no funding to Ambatovy in 2016.  We will keep you updated 
as these discussions progress. 

As we celebrate our 90th anniversary, we are taking the time to reflect on our roots in nickel and 
base metals, and our long-held belief that a strong base of assets, dedication to financial 
discipline and engendering the loyalty of great employees, partners and shareholders is the 
secret to successful operations in the resources sector, beyond the volatility of living cycle to 
cycle. I would like to thank our Board of Directors for their ongoing support and you, our 
shareholders, for your continued belief in Sherritt. 

David V. Pathe 
President and Chief Executive Officer 
Sherritt International Corporation

 
 
 
 
 
 
 
MANAGEMENT'S DISCUSSION
AND ANALYSIS

For the year ended December 31, 2016

This Management’s Discussion and Analysis (MD&A) is intended to help the reader understand Sherritt International
Corporation’s operations, financial performance and the present and future business environment. This MD&A, which
has been prepared as of February 16, 2017, should be read in conjunction with Sherritt’s audited consolidated

financial statements for the year ended December 31, 2016. Additional information related to the Corporation,
including the Corporation’s Annual Information Form, is available on SEDAR at www.sedar.com or on the Corporation’s
website at www.sherritt.com.

References to “Sherritt”or the “Corporation”refer to Sherritt International Corporation and its share of consolidated

subsidiaries and joint ventures, unless the context indicates otherwise. All amounts are in Canadian dollars, unless
otherwise indicated. References to “US$”are to United States dollars.

Securities regulators encourage companies to disclose forward-looking information to help investors understand a
company’s future prospects. This discussion contains statements about Sherritt’s future financial condition, results of

operations and business. See the end of this report for more information on forward-looking statements.

Overview of the business
Strategic Priorities
Highlights
Financial results
Consolidated financial position
Outlook
Significant factors influencing operations
Review of operations

Metals
Oil and Gas
Power

Investment in Ambatovy
Liquidity and capital resources
Managing risk
Critical accounting estimates and judgments
Accounting pronouncements
Three-year trend analysis
Summary of quarterly results
Off-balance sheet arrangements
Transactions with related parties
Controls and procedures
Supplementary information
Sensitivity analysis
Oil and Gas production and sales volume
Non-GAAP measures
Forward-looking statements

2
5
7
9
14
16
18
20
20
26
29
31
33
38
44
47
48
49
50
50
51
52
52
53
53
64

Sherritt International Corporation

1

Management’s discussion and analysis

Overview of the business

Sherritt is a leader in the mining and refining of nickel and cobalt from lateritic ores with projects and operations in Canada, Cuba

and Madagascar. The Corporation is also the largest independent energy producer in Cuba, with extensive oil and power
operations on the island. Sherritt licenses its proprietary technologies and provides metallurgical services to mining and refining
operations worldwide. The common shares of the Corporation are listed on the Toronto Stock Exchange, trading under the

symbol “S”.

METALS

Sherritt is an industry leader in the mining, processing and refining of nickel and cobalt from lateritic ore bodies. Sherritt has a
50/50 partnership with General Nickel Company S.A. (GNC) of Cuba (the Moa Joint Venture) and a 40% interest in the Ambatovy

Joint Venture that owns a significant nickel operation in Madagascar. In addition, Sherritt has wholly-owned fertilizer, sulphuric
acid, utilities and storage facilities in Fort Saskatchewan, Alberta, Canada (Fort Site) that provides additional sources of income.

The Moa Joint Venture is a vertically-integrated joint venture that mines lateritic ore by open pit methods and processes it at its
facilities at Moa into mixed sulphides containing nickel and cobalt. The mixed sulphides are transported to Fort Site for refining.

The resulting nickel and cobalt products are sold to various markets, primarily in Europe, Japan and China. Pursuant to the March
2005 Expansion Agreement the Cuban state granted Moa Joint Venture resource concessions ensuring 25 years of production post
expansion. At current depletion rates the concessions of the Moa Joint Venture will reach their limit in 2033.

The refinery facilities at Fort Site provides inputs (ammonia, sulphuric acid and utilities) for the metals refinery, produces

agricultural fertilizer for sale in Western Canada and provides storage facilities. The refinery has capacity of approximately 35,000
(100% basis) tonnes of nickel and approximately 3,800 (100% basis) tonnes of cobalt.

The Ambatovy Joint Venture is one of the world’s largest, vertically integrated, nickel mining, processing and refining operations
utilizing lateritic ore. Sherritt is the operator of the mine and refining facilities and has as its partners Sumitomo Corporation

(Sumitomo) and Korea Resources Corporation (KORES) (collectively, the Ambatovy Partners). The Ambatovy Joint Venture has two
nickel deposits located near Moramanga (eastern-central Madagascar) which are planned to be mined over an 18-year period.
Addition reclamation of low-grade ore stockpiles is expected to extend project life by nine years.

The Ambatovy Joint Venture has an annual design capacity of 60,000 tonnes (100% basis) of nickel and 5,600 tonnes (100% basis)

of cobalt.

2

Sherritt International Corporation

OIL AND GAS

Sherritt’Oil and Gas division explores for and produces oil and gas primarily from reservoirs located offshore, but in close
proximity to the coastline along the north coast of Cuba. Sherritt has developed expertise in the exploration and development of
fold-and-thrust geological plays along the north coast of Cuba. Specialized long reach directional drilling methods have been

developed to economically exploit theses reserves from land-based drilling locations.

Under the terms of its production-sharing contracts, Sherritt’s net production is made up of an allocation from gross working-
interest production (cost recovery oil) to allow recovery of all approved costs in addition to a negotiated percentage of the
remaining production (profit oil). The pricing for oil produced by Sherritt in Cuba is based on a discount to Gulf Coast Fuel Oil

Number 6 (GCF6) reference prices.

Sherritt is currently in various stages of exploration and development of two new blocks under production sharing agreements
with the Cuban government.

In addition, Sherritt holds working-interests in several oil fields located in the Gulf of Valencia in Spain, an interest in the related
production platform, and a working-interest in a natural gas field in Pakistan.

POWER

Sherritt’s primary power generating assets are located in Cuba at Varadero, Boca de Jaruco and Puerto Escondido. These assets are
held by Sherritt through its one-third interest in Energas S.A. (Energas), which is a Cuban joint venture arrangement established to

process raw natural gas and generate electricity for sale to the Cuban national electrical grid. Cuban government agencies Union
Electrica (UNE) and Unión Cuba Petróleo (CUPET) hold the remaining two-thirds interest in Energas.

Raw natural gas that would otherwise be flared is supplied to Energas by CUPET free of charge. The processing of raw natural gas
produces clean natural gas, used to generate electricity, as well as by-products such as condensate and liquefied petroleum gas.

All of Energas’electrical generation is purchased by UNE under long-term fixed-price contracts while the by-products are
purchased by CUPET at market based prices. Sherritt provided the financing for the construction of the Energas facilities and is
repaid from the cash flows generated by the facilities.

The Energas facilities, comprising the two combined cycle plants at Varadero and Boca de Jaruco, produce electricity using steam

generated from the waste heat captured from the gas turbines. Energas’electrical generating capacity is 506 MW.

CORPORATE AND OTHER

Technologies

Sherritt Technologies provides a wide range of technical services to Sherritt’s business units and external clients. It is comprised
of project managers, research scientists, engineers, technologists and support staff focused on the development and commercial

application of hydrometallurgical technologies and the use of high pressure autoclave technologies in support of the
Corporation’s business units as well as existing and emerging external producers. The group also identifies and executes
research and development activities opportunities for the Corporation.

Sherritt International Corporation

3

Management’s discussion and analysis

ACCOUNTING PRESENTATION

Sherritt manages its nickel, oil, gas and power operations through different legal structures including 100% owned subsidiaries,
joint venture arrangements and production sharing contracts. With the exception of the Moa Joint Venture, which Sherritt
operates jointly with its partner, Sherritt is the operator of these assets. The relationship for accounting purposes that Sherritt
has with these operations and the economic interest recognized in the Corporation’s financial statements are as follows:

Metals

Moa Joint Venture

Ambatovy Joint Venture

Oil and Gas

Power

Technologies

Relationship for
accounting purposes

Economic
interest

Basis of
accounting

Joint venture

Associate

Subsidiary

Joint operation

50%

40%

100%

331/3%

Equity method

Equity method

Consolidation

Share of assets, liabilities
revenues and expenses

Subsidiary

100%

Consolidation

The Financial results and review of operations sections in this MD&A present amounts by reporting segment, based on the
Corporation’s economic interest. For financial statement purposes, the Moa Joint Venture and Ambatovy Joint Venture are
accounted for using the equity method of accounting which recognizes the Corporation’s share of earnings (loss) from the joint
venture and associate, respectively. Metal’s operating results include the Corporation’s 50% interest in the Moa Joint Venture,
100% interest in the utility and fertilizer operations at Fort Site, 40% interest in the Ambatovy Joint Venture, and 100% interests in
wholly-owned subsidiaries established to buy, market and sell certain Ambatovy and Moa Joint Venture nickel and cobalt
production. The financial statements and review of operations in this MD&A include the Corporation’s 100% interest in its Oil
and Gas business, 331/3% interest in its Power businesses and 100% interest in the Technologies business.

Amounts presented in this MD&A can be reconciled to note 4 of the audited consolidated financial statements for the year ended
December 31, 2016.

4

Sherritt International Corporation

Strategic Priorities

2016 REVIEW OF STRATEGIC PRIORITIES

The table below lists Sherritt’s strategic priorities for 2016 and summarizes how the Corporation performed against
those priorities in 2016.

Strategic Priorities

2016 Targets

Status

UPHOLD GLOBAL
OPERATIONAL LEADERSHIP
IN FINISHED NICKEL
LATERITE PRODUCTION

1

Complete and commission the acid
plant at Moa in the second half of
2016

Acid plant construction completed on
time and under budget, and now in
operation

Further reduce NDCC costs at the
Moa JV and Ambatovy JV towards
the goal of being in the lowest
quartile

Full year 2016 NDCC of US$3.42/lb at
Moa, and US$4.27/lb at Ambatovy
represent reductions at both operations

In Q4, NDCC at Ambatovy was
US$3.10/lb, falling in the low end of the
second quartile of global nickel cash
costs

Increase Ambatovy production over
2015, despite the major
maintenance work scheduled
for Q3

Production was down from 2015 due
mainly to unplanned events including
the tailings pipe blockage; Q4
production of 12,778 tonnes (100%)
represents 85% of design capacity

Maintain peer leading performance
in environmental, health, safety and
sustainability

Performance improved over 2015 for
Ambatovy, which recorded a one year
anniversary of zero Lost-Time Injuries in
September; Moa’s tragic accident in
2016 caused four fatalities

EXTEND THE LIFE OF OUR
CUBAN ENERGY BUSINESS

2

Allocate capital to new drilling on
Block 10, with future drilling to be
contingent on results from 2016
activity

Drilling started in mid-August and
continued through year-end. Results
from the first well in Block 10 will dictate
next steps

PRESERVE LIQUIDITY AND
BUILD BALANCE SHEET
STRENGTH

Protect Sherritt’s balance sheet and
preserve cash

3

Establish clarity on long-term
funding of Ambatovy

Run business units to be free cash
flow neutral, and continue to
optimize administrative costs

Three year extension of the maturity on
all outstanding debentures and deferral
of six Ambatovy principal payments on
project facility

Ceased funding Ambatovy cash calls due
to the “40 for 12”issue; agreement on
no defaulting shareholder status
extended through March 10, 2017

Although the Oil and Gas and Power
operations were free cash flow positive,
significant declines in nickel and GCF6
reference prices from 2015 resulted in
negative free cash flow of $38.6 million

Sherritt International Corporation

5

Management’s discussion and analysis

2017 STRATEGIC PRIORITIES

The table below lists Sherritt’s Strategic Priorities for 2017. The 2017 Strategic Priorities reflect the continuing cautious
commodity price outlook and the Corporation’s responsibility to preserve liquidity, continue to drive down costs,
improve organizational effectiveness and execute rational capital allocation plans. Sherritt’s purpose, originally
communicated in 2014, continues to be alow-costnickelproducerthatcreates sustainableprosperityforour
employees,investorsandcommunities.

Strategic Priorities

2017 Targets

UPHOLD GLOBAL OPERATIONAL
LEADERSHIP IN FINISHED NICKEL
PRODUCTION FROM LATERITES

Further reduce NDCC at Moa and Ambatovy towards the goal of
achieving or remaining in the lowest quartile of global nickel cash costs

1

Increase Ambatovy production and predictability over 2017

Achieve peer leading performance in environmental, health, safety and
sustainability

OPTIMIZE OPPORTUNITIES IN
CUBAN ENERGY BUSINESS

Determine future capital allocation based on results from first two wells
to be drilled on Block 10

2

PRESERVE LIQUIDITY AND BUILD
BALANCE SHEET STRENGTH

Finalize long-term Ambatovy equity and funding structure

Optimize working capital and receivables collection

3

Operate Metals and Power businesses to be free cash flow neutral or
better

6

Sherritt International Corporation

Highlights

METALS OPERATIONS UPDATE

The Metals operations produced 33,306 tonnes of finished nickel (Sherritt’s share) in the year ended December 31, 2016.

Compared to the prior year, production was lower at both the Ambatovy Joint Venture and the Moa Joint Venture. The decrease in
the Ambatovy Joint Venture’s production was primarily due to a tailings pipe blockage in June 2016 and a subsequent plant
maintenance shutdown in June and July 2016. At the Moa Joint Venture, the decrease in production was primarily due to lower

mixed sulphide availability as a result of lower ore quality and a controlled shutdown of operations ahead of Hurricane Matthew in
October 2016. Hurricane Matthew also caused a bridge collapse in November which impacted haulage time and distances as a
result of using secondary access roads.

Production at Ambatovy increased in the fourth quarter of 2016 compared to the same period in the prior year due to improved

equipment reliability as a result of maintenance work completed during the plant maintenance shutdown.

Despite lower production during the year, the Metals operations achieved a net direct cash cost (NDCC) of US$3.85/lb for the year
ended December 31, 2016, a 12% reduction from the prior year, primarily due to lower input commodity costs and continued cost
discipline. An NDCC of US$3.41/lb for the three months ended December 31, 2016, a 3% reduction compared to the prior-year

period, is primarily due to higher sales volume and lower mining, processing and refining costs at the Ambatovy Joint Venture
partly offset by lower sales volume and fertilizer credits at the Moa Joint Venture.

CASH UPDATE

Cash, cash equivalents and short-term investments at December 31, 2016 were $309.6 million, a decrease of $35.6 million from
September 30, 2016 and $125.8 million from December 31, 2015.

The decrease of $35.6 million in the fourth quarter of 2016 was primarily a result of lower payments received on Cuban energy
receivables, payment of interest on debentures and capital spending. During the fourth quarter US$18.3 million of Cuban energy

payments were received in the Oil and Gas operations compared to US$59.6 million in the third quarter. These payments resulted
in a reduction in overdue receivables from US$31.6 million at September 30, 2016 to US$28.3 million at December 31, 2016. No
interest or principal was received on the Energas conditional sales agreement (CSA) during the fourth quarter of 2016.

During 2016, the balance of cash, cash equivalents and short-term investments decreased $125.8 million primarily due to $65.7

million used to repurchase debt and pay down credit facilities, $40.2 million in capital expenditures and $14.8 million in
transaction fees relating to the debenture maturity extension.

In Oil and Gas and Power, total energy receipts from the Cuban operations were US$129.6 million in 2016 compared to US$232.2
million in 2015, with Cuban overdue receivables of US$74.6 million at the end of 2016 compared to US$53.8 million at the end of

2015. Discussions continue to address the timing of ongoing Cuban payments.

AMBATOVY FUNDING

Sherritt is in continuing discussions with its Ambatovy Partners regarding partnership structure and future funding arrangements
to better reflect Sherritt’s economic interest.

Total post-financial completion cash funding provided by Sumitomo and KORES to December 31, 2016 was US$173.0 million
pursuant to total post-financial completion cash calls of US$288.3 million, with cash funding of US$20.0 million and US$143.0

million provided during the three months and year ended December 31, 2016, respectively. Sherritt has not funded any portion
of these cash calls, and continues not to fund. Sherritt’s unfunded amounts remain payable. These amounts will be subtracted
from future Ambatovy Joint Venture distributions, or may be set off against other amounts owed to Sherritt.

By agreement amongst the partners, Sherritt is not considered to be a defaulting shareholder under the Shareholders Agreement

for amounts not funded through March 10, 2017 while discussions continue regarding the partnership structure and future
funding arrangements. As part of this agreement, shareholder funding contributed from and including December 15, 2015, will
accrue interest at a rate of LIBOR plus 8.0% and will be paid in priority to the subordinated loans payable. Repayments of

principal and interest will not be made prior to certain conditions being satisfied. Unpaid interest is accrued monthly and
capitalized to the principal balance semi-annually.

Sherritt International Corporation

7

Management’s discussion and analysis

VARADERO POWER FACILITY EXTENSION

In December 2016, Power received approval from the Cuban Executive Committee to extend the operating term of the Varadero

power facilities from 2018 to 2023.

DEFERRAL OF PRINCIPAL REPAYMENT ON THE AMBATOVY J OINT VENTURE FINANCING

In August 2016, the Ambatovy Joint Venture financing lenders agreed to up to six principal payment deferrals totaling US$565.1
million (100% basis), which are to be repaid on a schedule starting in June 2021, or earlier subject to cash flow generation. Until
June 2019, the Ambatovy Joint Venture will pay semi-annual interest payments only (approximately US$56.0 million per year) and

will not make semi-annual principal payments unless there is sufficient free cash flow after required deductions. Deferred
principal is subject to an additional 2% accrued interest calculated from the date of each deferral.

DEBENTURE MATURITY EXTENSION

In July 2016, the maturity dates of each of the Corporation’s outstanding senior unsecured debentures (the “Notes”) were
extended by three years from 2018, 2020 and 2022 to 2021, 2023 and 2025, respectively (the “Extension”). The applicable
interest rates and existing covenants for the Notes were unchanged. Noteholders that voted in favour of the Extension received,

at the option of the Noteholder, either:





cash consent consideration equal to 2% of the principal amount of the debentures; or,

73.25 warrants for each $1,000 of principal amount of debentures held. Warrants are exercisable at any time at an
exercise price of $0.74 per share and have a term of 5 years. They are not listed on any exchange.

Cash consent consideration paid to Noteholders that voted in favour of the extension and other transaction fees totalled $14.8
million. In addition, 19.1 million warrants with a fair value of $0.43 per warrant were granted to the Noteholders that elected for

this option. These warrants had a total value of $8.2 million.

In June 2016, the Corporation repurchased $30.0 million aggregate principal amount of its 8.00% senior unsecured debentures
due 2021 for $17.4 million. A gain of $12.6 million was recognized on this repurchase.

THE MOA J OINT VENTURE ACID PLANT

In October 2016, construction of the third acid plant at the Moa Joint Venture was completed and fully commissioned. The acid
plant is now producing sufficient acid to support production needs. The Moa Joint Venture is in the process of finalizing project

costs; it is expected that the total construction cost will be approximately US$10 million (100% basis) under budget with a total
cost of US$55 million (100% basis).

OIL AND GAS IMPAIRMENT

In the third quarter of 2016, the Corporation recognized an impairment loss of $8.5 million ($6.6 million net of tax) for the write-
down of the Puerto Escondido/Yumuri extension (“PE/YU extension”) cash-generating unit (“CGU”), within the Oil and Gas
segment, to its recoverable amount. This impairment was the result of a decrease in internally forecasted oil reserves at the

PE/YU extension due to two oil wells being shut-in as a result of low oil production. Its recoverable amount was determined to be
negligible based on a value in use analysis at September 30, 2016.

8

Sherritt International Corporation

Financial results

$ millions, except as otherwise noted

FINANCIAL HIGHLIGHTS
Revenue
Combined revenue(1)
Adjusted EBITDA(1)
Loss from operations, associate and joint venture
Loss from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net loss for the period
Adjusted loss from continuing operations(1)

Loss per share (basic and diluted)($ per share)

Net loss from continuing operations
Net loss for the period

CASH FLOW
Cash provided by continuing operating activities
Combined free cash flow(1)
Combined adjusted operating cash flow(1)
Combined adjusted operating cash flow per share ($ per share)(1)

$

OPERATIONAL DATA

For the three months ended
2015
December 31

2016
December 31

2016
December 31

For the years ended
2015
December 31

Change

Change

$

$

$

70.5
240.3
37.4
(52.2)
(109.6)
2.9
(106.7)
(81.3)

(0.37)
(0.36)

(22.6)
(45.5)
8.2
0.03

76.5
229.5
6.1
(1,721.9)
(1,757.3)
-
(1,757.3)
(113.8)

(5.99)
(5.99)

10.8
(24.8)
(29.5)
(0.09)

$

335.9
1,022.7
113.1
(1,978.6)
(2,071.7)
(5.0)
(2,076.7)
(351.3)

(8%) $

5%
513%
97%
94%
-
94%
29%

94%
94%

262.3
820.2
40.0
(320.8)
(381.8)
2.9
(378.9)
(427.9)

(1.30)
(1.29)

(22%)
(20%)
(65%)
84%
82%
158%
82%
(22%)

82%
82%

(98%)
(13%)
(174%)
(171%)

(7.05)
(7.07)

64.5
(98.8)
63.1
0.21

(309%) $

(83%)
128%
133%

$

1.6
(111.9)
(46.8)
(0.15)

SPENDING ON CAPITAL AND INTANGIBLE ASSETS(2)

$

30.2

$

26.9

12% $

93.0

$

150.1

(38%)

PRODUCTION VOLUMES
Finished nickel (tonnes)

Moa Joint Venture (50% basis)
Ambatovy Joint Venture (40% basis)

Finished cobalt (tonnes)

Moa Joint Venture (50% basis)
Ambatovy Joint Venture (40% basis)

Oil (boepd, NWI production)(3)
Electricity (gigawatt hours) (331/3% basis)

AVERAGE EXCHANGE RATE (CAD/USD)

AVERAGE- REALIZED PRICES(1)
Nickel ($ per pound)
Cobalt ($ per pound)
Oil ($ per boe, NWI)(3)
Electricity ($ per megawatt hour)

UNIT OPERATING COSTS (1)
Nickel (US$ per pound)
Moa Joint Venture
Ambatovy Joint Venture

Oil ($ per boe, GWI)(3)
Electricity ($ per megawatt hour)

3,782
5,111

382
404
8,163
224

1.334

6.45
17.68
38.98
56.24

3.80
3.10
11.68
24.73

$

$

4,098
4,885

521
386
10,727
226

1.335

5.54
12.91
29.53
56.53

2.90
4.07
11.64
33.88

$

$

(8%)
5%

(27%)
5%
(24%)
(1%)

-

16% $
37%
32%
(1%)

31% $

(24%)
-
(27%)

16,464
16,842

1,847
1,309
9,483
894

1.325

5.65
15.33
29.98
56.10

3.42
4.27
10.58
22.94

16,853
18,908

1,867
1,386
11,158
902

(2%)
(11%)

(1%)
(6%)
(15%)
(1%)

1.278

4%

$

$

6.68
15.20
38.73
54.26

3.88
4.83
10.69
21.00

(15%)
1%
(23%)
3%

(12%)
(12%)
(1%)
9%

(1)

(2)

(3)

For additional information see the Non-GAAP measures section.
Spending on capital and intangible assets includes accruals and does not include spending on service concession arrangements.
Net working-interest (NWI); gross working-interest (GWI); barrels of oil equivalent per day (boepd); barrels of oil equivalent (boe).

Sherritt International Corporation

9

Management’s discussion and analysis

ADJ USTED EBITDA

Adjusted EBITDA by Segment ($ millions)
Q4 2016

Adjusted EBITDA by Segment ($ millions)
Q4 2015

5.6

11.6

7.4

24.4

Moa JV & Fort Site

Ambatovy JV

Oil and Gas

Power

(9.5)

7.6

9.7

5.5

Moa JV & Fort Site

Ambatovy JV

Oil and Gas

Power

(10.0)

-

10.0

20.0

30.0

(10.0)

-

10.0

20.0

30.0

Adjusted EBITDA by Segment ($ millions)
Year Ended December 31, 2016

Adjusted EBITDA by Segment ($ millions)
Year Ended December 31, 2015

(7.0)

19.6

35.6

29.5

Moa JV & Fort Site

Ambatovy JV

Oil and Gas

Power

(9.4)

42.2

30.0

Moa JV & Fort Site

Ambatovy JV

81.9

Oil and Gas

Power

(10.0)

10.0

30.0

50.0

70.0

90.0

(10.0)

10.0

30.0

50.0

70.0

90.0

In the fourth quarter of 2016, Sherritt returned to positive adjusted EBITDA at each of its operating divisions.

REVENUE

$ millions

December 31

December 31

Change

December 31

December 31

Change

For the three months ended

2016

2015

For the years ended

2016

2015

Revenue by segment
Metals
Oil and Gas
Power
Corporate and Other
Combined revenue(1)
Adjust joint venture and associate
Financial statement revenue

$

$

195.6
30.6
13.7
0.4
240.3
(169.8)
70.5

183.8
30.5
13.7
1.5
229.5
(153.0)
76.5

$

6%
-
-
(73%)
5%

(8%)

$

652.1
108.6
58.6
0.9
820.2
(557.9)
262.3

805.1
162.6
52.7
2.3
1,022.7
(686.8)
335.9

(19%)
(33%)
11%
(61%)
(20%)

(22%)

(1)

For additional information see the Non-GAAP measures section.

Combined revenue for the three months ended December 31, 2016 was higher compared to the same period in the prior year
primarily due to higher realized prices for nickel and oil. Sales volumes at Ambatovy were also higher, reflecting improved
equipment availability. Sales volumes at the Moa Joint Venture were lower primarily as a result of the controlled shutdown in
advance of Hurricane Matthew and the subsequent bridge collapse which disrupted access to the port.

Combined revenue for the year ended December 31, 2016 was lower compared to the prior year primarily due to lower average
nickel and oil prices and lower sales volumes at the Moa Joint Venture and Ambatovy. Sales volumes at Ambatovy for the year
ended December 31, 2016 was primarily impacted by a tailings pipe blockage and the planned plant maintenance shut down in
the second quarter. Sales volumes at the Moa Joint Venture were primarily impacted by Hurricane Matthew in the fourth quarter
and lower ore quality during the year.

Revenue at Oil and Gas for the three months and year ended December 31, 2016 was impacted by lower gross working-interest oil
production in Cuba due to natural reservoir decline and the absence of new development drilling in 2016.

10 Sherritt International Corporation

COST OF SALES

$ millions

December 31

December 31

Change

December 31

December 31

Change

For the three months ended

2016

2015

For the years ended

2016

2015

Cost of sales by segment
Metals
Oil and Gas
Power
Corporate and other
Combined cost of sales(1)
Adjust joint venture and associate
Financial statement cost of sales

$

$

210.7
25.0
14.1
3.8
253.6
(184.7)
68.9

284.9
30.2
16.7
1.2
333.0
(257.9)
75.1

$

(26%)
(17%)
(16%)
217%
(24%)

(8%)

$

800.9
105.7
59.7
10.7
977.0
(713.6)
263.4

1,028.1
146.9
52.6
5.2
1,232.8
(914.7)
318.1

(22%)
(28%)
13%
106%
(21%)

(17%)

(1)

For additional information see the Non-GAAP measures section.

Combined cost of sales for the three months and year ended December 31, 2016 in Metals was lower compared to the same
periods in the prior year.

At Ambatovy, sales volume was higher in the fourth quarter of 2016 compared to the same period in the prior year; however,

continued cost discipline and lower input commodity prices resulted in lower costs of sales. In addition, in the fourth quarter of
2015 Ambatovy recognized an inventory impairment of $36.4 million. For the Moa Joint Venture, lower cost of sales in the fourth
quarter of 2016 is primarily due to lower sales volume and lower input commodity prices.

For the year ended December 31, 2016, lower cost of sales reflects lower production and sales volumes at both the Moa Joint

Venture and Ambatovy in addition to the impact of lower input commodity prices and cost discipline.

A weaker Canadian dollar relative to the U.S. dollar had an overall negative impact on cost of sales for the year ended December
31, 2016 at all divisions.

Depletion, depreciation and amortization expense was lower in 2016 at Ambatovy and Oil and Gas as a result of lower asset
carrying values as a result of impairments recognized in 2015.

ADMINISTRATIVE EXPENSES

$ millions

December 31

December 31

Change

December 31

December 31

Change

For the three months ended

2016

2015

For the years ended

2016

2015

Administrative expenses by segment
Metals
Oil and Gas
Power
Corporate and other
Combined administrative expenses(1)
Adjust joint venture and associate
Financial statement administrative expenses

$

$

7.3
2.8
0.9
9.2
20.2
(5.4)
14.8

8.7
1.5
0.3
8.2
18.7
(7.7)
11.0

$

(16%)
87%
200%
12%
8%

35%

$

29.7
10.7
4.2
33.0
77.6
(23.1)
54.5

31.9
6.7
3.8
32.1
74.5
(28.1)
46.4

(7%)
60%
11%
3%
4%

17%

(1)

For additional information see the Non-GAAP measures section.

Combined administrative expenses for the three months and year ended December 31, 2016 were higher compared to the same

periods in the prior year primarily due to higher stock-based compensation expense as a result of an increase in the Corporation’s
stock price during the year.

NET FINANCE EXPENSE(1)

For the three months ended

2016

2015

For the years ended

2016

2015

$ millions

December 31

December 31

Change

December 31

December 31

Change

Financial statement net finance expense (income)
Moa Joint Venture net finance expense
Ambatovy Joint Venture net finance expense
Combined net finance expense (income)(2)

53.3
4.3
14.8
72.4

35.4
1.6
28.2
65.2

51%
169%
(48%)
11%

54.5
10.5
59.6
124.6

129.0
11.2
74.3
214.5

(58%)
(6%)
(20%)
(42%)

(1)

(2)

Net of intercompany interest.
For additional information see the Non-GAAP measures section.

Sherritt International Corporation

11

Management’s discussion and analysis

The change in combined net finance expense in each period was primarily related to unrealized exchange gains/losses which are
determined by the change in period-end exchange rates and the balance of the Corporation’s U.S. denominated net liabilities.

For the three months ended December 31, 2016, combined net finance expense was higher primarily due to a weakening of the
period-end Canadian dollar relative to the U.S. dollar. For the year ended December 31, 2016, net financing expense was lower

primarily due to a strengthening of the period-end Canadian dollar relative to the U.S. dollar and an increase in the balance of U.S.
denominated net liabilities compared to 2015.

In addition, for the year ended December 31, 2016, the Corporation recognized a $12.6 million gain on the repurchase of $30.0
million of senior unsecured debentures in 2016. In 2015, the Corporation had recognized a $13.7 million loss on the expiry of its

Ambatovy call option.

INCOME TAXES

$ millions

Income taxes by segment
Metals
Oil and Gas
Power
Corporate and other
Combined income taxes(1)
Adjust joint venture and associate
Financial statement income taxes

For the three months ended

2016
December 31

2015
December 31

For the years ended

Change

2016
December 31

2015
December 31

Change

$

$

(0.4) $
4.5
(0.2)
(0.2)
3.7
0.4
4.1

(113.2)
0.3
(0.3)
-
(113.2)
113.2
-

100%
1,400%
33%
-
103%

-

$

7.8
7.6
(0.9)
(0.2)
14.3
(7.8)
6.5

(136.1)
(35.0)
(0.9)
-
(172.0)
136.1
(35.9)

106%
122%
-
-
108%

118%

(1)

For additional information see the Non-GAAP measures section.

Combined income taxes for the three months and year ended December 31, 2016 were higher than the prior year periods
primarily due to a deferred income tax recovery recognized at Ambatovy on the impairment recorded in December 2015.

For the year ended December 31, 2016, combined income taxes were also higher than the prior year period due to an income tax

recovery recognized in the prior year related to the reduction in Cuban tax rates which impacted Oil and Gas and the Moa Joint
Venture. In addition, in June 2016, it was determined that the realization of tax losses at one of the Moa Joint Venture companies
was not probable, which resulted in a $7.7 million expense related to the derecognition of a deferred tax asset.

12 Sherritt International Corporation

CHANGE IN NET LOSS

For the three months and year ended December 31, 2016 the change in net loss from continuing operations between 2016 and

2015 is detailed below:

$ millions

December 31

December 31

Change

December 31

December 31

Change

Net loss from continuing operations
Net loss from continuing operations ($ per share)

$

(109.6) $ (1,757.3)
(5.99)

(0.37)

$

94%
94%

(381.8) $ (2,071.7)
(7.05)

(1.30)

82%
82%

For the three months ended

2016

2015

For the years ended

2016

2015

$ millions

Higher (lower) U.S. dollar denominated nickel and cobalt prices
Higher (lower) oil and gas prices
Lower fertilizer prices
Change in total metals and fertilizer sales volumes
Lower Cuba oil and gas gross working-interest volumes
Lower Spain oil and gas volumes
Lower electricity volumes
Lower mining, processing and refining, third-party feed and fertilizer unit costs
Lower Oil and Gas cost recovery revenue
Lower Oil and Gas cost of sales
Lower depletion, depreciation and amortization
Impairment of Oil assets
Impairment of Ambatovy assets
Tax impact on impairment of Ambatovy assets
Higher administrative expenses
Foreign exchange impact on operations

(Higher) lower combined net finance expense, excluding gain on debentures

and loss on call option

Higher combined tax
Gain on repurchase of debentures
Gain on sale of Corporate assets in 2015
Moa JV deferred tax asset write-off
Power major inspection costs
Loss on expiry of Ambatovy call option in 2015
Other
Change in net loss from continuing operations, compared to 2015

For the three

months ended

2016

For the year

ended

2016

December 31

December 31

$

23.9
6.6
(2.7)
(9.7)
(3.1)
0.1
(0.2)
21.0
(3.7)
3.0
18.7
-
1,722.5
(102.9)
(1.5)
(1.2)

(7.3)
(14.0)

-
-
-
-
-
(1.8)
$ 1,647.7

$

(104.7)
(22.8)
(7.1)
(2.2)
(17.4)
(3.1)
(0.5)
90.4
(13.1)
14.3
97.6
72.2
1,722.5
(102.9)
(3.1)
(9.0)

63.6
(75.7)
12.6
(19.1)
(7.7)
(1.7)
13.7
(6.9)
$ 1,689.9

Sherritt International Corporation

13

Management’s discussion and analysis

CONSOLIDATED FINANCIAL POSITION

The following table summarizes the significant items as derived from the consolidated statements of financial position:

$ millions, except as otherwise noted, as at December 31

2016

2015

Change

Current assets
Current liabilities
Working capital
Current ratio
Cash, cash equivalents and short-term investments
Non-current advances, loans receivable and other financial assets
Investment in an associate
Investment in a joint venture
Property, plant and equipment
Total assets
Non-recourse loans and borrowings
Other loans and borrowings
Provisions
Total liabilities
Deficit
Shareholders' equity

$

720.9

$

226.0

494.9

3.19:1

$

309.6

$

820.4

212.1

608.3

3.87:1

435.4

1,542.7

1,600.5

767.9

336.8

286.4

3,806.9

1,367.5

860.7

114.6

757.3

404.2

351.1

4,090.0

1,303.2

959.9

126.6

2,709.0

2,532.9

(2,721.5)

(2,342.6)

1,097.9

1,557.1

(12%)

7%

(19%)

136%

(29%)

(4%)

1%

(17%)

(18%)

(7%)

(34%)

(88%)

(9%)

7%

(16%)

(29%)

At December 31, 2016, total available liquidity was $309.6 million, including available credit facilities. Total debt at December 31,
2016, was $2.2 billion, including $1.4 billion related to non-recourse Ambatovy Partner Loans. Current assets decreased by $99.5
million primarily due to a reduction in cash and short-term investments partly offset by an increase in trade receivables.

The significant changes in other assets, liabilities are discussed below:







Non-current advances, loans receivable and other financial assets decreased by $57.8 million primarily due to a $284.1
million decrease in the Ambatovy subordinated loan receivable, due to a conversion from loan receivable to equity, partly

offset by $154.9 million of receivables from the Ambatovy Joint Venture on the Corporation’s unfunded amounts, foreign
exchange adjustments and accrued interest receivable related to the Ambatovy subordinated loan;

Property, plant and equipment decreased by $64.7 million primarily due to depreciation, foreign exchange adjustments, and
the recording of impairment in Oil and Gas in the third quarter, offset by normal course capital spending. A discussion of

spending on capital is included in the Review of operations sections for each segment;

Total non-recourse and other loans and borrowings decreased by $34.9 million primarily due to paydowns on the line of
credit and revolving term credit facilities as well as the repurchase of $30 million of debentures, partly offset by a net increase
in the Ambatovy Joint Venture additional partner loans related to capitalized accrued interest and foreign exchange

adjustments.

For additional information see the Liquidity and capital resources - sources and uses of cash section.

14 Sherritt International Corporation

SUMMARY OF CHANGES COMPARED TO THIRD QUARTER OF 2016

The change in net loss from continuing operations from the third quarter of 2016 to the fourth quarter of 2016 is shown below:

The change in consolidated cash, cash equivalents and short-term investments from September 30, 2016 to December 31, 2016
is shown below:

Cash, cash equivalents and short-term investments at December 31, 2016 were $309.6 million, a decrease of $35.6 million from

September 30, 2016. This was a result of lower collections on Sherritt’s Cuban energy receivables following significant collections
in the third quarter, semi-annual interest paid on debentures and Block 10 exploration drilling spending.

Sherritt International Corporation

15

Management’s discussion and analysis

Outlook

2017 PRODUCTION, OPERATING COST AND CAPITAL SPENDING GUIDANCE

In 2016, Sherritt made certain modifications to how guidance is presented, showing capital spending estimates in U.S. dollars, as
well as their Canadian dollar equivalent. In the quarterly reporting, actual capital spending is presented in Canadian dollars
consistent with Sherritt’s reporting currency, but estimates and forward looking information continues to be provided in U.S.
dollars. This change in presentation is intended to align with Sherritt’s capital budgeting practices, and to mitigate the change to
capital spending that arises from translation to the Canadian dollar reporting currency. Capital projects in the Metals business
are generally U.S. dollar expenditures, while in Oil and Gas, the expenditures are roughly 50% Canadian dollar denominated and
50% U.S. dollar denominated.

For 2017, Sherritt added unit operating cost guidance.

Production volumes, unit operating costs and spending on capital

guidance

December 31

2016

Actual

2016

Production volumes
Nickel, finished (tonnes, 100% basis)

Moa Joint Venture
Ambatovy Joint Venture
Total

Cobalt, finished (tonnes, 100% basis)

Moa Joint Venture
Ambatovy Joint Venture
Total

Oil –Cuba (gross working-interest, bopd)
Oil and Gas –All operations (net working-interest, boepd)
Electricity (GWh, 331/3% basis)

Unit operating costs
NDCC (US$ per pound)

Moa Joint Venture
Ambatovy Joint Venture

Total
Oil and Gas –Cuba (unit operating costs, $ per barrel)
Electricity (unit operating costs, $ per MWh)

Spending on capital (US$ millions)
Metals –Moa Joint Venture (50% basis), Fort Site (100% basis) (1)
Metals –Ambatovy Joint Venture (40% basis)
Oil and Gas
Power (331/3% basis)
Power (331/3% basis) Pipeline Construction on Service Concession
Arrangements
Spending on capital (excluding Corporate)

32,500-33,000
40,000-42,000
72,500-75,000

3,300-3,800
2,900-3,300
6,200-7,100
15,000
9,200
860

-
-
-
-
-

32,928
42,105
75,033

3,694
3,273
6,967
15,452
9,483
894

3.42
4.27
3.85
9.75
22.94

US$38
US$25
US$27
US$1
US$4
US$95

US$25 (33)
US$25 (33)
US$20 (26)
US$1 (1)
US$4 (5)
US$75 (98)

2017

guidance

33,000-34,000
48,000-52,000
81,000-86,000

3,500-3,800
3,800-4,100
7,300-7,900
11,500-12,500
6,400-7,000
850-900

3.20-3.70
3.10-3.70
3.14-3.70
11.00-12.00
18.75-19.50

US$28 (38)
US$45 (61)
US$55 (73)
US$1 (2)
-
US$129 (174)

(1)

Spending is 50% of US$ expenditures for Moa JV and 100% expenditures for Fort Site fertilizer and utilities.

PRODUCTION VOLUMES

Nickel production is forecasted to increase in 2017, especially in the Ambatovy Joint Venture where full year production rates are
expected to be in line with fourth quarter 2016 performance.

Cuba GWI oil production guidance for 2017 reflects the impact of natural reservoir declines. The guidance does not include any
production from Block 10 wells. Drilling and testing of the first Block 10 well is scheduled to be completed in the first quarter of

2017, followed by the drilling and testing of the second well in the second half of 2017. Test results from these two wells will
determine whether or not Sherritt will proceed with commercialization of the Block. If results are successful, the revenue
associated with the 2017 production will be accounted for only when commercialization of Block 10 is approved which is expected

in the first quarter 2018.

16 Sherritt International Corporation

UNIT OPERATING COSTS

2017 unit operating cost (NDCC) guidance for the Moa Joint Venture is US$3.20- US$3.70. The cost benefit of the newly
commissioned acid plant is expected in 2017; however, this benefit is partly offset by higher forecasted energy prices and higher
planned maintenance spending, including a biannual acid plant shutdown and a return to a regular duration for the annual refinery

shutdown. In addition, increased haulage distance, ore grade and deleterious element content has a negative impact on 2017
NDCC guidance.

2017 NDCC guidance for Ambatovy is US$3.10-US$3.70, reflecting an increase in expected production volumes.

2017 unit operating cost guidance for Oil and Gas Cuba is $11.00-$12.00, reflecting lower expected production volumes.

2017 unit operating cost guidance for Power is $18.75-$19.50, reflecting lower expected gas turbine maintenance costs.

Unit operating cost guidance figures are based on by-product and input commodity price assumptions for 2017, which are subject
to change during the year, as cobalt, fertilizers, sulphur, West Texas Intermediate crude and fuel oil prices fluctuate.

CAPITAL SPENDING

Spending on capital for 2017 is anticipated to be higher than actual spending in 2016, primarily as a result of increased capital
spending at Oil and Gas. Capital spending at Oil and Gas in 2017 consists of (i) completion of the first Block 10 well and the

drilling of a second well (US$25 million), (ii) acquisition of equipment to support drilling in Block 10 (US$18 million) and (iii) review
and collection of seismic data, as well as collection of geochemistry samples, on Block 8A (US$7 million). Forecasted expenditures
for Block 10 drilling and testing activities will account for approximately 75% of the expected capital spending this year for Oil and

Gas.

In addition, spending on capital for 2017 includes higher capital spending at the Ambatovy Joint Venture for additional mining
fleet equipment and mine development work, and lower capital spending at the Moa Joint Venture as a result of the completion
and commissioning of the third acid plant in 2016.

Sherritt International Corporation

17

Management’s discussion and analysis

Significant factors influencing operations

As a commodity-based, geographically diverse company, Sherritt’s operating results are influenced by many factors, the most
significant of which are: commodity prices and foreign exchange rates.

COMMODITY PRICES

Operating results for the year ended December 31, 2016, were significantly impacted by market-driven commodity prices for
nickel, cobalt and oil and gas. Electricity prices are established at the beginning of a negotiated supply contract period and are,

therefore, less susceptible to commodity price fluctuations during the term of the agreement.

On a year-over-year basis, the 2016 nickel average reference price of US$4.36/lb declined by 19% over the 2015 average, with

roughly 27% of global production remaining underwater on a cash margin basis at this price. Despite the negative margins
experienced by many producers, more significant supply cuts have been slow to materialize, and global inventory levels remain
high.

In the second half of 2016, prices recovered significantly from the lows of US$3.50/lb reached in the first quarter of 2016 and

remained generally above US$4.50/lb through the fourth quarter of 2016. Recent market activity remains bullish on a fundamental
basis, as market analysts continue to reinforce projected deficits and forecast stronger prices carrying over from 2016 into 2017.
Fundamental supply challenges that have emerged with the Philippines ongoing environmental audits on all mining operations in

the country, closures of uneconomic operations, and healthy stainless steel results from North America and Europe have helped
propel LME prices to levels previously reached in 2015. After peaking at 470,000 tonnes in June 2015, nickel inventories held in
London Metals Exchange warehouses have declined by close to 100,000 tonnes but the year end balance of 372,000 tonnes

remains high compared to historical levels. The announced mine closures in the Philippines coupled with improved stainless steel
demand are both seen as near-term catalysts for continued strength in the nickel market, although this is being tempered by the
ramp up of Nickel Pig Iron (NPI) operations in Indonesia and the announced easing of the ban on ore exports allowing quotas of

low grade nickel containing ore to be exported by Indonesian miners who meet criteria which has not yet been fully articulated.

The average reference price for cobalt in 2016 was US$11.77/lb or down only 9% from its 2015 comparable, with the outlook
remaining positive. The cobalt price recovery from the lows early in 2016 has been more significant than nickel, moving from lows
in the first quarter to end the year at approximately US$14.92/lb. While nickel prices experienced a correction in the month of

December and since, cobalt prices have gone on to make new highs in January 2017. Refined cobalt supply contracted in 2016
with the suspension of production from Votorantim (Tocantins) in Brazil and Queensland Nickel in Australia. Indications are that
the market is approaching balance or slight deficit. Overall cobalt demand is supported by the longer-term outlook for cobalt in

rechargeable batteries, a market that utilizes refined forms of cobalt with purity being an important factor in customer demand,
and environmental and sustainability concerns from African sourced mines becoming increasingly important. These concerns
received media attention after an Amnesty International report in January 2016 which focused on human rights abuses in

Democratic Republic of Congo (DRC) cobalt mining operations. Because the DRC is the world’s largest producer of cobalt, cobalt
customers have responded by requiring more stringent certification of origin procedures, to restrict or prohibit buying cobalt
sourced from the DRC. Superalloy demand also remains strong, along with other applications such as magnets, diamond cutting

tools, soaps and paint driers which continue to provide strong demand for cobalt. As a result of the positive medium term outlook

18 Sherritt International Corporation

for cobalt, and the knowledge that most cobalt supply comes as a by-product of copper and nickel production, speculative interest
has picked up.

Fuel Oil #6 & WTI Prices (US$/bbl)
2016

Fuel Oil #6 & WTI Prices (US$/bbl)
2015

$55
$50
$45
$40
$35
$30
$25
$20
$15

$65

$55

$45

$35

$25

$15

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Fuel Oil #6

WTI

Fuel Oil #6

WTI

The average reference price of GCF6 in 2016 was down 21% from its 2015 comparable level, which is similar to the price decline

in nickel over the same period. The recovery in WTI and fuel oil prices over the course of 2016 has been more significant, with
fourth quarter 2016 GCF6 prices being up 38% over their comparable quarter in 2015. GCF6 prices have climbed steadily since
their lows in the first quarter of 2016, and the spread between GCF6 and WTI prices has narrowed. GCF6 prices averaged 84% of

WTI prices in the fourth quarter, compared to only 63% in the first quarter of 2016.

A sensitivity analysis for the year ended December 31, 2016 earnings to changes in significant commodity prices is provided in
the supplementary information –sensitivity analysis section.

FOREIGN EXCHANGE RATE

As Sherritt reports its results in Canadian dollars, the fluctuation in foreign exchange rates has the potential to cause significant
volatility in those results. Most commodity prices are quoted in U.S. dollars, and a significant portion of operating expenses are
U.S. dollar denominated. Therefore operating earnings are generally positively impacted by a weaker Canadian dollar as the uplift

on revenue exceeds the negative impact on operating expenses. However, in a period of operating losses, where U.S.
denominated expenses exceed U.S. denominated revenue, the foreign exchange impact is negative. The Canadian dollar was
marginally stronger relative to the U.S dollar (average) for the three months ended December 31, 2016 and was weaker relative to

the U.S dollar (average) for the year ended December 31, 2016 compared to the same periods in the prior year.

In addition, many of Sherritt’s trade accounts receivable, accounts payable, loans receivable and loans payable are denominated in
U.S. dollars. These financial assets and liabilities are translated at the period-end rate. The Canadian dollar was stronger relative to
the U.S. dollar at December 31, 2016 compared to December 31, 2015. Since the U.S. dollar based financial liabilities exceed the

U.S. dollar based financial assets the strengthening of the Canadian dollar resulted in a positive translation gain of approximately
$35 million in 2016.

Sherritt International Corporation

19

Management’s discussion and analysis

Review of operations

METALS

Financial Review

$ millions, except as otherwise noted, for the three months ended December 31

2016

2015

Moa J V and Ambatovy
J V

Fort Site

Other

Total

Moa JV and
Fort Site

Ambatovy
JV

Other

Total

Change

FINANCIAL HIGHLIGHTS
Revenue
(Loss) earnings from operations
Adjusted EBITDA(1)
Cash provided (used) by operations
Free cash flow(1)

$

92.5 $
(7.6)
5.6
(6.1)
(9.8)

88.2 $
(15.0)
24.4
(0.8)
(10.6)

14.9 $ 195.6 $ 101.1 $

69.9 $

0.2
0.2
3.3
3.3

(22.4)
30.2
(3.6)
(17.1)

(6.8)
7.6
21.1
1.3

(1,785.5)
(9.5)
(22.3)
(26.6)

12.8 $
(0.6)
-
1.4
1.4

183.8
(1,792.9)

6%
99%
(1.9) 1,689%
0.2 (1,900%)
28%

(23.9)

PRODUCTION VOLUMES (tonnes)
Mixed Sulphides
Finished Nickel
Finished Cobalt
Fertilizer

3,674
3,782
382
61,460

6,036
5,111
404
16,650

NICKEL RECOVERY (%)

85%

87%

SALES VOLUMES (tonnes)
Finished Nickel
Finished Cobalt
Fertilizer

3,975
487
45,698

4,935
360
15,485

-
-
-
-

-
-
-

9,710
8,893
786
78,110

4,336
4,098
521
69,741

5,042
4,885
386
15,169

89%

86%

8,910
847
61,183

4,237
559
60,461

4,665
411
14,814

AVERAGE REFERENCE PRICES (US$ per pound)
Nickel
Cobalt(2)

$

4.90
13.51

-
-
-
-

-
-
-

9,378
8,983
907
84,910

4%
(1%)
(13%)
(8%)

8,902
970
75,275

-
(13%)
(19%)

$

4.27
11.34

15%
19%

AVERAGE- REALIZED PRICES(1)
Nickel ($ per pound)
Cobalt ($ per pound)
Fertilizer ($ per tonne)

$

6.39 $

16.85
326

6.50
18.73
160

- $
-
-

6.45 $

5.57 $

17.68
284

14.08
413

5.52
11.31
197

- $
-
-

5.54
12.91
371

16%
37%
(23%)

UNIT OPERATING COSTS(1) (US$ per pound)
Nickel - net direct cash cost

3.80 $

$

3.10

-

3.41 $

2.90 $

4.07

-

3.51

(3%)

SPENDING ON CAPITAL
Sustaining
Expansion

$

$

4.7 $
(2.1)
2.6 $

19.0 $
-
19.0 $

- $
-
- $

23.7 $
(2.1)
21.6 $

13.8 $
6.7
20.5 $

4.9 $
-
4.9 $

- $
-
- $

18.7
6.7
25.4

27%
(131%)
(15%)

(1)

(2)

For additional information see the Non-GAAP measures section.
Average low-grade cobalt published price per Metals Bulletin.

Finished Nickel Production
(Sherritt's ownership proportion, tonnes)

Moa JV

Ambatovy

Net Direct Cash Cost
(US$ per pound)

Moa JV

Ambatovy

4,442

4,242

4,145

3,620

4,295

3,669

3,782

5,111

$5.12

$4.41

$3.34

$2.94

$4.67

$3.55

$3.80

$3.10

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2016

Q2 2016

Q3 2016

Q4 2016

20 Sherritt International Corporation

$ millions, except as otherwise noted, for the years ended December 31

2016

2015

Moa J V and Ambatovy
J V

Fort Site

Other

Total

Moa JV and
Fort Site

Ambatovy
JV

Other

Total

Change

FINANCIAL HIGHLIGHTS
Revenue
(Loss) earnings from operations
Adjusted EBITDA(1)
Cash provided (used) by operations
Free cash flow(1)

$ 339.3 $ 264.8 $

(28.4)
19.6
(2.7)
(33.9)

(150.9)
(7.0)
(34.6)
(55.9)

48.0 $ 652.1 $ 412.6 $

332.0 $

0.8
0.8
3.1
3.1

(178.5)
13.4
(34.2)
(86.7)

(4.4)
42.2
53.4
(9.0)

(1,934.1)
(9.4)
(24.3)
(60.4)

60.5 $
0.5
0.5
4.1
4.1

805.1
(1,938.0)
33.3
33.2
(65.3)

(19%)
91%
(60%)
(203%)
(33%)

PRODUCTION VOLUMES (tonnes)
Mixed Sulphides
Finished Nickel
Finished Cobalt
Fertilizer

16,923
16,464
1,847
256,812

18,271
16,842
1,309
53,908

NICKEL RECOVERY (%)

87%

86%

SALES VOLUMES (tonnes)
Finished Nickel
Finished Cobalt
Fertilizer

16,402
1,846
167,525

16,844
1,281
52,482

-
-
-
-

-
-
-

35,194
33,306
3,156

18,510
16,853
1,867
310,720 255,991

19,598
18,908
1,386
54,930

89%

86%

33,246
3,127

16,980
1,885
220,007 182,065

18,857
1,362
56,033

AVERAGE REFERENCE PRICES (US$ per pound)
Nickel
Cobalt(2)

$

4.36
11.77

-
-
-
-

-
-
-

38,108
35,761
3,253
310,921

(8%)
(7%)
(3%)
-

35,837
3,247
238,098

(7%)
(4%)
(8%)

$

5.37
12.99

(19%)
(9%)

AVERAGE- REALIZED PRICES(1)
Nickel ($ per pound)
Cobalt ($ per pound)
Fertilizer ($ per tonne)

$

5.63 $

14.82
377

5.66
16.08
164

- $
-
-

5.65 $

6.72 $

15.33
326

15.69
425

6.64
14.50
196

- $
-
-

6.68
15.20
371

(15%)
1%
(12%)

UNIT OPERATING COSTS(1) (US$ per pound)
Nickel - net direct cash cost

3.42 $

$

4.27

-

3.85 $

3.88 $

4.83

-

4.38

(12%)

SPENDING ON CAPITAL (3)
Sustaining
Expansion

$

$

22.6 $
10.3
32.9 $

33.1 $
-
33.1 $

- $
-
- $

55.7 $
10.3
66.0 $

47.4 $
16.7
64.1 $

23.8 $
-
23.8 $

- $
-
- $

71.2
16.7
87.9

(22%)
(38%)
(25%)

(1)

(2)

(3)

For additional information see the Non-GAAP measures section.
Average low-grade cobalt published price per Metals Bulletin.
Ambatovy JV spending excludes payments made on arbitration settlements for the year ended December 31, 2015.

Sherritt International Corporation

21

Management’s discussion and analysis

Moa Joint Venture and Fort Site

Revenue is composed of the following:

$ millions

Nickel
Cobalt
Fertilizers
Other

For the three months ended

2016

2015

For the years ended

2016

2015

December 31

December 31

Change

December 31

December 31

Change

$

$

56.0
18.1
14.9
3.5
92.5

$

$

54.8
17.4
25.0
3.9
101.1

2% $
4%
(40%)
(10%)

(9%) $

203.5
60.3
63.2
12.3
339.3

$

$

254.5
65.2
77.4
15.5
412.6

(20%)
(8%)
(18%)
(21%)
(18%)

The change in earnings from operations between 2016 and 2015 is detailed below:

$ millions

Higher (lower) U.S. dollar denominated realized nickel prices
Higher (lower) U.S. dollar denominated realized cobalt prices
Lower fertilizer prices
Impact of lower cobalt and nickel sales volumes
Lower fertilizer sales volumes
Lower mining, processing and refining, third-party feed and fertilizer unit costs
Foreign exchange impact on operations
Other
Change in earnings from operations, compared to 2015

For the three

For the year

months ended

2016

ended

2016

December 31

December 31

$

$

3.7
2.9
(2.7)
(1.2)
(3.2)
2.6
(2.0)
(0.9)
(0.8)

$

$

(51.8)
(5.4)
(7.1)
(0.4)
(3.1)
46.3
(1.4)
(1.1)
(24.0)

Realized prices for nickel and cobalt were higher for the three months ended December 31, 2016 compared to the same period in
the prior year reflecting higher reference prices. For the year ended December 31, 2016, lower realized nickel and cobalt prices

reflect the impact of lower reference prices partly offset by a weakening of the Canadian dollar relative to the U.S. dollar.

Production of contained mixed sulphides for the three months ended December 31, 2016 was lower compared to the same period
in the prior year primarily due to the impact of Hurricane Matthew. In accordance with Moa Nickel’s standard operating
procedures, gradual shutdown measures were implemented ahead of the hurricane and operations subsequently resumed in a

staged process. Hurricane Matthew also caused a bridge collapse in November which impacted haulage time and distances as a
result of using secondary access roads. Production of contained mixed sulphides for the year ended December 31, 2016 was also
negatively impacted by higher levels of deleterious elements in the ore from new mining concessions.

Finished nickel and cobalt production for the three months ended December 31, 2016 was lower compared to the same period in

the prior year primarily due to the impact of lower mixed sulphides production. The impact of lower mixed sulphides production
for the year ended December 31, 2016 was partly offset by third party feed usage and a higher drawdown of mixed sulphides
inventory. The available third party feed used in 2016 was cobalt rich, resulting in relatively stable cobalt production for the year

ended December 31, 2016.

Fertilizer’s contributions to operating earnings for the three months ended December 31, 2016 were lower compared to the same
period in the prior year due to lower sales volume as a result of early winter weather and lower realized prices. Fertilizer’s
contributions to operating earnings for the year ended December 31, 2016 were lower compared to 2015 reflecting similar trends,

partly offset by lower maintenance and energy costs.

22 Sherritt International Corporation

Cost of sales(1) is composed of the following:

$ millions

December 31

December 31

Change

December 31

December 31

Change

For the three months ended

2016

2015

For the years ended

2016

2015

Mining, processing and refining
Third-party feed costs
Fertilizers
Selling costs
Other

(1)

Excludes depletion, depreciation and amortization

Net direct cash cost(1) is composed of the following:

$

$

56.7
4.9
12.4
4.5
5.5

84.0

$

$

61.3
4.7
16.4
4.7
6.2

93.3

(8%) $
4%
(24%)
(4%)
(11%)

$

221.2
12.9
42.7
16.4
16.3

(10%) $

309.5

$

254.1
13.9
57.6
16.6
23.6

365.8

(13%)
(7%)
(26%)
(1%)
(31%)

(15%)

For the three months ended

2016

2015

For the years ended

2016

2015

December 31

December 31

Change

December 31

December 31

Change

Mining, processing and refining costs
Third-party feed costs
Cobalt by-product credits
Other(2)

$

$

4.93
0.42
(1.55)

-

Net direct cash cost (US$ per pound of nickel)

$

3.80

$

4.60
0.38
(1.39)
(0.69)

2.90

7% $

11%
(12%)
100%

$

4.63
0.27
(1.26)
(0.22)

31% $

3.42

$

5.15
0.29
(1.36)
(0.20)

3.88

(10%)
(7%)
7%
(10%)

(12%)

(1)

(2)

For additional information see the Non-GAAP measures section.
Includes the Moa Joint Venture and Fort Site refinery fertilizer by-product profit or loss and marketing costs, discounts, and other by-product credits.

Net direct cash cost of nickel for the three months ended December 31, 2016 was higher compared to the same period in the
prior year primarily due to lower production volumes and lower fertilizer by-product credits, partly offset by higher cobalt by-
product credits. The impact of lower production volumes on mining and processing costs was partly offset by the benefits of the
new acid plant at Moa Nickel, which reduced the requirements for purchased sulphuric acid and fuel oil. The benefits of the new
acid plant are expected to be fully realized in 2017.

Net direct cash cost of nickel for the year ended December 31, 2016 was lower compared to 2015 primarily due to lower energy
prices, lower purchased sulphuric acid costs and lower maintenance costs which were partly offset by lower cobalt by-product
credits. Cobalt by-product credits were impacted by lower average reference prices for the year ended December 31, 2016.

Sustaining capital spending was lower in the three months and year ended December 31, 2016 compared to the same periods in
the prior year reflecting lower planned spending.

Construction of the third acid plant at the Moa Joint Venture was completed in the second quarter of 2016, with commissioning
activities and performance testing undertaken throughout the third quarter of 2016. The project was substantially complete and
commissioned on October 1, 2016 and is now producing sulphuric acid. Negative expansion capital spending for the three months
ended December 31, 2016 primarily reflects transfers of spare parts to inventory. The Moa Joint Venture is in the process of
finalizing project costs; it is expected that the total construction cost will be approximately US$10 million (100% basis) under
budget.

Sherritt International Corporation

23

Management’s discussion and analysis

Ambatovy

Revenue is composed of the following:

$ millions

Nickel
Cobalt
Fertilizers
Other

For the three months ended

2016
December 31

2015
December 31

For the years ended

Change

2016
December 31

2015
December 31

Change

$

$

70.7
14.9
2.5
0.1
88.2

$

$

56.8
10.2
2.9
-
69.9

24% $
46%
(14%)
-

26% $

210.1
45.4
8.6
0.7
264.8

$

$

276.3
43.6
11.0
1.1
332.0

(24%)
4%
(22%)
(36%)
(20%)

The change in earnings from operations between 2016 and 2015 is detailed below:

$ millions

Higher (lower) US dollar denominated realized nickel prices
Higher US dollar denominated realized cobalt prices
Impact of change in metals sales volumes
Higher (lower) fertilizer sales volumes
Lower mining, processing and refining, selling and fertilizer unit costs
Lower depreciation expense
Foreign exchange impact on operations
Lower impairment of assets
Other

Change in earnings from operations, compared to 2015

For the three

months ended

2016

For the year

ended

2016

December 31

December 31

$

11.0
6.3
(5.4)
0.1
18.4
16.8
(0.6)
1,722.5
1.4
$ 1,770.5

$

(50.5)
3.0
1.9
(0.6)
44.1
73.5
(13.8)
1,722.5
3.1
$ 1,783.2

Realized prices for nickel and cobalt were higher for the three months ended December 31, 2016 compared to the same period in
the prior year reflecting higher reference prices and, for cobalt, mark-to-market adjustments on provisionally priced sales. For the

year ended December 31, 2016, the lower realized price of nickel reflects a lower average reference price. Average realized price
for cobalt was higher than the average reference price for the year primarily due to the impact of mark-to market adjustments.
Realized prices for both nickel and cobalt for year ended December 31, 2016 were positively impacted by a weakening of the

Canadian dollar relative to the U.S. dollar.

In June, Ambatovy experienced a blockage in the tailings pipeline. As a result of the blockage, the plant shutdown initially planned
for August was brought forward to June and successfully completed in July. The blockage was cleared during the shutdown and
preventive measures were put in place to reduce the risk of reoccurrence. During the shutdown, required work on the air

separation and hydrogen plant was performed, including triennial inspections of pressure vessels in accordance with statutory
engineering codes. During the restart in the third quarter, the Corporation addressed a number of equipment reliability issues
that were experienced in the first half of 2016.

Production of nickel was higher in the fourth quarter of 2016 and lower for the year ended December 31, 2016 compared to the

same periods in the prior year. The fourth quarter 2016 production reflects improved equipment reliability and availability as a
result of the maintenance work completed during the plant shutdown. Production for the year ended December 31, 2016 reflects
the impact of the plant shutdown and a slower than anticipated restart in the third quarter. Finished nickel production for the

three months and year ended December 31, 2016 represents 85% and 70% of design capacity, respectively.

Nickel sales volumes were consistent with production volume for the three months and year ended December 31, 2016. Sales of
cobalt in the fourth quarter of 2016 were lower than production as one shipment was delayed to the new year.

Depletion, depreciation, and amortization expense for the three months and year ended December 31, 2016 was lower compared
to the same periods in the prior year primarily as a result of the lower asset carrying value due to the impairment recognized in the

fourth quarter of 2015.

24 Sherritt International Corporation

Cost of sales(1) is composed of the following:

$ millions

December 31

December 31

Change

December 31 December 31(2)

Change

For the three months ended

2016

2015

For the years ended

2016

2015

Mining, processing and refining
Selling costs
Impairment of inventory

Other

(1)

Excludes depletion, depreciation and amortization.

Net direct cash cost(1) is composed of the following:

$

$

54.7
3.7
-
1.4
59.8

$

$

68.4
3.5
36.4
3.9
112.2

(20%) $
6%
(100%)
(64%)

5% $

236.1
14.2
-
3.5
253.8

$

$

296.1
14.5
36.4
9.7
356.7

(20%)
(2%)
(100%)
(64%)
(29%)

For the three months ended

2016

2015

For the years ended

2016

2015

December 31

December 31

Change

December 31

December 31

Change

Mining, processing and refining costs
Cobalt by-product credits
Other(2)
Net direct cash cost (US$ per pound of nickel)

$

$

3.97
(0.97)
0.10
3.10

4.78
(0.90)
0.19
4.07

(17%) $
8%
(47%)
(24%)

$

4.89
(0.82)
0.20
4.27

5.49
(0.87)
0.21
4.83

(11%)
(6%)
(5%)
(12%)

(1)

(2)

For additional information see the Non-GAAP measures section.
Includes selling costs, discounts, and other by-product credits.

Net direct cash cost of nickel decreased for both the three months and year ended December 31, 2016 compared to the same
periods in the prior year. For the three months ended December 31, 2016, NDCC was impacted by higher sales volumes as a

result of increased production stability and equipment availability as well as lower commodity input prices. For the year ended
December 31, 2016, NDCC decreased, despite lower production, due to operational efficiencies and lower overall input commodity
prices partly offset by maintenance shutdown costs.

Spending on capital increased in the three months and year ended December 31, 2016, reflecting timing of planned spending.

Capital spending for Ambatovy is focused on sustaining capital for mining and production equipment, specifically the purchase
of an excavator and articulated dump trucks in the fourth quarter as well as spending for the tailings facility.

Deferral of principal repayment on the Ambatovy Joint Venture financing

In August 2016, the Ambatovy Joint Venture financing lenders agreed to up to six principal payment deferrals totaling US$565.1
million (100% basis), which are to be repaid on a schedule starting in June 2021, or earlier subject to cash flow generation. Until
June 2019, the Ambatovy Joint Venture will pay semi-annual interest payments only (approximately US$56.0 million per year) and

will not make semi-annual principal payments unless there is sufficient free cash flow after required deductions. Deferred
principal is subject to an additional 2% accrued interest calculated from the date of each deferral. From June 2019 to June 2021,
semi-annual payments of approximately US$28.0 million interest and US$94.0 million principal will be payable, and from June

2021 to the end of term in 2024, semi-annual amortized deferred principal and accrued interest repayments will be payable
together with the regular semi-annual principal and interest payments.

Sherritt International Corporation

25

Management’s discussion and analysis

OIL AND GAS

Financial review

$ millions, except as otherwise noted

December 31

December 31

Change

December 31

December 31

Change

For the three months ended

2016

2015

For the years ended

2016

2015

FINANCIAL HIGHLIGHTS
Revenue
Loss from operations
Adjusted EBITDA(1)
Cash provided by operations
Free cash flow(1)

PRODUCTION AND SALES(2)
Gross working-interest (GWI) - Cuba
Total net working-interest (NWI)

AVERAGE REFERENCE PRICES (US$ per barrel)
West Texas Intermediate (WTI)
Gulf Coast Fuel Oil No. 6
Brent

AVERAGE- REALIZED PRICES(1) (per NWI)
Cuba ($ per barrel)
Spain ($ per barrel)
Pakistan ($ per boe)(2)
Weighted-average ($ per boe)

UNIT OPERATING COSTS(1)(2)(3) (per GWI)
Cuba
Spain
Pakistan
Weighted-average ($ per boepd)

SPENDING ON CAPITAL
Development, facilities and other
Exploration

$

$

$

$

$

$

$

30.6
2.8
11.6
11.4
3.3

30.5
(1.2)
9.7
30.2
23.3

- $

333%
20%
(62%)
(86%)

$

108.6
(16.3)
35.6
76.4
50.4

162.6
(71.6)
81.9
80.7
21.4

(33%)
77%
(57%)
(5%)
136%

14,470
8,163

17,045
10,727

(15%)
(24%)

15,452
9,483

18,257
11,158

(15%)
(15%)

49.21
41.12
48.53

39.75
63.27
10.99
38.98

10.95
60.75
4.81
11.68

0.4
7.8
8.2

$

$

$

$

$

17% $
38%
12%

43.37
32.13
43.31

42.05
29.86
43.45

29.38
53.39
11.00
29.53

10.82
60.40
9.87
11.64

35% $
19%
-
32%

1% $
1%
(51%)
-

133% $

(1.2)
0.5
(0.7) 1271% $

1460%

$

$

$

$

$

48.69
40.68
52.08

(11%)
(21%)
(17%)

38.35
67.37
10.63
38.73

9.53
61.12
8.56
10.69

(22%)
(16%)
1%
(23%)

2%
(11%)
(15%)
(1%)

53.1
1.4
54.5

(83%)
1114%
(52%)

29.93
56.33
10.71
29.98

9.75
54.51
7.26
10.58

8.9
17.0
25.9

For additional information see the Non-GAAP measures section.

(1)
(2) Oil production is stated in barrels of oil per day (bopd). Natural gas production is stated in barrels of oil equivalent per day (boepd), which is

converted at 6,000 cubic feet per barrel. Collectively, oil and natural gas production are stated in barrels of oil equivalent per day (boepd).
Excludes the impact of impairment of property, plant and equipment.

(3)

Cuba Production - Gross Working- Interest
(Boepd)

Weighted- average Unit Operating Cost
($ per gross boe)

16,449

16,200

$11.68

14,709

14,470

$10.57

$10.35

$9.76

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2016

Q2 2016

Q3 2016

Q4 2016

26 Sherritt International Corporation

Oil and Gas revenue is composed of the following:

$ millions

Cuba
Spain
Pakistan
Processing

For the three months ended

2016

2015

For the years ended

2016

2015

December 31

December 31

Change

December 31

December 31

Change

$

$

27.2
1.5
0.5
1.4
30.6

$

$

27.4
1.5
0.2
1.4
30.5

(1%) $
-
150%
-
- $

96.6
5.9
1.5
4.6
108.6

$

$

146.1
10.5
1.1
4.9
162.6

(34%)
(44%)
36%
(6%)
(33%)

The change in earnings from operations between 2016 and 2015 is detailed below:

$ millions

Higher (lower) realized oil and gas prices, denominated in U.S. dollars
Lower Cuba gross working-interest volumes
Lower Spain volumes
Lower cost recovery revenue
Lower depletion, depreciation and amortization
Foreign exchange impact on operations
Lower impairment of Oil assets
Lower operating costs
Other
Change in earnings from operations, compared to 2015

For the three

months ended

2016

For the year

ended

2016

December 31

December 31

$

$

6.6
(3.1)
0.1
(3.7)
1.1
1.0
-
3.0
(1.0)
4.0

$

$

(22.8)
(17.4)
(3.1)
(13.1)
24.2
5.8
72.2
14.3
(4.8)
55.3

Average reference price was higher in the three months ended December 31, 2016 but lower for the year ended December 31,
2016 compared to the same periods in the prior year. As a result, realized prices were higher in the fourth quarter of 2016 and

lower for the year. The average-realized prices for the year ended December 31, 2016 also benefited from the impact of a weaker
Canadian dollar relative to the U.S. dollar.

In the third quarter of 2016, the Corporation recognized an impairment loss of $8.5 million ($6.6 million net of tax) for the write-
down of the Puerto Escondido/Yumuri extension cash-generating unit, within the Oil and Gas segment, to its recoverable
amount. This impairment was the result of a decrease in internally forecasted oil reserves at the PE/YU extension due to two oil

wells being shut-in as a result of low oil production. Its recoverable amount was determined to be negligible based on a value in
use analysis at September 30, 2016.

Production and sales volumes were as follows:

Daily production volumes(1)

December 31

December 31

Change

December 31

December 31

Change

Gross w orking- interest oil production in Cuba
Net w orking- interest oil production

14,470

17,045

(15%)

15,452

18,257

(15%)

For the three months ended

2016

2015

For the years ended

2016

2015

Cuba (heavy oil)
Cost recovery
Profit oil

Total
Spain (light oil)
Pakistan (natural gas)

1,710
5,742
7,452
271
440
8,163

4,580
5,565
10,145
292
290
10,727

(63%)
3%
(27%)
(7%)
52%
(24%)

3,381
5,443
8,824
289
370
9,483

4,059
6,378
10,437
426
295
11,158

(17%)
(15%)
(15%)
(32%)
25%
(15%)

(1)

Refer to Oil and Gas production and sales volume on page 53 for further detail.

Gross working-interest oil production in Cuba decreased for the three months and year ended December 31, 2016 compared to

the same periods in the prior year primarily due to natural reservoir declines and the absence of new development drilling in 2016.

Sherritt International Corporation

27

Management’s discussion and analysis

Cost-recovery oil production in Cuba for the three months decreased compared to the same period in the prior year as a result of
lower cost-recovery spending and the impact of higher oil prices in the fourth quarter. For the year ended December 31, 2016
lower cost-recovery oil production in Cuba was due to lower cost-recovery spending partly offset by lower oil prices. The allocation

of cost recovery barrels in any particular period is limited to a fixed percentage of GWI volumes within each cost pool.
Expenditures that exceed this limit are carried forward and are eligible for a future allocation of cost recovery barrels.

Profit oil production, which represents Sherritt’s share of production after cost recovery volumes are deducted from GWI volumes,
was marginally higher in the three months ended December 31, 2016 and lower in year ended December 31, 2016 as a result of a

reduction in GWI volumes.

In Spain, oil production was lower in the three months and year ended December 31, 2016 compared to the same periods in the
prior year mainly as a result of production normalizing in the Rodaballo field since the major workover was completed in the first
quarter of 2015 and natural reservoir declines.

Unit operating cost in Cuba was relatively unchanged in the three months and year ended December 31, 2016 compared to the

same periods in the prior year. For the three months ended December 31, 2016, the negative impact of lower production volumes
was largely offset by lower labour costs. For the year ended December 31, 2016 lower production volumes and a weaker Canadian
dollar relative to the U.S. dollar were largely offset by lower workover costs.

Unit operating cost in Spain was relatively unchanged in the three months ended December 31, 2016 compared to the same

period in the prior year. For the twelve months ended December 31, 2016 unit operating costs were lower than the prior year
primarily due to lower workover costs in 2016, partly offset by lower production volumes.

Spending on capital was higher in the three months ended December 31, 2016 compared to the same period in the prior year as
the Corporation continued its drilling program on Block 10 in Cuba. Overall capital spending was substantially lower in the year

ended December 31, 2016 compared to the prior year primarily due to the limited drilling activities in 2016 except for the Block
10 exploration drilling which began in the third quarter of 2016.

28 Sherritt International Corporation

POWER

Financial review

$ millions (331/3% basis), except as otherwise noted

December 31

December 31

Change

December 31

December 31

Change

For the three months ended

2016

2015

For the years ended

2016

2015

FINANCIAL HIGHLIGHTS
Revenue
(Loss) earnings from operations
Adjusted EBITDA(1)
Cash provided by operations
Free cash flow(1)

PRODUCTION AND SALES
Electricity (GWh(2))

AVERAGE- REALIZED PRICES(1)
Electricity (per MWh(2))

UNIT OPERATING COSTS(1)(per MWh)
Base
Non-base(3)

$

$

$

$

13.7
(1.3)
7.4
(3.3)
(3.7)

13.7
(3.3)
5.5
6.5
4.4

- $

61%
35%
(151%)
(184%)

$

58.6
(5.3)
29.5
8.0
7.0

52.7
(3.7)
30.0
61.4
57.0

11%
(43%)
(2%)
(87%)
(88%)

224

226

(1%)

894

902

(1%)

56.24

$

56.53

(1%) $

56.10

$

54.26

3%

$

22.39
2.34
24.73

23.77
10.11
33.88

(6%) $

(77%)
(27%)

17.70
5.24
22.94

$

$

$

17.57
3.43
21.00

1%
53%
9%

4.4
(77%)
(0.3) 1,633%
37%
4.1

SPENDING ON CAPITAL AND SERVICE CONCESSION ARRANGEMENTS
Sustaining
Service concession arrangements

$

0.4
0.1
0.5

$

2.2
(0.2)
2.0

(82%) $
150%
(75%) $

1.0
4.6
5.6

(1)

(2)

(3)

For additional information see the Non-GAAP measures section.
Gigawatt hours (GWh), Megawatt hours (MWh).
Costs incurred at the Boca de Jaruco and Puerto Escondido facilities that otherwise would have been capitalized if these facilities were not accounted
for as service concession arrangements.

Electricity Generation
(GWh - 331/3% basis)

227

226

Unit Operating Cost
(per MWh)

$24.40

$25.55

$24.73

224

$16.86

217

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Sherritt International Corporation

29

Management’s discussion and analysis

Power revenue is composed of the following:

$ millions (331/3% basis)

Electricity sales
By-products and other
Construction activity(1)

For the three months ended

2016

2015

For the years ended

2016

2015

December 31

December 31

Change

December 31

December 31

Change

$

$

12.6
1.0
0.1

13.7

$

$

12.9
1.0
(0.2)

13.7

(2%) $
-
150%

- $

50.2
3.8
4.6

58.6

$

$

2%
49.0
4.0
(5%)
(0.3) 1633%

52.7

11%

(1)

Value of construction, enhancement or upgrading activity of the Boca de Jaruco and Puerto Escondido facilities. The contractual arrangements related
to the activities of these facilities are treated as service concession arrangements for accounting purposes. Construction activity revenue is offset
equally by construction activity expenses recorded in cost of goods sold.

The change in earnings from operations between 2016 and 2015 is detailed below:

$ millions (331/3% basis)

Lower electricity volumes
Lower U.S. dollar denominated realized by-product prices
Higher depletion, depreciation and amortization
Foreign exchange impact on operations
Major inspection costs
Other
Change in earnings from operations, compared to 2015

For the three

months ended

2016

For the year

ended

2016

December 31

December 31

$

$

(0.2)
(0.2)
0.8
0.4
-
1.2
2.0

$

$

(0.5)
(0.2)
(0.1)
0.4
(1.7)
0.5
(1.6)

Production of electricity was relatively unchanged for the three months and year ended December 31, 2016 compared to the same
periods in the prior year. The slight decrease for 2016 is primarily related to maintenance activities performed. Construction

revenue relates to the construction of the Puerto Escondido/Yumuri pipeline which is accounted for as a service concession
arrangement.

The price of electricity is covered under long-term contracts. Therefore, the change in realized price is generally a function of the
change in the Canadian Dollar relative to the U.S. dollar. As such, the average-realized price of electricity was relatively unchanged

for the three months ended December 31, 2016 and increased for the year ended December 31, 2016 compared to the same
periods in the prior year where the Canadian dollar weakened relative to the U.S. dollar.

Unit operating cost decreased for the three months ended December 31, 2016 compared to the same period in the prior year due
to reduced maintenance costs. The increase in the year ended December 31, 2016 was primarily due to a planned major

inspection of a gas turbine at Boca de Jaruco, as well as the impact of a weaker Canadian dollar relative to the U.S. dollar.

During the third quarter, the Puerto Escondido/Yumuri pipeline was completed and became operational. The pipeline will conserve
gas currently being flared at Yumuri and transfer the gas for processing at the Puerto Escondido facility. The pipeline is expected
to increase total electricity generation by 8% on a go forward basis.

On December 15, 2016, Power received approval from the Cuban Executive Committee to extend the operating term of the

Varadero power facilities from 2018 to 2023.

30 Sherritt International Corporation

Investment in Ambatovy

AMBATOVY JOINT VENTURE FUNDING AND SHAREHOLDERS AGREEMENT

Sherritt continues not to fund further cash calls due to the structure of the Ambatovy partner loans, which, at current nickel

prices, effectively reduces Sherritt’s 40% interest in Ambatovy to a 12% economic interest(1). Sherritt continues to serve as
operator. The outcome of ongoing partner discussions is not certain –for additional information see the Managing Risks -
“Ambatovy Liquidity and Funding Risks”and “Restrictions in Debt Instruments, Debt Covenants and Mandatory Repayments”in

this MD&A.

As at December 31, 2016, total post-financial completion cash funding provided by Sumitomo and KORES was US$173.0 million
pursuant to total post-financial completion cash calls of US$288.3 million, with cash funding of US$20.0 million and US$143.0
million provided during the three months and year ended December 31, 2016, respectively. Sherritt has not funded any portion

of these cash calls, and continues not to fund. Sherritt’s unfunded amounts remain payable. These amounts will be subtracted
from future Ambatovy Joint Venture distributions, or may be set off against other amounts owed to Sherritt.

By agreement amongst the partners, Sherritt is not considered to be a defaulting shareholder under the Shareholders Agreement
for amounts not funded through March 10, 2017 while discussions continue regarding the partnership structure and future

funding arrangements. As part of this agreement, shareholder funding contributed from and including December 15, 2015, will
accrue interest at a rate of LIBOR plus 8.0% and will be paid in priority to the subordinated loans payable. Repayments of
principal and interest will not be made prior to certain conditions being satisfied.

(1)

70% of Sherritt’s distributable cash flow from Ambatovy (after opex, capex and project debt service) goes to Partner Loan repayment, leaving Sherritt
with 30%; 30% of Sherritt’s 40% ownership = 12%.

Sherritt International Corporation

31

Management’s discussion and analysis

NET INVESTMENT IN AMBATOVY

Management reviews its investment in Ambatovy (Net Investment) on a net basis as management believes this more accurately

reflects its exposure to and potential returns from Ambatovy. The Corporation defines its Net Investment in Ambatovy as its
Investment in Associate plus Ambatovy subordinated loans receivable less the Corporation’s non-recourse Ambatovy Joint Venture
Additional Partner Loans as reported in the financial statements. For additional information see the Non-GAAP measures section.

The Ambatovy Joint Venture additional partner loans were used to fund a portion of Sherritt’s contributions to the Ambatovy Joint

Venture. These loans are non-recourse to the Corporation. Interest and principal on these loans will be repaid solely through the
Corporation’s share of the distributions from the Ambatovy Joint Venture. The Corporation categorizes recourse and non-recourse
debt differently because lenders of non-recourse debt do not have access to the Company’s assets and repayment is solely from

distributions of the Ambatovy Joint Venture, resulting in a significantly different debt to capital structure as shown in the table
below.

The table below reconciles the Net Investment in Ambatovy to the consolidated statement of financial position:

Unaudited, Canadian $ millions, as at
ASSETS
Current assets
Non- current assets

Advances, loans receivable and other financial
assets
Investment in an associate
Net investment in Ambatovy
Other non-current assets

Total assets

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Non- current liabilities

Non-recourse loans and borrowings
Loans and borrowings
Other non-current liabilities

Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Total debt- to- capital (2)

2016

December 31

Investment in

Subordinated
Associate Loan Receivable

Ambatovy JV

Partner Loans

2016

2015
December 31 December 31(1)

Ambatovy

Non-recourse

Adjusted

Adjusted

$

720.9 $

- $

- $

- $

720.9 $

820.4

1,542.7
767.9
-
775.4
3,806.9 $

226.0 $

1,367.5
817.7
297.8
2,709.0
1,097.9
3,806.9 $

69%

$

$

$

-
(767.9)
767.9
-
- $

(943.4)
-
943.4
-
- $

-
-
(1,367.5)
-

(1,367.5)$

599.3
-
343.8
775.4
2,439.4 $

413.3
-
641.3
911.8
2,786.8

- $

-
-
-
-
-
- $

- $

-
-
-
-
-
- $

- $

226.0 $

212.1

(1,367.5)
-
-
(1,367.5)
-

(1,367.5)$

-
817.7
297.8
1,341.5
1,097.9
2,439.4 $

48%

-
868.7
148.9
1,229.7
1,557.1
2,786.8
38%

(1)

(2)

For additional information see the Non-GAAP measures section.
Calculated as total debt divided by the sum of total debt and shareholders’equity.

32 Sherritt International Corporation

Liquidity and capital resources

Total available liquidity at December 31, 2016 was $309.6 million which is composed of available cash, cash equivalents and short
term investments. The Corporation’s syndicated revolving-term credit facility is fully drawn.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table provides a summary of consolidated significant liquidity and capital commitments based on existing

commitments and debt obligations (including accrued interest):

Falling

Falling

due

Falling

due

Falling

due

Falling

due

Falling

due in

due within

between

between

between

between

more than

Canadian $ millions, as at December 31, 2016

Total

1 year

1-2 years

2-3 years

3-4 years

4-5 years

5 years

Trade accounts payable and

accrued liabilities
Income taxes payable
Senior unsecured debentures
Ambatovy Joint Venture Additional
Partner loans (non-recourse)(1)

Ambatovy Joint Venture Partner loans(1)
Syndicated revolving-term credit facility
Provisions
Operating leases
Capital commitments
Other
Total

$

$

148.3 $
4.4
1,116.3
3,236.3

160.0
44.9
154.3
17.0
10.3
0.9
4,892.7 $

148.3 $
4.4
56.0
-

-
44.9
16.3
2.9
10.3
-

283.1 $

- $
-
56.0
-

-
-
5.1
3.0
-
-
64.1 $

- $
-
56.0
-

-
-
-
3.0
-
-
59.0 $

- $
-
56.0
-

-
-
-
3.0
-
-
59.0 $

- $
-
276.0
-

-
-
-
1.0
-
-

277.0 $

-
-
616.3
3,236.3

160.0
-
132.9
4.1
-
0.9
4,150.5

(1)

The interest and principal on the loans from the Ambatovy Joint Venture partners will be repaid from the Corporation’s share of distributions from
the Ambatovy Joint Venture. Amounts are based on management’s best estimate of future cash flows including estimating assumptions such as
commodity prices, production levels, cash costs of production, capital and reclamation costs. The Ambatovy Joint Venture additional partner loans
are non-recourse to Sherritt unless there is a direct breach of certain restrictions stipulated in the loan documents. The maturity analysis table
includes an estimate of interest repayments.

OTHER COMMITMENTS

The following commitments are not reflected in the table above:

Moa Joint Venture

As a result of the Corporation’s 50% interest in the Moa Joint Venture, its proportionate share of significant commitments of the
joint venture includes the following:





Environmental rehabilitation commitments of $92.7 million, with no significant payments due in the next five years;

Advances and loans payable of $272.5 million included within advances and loans payable is the loan related to the
construction of the acid plant of $24.1 million. Interest accrues at 10% per annum and is payable monthly. The loan is
expected to be repaid in full by January 2019.

Ambatovy Joint Venture

As a result of the Corporation’s 40% interest in the Ambatovy Joint Venture, its proportionate share of significant commitments of
the Joint Venture includes the following:







Environmental rehabilitation commitments of $241.9 million, with no significant payments due in the next five years;

Other contractual commitments of $34.8 million;

Ambatovy revolving credit facility of $20.2 million. The facility bears interest rates between 9.00% and 11.85% and
matures on July 31, 2017; and

Sherritt International Corporation

33

Management’s discussion and analysis



The Ambatovy Joint Venture senior debt financing of US$640.4 million ($847.5 million) which is non-recourse to the Joint
Venture partners. Interest is payable based on LIBOR plus a weighted-average margin of 2.5%. Deferred principal will be
subject to an additional 2% accrued interest calculated from the date of each deferral. On an undiscounted basis,
principal and interest repayments are $1.1 billion.

INVESTMENT LIQUIDITY

At December 31, 2016, cash and cash equivalents and investments were located in the following countries:

$ millions, as at December 31, 2016

Canada
Cuba
Other

Cash and short-term investments

Cash equivalents
and
short-term
investments

Cash

$

$

70.2 $
26.8
9.7
106.7 $

202.9 $

-
-

202.9 $

Total

273.1
26.8
9.7
309.6

The Corporation’s cash balances are deposited with major financial institutions rated A- or higher by Standard & Poor’s, except
for institutions located in Madagascar and Cuba that are not rated.

The Corporation’s cash equivalents consist of Government of Canada treasury bills, term deposits with maturities of 90 days or

less and demand deposits redeemable upon 31 days request. The term deposits and demand deposits are with major financial
institutions. As at December 31, 2016, the Corporation had $122.9 million in Government of Canada treasury bills, $25.0
million in term deposits and $15.0 million in demand deposits (December 31, 2015 - $93.9 million, $25.0 million and nil,

respectively) included in cash and cash equivalents and $40.0 million in Government of Canada treasury bills included in short-
term investments (December 31, 2015 - $204.8 million).

The table above does not include cash and cash equivalents of $7.0 million held by the Moa Joint Venture, or $30.7 million held
by the Ambatovy Joint Venture. The Corporation’s share is included as part of the investment in a joint venture and associate

balances in the consolidated statement of financial position.

Non-recourse Loans and Borrowings

$1.4 billion in loans provided by the Ambatovy Joint Venture partners to finance Sherritt’s portion of funding requirements of the

Joint Venture bearing interest of six-month LIBOR plus a margin of 7.0%. These loans are non-recourse to the Corporation.
Interest and principal on these loans will be repaid solely through the Corporation’s share of the distributions from the Ambatovy
Joint Venture.

Other Loans and Borrowings
Other Loans and borrowings are composed primarily of:







$720.0 million in unsecured debentures and notes having interest rates between 7.50% and 8.00% having maturities in

2021, 2023 and 2025.

$133.3 million in loans provided by the Ambatovy Joint Venture partners to finance Sherritt’s portion of funding
requirements of the Joint Venture bearing interest of six-month LIBOR plus a margin 1.125%,

$43.0 million in the syndicated revolving-term credit facility bearing interest at prime plus 2.50% per annum or bankers’
acceptances plus 3.50%.

The following is a summary of significant changes in the Corporation’s credit facilities during 2016.

Uns ecured debentures :

In July, the Corporation completed a plan of arrangement which extended the maturities of its unsecured debentures to 2021,
2023 and 2025 and at the same time repurchased $30 million of debentures at a discount resulting in a gain on repurchase of
$12.6 million.

The applicable interest rates and existing covenants for the Notes remain unchanged. The Noteholders that voted in favour of the

Extension received, at the option of the Noteholder, either:

34 Sherritt International Corporation





cash consent consideration equal to 2% of the principal amount of the debentures; or,

73.25 warrants for each $1,000 of principal amount of debentures held. Warrants have a term of 5 years, are not listed
on any exchange and have an exercise price of $0.74 per share.

As a result, 19.1 million warrants were granted to the Noteholders that elected for this option with a fair value of $0.43 per

warrant which totalled $8.2 million. The fair value of the warrants was determined using the Black-Scholes option valuation
model and was recognized in Reserves. Cash consent fees paid to Noteholders that voted in favour of the extension and other
transaction fees totalled $14.8 million.

Syndicated rev olv ing- term credit facility

During the year, the terms of the syndicated revolving-term credit facility were amended to update the financial covenants. The

maximum credit available was reduced from $115 million to $90 million with the total available draw based on eligible
receivables and inventory. The interest rates increased from prime plus 2.25% or bankers’acceptance plus 3.25% to prime plus
2.50% or bankers’acceptance plus 3.50%. The facility was subject to the following financial covenants as at December 31, 2016:

net financial debt-to-EBITDA covenant of 4.25:1, net financial debt-to-equity covenant of 0.55:1 and EBITDA-to-interest expense
covenant of not less than 1.75:1. If net financial debt-to-EBITDA is greater than 3.75:1, unrestricted cash must be greater than
50% of the lower of the borrowing base amount and facility amount.

On January 31, 2017, the syndicated revolving-term credit facility was renewed with a maximum credit available of $90.0 million,

$13.7 million of which matures on April 21, 2017 and the remaining $76.3 million matures on January 30, 2018. The maximum
credit available will further decrease by 4.167% quarterly beginning April 28, 2017. Collectively, these reductions in available
credit will result in outstanding credit of $63.6 million at January 30, 2018. The interest rates increased from prime plus 2.50%

or bankers’acceptance plus 3.50% to prime plus 3.50% or bankers’acceptance plus 4.50%. The facility is subject to the following
financial covenants and restrictions:







Net financial debt-to-EBITDA covenant of 4.25:1, increasing to 4.75:1 by maturity;

EBITDA-to-interest expense covenant of not less than 1.75:1; and

Limits on capital expenditures, funding of the Ambatovy Joint Venture and Moa Joint Venture, and maintenance of a
minimum balance of $180.0 million of cash and cash equivalents and short-term investments held by the Corporation’s

wholly-owned subsidiaries.

Line of credit

In February 2016, the Corporation terminated the line of credit and repaid the $35.0 million outstanding balance.

CAPITAL STRUCTURE

$ millions, except as otherwise noted

Non-recourse loans and borrowings
Other loans and borrowings
Other financial liabilities
Total debt
Shareholders' equity
Total debt-to-capital (1)

Common shares outstanding
Stock options outstanding
Warrants outstanding

2016

2015

December 31

December 31

Change

$

$

1,367.5 $
860.7
168.0
2,396.2 $
1,097.9
69%

1,303.2
959.9
3.4
2,266.5
1,557.1
59%

294,174,923
9,598,416
18,800,918

293,853,001
6,149,349
-

5%
(10%)
4841%
6%
(29%)
16%

-
56%
-

(1)

Calculated as total debt divided by the sum of total debt and shareholders’equity.

As part of the consideration provided to Noteholders who voted in favour of the debenture extension had the option to acquire

warrants. As a result 19.1 million warrants with a fair value of $0.43 per warrant were granted to the Noteholders that elected
for this option. These warrants had a total value of $8.2 million. Warrants are exercisable at any time at an exercise price of
$0.74 per share and have a term of 5 years. They are not listed on any exchange. During 2016, 321,922 warrants were

exercised.

Sherritt International Corporation

35

Management’s discussion and analysis

Covenants

Certain of the Corporation’s credit facilities, loans and debentures have financial tests and other covenants with which the
Corporation and its affiliates must comply. Non-compliance with such covenants could result in accelerated repayment of the
related debt or credit facilities and classification of the amounts to current. The Corporation monitors its covenants on an ongoing

basis and reports on its compliance with the covenants to its lenders on a quarterly basis.

As at December 31, 2016, there are no events of default on the Corporation’s borrowings or debentures.

SOURCES AND USES OF CASH

The Corporation’s cash flows from operating, investing and financing activities are summarized in the following table as derived

from Sherritt’s consolidated statements of cash flow(1).

$ millions

December 31

December 31

Change

December 31

December 31

Change

For the three months ended

2016

2015

For the years ended

2016

2015

Cash provided (used) by operating activities
Oil and Gas operating cash flow
Power operating cash flow

(excluding interest received on Energas CSA loan)

Fort Site operating cash flow
Dividends received from the Moa Joint Venture
Interest received on the Moa Joint Venture loans
Interest received on Energas CSA loan
Interest paid on debentures
Corporate and other operating cash flow
Cash provided by continuing operations
Cash used by discontinued operations

Cash provided (used) by investing and financing
activities
Property, plant, equipment and intangible expenditures
Receipts of advances, loans receivable and other

financial assets

Increase in advances, loans receivable and other financial

assets

Increase of loans, borrowings and other financial liabilities
Repayment of other loans and borrowings
Loans to the Ambatovy Joint Venture
Net proceeds from sale of Corporate assets
Dividends paid on common shares
Issuance of common shares
Fees paid on debenture extension
Other

Cash, cash equivalents and short- term investments:
Beginning of the period
End of the period

$

11.4

$

30.2

(62%) $

76.4

$

80.7

(5%)

(3.3)
(6.0)
-
0.6
-

(19.0)
(6.3)
(22.6)
(0.6)

3.7
1.2
-
0.6
2.8
(20.4)
(7.3)
10.8
(12.3)

(189%)
(600%)
-
-
(100%)
7%
14%
(309%)
95%

(23.2) $

(1.5) (1447%) $

4.1
(3.5)
-
2.7
3.9
(59.8)
(22.2)
1.6
(7.4)
(5.8) $

23.5
14.3
12.5
9.1
37.9
(58.9)
(54.6)
64.5
(16.0)
48.5

(83%)
(124%)
(100%)
(70%)
(90%)
(2%)
59%
(98%)
54%
(112%)

(10.8) $

(11.2)

4% $

(40.2) $

(80.4)

50%

-

8.3

(100%)

-
-
(2.0)
-
-
-
0.2
(0.2)
0.4
(12.4) $
(35.6)

-
65.0
(0.4)
-
-
-
-
-
0.4
62.1
60.6

-
(100%)
(400%)
-
-
-
-
-
-

(120%) $
(159%)

1.3

-
-

(65.7)

-
-
-
0.2
(14.8)
(0.8)
(120.0) $
(125.8)

38.5

(97%)

100%
(17.1)
90.0
(100%)
(1.6) (4006%)
100%
(100%)
100%
(71%)
-
(126%)
(33%)
(201%)

(135.7)
21.2
(9.0)
0.7
-
3.1
(90.3)
(41.8)

345.2
309.6

$

374.8
435.4

(8%)

(29%) $

435.4
309.6

$

477.2
435.4

(9%)
(29%)

$

$

$

$

(1)

Cash used by discontinued operations relates to payments made in respect of a provision on Obed tailing pond breach retained by the Corporation
following the sale of the Coal operations in 2014.

The following significant items affected the sources and uses of cash:

Cash from continuing operations was lower during the three months and year ended December 31, 2016 compared to the prior

year periods:







cash from operating activities at Oil and Gas was lower for the three months and year ended December 31, 2016
primarily due to lower collections of receivables;

interest received on the Energas CSA loan was $nil million and $3.9 million for the three months and year ended
December 31, 2016 compared to $2.8 million and $37.9 million for prior year periods;

cash from operating activities at Fort Site is lower for the three months and year ended December 31, 2016 primarily

relate to the timing of collection and realization of fertilizer sales. During 2016, fertilizer revenue was lower as a result
of lower volume and market prices;

36 Sherritt International Corporation



cash used by Corporate and for other operating activities was lower for year ended December 31, 2016 lower due to
timing of working capital payments.

Included in investing and financing activities:







expenditures on property, plant and equipment were significantly lower in the year ended December 31, 2016 compared
to the prior year as the Corporation limited its expenditures to sustaining activities and Block 10 exploration drilling
spending;

fees paid on debenture extension in the year ended December 31, 2016 are consent fees and other transaction fees on
the extension of the Corporation’s debentures;

included within the $65.7 million repayment of loans and borrowings in the year ended December 31, 2016 is the
repurchase of debentures of $17.4 million, repayment and termination of the $35.0 million line of credit and a $12.0
million repayment on the revolving-term credit facility.

CASH FLOW SUMMARY

The Corporation’s cash flow from operations, combined adjusted operating cash flow(1) and free cash flow(1) are summarized in
the following table as derived from Sherritt’s consolidated statements of cash flow.

$ millions
Cash provided by continuing operations
Combined adjusted operating cash flow
Combined free cash flow

For the three months ended

2016

2015

December 31

$

(22.6) $
8.2
(45.5)

December 31
10.8
(29.5)
(24.8)

(1)

For additional information see the Non-GAAP measures section.

For the years ended

2016

2015

Change
(309%) $
128%
(83%)

December 31

1.6 $

(46.8)
(111.9)

Change
December 31
(98%)
64.5
63.1 (174%)
(13%)
(98.8)

During the three months ended December 31, 2016 combined adjusted operating cash flow, which excludes changes in working
capital, was higher compared to the same period in the prior year primarily as a result of higher adjusted operating cash flow at
Ambatovy as a result of lower operating losses.

For the year ended December 31, 2016 combined adjusted operating cash flow was lower compared to the prior year primarily as

a result of lower operating earnings at each of the divisions and the absence of interest and dividend payments from Energas and
the Moa Joint Venture.

During the three months and year ended December 31, 2016, combined free cash flow was lower compared to the same periods in
the prior year primarily due lower cash from operations at each of the divisions, except Ambatovy in the fourth quarter, partly

offset by lower combined capital expenditures. In the fourth quarter of 2016, Ambatovy used less cash from operations and had
higher capital expenditures than in the same period in the prior year.

Free Cash Flow

s
n
o

i
l
l
i

m
$

60.0

40.0

20.0

0.0

(20.0)

(40.0)

(60.0)

(80.0)

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Moa JV & Fort Site

Ambatovy JV

Oil and Gas

Power

Combined free cash flow

Sherritt International Corporation

37

Management’s discussion and analysis

COMMON SHARES

As at February 16, 2017, the Corporation had 294,275,599 common shares outstanding. An additional 9,598,416 common
shares are issuable upon exercise of outstanding stock options granted to employees and directors pursuant to the Corporation’s
stock option plan. During the year, 19,122,840 million warrants were granted to Noteholders that voted in favour of the

debenture extension. As at February 16, 2017, 18,727,241 warrants were outstanding.

Managing risk

Sherritt manages a number of risks in each of its businesses in order to achieve an acceptable level of risk without appreciably

hindering its ability to maximize returns. Management has procedures to identify and manage significant operational and financial
risks.

During 2016, certain risks have changed for the Corporation:












Liquidity and access to capital
Ambatovy liquidity and funding risks

Restrictions in debt instruments, debt covenants and mandatory repayments
Reliance on partners
Depletion of reserves

Risks related to Sherritt’s operations in Madagascar
Risks related to U.S. Government policy towards Cuba
Risks to information technologies systems

Below is an update of these significant risks since the filing of the Corporation’s 2015 Annual Information Form (AIF). A complete
list of risks included in the Corporation’s 2015 AIF is included following these updates.

LIQUIDITY AND ACCESS TO CAPITAL

Sherritt’s ability to fund its capital and operating expenses and to meet its financial obligations depend on its ability to generate
sufficient cash flow from its operations and its ability to obtain additional financing and/or refinance its existing credit facilities

and loans on terms that are acceptable to the Corporation. Sherritt’s earnings and financial condition are highly dependent upon
the market prices for nickel, cobalt, oil, gas and other commodities, which are highly volatile in nature. Should the current negative
trend in commodity prices continue, Sherritt may find itself unable to access sufficient capital to fund its operations in the manner

required for the long-term viability of the business and/or remain in compliance with its debt covenants. Failure to adequately fund
its operations or meet its financial obligations could have a material adverse effect on Sherritt’s business, results of operations and
financial performance.

Sherritt’s current financing includes, among other things, a $90 million syndicated revolving-term credit facility. The total available

draw under the Corporation’s syndicated revolving-term credit facility is based on eligible receivables and inventory, and the
facility is currently fully drawn. If commodity prices remain at similar levels or continue to decline this could result in materially
fewer funds being available to Sherritt under the syndicated revolving-term credit facility. Certain debt covenants under the

syndicated revolving-term credit facility are based on ratios involving the Corporation’s EBITDA and/or equity and other covenants
that require the maintenance of minimum cash balances. These would also be negatively affected by decreased commodity prices.

There is also no guarantee that the Corporation will be able to refinance its Debentures, as they come due, on terms and
conditions that would be acceptable to the Corporation. Similarly, there is a risk that Sherritt will not be able to raise funds in the

equity capital markets on terms that are acceptable to the Corporation.

Please see the risk factor entitled “Ambatovy Liquidity and Funding Risk”for information regarding the liquidity and access to
capital risks associated with the Ambatovy Joint Venture.

Please see the risk factor entitled “Restrictions in Debt Instruments, Debt Covenants and Mandatory Repayments”for more
information on Sherritt’s loans and borrowings and on the effect of non-compliance with certain debt covenants.

38 Sherritt International Corporation

AMBATOVY LIQUIDITY AND FUNDING RISKS

The Ambatovy Joint Venture borrowed US$2.1 billion (US$1.6 billion as at December 31, 2016) under the Ambatovy Financing
Agreements and all of the Ambatovy Joint Venture’s assets and the interests of its shareholders in the Ambatovy Joint Venture

have been pledged as security for the financing. If the Ambatovy Joint Venture is unable to make semi-annual interest payments or
is unable to recommence semi-annual principal repayments in 2019, the Ambatovy Senior Lenders could realize upon their
security and seize all of the Ambatovy Joint Venture’s assets and all of Sherritt’s interest therein. This would have a material

adverse effect on Sherritt’s investment in the Ambatovy Joint Venture, and on the Corporation’s business, results of operations and
financial performance.

Due to the current nickel pricing environment, the Ambatovy Joint Venture may require ongoing financing in order to support debt
service interest payments and continued operations through 2018, as well as debt service principal repayments that commence in

2019. While the Ambatovy Joint Venture has secured funding commitments from Korea Resources Corporation and Sumitomo
Corporation that are expected to cover debt service requirements and continued operations through 2018, such commitments
may not be sufficient. Although the Ambatovy Joint Venture has successfully secured sufficient financing from its shareholders

and third party lenders in the past, there can be no assurance that it will be successful in securing additional financing or creditor
concessions when required or on favourable terms. If the Ambatovy Joint Venture is unable to continue operations, this would have
a material adverse effect on Sherritt’s investment in the Ambatovy Joint Venture, and on the Corporation’s business, results of

operations and financial performance. Please see “Liquidity and Access to Capital”, above, and “Restrictions in Debt Instruments,
Debt Covenants and Mandatory Repayments”and “Reliance on Partners”, below, for additional information.

Total cash calls of US$288.3 million were due to the Ambatovy Joint Venture after the achievement of financial completion, and
Sherritt did not fund its 40% pro rata share (US$115.3 million). By agreement amongst the Ambatovy Partners, Sherritt is not

considered to be a defaulting shareholder under the Ambatovy Joint Venture Shareholders Agreement (the Shareholders
Agreement) as a consequence of such non funding through March 10, 2017 until such time after March 10, 2017 that (a) it is
declared in default upon not less than 60 days prior notice; or (b) it fails to fund an approved cash call. These amounts (including

accrued interest) will be subtracted from future Ambatovy Joint Venture distributions, or may be off-set by the Ambatovy Joint
Venture against certain other amounts owed to Sherritt. Sherritt also has the option to pay such amounts in cash at any time at
Sherritt’s election. Until the funding deficit is cured, and subject to continued discussions amongst the Ambatovy Partners, Sherritt

will not receive any Ambatovy Joint Venture distributions and will not exercise its voting rights at the Ambatovy Joint Venture’s
Executive Committee, its corporate Boards of Directors and its Shareholder Meetings. The Ambatovy Partners continue to seek a
solution on future Ambatovy Joint Venture funding and debt service. In the event that a solution satisfactory to Sherritt is not

achieved, there can be no assurance that Sherritt will resume its funding, nor that the existing arrangements between the
Ambatovy Partners will be extended to funding any future cash calls.

As a consequence of becoming a defaulting shareholder at any time after March 10, 2017 for failing to fund its pro rata share of
approved cash calls after the achievement of financial completion and until its funding deficit is cured: (a) Sherritt would not

receive any Ambatovy Joint Venture distributions; (b) Sherritt would lose its voting rights at the Ambatovy Joint Venture’s Executive
Committee, its corporate Boards of Directors and its Shareholder Meetings; (c) Sherritt would lose its right to attend and be
represented at meetings of the Ambatovy Joint Venture’s Executive Committee and its corporate Boards of Directors; (d) it will be

required to offer its 40% shareholder interest and subordinated loans pro rata to the other Ambatovy Partners who have the right
to purchase them at the lower of fair market value and book value; (e) the other Ambatovy Partners can elect to cure Sherritt’s
funding deficit by funding on Sherritt’s behalf, in which case such funding is deemed to be a loan to Sherritt, payable on demand,

which accrues interest at LIBOR +3% and is limited recourse to Sherritt’s interest in the Ambatovy Joint Venture and repayable from
future distributions; and (f) the other Ambatovy Partners can elect to dilute Sherritt’s interest by converting such deemed loans or
by funding on Sherritt’s behalf and electing dilution of Sherritt’s interest, without any deemed loan. In the event that any of the

other Ambatovy Partners elect to purchase the Corporation’s interest pursuant to paragraph (d), there can be no assurance that
the Corporation will receive any proceeds once such purchase price is offset against amounts outstanding under the Ambatovy
Joint Venture Partner Loans (Partner Loans) and Ambatovy Joint Venture Additional Partner Loans (Additional Partner Loans).

Sherritt International Corporation

39

Management’s discussion and analysis

Due to the Ambatovy Joint Venture’s current and projected funding requirements and the distribution sharing arrangements under
the Partner Loans and Additional Partner Loans, in a persistently low nickel price environment there can be no certainty that
Sherritt will receive any distributions from the Ambatovy Joint Venture. Accordingly, Sherritt’s continued funding and ongoing

involvement in the Ambatovy Joint Venture may not be commercially or economically justified. Sherritt’s future involvement as
operator and equity partner in the Ambatovy Joint Venture will be significantly impacted by the outcome of the ongoing
discussions between and amongst Sherritt and the other Ambatovy Partners regarding future funding of the Ambatovy Joint

Venture and modifications to the terms of the Partner Loans and Additional Partner Loans. There can be no assurance that these
discussions will result in concessions or favourable terms for Sherritt. Whether as a result of Sherritt not funding cash calls or
otherwise (and unless the other Ambatovy Partners otherwise agree), Sherritt’s equity interest in the Ambatovy Joint Venture and

entitlements to future distributions could be at risk and there is no assurance that it will be able to retain all or any portion of its
equity interest or entitlement to future distributions, which could have a materially adverse effect on the Corporation’s business,
results of operations, and financial performance.

RESTRICTIONS IN DEBT INSTRUMENTS, DEBT COVENANTS AND MANDATORY REPAYMENTS

Sherritt is a party to certain agreements in connection with the syndicated revolving-term credit facility, as well as the trust

indenture governing its 7.875% Notes, its 7.50% Notes and its 8.00% Notes (collectively, the Indenture). Sherritt is also a party to
various agreements with the Ambatovy Senior Lenders relating to the US$2.1 billion (US$1.6 billion as at December 31, 2016)
Ambatovy Financing Agreements. In addition, Sherritt has two tranches of loans –the Partner Loans and the Additional Partner

Loans –with the other Ambatovy Partners (and certain other parties) that were used to fund Sherritt’s contributions to the
Ambatovy Joint Venture. These agreements and loans contain covenants which could have the effect of restricting Sherritt’s ability
to react to changes in Sherritt’s business or to local and global economic conditions. In addition, Sherritt’s ability to comply with

these covenants and other terms of its indebtedness may be affected by changes in the Corporation’s business, local or global
economic conditions or other events beyond the Corporation’s control. Failure by Sherritt to comply with the covenants contained
in the Indenture, the syndicated revolving-term credit facility, the Ambatovy Financing Agreements, the Partner Loans, the

Additional Partner Loans or any future debt instruments or credit agreements, could materially adversely affect the Corporation’s
business, results of operations, and financial performance.

The Corporation provided certain completion guarantees to the Ambatovy Senior Lenders under the Ambatovy Financing
Agreements. These guarantees became non-recourse to the Corporation once the Ambatovy Joint Venture achieved financial

completion in September 2015. As a result, the Ambatovy Senior Lenders’recourse under the Ambatovy Joint Venture Financing
Agreements, including for repayment of semi-annual of principal and interest, is limited to the Ambatovy Joint Venture and
Sherritt’s and the other Ambatovy Partners’interests therein.

The Partner Loans ($133.8 million as at December 31, 2016) are generally repayable by Sherritt or a wholly-owned subsidiary of

Sherritt solely from the proceeds of distributions from the Ambatovy Joint Venture. Recourse under these loans is generally limited
to Sherritt’s interest in the Ambatovy Joint Venture and is subordinate to the security interests therein held by the Ambatovy Senior
Lenders. If Sherritt becomes a defaulting shareholder under the terms of the Shareholders Agreement, for example, by failing to

fund a cash call, a cross-default to the Partner Loans would be triggered and the lenders could elect to accelerate repayment.
However, due to the limited recourse nature of the loans, such acceleration will not require Sherritt to repay the loans until after
August 2023 and the lenders’recourse is effectively limited to their subordinated security interest over Sherritt’s interest in and

future distributions from the Ambatovy Joint Venture. While recourse is generally limited, Sherritt can be obligated to repay any
outstanding amount of the Partner Loans if they have not been repaid in full by August 2023 or if the Ambatovy Senior Lenders
exercise remedies as a result of a default by the Ambatovy Joint Venture under the Ambatovy Financing Agreements. In either

case, Sherritt has the option to repay in cash or, provided its Shares are trading on the Toronto Stock Exchange at the time of
payment, in common shares. Unless the lenders otherwise agree, the Partner Loans also require repayment in cash within five
business days in the event of the sale of all or substantially all of the assets of Sherritt, the acquisition of more than 50% of the

Shares of Sherritt or a corporate restructuring of Sherritt. Repayment of the Partner Loans in cash could have significant
consequences for Sherritt’s liquidity and could materially adversely affect the Corporation’s business, results of operations and
financial performance. In those cases where it has the option, if Sherritt elects to repay all or any portion of the Partner Loans in

Shares this could result in significant dilution to existing shareholders depending on the prevailing Share price at the time
of payment.

40 Sherritt International Corporation

The Additional Partner Loans ($1.4 billion as at December 31, 2016) are repayable by a wholly-owned subsidiary of Sherritt solely
from the proceeds of distributions from the Ambatovy Joint Venture. Recourse for a default under these loans is generally limited

to Sherritt’s interest in and future distributions from the Ambatovy Joint Venture, and is also subordinate to the security interests
therein held by the Ambatovy Senior Lenders. These loans are recourse to Sherritt in circumstances where there is a breach of
specific restrictions in the loan documents by Sherritt or its wholly-owned subsidiaries that hold Sherritt’s interest in the Ambatovy

Joint Venture. These restrictions are generally aimed at preserving the lenders’security interests by restricting the activities of
such subsidiaries, for example, by prohibiting the pledging of Sherritt’s interest in the Ambatovy Joint Venture or a corporate
reorganization of a subsidiary that holds such interest.

If Sherritt becomes a defaulting shareholder under the terms of the Shareholders Agreement, a cross-default to the Partner Loans

would be triggered, which in turn could trigger a cross-default under the syndicated revolving-term credit facility. However, the
lenders under the syndicated revolving-term credit facility have waived any default attributable to Sherritt becoming a defaulting
shareholder under the Shareholders Agreement due to non-funding and any cross-default under the Partner Loans that would be

triggered as a result thereof. Certain breaches of the Shareholders Agreement could also trigger a default under the Additional
Partner Loans. However, this would not trigger a cross-default under the syndicated revolving-term credit facility.

If a cross-default to the Partner Loans is triggered, and the lenders under those loans were to accelerate repayment, although
generally such acceleration would not require repayment by Sherritt until after August 2023 it could in turn trigger a cross-default

under the Indenture. Such a cross-default under the Indenture could result in acceleration of the Debentures unless the default is
cured by repaying the Partner Loan or waived in accordance with the Indenture. Sherritt likely would not have sufficient cash and
short term investments to repay all or any portion of the amounts outstanding under any or all series of outstanding Debentures

(in the aggregate, $720.0 million principal amount as at December 31, 2016) and there can be no assurance that Sherritt could
refinance such amounts. Acceleration of the Partner Loans and/or the Debentures would, in turn, trigger an event of default under
the syndicated revolving-term credit facility. Accordingly, acceleration of any one or more series of Debentures could materially

adversely affect the Corporation’s business, results of operations, and financial performance.

RELIANCE ON PARTNERS

The Corporation is currently in discussions with its Ambatovy Partners regarding modifications to the Ambatovy Joint Venture
financing structure. Failure to achieve modifications that are satisfactory to the Corporation could lead Sherritt to be in breach of
its obligations under the Ambatovy Joint Venture funding arrangements. For information regarding the possible consequences of

a failure to comply with such arrangements please see “Ambatovy Liquidity and Funding Risks”for additional information.

In addition to Ambatovy Joint Venture, the Corporation holds its interest in certain projects and operations through joint ventures
or partnerships. A failure by a partner to comply with its obligations under applicable partnership or similar joint venture
arrangements, to continue to fund such projects or operations, or a breakdown in relations with its partners could have a

material adverse effect on the Corporation’s business, results of operations and financial performance.

DEPLETION OF RESERVES

Subject to any future expansion or other development, production from existing operations at the Corporation’s mines and wells
will typically decline over the life of the mine or well. As a result, Sherritt’s ability to maintain or increase its current production
of nickel, cobalt and oil and gas and generate revenues therefrom will depend significantly upon the Corporation’s ability to

discover or acquire and to successfully bring new mines and wells into production and to expand mineral and oil and gas
reserves at existing operations. Exploration and development of mineral and oil and gas properties involves significant financial
risk. Very few exploratory properties are developed into operating mines or wells. Whether a deposit will be commercially viable

depends on a number of factors, including: the particular attributes of the deposit, such as size, grade and proximity to
infrastructure; commodity prices, which are highly cyclical; political and social stability; and government regulation, including
regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of natural resources and

environmental protection. Even if the Corporation identifies and acquire an economically viable deposit, several years may elapse
from the initial stages of development. Significant expenses could be incurred to locate and establish reserves, to develop the
required extractive processes and to construct mining or drilling and processing facilities.

In 2016, the Corporation’s share of oil and gas production from its original PSCs in Cuba provided significant operating cash

flow to the Corporation. In 2017 and 2018, the original PSCs are scheduled to revert to Cuban ownership and the Corporation
does not expect to carry out any further drilling activity on the original PSCs or for the original PSCs to be extended. As of
2017/2018 any future oil and gas production presently will depend on new reserves in Block 10 and 8A and/or the ability to

obtain and develop additional PSCs. Sherritt cannot provide assurance that its exploration or development efforts will result in
any new commercial operations or yield new mineral or oil and gas reserves to replace or expand current reserves. Failure to
obtain significant oil production on Block 10 and 8A to replace Sherritt’s currently declining and expiring production volumes

could have a material adverse effect on Sherritt’s financial condition and operations.

Sherritt International Corporation

41

Management’s discussion and analysis

RISKS RELATED TO SHERRITT’S OPERATIONS IN MADAGASCAR

The Corporation is the operator of, and indirectly holds significant interests in the Ambatovy Joint Venture in Madagascar.
Sherritt is subject to political, economic and social risks related to operating in Madagascar.

In 2002, the government of Madagascar passed the LGIM, which is legislation to manage large-scale mining projects. The
Ambatovy Joint Venture is the first and currently the only project to be developed under the LGIM’s terms and provisions, which

have been largely untested. Although the Ambatovy Joint Venture has received its eligibility certification under the LGIM, it is
possible that the LGIM could be interpreted or amended in a manner that has a material adverse effect on the Ambatovy
Joint Venture.

Madagascar has a history of political instability and there is no assurance that continuing political stability will be achieved.

In 2009, Madagascar experienced an unexpected change of government and the Transitional Government of Madagascar took

control of the country. At several points during the following five year political crisis, the Transitional Government indicated that
the Ambatovy Joint Venture’s status under the LGIM could be subject to review. However, the Ambatovy Joint Venture’s eligible
status under the LGIM has since been confirmed and upheld by the CGIM, the government body responsible for overseeing the

LGIM and by the current democratically elected Malagasy Government. The Malagasy government has announced its intention of
proposing amendments to the Mining Code during the May 2017 parliamentary session. While the amendments included in the
current draft legislation do not affect the Ambatovy Joint Venture’s rights under the LGIM, there is no guarantee that such

amendments could not be made in the future.

The government may continue to have direct or indirect impact on the Ambatovy Joint Venture, and may adversely affect the
Corporation’s business. Any changes in regulations or shifts in political attitudes are beyond the control of Sherritt and may
adversely affect its business. Operations may be affected in varying degrees by the Government of Madagascar regulations with

respect to production, price controls, export controls (including the recent requirement for the registration of imports and
exports), income taxes or investment tax credits, tax reimbursements, royalties and fees, expropriation of property,
environmental legislation, land use, water use and mine and plant safety or changes to the LGIM.

Presidential elections are planned to be held at the end of 2018. Historically, electoral periods in Madagascar have typically been

marred by social unrest, stirred by unsuccessful candidates or provoked prior to elections by politicians wishing to gain power
without having to win an election. For Ambatovy, the risk exists that opposition politicians try to mobilize crowds by agitating
against foreign interests or against major mining companies. Ambatovy has developed a comprehensive stakeholder engagement

plan to mitigate this risk. However, no guaranty can be given that unrest, if it happens, may not restrict, temporarily or
otherwise, Ambatovy’s capacity to produce and export nickel and cobalt or otherwise have a material adverse effect on the
Ambatovy Joint Venture’s business, results of operations or performance.

Operations in Madagascar may also be affected by the fact that Madagascar’s location potentially exposes it to cyclones and

tropical storms of varying intensities. The risk of damage is dependent upon such factors as intensity, footprint, wind direction
and the amount of precipitation associated with the storm and tidal surges. While the Ambatovy Joint Venture maintains
comprehensive disaster plans and its facilities have been constructed to the extent reasonably possible to minimize damage,

there can be no guarantee against severe property damage and disruptions to operations.

Madagascar is one of the poorest countries in the world, with low levels of economic activity and high levels of unemployment.
These conditions are conducive to social unrest and instability that could, under certain circumstances, have an impact on the
Ambatovy Joint Venture’s ability to produce and export its products. The Ambatovy Joint Venture continues to foster active

working relations with relevant Malagasy authorities and civil society to mitigate social risk, maintain its social license, and
facilitate operational activities.

Agencies of the Malagasy government have significant payment obligations to the Corporation in connection with the Ambatovy
Joint Venture. This exposure to the Malagasy government and its potential inability or failure to fully pay such amounts could

have an adverse effect on the Corporation’s financial condition and results of operations.

42 Sherritt International Corporation

RISKS RELATED TO U.S. GOVERNMENT POLICY TOWARDS CUBA

The United States has maintained a general embargo against Cuba since the early 1960s, and the enactment in 1996 of the
Cuban Liberty and Democratic Solidarity (Libertad) Act (commonly known as the Helms-Burton Act) extended the reach of the

U.S. embargo. In December 2014, President Obama announced his intention to normalize diplomatic relations between the
United States and Cuba and to reduce certain restrictions on travel, commercial and personal transactions between Americans
and Cubans. Bilateral discussions between the U.S. and Cuba continued to advance for the remainder of the Obama

administration. However, the change of government in the United States in January 2017 is relatively recent and the approach of
the Trump administration towards Cuba and any resulting actions are not yet clear. There can be no assurance that the Trump
Administration will follow the normalization process set out by President Obama.

RISKS TO INFORMATION TECHNOLOGIES SYSTEMS

Sherritt’s operations rely on information technology systems and networks which could be materially and adversely impacted if

Sherritt’s information technology systems and networks were compromised. While Sherritt and its suppliers take steps to protect
Sherritt’s networks, equipment, IT systems and software from security breaches or other incidents related to theft or defects to
software or hardware design, the consequences of the Corporation’s information technology systems being compromised could

include material and adverse impacts on Sherritt’s financial condition, operations, production, sales and reputation.

Below is a list of the Corporation’s significant business risks as presented in the Corporation’s AIF. Further detail of these and
other risks and the strategies designed to manage them can be found in the Corporation’s Annual Information Form to the extent
not included herein.



Market conditions

Generally
Commodity risk

o
o
o Market fluctuations and share price

volatility
Liquidity and access to capital

o

Ambatovy liquidity and funding risk

Restrictions in debt instruments, debt covenants
and mandatory repayments
Reliance on partners

Operating risk
Transportation
Uncertainty of gas supply to Energas

Depletion of reserves
Reliance on key personnel and skilled workers
Equipment failure and other unexpected failures

Mining, processing and refining risks
Uncertainty of resources and reserves estimates
Environmental rehabilitation provisions

Risks related to Sherritt’s corporate structure
Political, economic, and other risks of foreign
operations

Risks related to Sherritt’s operations in
Madagascar
Risks related to Sherritt’s operations in Cuba

Risks related to U.S. Government policy towards Cuba

o
o

The U.S. Embargo
The Helms-Burton Act



























































Project development

o
o

Generally
Capital and operating cost estimates

Significant customers

Foreign exchange and pricing risks
Environment, health and safety
Climate change/greenhouse gas emissions

Community relations and social license to grow
and operate
Credit risk

Shortage of equipment and supplies
Competition in product markets
Future market access

Interest rate changes
Insurable risk
Labour relations

Legal rights
Legal contingencies
Accounting policies

Risks associated with future acquisitions
Government permits
Government regulations

Anti-corruption and bribery
Management of growth

Sherritt International Corporation

43

Management’s discussion and analysis

Critical accounting estimates and judgments

The preparation of financial statements requires the Corporation’s management to make estimates and assumptions that affect

the reported amounts of the assets, liabilities, revenue and expenses reported each period. Each of these estimates varies with
respect to the level of judgment involved and the potential impact on the Corporation’s reported financial results. Estimates are
deemed critical when the Corporation’s financial condition, change in financial condition or results of operations would be

materially impacted by a different estimate or a change in estimate from period to period.

By their nature, these estimates are subject to measurement uncertainty, and changes in these estimates may affect the
consolidated financial statements of future periods.

CRITICAL ACCOUNTING ESTIMATES

Environmental rehabilitation provisions

The Corporation’s operations are subject to environmental regulations in Canada, Cuba, Madagascar and other countries in which

the Corporation operates. Many factors such as future changes to environmental laws and regulations, life of mine estimates, the
cost and time it will take to rehabilitate the property and discount rates, all affect the carrying amount of environmental
rehabilitation provisions. As a result, the actual cost of environmental rehabilitation could be higher than the amounts the

Corporation has estimated. For certain operations, actual costs will ultimately be determined after site closure in agreement with
predecessor companies.

The environmental rehabilitation provision is assessed quarterly and measured by discounting the expected cash flows. The
applicable discount rate is a pre-tax rate that reflects the current market assessment of the time value of money which is

determined based on government bond interest rates and inflation rates. The actual rate depends on a number of factors,
including the timing of rehabilitation activities that can extend decades into the future and the location of the property.

Property, plant and equipment

Property, plant and equipment is the largest component of the Corporation’s assets and, as such, the capitalization of costs, the
determination of estimated recoverable amounts and the depletion and depreciation of these assets have a significant impact on
the Corporation’s financial results.

Certain assets are depreciated using a unit-of-production basis, which involves the estimation of recoverable reserves in

determining the depletion and/or depreciation rates of the specific assets. Each item’s life, which is assessed annually, is assessed
for both its physical life limitations and the economic recoverable reserves of the property at which the asset is located.

For those assets depreciated on a straight-line basis, management estimates the useful life of the assets and their components,
which in certain cases may be based on an estimate of the producing life of the property. These assessments require the use of

estimates and assumptions including market conditions at the end of the asset’s useful life, costs of decommissioning the asset
and the amount of recoverable reserves.

Asset useful lives and residual values are re-evaluated at each reporting date.

Reserves for Oil and Gas properties

Reserves are estimates of the amount of product that can be economically and legally extracted from the Corporation’s oil and gas
properties. Reserve estimates are an integral component in the determination of the commercial viability of a site, depletion
amounts charged to the cost of sales and any impairment analysis.

In calculating reserves, estimates and assumptions are required about a range of geological, technical and economic factors,

including quantities, production techniques, production decline rates, production costs, commodity prices and exchange rates. In
addition, future changes in regulatory environments, including government levies or changes in the Corporation’s rights to exploit
the resource imposed over the producing life of the reserves may also significantly impact estimates.

44 Sherritt International Corporation

Income taxes

The Corporation operates in a number of industries in several tax jurisdictions and, consequently, its income is subject to various
rates and rules of taxation. As a result, the Corporation’s effective tax rate may vary significantly from the Canadian statutory tax

rate depending upon the profitability of operations in the different jurisdictions.

The Corporation calculates deferred taxes based upon temporary differences between the assets and liabilities that are reported
in its consolidated financial statements and their tax bases as determined under applicable tax legislation. The Corporation
records deferred tax assets when it determines that it is probable that such assets will be realized. The future realization of

deferred tax assets can be affected by many factors, including current and future economic conditions, net realizable sale prices,
production rates and production costs, and can either be increased or decreased where, in the view of management, such change
is warranted.

CRITICAL ACCOUNTING J UDGMENTS

Interests in other entities

The Corporation applies judgment in determining the classification of its interest in other entities, such as: (i) the determination of
the level of control or significant influence held by the Corporation; (ii) the legal structure and contractual terms of the

arrangement; (iii) concluding whether the Corporation has rights to assets and liabilities or to net assets of the arrangement; and
(iv) when relevant, other facts and circumstances. The Corporation has determined that Energas S.A. and its Oil and Gas
production-sharing contracts represent joint operations while the Moa Joint Venture represents a joint venture as described in IFRS

11, “Joint Arrangements”. The Corporation has concluded that the Ambatovy Joint Venture represents an investment in an
associate as described in IAS 28, “Investments in Associates and Joint Ventures”. All other interests in other entities have been
determined to be subsidiaries as described in IFRS 10, “Consolidated Financial Statements”.

Ambatovy – Significant influence

With respect to post-financial completion cash calls not funded by Sherritt under the Ambatovy Joint Venture financing, Sherritt
has the option to pay the amounts in cash at any time, at Sherritt’s election. Until the funding deficit is addressed, and subject to

continued discussions with the Ambatovy Joint Venture partners, Sherritt will not exercise its Ambatovy Joint Venture voting
rights. Sherritt has the ability to cure the underfunding and regain its voting rights at any time. Therefore, it is the Corporation’s
judgment that it continues to have significant influence over the Ambatovy Joint Venture.

Aggregation of segments

When determining its reportable segments, the Corporation considers qualitative factors, such as operations that offer distinct
products and services and are considered to be significant by the Chief Operating Decision Maker, identified as the senior

executive team. The Corporation also considers quantitative thresholds when determining reportable segments, such as if
revenue, earnings (loss) or assets are greater than 10% of the total consolidated revenue, net earnings (loss), or assets of all the
reportable segments, respectively. Operating segments that share similar economic characteristics are aggregated to form a

single reportable segment. Aggregation occurs when the operating segments have similar economic characteristics, and have
similar (a) products and services; (b) production processes; (c) type or class of customer for their products and services; (d)
methods used to distribute their products or provide their services; and (e) nature of the regulatory environment, if applicable.

Commercial viability

Management uses the best available information to determine when a development project reaches commercial viability which is
generally based on management’s assessment of when economic quantities of proven and/or probable reserves are determined

to exist and the point at which future costs incurred to develop a mine on the property are capitalized. Management also uses
the best available information to determine when a project achieves commercial production, the stage at which pre-production
costs cease to be capitalized.

For assets under construction, management assesses the stage of each construction project to determine when a project is

commercially viable. The criteria used to assess commercial viability are dependent upon the nature of each construction project
and include factors such as the asset purpose, complexity of a project and its location, the level of capital expenditure compared
to the construction cost estimates, completion of a reasonable period of testing of the mine plant and equipment, ability to

produce the commodity in saleable form (within specifications), and ability to sustain ongoing production of the commodity.

Sherritt International Corporation

45

Management’s discussion and analysis

Impairment of non-financial assets

The Corporation assesses the carrying amount of non-financial assets including property, plant and equipment and intangible
assets subject to depreciation and amortization at each reporting date to determine whether there are any indicators that the
carrying amount of the assets may be impaired or require a reversal of impairment. Impairment is assessed at the CGU level and

the determination of CGUs is an area of judgment.

For purposes of determining fair value, management assesses the recoverable amount of the asset using the net present value of
expected future cash flows. Projections of future cash flows are based on factors relevant to the asset and could include
estimated recoverable production, commodity or contracted prices, foreign exchange rates, production levels, cash costs of

production, capital and reclamation costs. Projections inherently require assumptions and judgments to be made about each of
the factors affecting future cash flows. Changes in any of these assumptions or judgments could result in a significant difference
between the carrying amount and fair value of these assets. Where necessary, management engages qualified third-party

professionals to assist in the determination of fair values.

Measuring the recoverable amount of the Corporation’s interest in the Ambatovy Joint
Venture

The Corporation accounts for its investment in an associate and investment in a joint venture using the equity method. The
Corporation assesses the carrying amount of its investments at each reporting date to determine whether there are any indicators
that the carrying amount of the investments may be impaired.

For purposes of determining the recoverable amount, management calculates the net present value of expected future cash flows.

Projections of future cash flows are based on factors relevant to the investment’s operations and could include estimated
recoverable production, commodity or contracted prices, foreign exchange rates, production levels, cash costs of production,
capital and reclamation costs. Projections inherently require assumptions and judgments to be made about each of the factors

affecting future cash flows. The determination of the recoverable amount involves a detailed review of the investment’s life of mine
model and the determination of weighted average cost of capital among other critical factors.

Changes in any of these assumptions or judgments could result in a significant difference between the carrying amount and the
recoverable amount of these investments. Where necessary, management engages qualified third-party professionals to assist in

the determination of recoverable amounts.

Exploration and evaluation

Management must make judgments when determining when to transfer E&E expenditures from intangible asset to property, plant

and equipment, which is normally at the time when commercial viability is achieved. Assessing commercial viability requires
management to make certain judgments as to future events and circumstances, in particular whether an economically viable
operation can be established. Any such judgments may change as new information becomes available. If after having capitalized

the expenditure, a decision is made that recovery of the expenditure is unlikely, the amount capitalized is recognized in cost of
sales in the consolidated statements of comprehensive income (loss).

Income taxes

In determining whether it is probable that a deferred tax asset will be realized, management reviews the timing of expected

reversals of taxable temporary differences, the estimates of future taxable income and prudent and feasible tax planning that
could be implemented. Significant judgment may be involved in determining the timing of expected reversals of temporary
differences.

Arrangements containing a lease

The Corporation determined that the Power facilities in Varadero, Cuba are subject to operating lease arrangements. The
Corporation applies judgment in interpreting these arrangements such as determining which assets are specified in an

arrangement, determining whether a right to use a specified asset has been conveyed and if relative fair value or another
estimation technique to separate lease payments from payments for other goods or services should be used. The Corporation also
uses judgment in applying accounting guidance to determine whether these leases are operating or finance leases.

46 Sherritt International Corporation

Service concession arrangements

The Corporation determined that the contract terms regarding the Boca de Jaruco and Puerto Escondido, Cuba, facilities operated
by Energas represent service concession arrangements as described in IFRIC 12, “Service concession arrangements”(IFRIC 12).

The Corporation uses judgment to determine whether the grantor sets elements of the services provided by the operator,
whether the grantor retains any significant ownership interest in the infrastructure at the end of the agreement, and to determine
the classification of the service concession asset as either a financial asset or intangible asset.

Accounting Pronouncements

ADOPTION OF NEW AND AMENDED ACCOUNTING PRONOUNCEMENTS

In fiscal 2016, there have been no new or amended accounting pronouncements that have had a material impact on the
Corporation’s consolidated financial statements.

ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE

IFRS 9 – Financial Instruments

IFRS 9, “Financial instruments”(IFRS 9) was issued by the IASB on July 24, 2014 and will replace IAS 39, “Financial instruments:

recognition and measurement”(IAS 39). IFRS 9 utilizes a single approach to determine whether a financial asset is measured at
amortized cost or fair value and a new mixed measurement model for debt instruments having only two categories: amortized
cost and fair value. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its

business model and the contractual cash flow characteristics of the financial assets. IFRS 9 also introduces a new expected loss
impairment model. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The
Corporation will not early adopt IFRS 9. The Corporation is currently evaluating the impact of this standard and amendments on its

consolidated financial statements and expects to report more detailed information, including estimated quantitative financial
effects, in 2017.

IFRS 15 - Revenue from Contracts with Customers

IFRS 15, “Revenue from Contracts and Customers”(IFRS 15) was issued by the IASB on May 28, 2014, and amended on April 12,
2016, and will replace IAS 18, “Revenue”, IAS 11, “Construction Contracts”, and related interpretations on revenue. IFRS 15 sets out
the requirements for recognizing revenue that apply to all contracts with customers, except for contracts that are within the scope

of the standards on leases, insurance contracts and financial instruments. IFRS 15 uses a control based approach to recognize
revenue which is a change from the risk and reward approach under the current standard. Companies can elect to use either a full
or modified retrospective approach when adopting this standard and it is effective for annual periods beginning on or after January

1, 2018 with early adoption permitted. The Corporation will not early adopt IFRS 15 and is currently evaluating its transition
method. The Corporation is currently evaluating the impact of this standard and amendments on its consolidated financial
statements and expects to report more detailed information, including estimated quantitative financial effects, in 2017.

IFRS 16 – Leases

IFRS 16, “Leases”(IFRS 16) was issued by the IASB on January 13, 2016, and will replace IAS 17, “Leases”. IFRS 16 will bring most
leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and financing leases.
Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. The

new standard is effective for annual periods beginning on or after January 1, 2019 with early adoption permitted if IFRS 15 has
also been applied. The Corporation is currently evaluating when it will adopt IFRS 16 and the impact of this standard on its
consolidated financial statements.

IFRS 2 –Share-based Payment

IFRS 2, “Share-based Payment”(IFRS 2) was amended by the IASB on June 20, 2016. The amendments clarify that in estimating the
fair value of a cash-settled share-based payment, the accounting for the effects of vesting and non-vesting conditions should
follow the same approach as for equity-settled share-based payments. Other amendments do not apply to the Corporation. The

amendments are effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The
Corporation is currently evaluating when it will adopt the amendments. The adoption of these amendments is not expected to
have a material impact on the Corporation’s consolidation financial statements

Sherritt International Corporation

47

Management’s discussion and analysis

Three-year trend analysis

The following table presents select financial and operational results for the last three years:

$ millions, except per share amounts for the years ended December 31

2016

2015

2014

Revenue
Adjusted EBITDA(1)
Loss from operations, associate and joint venture
Loss from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net loss for the year

Loss per common share (basic and diluted)($ per share):

Net loss from continuing operations
Net loss for the year
Dividend rate per share

PRODUCTION VOLUMES
Finished nickel (tonnes)

Moa Joint Venture (50% basis)
Ambatovy Joint Venture (40% basis)

Finished cobalt (tonnes)

Moa Joint Venture (50% basis)
Ambatovy Joint Venture (40% basis)

Oil (boepd, net working-interest production)(2)
Electricity (gigawatt hours) (331/3% basis)

$

262.3
40.0
(320.8)
(381.8)
2.9
(378.9)

(1.30)
(1.29)
-

16,464
16,842

1,847
1,309
9,483
894

$

$

335.9
113.1
(1,978.6)
(2,071.7)
(5.0)
(2,076.7)

(7.05)
(7.07)
0.02

16,853
18,908

1,867
1,386
11,158
902

455.6
253.2
(111.9)
(318.5)
28.5
(290.0)

(1.07)
(0.97)
0.04

16,455
14,821

1,605
1,166
10,960
847

(1)

(2)

For additional information see the Non-GAAP measures section.
Barrels of oil equivalent per day (boepd).

In each year, the primary factors affecting on-going operating results are production and sales volumes, commodity prices,
primarily nickel, cobalt and oil; changes in input commodity prices and the exchange relationship between the Canadian and U.S.

dollars. Other impacts such as impairments, gains and losses on sale of assets, among others, are recognized periodically as
events occur:

In addition to the impacts of production volumes, commodity prices, input commodity prices and foreign exchange, the following
factors impacted operating results:

In 2016, the loss from continuing operations was negatively impacted by an impairment recognized in Oil and Gas of $6.6 million,

after tax and a write down of deferred tax assets of $7.7 million in the Moa Joint Venture partly offset by a gain on the repurchase
of $30 million in the Corporation’s debentures of $12.6 million.

In 2015, the loss from continuing operations was negatively impacted by a $1.6 billion after tax impairment of the Ambatovy Joint
Venture assets and $80.6 million impairment on Oil assets, partly offset by the $19.1 million gain on sale of the Corporate office

and $43.3 million tax recoveries on the change in Cuban tax rates.

In 2014, loss from continuing operations was negatively impacted by $14.4 million of impairments at Oil and Gas primarily related
to its exploration and evaluation licenses in the United Kingdom’s North Sea and in Spain’s Alboran Sea, $7.5 million of
restructuring costs, and unsecured debenture refinancing costs of $33.6 million, partly offset by $14.1 million arbitration gain.

48 Sherritt International Corporation

Summary of quarterly results

The following table presents a summary of the segment revenue and consolidated operating results for each of the eight
quarters ended March 31, 2015 to December 31, 2016.

$ millions, except per share amounts,

for the three months ended

2016

Dec 31

2016

Sept 30

2016

June 30

2016

Mar 31

2015

Dec 31

2015

Sept 30

2015

June 30

2015

Mar 31

Revenue
Metals
Oil and Gas
Power
Corporate and Other
Combined Revenue(1)

Adjust joint venture and

associate revenue

Financial statement revenue

$

$

$

195.6 $
30.6
13.7
0.4
240.3 $

143.0 $
27.3
14.4
(0.2)
184.5 $

160.5 $

28.3
14.9
0.4
204.1 $

153.0 $
22.4
15.6
0.3
191.3 $

183.8 $
30.5
13.7
1.5
229.5 $

193.4 $
38.5
14.5
0.1
246.5 $

204.2 $
51.3
12.7
0.2
268.4 $

(169.8)

(126.0)

(129.2)

(132.9)

(153.0)

(169.6)

(168.8)

70.5 $

58.5 $

74.9 $

58.4 $

76.5 $

76.9 $

99.6 $

223.7
42.3
11.8
0.5
278.3

(195.4)
82.9

Share of loss of an associate, net of
tax
Share of (loss) earnings of a joint
venture, net of tax

Net loss from continuing operations

Earnings (loss) from discontinued
operations, net of tax(2)
Net loss for the period

(31.3)

(55.9)

(58.9)

(65.9)

(1,703.2)

(68.6)

(62.6)

(42.3)

(7.7)

(3.5)

(20.6)

(12.9)

(9.1)

(6.4)

(0.3)

4.0

(109.6)

(120.8)

(103.6)

(47.8)

(1,757.3)

(210.0)

(47.6)

(56.8)

2.9
(106.7) $

$

-

-

-

-

-

(120.8) $

(103.6) $

(47.8) $ (1,757.3) $

(210.0) $

(5.0)
(52.6) $

-
(56.8)

Net loss per share, basic and diluted ($ per share)

Net loss from continuing operations $
Net loss for the period

(0.37) $
(0.36)

(0.41) $
(0.41)

(0.35) $
(0.35)

(0.16) $
(0.16)

(5.99) $
(5.99)

(0.72) $
(0.72)

(0.16) $
(0.18)

(0.19)
(0.19)

(1)

(2)

For additional information see the Non-GAAP measures section.
Amounts are insurance recoveries and additional expenses related to the Corporation’s Coal operations which were sold in 2014.

In general, net loss or earnings for the Corporation are primarily affected by production and sales volumes, commodity prices, and
exchange rates. The average Canadian dollar cost to purchase one U.S. dollar for the above quarters has ranged from $1.23 (Q2-

2015) to $1.37 (Q1-2016) and period-end rates between $1.25 (Q2-2015) to $1.38 (Q4-2015).

In addition to the impact of commodity prices and sales volumes, the net losses in the eight quarters were impacted by the
following significant items (pre-tax):















the fourth quarter of 2016 includes a $25.7 million unrealized exchange loss on net U.S. dollar denominated financial
liabilities due to a weakening of the period-end Canadian dollar relative to the U.S. dollar on December 31, 2016

compared to September 30, 2016;

the third quarter of 2016 includes an impairment of $8.5 million recognized on oil assets. Net finance expense includes
an unrealized foreign exchange loss of $12.8 million;

the second quarter of 2016 includes a $12.6 million gain on repurchase of $30.0 million of debentures;

the first quarter of 2016 includes unrealized foreign exchange gains of $76.0 million, due to the significant
strengthening of the period-end Canadian dollar relative to the U.S. dollar on March 31, 2016 compared to the December

31, 2015;

the fourth quarter of 2015 includes an impairment of $1.6 billion recognized on Ambatovy Joint Venture assets and an
unrealized exchange loss of $18.3 million;

the third quarter of 2015 includes an impairment of $80.6 million recognized on oil assets. Net finance expense
includes a loss on financial instruments of $13.7 million related to the expiry of the Ambatovy call option and an

unrealized exchange loss of $10.2 million;

the second quarter of 2015 includes a gain on sale of the Corporation’s head office building of $19.1 million and an
additional tax recovery of $13.2 million related to tax rate reductions in Cuba;

Sherritt International Corporation

49

Management’s discussion and analysis



the first quarter of 2015 includes a tax recovery of $30.1 million related to tax rate reductions in Cuba and an unrealized
exchange loss of $17.6 million.

Off-balance sheet arrangements

The Corporation has no foreign exchange or commodity options, futures or forward contracts.

Transactions with related parties

The Corporation enters into transactions related to its investment in an associate and joint arrangements. For further detail, refer
to Note 6, 7 and 18 of the Corporation’s December 31, 2016 audited consolidated financial statements. Transactions between

related parties are generally based on standard commercial terms. All amounts outstanding are unsecured and will be settled in
cash. No guarantees have been given or received on the outstanding amounts. No expense has been recognized in the current or
prior periods for bad debts in respect of amounts owed by related parties.

Canadian $ millions, as at December 31

2016

2015

Accounts receivable from joint operations
Accounts receivable from joint venture
Accounts receivable from associate
Accounts payable to joint operations
Accounts payable to joint venture
Accounts payable to associate
Advances and loans receivable from associate
Advances and loans receivable from joint operations
Advances and loans receivable from joint venture

$

0.4 $

11.4
33.9
-
81.3
1.8
943.4
192.4
321.8

0.7
20.2
33.8
0.2
5.2
0.5
1,187.2
182.0
312.8

Canadian $ millions, for the years ended December 31

December 31

December 31

2016

2015

Total value of goods and services:
Provided to joint operations
Provided to joint venture
Provided to associate
Purchased from joint venture
Purchased from associate
Net financing income from joint operations
Net financing income from associate
Net financing income from joint venture

$

7.7 $

45.5
0.7
160.9
11.8
3.6
9.8
2.5

12.8 $
36.2
0.7
39.5
11.2
3.7
16.9
2.3

32.0 $

165.3
3.4
405.3
39.1
14.4
38.9
9.6

33.2
169.4
2.9
141.0
53.8
16.1
65.6
8.6

Transactions between related parties are generally based on standard commercial terms. All amounts outstanding are unsecured

and will be settled in cash. No guarantees have been given or received on the outstanding amounts. No expense has been
recognized in the current or prior periods for bad debts in respect of amounts owed by related parties.

Advances and loans receivable from associate, joint operation and joint venture relate to the Corporation’s interest in the
Ambatovy subordinated loans receivable, Energas conditional sales agreement, and the Moa Joint Venture loans receivable,

respectively. For further detail, refer to note 22 of the Corporation’s December 31, 2016 audited consolidated financial
statements.

Goods and services provided to joint venture primarily relates to services provided by Fort Site to the Moa Joint Venture. Goods
and services purchased from associate relate to nickel purchased from the Ambatovy Joint Venture purchased under long term

nickel off take agreements by a subsidiary of the Corporation established to buy, market and sell certain Ambatovy nickel
production. Net financing income from associate relates to interest income recognized by the Corporation on the Ambatovy
subordinated loans receivable.

50 Sherritt International Corporation

KEY MANAGEMENT PERSONNEL

Key management personnel is composed of the Board of Directors, Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer and Senior Vice Presidents of the Corporation. The following is a summary of key management personnel

compensation:

Canadian $ millions, for the years ended December 31

Short-term benefits
Post-employment benefits(1)
Share-based payments

2016

2015

$

$

7.4 $
0.4
11.6
19.4 $

7.5
1.8
6.3
15.6

(1)

Post-employment benefits include a non-registered defined contribution executive supplemental pension plan. The total cash pension contribution for
key management personnel was $0.4 million for the year ended December 31, 2016 ($0.4 million for the year ended December 31, 2015). The total
pension expense that is attributable to key management personnel was $0.2 million for the year ended December 31, 2016 ($0.2 million for the year
ended December 31, 2015).

Controls and procedures

DISCLOSURE CONTROLS AND PROCEDURES

Management is responsible for establishing and maintaining adequate internal control over disclosure controls and procedures, as
defined in National Instrument 52-109 of the Canadian Securities Commission (NI 52-109). Disclosure controls and procedures are
designed to provide reasonable assurance that all relevant information is gathered and reported to management, including the

CEO and CFO, on a timely basis so that appropriate decisions can be made regarding public disclosure. Management, with the
participation of the certifying officers, has evaluated the effectiveness of the design and operation, as of December 31, 2016, of
the Corporation’s disclosure controls and procedures. Based on that evaluation, the certifying officers have concluded that such

disclosure controls and procedures are effective and designed to ensure that material information known by others relating to the
Corporation and its subsidiaries is provided to them.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in NI 52-
109. Internal control over financial reporting means a process designed by or under the supervision of the CEO and CFO,
management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of financial statements for external purposes in accordance with IFRS.

The internal controls are not expected to prevent and detect all misstatements due to error or fraud. Management advises that
there have been no changes in the Corporation’s internal controls over financial reporting during 2016 that have materially
affected or are reasonably likely to materially affect the Corporation’s internal control over financial reporting.

Management, with the participation of the certifying officers, conducted an evaluation of the effectiveness of the Corporation’s

internal controls over financial reporting, as of December 31, 2016, using the Internal Control-Integrated Framework published in
2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 Framework). Based on this
evaluation, the CEO and CFO have concluded that the internal controls over financial reporting were effective as of December 31,

2016.

Sherritt International Corporation

51

Management’s discussion and analysis

Supplementary information

SENSITIVITY ANALYSIS

The following table shows the approximate impact on the Corporation’s net earnings and earnings per share from continuing
operations for the year ended December 31, 2016 from a change in selected key variables. The impact is measured changing one
variable at a time and may not necessarily be indicative of sensitivities on future results.

Factor

Prices
Nickel - LME price per pound(1)
Cobalt - Metal Bulletin price per pound(1)
Oil -U.S. Gulf Coast Fuel Oil No. 6 price per barrel

Exchange rate
Strengthening of the Canadian dollar relative

to the U.S. dollar

Operating costs (1)
Natural gas - per gigajoule (Moa Joint Venture)
Sulphur - per tonne (Moa Joint Venture and Ambatovy)
Sulphuric acid - per tonne (Moa Joint Venture)
Coal - per tonne (Ambatovy)
Limestone - per tonne (Ambatovy)

Approximate

change in annual
net earnings

Approximate
change in annual

($ millions)

basic EPS

Increase

Increase/(decrease)

Increase/(decrease)

US$
US$
US$

0.50 $
0.50
5.00

42 $

4
13

$

0.05

$
US$
US$
US$
US$

1.00
25.00
25.00
20.00
5.00

58

(4)
(10)
(5)
(5)
(4)

0.14
0.01
0.04

0.20

(0.01)
(0.04)
(0.02)
(0.02)
(0.01)

(1)

Variable changes are applied at the operating level with the approximate change in net earnings and basic EPS representing the Corporation’s 50%
interest in the Moa Joint Venture and 40% interest in the Ambatovy Joint Venture.

52 Sherritt International Corporation

OIL AND GAS PRODUCTION AND SALES VOLUME

The following table provides further detail about the Corporation’s oil and gas production and determination of sales volumes.

For the three months ended

2016

2015

For the years ended

2016

2015

Daily production volumes(1)

December 31

December 31

Change

December 31

December 31

Change

Gross w orking- interest oil production in Cuba(2)(3)
Net w orking- interest oil production (4)
Cuba (heavy oil)
Cost recovery
Profit oil

Total
Spain (light oil)(4)
Pakistan (natural gas)(4)

14,470

17,045

(15%)

15,452

18,257

(15%)

1,710
5,742
7,452
271
440
8,163

4,580
5,565
10,145
292
290
10,727

(63%)
3%
(27%)
(7%)
52%
(24%)

3,381
5,443
8,824
289
370
9,483

4,059
6,378
10,437
426
295
11,158

(17%)
(15%)
(15%)
(32%)
25%
(15%)

(1) Oil production is stated in barrels of oil per day (bopd). Natural gas production is stated in barrels of oil equivalent per day (boepd), which is

converted at 6,000 cubic feet per barrel. Collectively, oil and natural gas production are referred to as boepd.
In Cuba, Oil and Gas delivered all of its gross working-interest oil production to CUPET at the time of production.
Gross working-interest oil production is allocated between Oil and Gas and CUPET in accordance with production-sharing contracts. The
Corporation’s share, referred to as net working-interest production, includes (i) cost recovery oil (based upon the recoverable capital and operating
costs incurred by Oil and Gas under each production-sharing contract) and (ii) a percentage of profit oil (gross working-interest production remaining
after cost recovery oil is allocated to Oil and Gas). Cost recovery pools for each production-sharing contract include cumulative recoverable costs,
subject to certification by CUPET, less cumulative proceeds from cost recovery oil allocated to Oil and Gas. Cost recovery revenue equals capital and
operating costs eligible for recovery under the production-sharing contracts.
Net working-interest production (equivalent to net sales volume) represents the Corporation’s share of gross working-interest production.

(2)

(3)

(4)

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.

Combined results

The Corporation presents combined revenue, combined cost of sales, combined administrative expenses, combined net finance
expense, and combined income taxes (together, combined results) as measures which help management assess the Corporation’s
financial performance across its business units. The combined results include the Corporation’s consolidated financial results,

and the results of its 50% share of the Moa Joint Venture and its 40% share of the Ambatovy Joint Venture, both of which are
accounted for using the equity method for accounting purposes. Management uses these measures to reflect the Corporation’s
economic interest in its business units prior to the application of equity accounting. Refer to pages 10 to 12 for the reconciliations

of the combined results.

Sherritt International Corporation

53

Management’s discussion and analysis

Adjusted EBITDA

The Corporation defines Adjusted EBITDA as earnings (loss) from operations, associate and joint venture as reported in the

financial statements for the period adjusted for depletion, depreciation and amortization; impairment charges for long lived
assets, intangible assets, goodwill and investments; and gain or loss on disposal of property, plant and equipment of the
Corporation, associate and joint venture. The exclusion of impairment charges eliminates the non-cash impact. The Corporation

believes that Adjusted EBITDA provides useful information to investors in evaluating our operating results in the same manner as
management and the board of directors.

The tables below reconcile Adjusted EBITDA to net earnings (loss) from operations, associate and joint venture:

$ millions, for the three months ended December 31

Metals

2016

Adjustment

for Joint

Moa JV and

Ambatovy

Oil and

Corporate Venture and

Fort Site

JV

Other

Total

Gas

Power

and Other

Associate

Total

(Loss) earnings from operations, associate and joint venture
per financial statements

$

(7.6) $

(15.0) $

0.2 $

(22.4) $

2.8

$

(1.3) $

(12.6) $

(18.7) $

(52.2)

Add (deduct):

Depletion, depreciation and amortization

2.4

-

2.4

8.8

8.7

0.8

-

20.7

-

-
-

-

10.8
-

-

39.4
-

-

50.2
-

-

-
-

-

-
-

-

-
-

-

$

5.6 $

24.4 $

0.2 $

30.2 $

11.6

$

7.4

$

(11.8) $

Adjustments for share of associate and joint
venture:

Depletion, depreciation and amortization
Net finance expense

Income tax expense

Adjusted EBITDA

Loss from operations, associate and joint venture

Net finance expense
Income tax expense

Net loss from continuing operations

$ millions, for the three months ended December 31

-
19.1

(0.4)

-

$

$

50.2
19.1

(0.4)

37.4

(52.2)

(53.3)
(4.1)

$ (109.6)

2015

Metals

Adjustment

for Joint

Moa JV and

Ambatovy

Oil and

Corporate Venture and

Fort Site

JV

Other

Total

Gas

Power

and Other

Associate

Total

(Loss) earnings from operations, associate and joint venture

per financial statements

Add (deduct):

$

(6.8) $ (1,785.5) $

(0.6) $ (1,792.9) $

(1.2) $

(3.3) $

(7.9) $

83.4 $ (1,721.9)

Depletion, depreciation and amortization

Impairment of assets

2.7

1.4

Adjustments for share of associate and joint
venture:

-

0.1

2.8

10.9

8.8

0.7

1,722.5

-

1,723.9

Depletion, depreciation and amortization

10.3

53.5

0.5

64.3

-

-

-

-

-

-

-

-

Net finance expense

Income tax recovery

Adjusted EBITDA

$

7.6 $

(9.5) $

- $

(1.9) $

9.7

$

5.5 $

(7.2) $

- $

6.1

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

29.8

23.2

1,723.9

64.3

29.8

(113.2)

(113.2)

Loss from operations, associate and joint venture

Net finance expense

Net loss from continuing operations

$ (1,721.9)

(35.4)

$ (1,757.3)

54 Sherritt International Corporation

$ millions, for the year ended December 31

Metals

2016

Adjustment

for Joint

Moa JV and

Ambatovy

Oil and

Corporate Venture and

Fort Site

JV

Other

Total

Gas

Power

and Other

Associate

Total

(Loss) earnings from operations, associate and joint venture

$

(28.4) $ (150.9) $

0.8 $ (178.5) $

(16.3) $

(5.3) $

(42.8) $

(77.9) $ (320.8)

per financial statements

Add (deduct):

Depletion, depreciation and amortization

Impairment of assets

Gain on property, plant and equipment and
intangibles

Adjustments for share of associate and joint
venture:

Net finance expense

Income tax expense

Adjusted EBITDA

9.6

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

9.6

-

-

182.3

-

-

43.4

8.5

-

-

-

-

34.8

4.3

-

-

-

-

-

-

-

-

-

-

-

-

-

-

70.1

7.8

$

19.6 $

(7.0) $

0.8 $

13.4 $

35.6 $

29.5 $

(38.5) $

-

$

92.1

8.5

-

182.3

70.1

7.8

40.0

Depletion, depreciation and amortization

38.4

143.9

Loss from operations, associate and joint venture

Net finance expense

Income tax expense

Net loss from continuing operations

$ millions, for the year ended December 31

Metals

$ (320.8)
(54.5)

(6.5)

$ (381.8)

2015

Adjustment

for Joint

(Loss) earnings from operations, associate and joint venture

Moa JV and

Ambatovy

Oil and

Corporate Venture and

Fort Site

JV

Other

Total

Gas

Power

and Other

Associate

Total

$

(4.4) $ (1,934.1) $

0.5 $ (1,938.0) $

(71.6) $

(3.7) $

(15.9) $

50.6 $ (1,978.6)

per financial statements

Add (deduct):

Depletion, depreciation and amortization

Impairment of assets

Gain on property, plant and equipment and
intangibles

Adjustments for share of associate and joint
venture:

Net finance expense
Income tax recovery

Adjusted EBITDA

9.7

1.4

-

-

1,722.5

-

-
-

-
-

-

-

-

-

-
-

9.7

1,723.9

-

237.7

-
-

72.9

80.6

-

-

-
-

33.7

-

-

-

-
-

2.9

-

(19.1)

-

-
-

-

-

-

-

85.5
(136.1)

119.2

1,804.5

(19.1)

237.7

85.5
(136.1)

$

42.2 $

(9.4) $

0.5 $

33.3 $

81.9 $

30.0 $

(32.1) $

- $

113.1

Depletion, depreciation and amortization

35.5

202.2

Loss from operations, associate and joint venture

Net finance expense

Income tax recovery

Net loss from continuing operations

$ (1,978.6)

(129.0)

35.9

$ (2,071.7)

Sherritt International Corporation

55

Management’s discussion and analysis

Average-realized price

Average-realized price is generally calculated by dividing revenue by sales volume for the given product in a given division. The
average-realized price for nickel, cobalt, and fertilizer excludes the impact of by-product revenue and the metals marketing

company. The average-realized price for oil and gas is based on net working-interest oil plus natural gas production stated in
barrels of oil equivalent. Management uses this measure to better understand the price realized in each reporting period for
nickel, cobalt, fertilizer, oil and gas, and power.

The tables below reconcile average-realized price to revenue as per the financial statements:

$ millions, except average-realized price and sales volume, for the three months ended December 31

2016

Revenue per financial statements

Adjustments to revenue:

By-product revenue
Processing revenue

Service concession arrangement revenue

Sales volume for the period

Volume units

Average-realized price(2)(3)

Revenue for purposes of average-realized price calculation

126.7

33.0

Metals

Nickel

Cobalt

Fertilizer

Other

revenue

Total

Oil and Gas

Power

$

126.7 $

33.0 $

17.4 $

18.5 $

195.6 $

30.6 $

13.7

-
-

-

-
-

-

-
-

-

17.4

61.2

19.6

1.9

Millions of
pounds

Millions of
pounds

Thousands
of tonnes

$

6.45 $

17.68 $

284

-
(1.4)

-

29.2

(1.0)
-

(0.1)

12.6

0.8

224

Millions of
barrels(1)

Gigawatts

$

38.98 $

56.24

$ millions, except average-realized price and sales volume, for the three months ended December 31

2015

Metals

Nickel

Cobalt

Fertilizer

Other

revenue

Total Oil and Gas

Power

Revenue per financial statements

$

111.6 $

27.6 $

27.9 $

16.7 $

183.8 $

30.5 $

13.7

Adjustments to revenue:

By-product revenue
Processing revenue

Service concession arrangement revenue

-
-

-

-
-

-

Revenue for purposes of average-realized price calculation

111.6

27.6

Sales volume for the period

19.6

2.1

-
-

-

27.9

75.3

Volume units

Average-realized price(2)(3)

Millions of
pounds

Millions of
pounds

Thousands
of tonnes

$

5.54 $

12.91 $

371

-
(1.4)

-

29.1

(1.0)
-

0.2

12.9

1.0

226

Millions of
barrels(1)

Gigawatts

$

29.53 $

56.53

56 Sherritt International Corporation

$ millions, except average-realized price and sales volume, for the year ended December 31

2016

Metals

Nickel

Cobalt

Fertilizer

Other

revenue

Total

Oil and Gas

Power

Revenue per financial statements

$

413.6 $

105.7 $

71.8 $

61.0 $

652.1 $

108.6 $

58.6

Adjustments to revenue:

By-product revenue

Processing revenue
Service concession arrangement revenue

Other

-

-

-

-

-

-

-

-

-

-

-

-

Revenue for purposes of average-realized price calculation

413.6

105.7

71.8

Sales volume for the period

73.3

6.9

220.0

Volume units

Millions of
pounds

Millions of
pounds

Thousands
of tonnes

-

(4.6)

-

-

104.0

(3.8)

-

(4.6)

-

50.2

3.5

894

Millions of
barrels(1)

Gigawatts

Average-realized price(2)(3)

$

5.65 $

15.33 $

326

$

29.98 $

56.10

$ millions, except average-realized price and sales volume, for the year ended December 31

2015

Metals

Nickel

Cobalt

Fertilizer

Other

revenue

Total

Oil and Gas

Power

Revenue per financial statements

$

530.8 $

108.8 $

88.4 $

77.1 $

805.1 $

162.6 $

52.7

Adjustments to revenue:

By-product revenue
Processing revenue

Service concession arrangement revenue

-
-

-

-
-

-

-
-

-

Revenue for purposes of average-realized price calculation

530.8

108.8

88.4

Sales volume for the period

79.0

7.2

238.1

Volume units

Millions of
pounds

Millions of
pounds

Thousands
of tonnes

-
(4.9)

-

157.7

(4.0)
-

0.3

49.0

4.1

902

Millions of
barrels(1)

Gigawatts

Average-realized price(2)(3)

$

6.68 $

15.20 $

371

$

38.73 $

54.26

For purposes of average-realized price tables, above:
(1) Net working-interest oil production. For additional discussion see Oil and Gas Production and Sales Volume section.
Average-realized price may not calculate based on amounts presented due to foreign exchange and rounding.
Power, average-realized price per MWh.

(3)

(2)

Unit operating cost

With the exception of Metals, which uses net direct cash cost, unit operating cost is generally calculated by dividing cost of sales

as reported in the financial statements, less depreciation, depletion and amortization in cost of sales, the impact of impairment,
gains and losses on property, plant, and equipment and exploration and evaluation assets and certain other non-production
related costs by the number of units sold.

The Moa Joint Venture’s and Ambatovy Joint Venture’s net direct cash cost is calculated by dividing cost of sales, as reported in the

financial statements, adjusted for the following: depreciation, depletion and amortization in cost of sales; cobalt by-product,
fertilizer and other revenue; and other costs primarily related to the impact of opening and closing inventory values, by the
number of finished nickel pounds sold in the period, and expressed in U.S. dollars.

Average unit operating costs for oil and gas is based on gross working-interest oil plus natural gas production stated in barrels of

oil equivalent.

Unit operating costs for nickel, oil, and electricity are key measures that management uses to monitor performance. Management
uses these statistics to assess how well the Corporation’s producing mines, oil wells and power facilities are performing and to
assess overall efficiency and effectiveness of the mining operations.

The tables below reconcile unit operating cost to cost of sales per the financial statements:

Sherritt International Corporation

57

Management’s discussion and analysis

$ millions, except unit cost and sales volume, for the three months ended December 31

Moa JV and

Ambatovy

Metals

Fort Site

JV

Other

Total

2016

Power

Oil and

Gas

Cost of sales per financial statements

$

97.1 $

99.1 $

14.5 $

210.7 $

25.0 $

14.1

Less:
Depletion, depreciation and amortization in cost of sales

Adjustments to cost of sales:

Cobalt by-product, fertilizer and other revenue

Impact of opening/closing inventory and other
Service concession arrangements –Cost of construction

Cost of sales for purposes of unit cost calculation

Sales volume for the period

Volume units

Unit operating cost(2)(3)
Unit operating cost (U.S. dollars) (NDCC)

(13.1)

84.0

(39.3)

59.8

-

14.5

(52.4)

158.3

(36.5)

(3.0)
-

44.5

(16.6)

(0.8)
-

42.4

8.8

10.8

Millions of
pounds

Millions of
pounds

$

$

5.08

3.80

3.90

3.10

$ millions, except unit cost and sales volume, for the three months ended December 31

Moa JV and

Ambatovy

Metals

Fort Site

JV

Other

Total

(8.7)

16.3

-

-
-

16.3

(8.7)

5.4

-

-
(0.1)

5.3

1.4

224

Millions of
barrels(1)

Gigawatts

$

11.68 $

24.73

2015

Power

Oil and

Gas

Cost of sales per financial statements

$

106.3 $

165.6 $

13.0 $

284.9 $

30.2 $

16.7

(13.0)

93.3

(53.4)

112.2

(0.6)

12.4

(67.0)

217.9

(10.9)

19.3

(46.3)

(10.6)

-

-

36.4

(15.2)

(0.7)

-

(39.4)

57.0

9.3

10.3

Millions of
pounds

Millions of
pounds

$

$

3.90

2.90

5.54

4.07

(8.7)

8.0

-

-

0.2

-

8.2

226

-

-

-

-

19.3

1.6

Millions of
barrels(1)

Gigawatts

$

11.64 $

33.88

Less:

Depletion, depreciation and amortization in cost of sales

Adjustments to cost of sales:

Cobalt by-product, fertilizer and other revenue

Impact of opening/closing inventory and other

Service concession arrangements –Cost of construction

Impairments

Cost of sales for purposes of unit cost calculation

Sales volume for the period

Volume units

Unit operating cost(2)(3)
Unit operating cost (U.S. dollars) (NDCC)

58 Sherritt International Corporation

$ millions, except unit cost and sales volume, for the year ended December 31

Moa JV and

Ambatovy

Metals

Fort Site

JV

Other

Total

2016

Power

Oil and

Gas

Cost of sales per financial statements
Less:

Depletion, depreciation and amortization in cost of sales

$

357.3 $

397.3 $

46.3 $

800.9 $

105.7 $

59.7

(47.8)

309.5

(143.5)

253.8

(0.2)

46.1

(191.5)

609.4

(43.2)

62.5

(34.7)

25.0

Adjustments to cost of sales:

Cobalt by-product, fertilizer and other revenue

Impact of opening/closing inventory and other

Service concession arrangements –Cost of construction

Cost of sales for purposes of unit cost calculation

Sales volume for the period

Volume units

Unit operating cost(2)(3)
Unit operating cost (U.S. dollars) (NDCC)

(135.8)
(9.8)

-

(49.6)
(2.5)

-

163.9

201.7

36.2

37.1

Millions of
pounds

Millions of
pounds

$

$

4.53

3.42

5.43

4.27

-
-

-

62.5

-
-

(4.6)

20.4

5.9

894

Millions of
barrels(1)

Gigawatts

$

10.58 $

22.94

$ millions, except unit cost and sales volume, for the year ended December 31

Moa JV and

Ambatovy

Metals

Fort Site

JV

Other

Total

2015

Power

Oil and

Gas

Cost of sales per financial statements

$

410.9 $

558.4 $

58.8 $

1,028.1 $

146.9 $

52.6

Less:

Depletion, depreciation and amortization in cost of sales

Adjustments to cost of sales:

Cobalt by-product, fertilizer and other revenue

Impact of opening/closing inventory and other

Service concession arrangements –Cost of construction

Impairments

Cost of sales for purposes of unit cost calculation

Sales volume for the period

Volume units

Unit operating cost(2)(3)
Unit operating cost (U.S. dollars) (NDCC)

For purposes of unit operating cost tables, above:

(45.1)

365.8

(201.7)

356.7

-

58.8

(246.8)

781.3

(72.7)

74.2

(33.6)

19.0

(158.1)

(22.0)

-

-

185.7

(58.3)

0.1

-

(39.4)

259.1

37.4

41.6

Millions of
pounds

Millions of
pounds

$

$

4.96

3.88

6.23

4.83

-

-

-

-

74.2

6.9

-

-

0.3

-

19.3

902

Millions of
barrels(1)

Gigawatts

$

10.69 $

21.00

(1)

(2)

(3)

Gross working-interest oil production. For additional discussion, see Oil and Gas Production and Sales Volume section.
Unit operating costs may not calculate based on amounts presented due to rounding and foreign exchange.
Power, unit operating cost per MWh.

Sherritt International Corporation

59

Management’s discussion and analysis

Adjusted earnings from continuing operations

The Corporation defines adjusted earnings from continuing operations as earnings from continuing operations less items not

reflective of operational performance. These adjusting items include, but are not limited to, the Ambatovy call option fair value
adjustment, impairment of assets, gains and losses on the acquisition or disposition of assets, gains and losses on unrealized
foreign exchange, and other one-time adjustments. While some adjustments are recurring (such as unrealized foreign exchange

(gain) loss), management believes that they do not reflect the Corporation’s operational performance or future operational
performance. Management believes that these measures, which are used internally to monitor operational performance, provide
investors the ability to better assess the Corporation’s operations.

The table below reconciles adjusted earnings net earnings (loss) per the financial statements:

$ millions

For the three months ended

For the years ended

2016

2015

2016

2015

December 31

December 31

December 31

December 31

Net loss from continuing operations

$

(109.6) $

(1,757.3) $

(381.8) $

(2,071.7)

Adjusting items:

Sherritt - Unrealized foreign exchange (gain) loss - Continuing
Corporate - Gain on repurchase of debentures
Corporate - Call option fair value adjustment
Corporate - Gain on sale of corporate office
Ambatovy - Impairment
Ambatovy - VAT adjustment
Ambatovy - Arbitration Award costs
Moa JV - Obsolete inventory and equipment impairment
Oil and Gas - Impairment
Oil and Gas - Inventory Impairment
Oil and Gas - Deferred consideration
Severance
Other

Total adjustments, before tax

Moa joint venture and Oil and Gas Cuban tax recovery
Moa joint venture Deferred tax asset write-off
Other tax adjustments

Adjusted net loss from continuing operations

25.7
-
-
-
-
(2.4)
-
1.1
-
1.9
-
2.0
-
28.3 $
-
-
-
(81.3) $

18.3
-
-
-
1,619.6
-
-
2.9
-
1.7
-
-
-

1,642.5 $

-
-
1.0
(113.8) $

(35.9)
(12.6)

-
-
-

(15.6)

-
1.1
8.5
1.9
(2.7)
3.4
-
(51.9) $
-
7.7
(1.9)
(427.9) $

44.3
-
17.7
(19.1)
1,619.6
(4.5)
4.5
2.9
80.6
1.7
-
2.2
7.4
1,757.3
(43.3)
-
6.4
(351.3)

$

$

60 Sherritt International Corporation

Combined adjusted operating cash flow per share

The Corporation defines combined adjusted operating cash flow per share as cash provided (used) by continuing operations

adjusted for dividends received from joint venture and associate and before net changes in non-cash working capital divided by
the weighted average number of outstanding shares during the period.

Combined adjusted operating cash flow per share is used by management to assess its ability to generate cash from its
operations, while also taking into consideration changes in the number of outstanding shares of the Corporation.

The tables below reconcile combined adjusted operating cash flow per share to the consolidated statement of cash flow:

$ millions, except per share amounts, for the three months ended December 31

Metals

Adjustment

2016
Total

for Joint derived from

Moa JV and

Ambatovy

Oil and

Corporate Combined Venture and

financial

Fort Site

JV

Other

Total

Gas

Power

and Other

total

Associate

statements

Cash provided (used) by continuing
operations

Adjust: net change in non-cash
working capital

Adjusted continuing operating cash flow

$

(6.1) $

(0.8) $

3.3 $

(3.6) $

11.4 $

(3.3) $

(28.0) $

(23.5) $

0.9 $

(22.6)

12.0

5.9

9.4

8.6

(3.1)

0.2

18.3

14.7

0.1

11.5

10.5

7.2

2.8

(25.2)

31.7

8.2

(14.1)

(13.2)

17.6

(5.0)

Combined adjusted operating cash
flow per share(1)

$

0.02 $

0.03 $

- $

0.05 $

0.04 $

0.03 $

(0.09) $

0.03 $

(0.04) $

(0.01)

(1)

The weighted average number of common shares for the quarter was 294.0 million shares.

$ millions, except per share amounts, for the three months ended December 31

Metals

Adjustment

2015
Total

for Joint derived from

Moa JV and

Ambatovy

Oil and

Corporate Combined Venture and

financial

Fort Site

JV

Other

Total

Gas

Power

and Other

total

Associate

statements

Cash (used) provided by continuing
operations

Adjust: net change in non-cash
working capital

Adjusted continuing operating cash flow

$

21.1 $

(22.3) $

1.4 $

0.2 $

30.2 $

6.5 $

(28.5) $

8.4 $

2.4 $

10.8

(12.4)

8.7

(4.9)

(27.2)

(1.5)

(0.1)

(18.9)

(18.7)

(22.6)

7.6

2.3

8.8

1.4

(27.2)

(37.8)

(29.5)

22.4

24.8

(15.3)

(4.6)

Combined adjusted operating cash
flow per share(1)

$

0.03 $

(0.09) $

- $

(0.06) $

0.03 $

0.03 $

(0.09) $

(0.09) $

0.08 $

(0.01)

(1)

The weighted average number of common shares for the quarter was 293.9 million shares.

$ millions, except per share amounts, for the year ended December 31

Metals

Adjustment

2016
Total

for Joint derived from

Moa JV and

Ambatovy

Oil and

Corporate Combined Venture and

financial

Fort Site

JV

Other

Total

Gas

Power

and Other

total

Associate

statements

Cash (used) provided by continuing
operations

Adjust: net change in non-cash
working capital

Adjusted continuing operating cash flow

$

(2.7) $

(34.6) $

3.1 $

(34.2) $

76.4 $

8.0 $

(82.5) $

(32.3) $

33.9 $

1.6

18.9

16.2

(4.6)

(39.2)

(2.3)

0.8

12.0

(22.2)

(44.8)

31.6

20.4

28.4

(2.1)

(84.6)

(14.5)

(46.8)

0.4

34.3

(14.1)

(12.5)

Combined adjusted operating cash
flow per share(1)

$

0.06 $

(0.13) $

- $

(0.07) $

0.11 $

0.10 $

(0.29) $

(0.15) $

0.12 $

(0.03)

(1)

The weighted average number of common shares for the year was 293.9 million shares.

Sherritt International Corporation

61

Management’s discussion and analysis

$ millions, except per share amounts, for the year ended December 31

Metals

Adjustment

2015
Total

for Joint derived from

Moa JV and

Ambatovy

Oil and

Corporate Combined Venture and

financial

Fort Site

JV

Other

Total

Gas

Power

and Other

total

Associate

statements

Cash provided (used) by continuing
operations

$

53.4 $

(24.3) $

4.1 $

33.2 $

80.7 $

61.4 $ (108.6) $

66.7 $

(2.2) $

64.5

Adjust: net change in non-cash
working capital
Adjusted continuing operating cash flow

(22.9)
30.5

(5.1)
(29.4)

(3.7)
0.4

(31.7)
1.5

(6.8)
73.9

6.7
68.1

28.2
(80.4)

(3.6)
63.1

24.7
22.5

21.1
85.6

Combined adjusted operating cash
flow per share(1)

$

0.10 $

(0.10) $

- $

- $

0.25 $

0.23 $

(0.27) $

0.21 $

0.08 $

0.29

(1)

The weighted average number of common shares for the year was 293.7 million shares.

Combined free cash flow

The Corporation defines combined free cash flow as cash flow provided (used) by continuing operations adjusted for dividends
received from joint venture and associate less cash spending on property plant and equipment, exploration and evaluation, and
intangible expenditures.

Management uses free cash flow as a non-GAAP measure to analyze cash flows generated from operations. Free cash flow should

be viewed as a measure that provides supplemental information to the Corporation’s condensed consolidated statements of cash
flow, as reconciled below.

$ millions, for the three months ended December 31

Metals

Adjustment

2016
Total

for Joint derived from

Moa JV and

Ambatovy

Oil and

Corporate Combined Venture and

financial

Fort Site

JV

Other

Total

Gas

Power

and Other

total

Associate

statements

Cash (used) provided by continuing
operations
Less:

Property, plant and equipment
expenditures

Intangible Expenditures

$

(6.1) $

(0.8) $

3.3 $

(3.6) $

11.4 $

(3.3) $

(28.0) $

(23.5) $

0.9 $

(22.6)

(3.7)

-

(9.8)

-

-

-

(13.5)

-

(0.3)

(7.8)

(0.4)

-

-

-

(14.2)

(7.8)

11.2

-

(3.0)

(7.8)

Free Cash Flow

$

(9.8) $

(10.6) $

3.3 $

(17.1) $

3.3 $

(3.7) $

(28.0)

(45.5) $

12.1 $

(33.4)

$ millions, for the three months ended December 31

Moa JV and

Ambatovy

Metals

Fort Site

JV

Other

Total

Adjustment

2015
Total

for Joint derived from

Oil and

Gas

Corporate Combined Venture and

financial

Power

and Other

total

Associate

statements

Cash provided (used) by continuing
operations

Less:

Property, plant and equipment
expenditures

Intangible expenditures

$

21.1 $

(22.3) $

1.4 $

0.2 $

30.2 $

6.5 $

(28.5) $

8.4 $

2.4 $

10.8

(19.8)

-

(4.3)

-

-

-

(24.1)

-

(6.4)

(0.5)

(2.1)

-

(0.1)

-

(32.7)

(0.5)

22.0

-

(10.7)

(0.5)

Free Cash Flow

$

1.3 $

(26.6) $

1.4 $

(23.9) $

23.3 $

4.4 $

(28.6)

(24.8) $

24.4 $

(0.4)

62 Sherritt International Corporation

$ millions, for the year ended December 31

Metals

2016

Adjustment

Total
for Joint derived from

Moa JV and

Ambatovy

Oil and

Corporate Combined Venture and

financial

Fort Site

JV

Other

Total

Gas

Power

and Other

total

Associate

statements

Cash (used) provided by continuing
operations

Less:

Property, plant and equipment
expenditures
Intangible Expenditures

$

(2.7) $

(34.6) $

3.1 $

(34.2) $

76.4 $

8.0 $

(82.5) $

(32.3) $

33.9 $

1.6

(31.2)

(21.3)

-

-

-
-

(52.5)

-

(9.0)
(17.0)

(1.0)
-

(0.1)
-

(62.6)
(17.0)

39.4
-

(23.2)
(17.0)

Free Cash Flow

$

(33.9) $

(55.9) $

3.1 $

(86.7) $

50.4 $

7.0 $

(82.6)

(111.9) $

73.3 $

(38.6)

$ millions, for the year ended December 31

Moa JV and

Ambatovy

Metals

Fort Site

JV

Other

Total

Adjustment

2015
Total

for Joint derived from

Oil and

Gas

Corporate Combined Venture and

financial

Power

and Other

total

Associate

statements

Cash provided (used) by continuing
operations
Less:

Property, plant and equipment
expenditures

Intangible expenditures

$

53.4 $

(24.3) $

4.1 $

33.2 $

80.7 $

61.4 $ (108.6) $

66.7 $

(2.2) $

64.5

(62.4)

(36.1)

-

-

-

-

(98.5)

-

(57.9)

(1.4)

(4.4)

-

(3.3)

(164.1)

-

(1.4)

85.1

-

(79.0)

(1.4)

Free Cash Flow

$

(9.0) $

(60.4) $

4.1 $

(65.3) $

21.4 $

57.0 $ (111.9)

(98.8) $

82.9 $

(15.9)

Net Investment in Ambatovy

The table below reconciles the Net Investment in Ambatovy to the consolidated statement of financial position at December 31,
2015.

Audited, Canadian $ millions, as at
ASSETS
Current assets
Non- current assets

Advances, loans receivable and other financial
Investment in an associate
Net investment in Ambatovy
Other non-current assets

Total assets

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Non- current liabilities

Non-recourse loans and borrowings
Loans and borrowings
Other non-current liabilities

Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Total debt- to- capital (1)

2015

December 31

Investment in
Associate

Subordinated
Loan Receivable

Ambatovy JV
Partner Loans

Ambatovy

Non-recourse

Adjusted
2015

December 31

$

820.4 $

- $

- $

- $

820.4

1,600.5
757.3
-
911.8
4,090.0 $

-
(757.3)
757.3
-
- $

(1,187.2)
-
1,187.2
-
- $

-
-
(1,303.2)
-

(1,303.2)$

413.3
-
641.3
911.8
2,786.8

212.1 $

1,303.2
868.7
148.9
2,532.9
1,557.1
4,090.0 $
59%

- $

-
-
-
-
-
- $

- $

-
-
-
-
-
- $

- $

212.1

(1,303.2)
-
-
(1,303.2)
-

(1,303.2)$

-
868.7
148.9
1,229.7
1,557.1
2,786.8
38%

$

$

$

(1)

Calculated as total debt divided by the sum of total debt and shareholders’equity.

Sherritt International Corporation

63

Management’s discussion and analysis

FORWARD- LOOKING STATEMENTS

This MD&A 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 include, but are not limited to, statements set out in the “Outlook”sections of this MD&A 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 MD&A 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; 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 MD&A

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 MD&A 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
MD&A 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.

64 Sherritt International Corporation

CONSOLIDATED FINANCIAL 
STATEMENTS  

As at and for the years ended December 31, 2016 and 2015 

CONSOLIDATED FINANCIAL STATEMENTS 
Management’s report 
Independent auditor’s report 
Consolidated statements of comprehensive income (loss) 
Consolidated statements of financial position  
Consolidated statements of cash flow 
Consolidated statements of changes in shareholders’ equity 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
Note 1 – Nature of operations and corporate information 
Note 2 – Basis of presentation 
Note 3 – Accounting pronouncements  
Note 4 – Segmented information 
Note 5 – Expenses 
Note 6 – Investment in an associate 
Note 7 – Joint arrangements 
Note 8 – Net finance expense 
Note 9 – Income taxes 
Note 10 – Gain on sale of Corporate assets 
Note 11 – Loss per share 
Note 12 – Financial instruments 
Note 13 – Advances, loans receivable and other financial assets 
Note 14 – Inventories 
Note 15 – Non-financial assets 
Note 16 – Loans, borrowings and other financial liabilities 
Note 17 – Provisions, contingencies and guarantees 
Note 18 – Shareholders’ equity 
Note 19 – Stock-based compensation plans 
Note 20 – Supplementary cash flow information 
Note 21 – Financial risk and capital risk management 
Note 22 – Related party transactions 
Note 23 – Operating lease arrangements 
Note 24 – Commitments for expenditures 

2 
3 
4 
5 
6 
7 

8 
8 
11 
13 
17 
17 
20 
23 
23 
26 
27 
27 
31 
32 
32 
39 
41 
44 
45 
50 
50 
54 
55 
55

Sherritt International Corporation 

1   

 
  
 
 
 
 
 
 
 
 
 
  
 
  
   
 
 
   
 
 
     
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated financial statements 

Management’s report 

The accompanying consolidated financial statements are the responsibility of Sherritt International Corporation’s (“Sherritt” or the 
“Corporation”) management. They have been prepared in accordance with International Financial Reporting Standards as issued by 
the International Accounting Standards Board and include amounts based on estimates and judgments. Management has 
determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly, 
in all material respects. 

Management has developed and maintains a system of internal control to provide reasonable assurance that the Corporation’s 
assets are safeguarded, transactions are authorized and the consolidated financial statements are complete and accurate. 

The consolidated financial statements are approved by the Board of Directors on the recommendation of the audit committee. The 
audit committee of the Board of Directors is composed entirely of independent directors. Sherritt’s consolidated financial 
statements are reviewed by the audit committee with management before the consolidated financial statements are approved by 
the Board of Directors. In addition, the audit committee has the duty to review the accounting principles and practices applied and 
followed by the Corporation during the fiscal year, including critical accounting policies and significant estimates and judgments 
underlying the consolidated financial statements as presented by management.  Deloitte LLP (“Deloitte”) performs an audit of the 
consolidated financial statements, the results of which are reflected in their independent auditor’s report for 2016 included on the 
next page. Deloitte has full and independent access to the audit committee to discuss their audit and related matters. In addition, 
Sherritt has an internal audit function that evaluates and formally reports to management and the audit committee on the 
adequacy and effectiveness of internal controls specified in the approved annual internal audit plan. 

/s/ David V. Pathe  

David V. Pathe 
President and Chief Executive Officer 

February 16, 2017 

/s/ Andrew Snowden 

Andrew Snowden 
Senior Vice President and  
Chief Financial Officer 

2 

Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Deloitte LLP 
Bay Adelaide East 
22 Adelaide Street West 
Suite 200 
Toronto ON  M5H 0A9 
Canada 

Tel: 416-601-6150 
Fax: 416-601-6610 
www.deloitte.ca 

Independent Auditor’s Report 

To the Shareholders of Sherritt International Corporation 

We have audited the accompanying consolidated financial statements of Sherritt International Corporation, which comprise the 
consolidated statements of financial position as at December 31, 2016 and December 31, 2015, and the consolidated statements 
of comprehensive income (loss), consolidated statements of changes in shareholders’ equity and consolidated statements of 
cash flow for the years then ended, and a summary of significant accounting policies and other explanatory information. 

Management’s Responsibility for the Consolidated Financial Statements 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance 
with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable 
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. 

Auditor’s Responsibility 

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our 
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical 
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial 
statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated 
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of 
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, 
the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial 
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing 
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of 
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall 
presentation of the consolidated financial statements. 

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit 
opinion.  

Opinion 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Sherritt 
International Corporation as at December 31, 2016 and December 31, 2015, and its financial performance and its cash flows for 
the years then ended in accordance with International Financial Reporting Standards. 

/s/ Deloitte LLP 

Chartered Professional Accountants 
Licensed Public Accountants  
February 16, 2017 

Sherritt International Corporation 

3   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
Consolidated financial statements 

Consolidated statements of comprehensive income 
(loss) 

Canadian $ millions, except per share amounts, for the years ended December 31 

Note

2016

2015

Revenue 
Cost of sales 
Administrative expenses 
Impairment of Oil assets 
Gain on sale of Corporate assets 
Share of loss of an associate, net of tax, including impairment 
Share of loss of a joint venture, net of tax 
Loss from operations, associate and joint venture 
Financing income 
Financing expense 
Net finance expense 
Loss before tax 
Income tax (expense) recovery 
Net loss from continuing operations 
Earnings (loss) from discontinued operations, net of tax 
Net loss for the year 

Other comprehensive income  
Items that may be subsequently reclassified to profit or loss: 

Foreign currency translation differences on foreign operations 
Items that will not be subsequently reclassified to profit or loss: 

Actuarial losses on pension plans, net of tax 

Other comprehensive (loss) income  
Total comprehensive loss 

4 $
5
5
15
10
6
7

8
8

9

17

$

18

18

$

262.3  $
(263.4)
(54.5)
(8.5)
- 
(212.0)
(44.7)
(320.8)
81.2 
(135.7)
(54.5)
(375.3)
(6.5)
(381.8)
2.9 

335.9 
(318.1)
(46.4)
(80.6)
19.1 
(1,876.7)
(11.8)
(1,978.6)
75.5 
(204.5)
(129.0)
(2,107.6)
35.9 
(2,071.7)
(5.0)
(378.9) $ (2,076.7)

(89.8)

579.2 

(0.7)
(90.5)

(0.2)
579.0 
(469.4) $ (1,497.7)

Net loss from continuing operations per common share, basic and diluted 

11 $

(1.30) $

(7.05)

Net loss per common share, basic and diluted 

11 $

(1.29) $

(7.07)

The accompanying notes are an integral part of these consolidated financial statements.  

4 

Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
   
   
Consolidated statements of financial position 

Canadian $ millions, as at 

ASSETS 
Current assets 
Cash and cash equivalents 
Short-term investments 
Advances, loans receivable and other financial assets 
Trade accounts receivable, net 
Inventories 
Prepaid expenses 

Non-current assets 
Advances, loans receivable and other financial assets 
Other non-financial assets 
Property, plant and equipment 
Investment in an associate 
Investment in a joint venture 
Intangible assets 

Assets held for sale 
Total assets 

LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities 
Other loans and borrowings 
Trade accounts payable and accrued liabilities 
Income taxes payable 
Other financial liabilities 
Deferred revenue 
Provisions 

Non-current liabilities 
Non-recourse loans and borrowings 
Other loans and borrowings 
Other financial liabilities 
Deferred revenue 
Other non-financial liabilities 
Provisions 
Deferred income taxes 

Total liabilities 

Shareholders' equity 
Capital stock 
Deficit 
Reserves 
Accumulated other comprehensive income 

Total liabilities and shareholders' equity 

The accompanying notes are an integral part of these consolidated financial statements.   

Approved by the Board of Directors, 

/s/ Harold (Hap) Stephen 

Harold (Hap) Stephen 
Director   

/s/ David V. Pathe 

David V. Pathe 
Director  

Note

2016
December 31

2015
December 31

230.6 
204.8 
82.7 
258.3 
38.0 
6.0 
820.4 

1,600.5 
0.8 
351.1 
757.3 
404.2 
154.8 
3,268.7 
0.9 
4,090.0 

91.2 
73.6 
2.4 
1.5 
24.6 
18.8 
212.1 

1,303.2 
868.7 
1.9 
3.8 
- 
107.8 
35.4 
2,320.8 
2,532.9 

12 $
12
13
12
14

13

15
6
7
15

$

269.6  $
40.0 
83.5 
285.8 
39.6 
2.4 
720.9 

1,542.7 
0.4 
286.4 
767.9 
336.8 
150.9 
3,085.1 
0.9 
3,806.9  $

16 $

43.0  $

148.3 
4.4 
5.0 
13.1 
12.2 
226.0 

1,367.5 
817.7 
163.0 
3.5 
0.4 
102.4 
28.5 
2,483.0 
2,709.0 

16

17

16
16
16

17
9

18

18
18

2,775.7 
(2,721.5)
234.7 
809.0 
1,097.9 
3,806.9  $

2,775.3 
(2,342.6)
224.9 
899.5 
1,557.1 
4,090.0 

$

Sherritt International Corporation 

5   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated financial statements 

Consolidated statements of cash flow 

Canadian $ millions, for the years ended December 31 

Note

2016

2015 

Operating activities 
Net loss from continuing operations 
Add (deduct): 
  Depletion, depreciation and amortization 
  Share of loss of an associate, net of tax, including impairment 
  Share of loss of a joint venture, net of tax 
  Loss on impairment of Oil assets 
  Net finance expense (less accretion expense) 

Income tax expense (recovery) 
  Service concession arrangements 
  Gain on sale of Corporate assets 
Net change in non-cash working capital 
Interest received 
Interest paid 
Income tax paid 
Dividends received from joint venture 
Liabilities settled for environmental rehabilitation provisions 
Other operating items 
Cash provided by continuing operations 
Cash used by discontinued operations 
Cash (used) provided by operating activities 

Investing activities 
Property, plant and equipment expenditures 
Intangible asset expenditures 
Increase in advances, loans receivable and other financial assets 
Receipts of advances, loans receivable and other financial assets 
Loans to an associate 
Net proceeds from sale of Corporate assets 
Net proceeds from sale of property, plant and equipment 
Proceeds from short-term investments 
Cash provided (used) by continuing operations 
Cash provided (used) by investing activities 

Financing activities 
Repayment of other loans and borrowings 
Increase in other loans and borrowings 
Fees paid on debenture extension 
Issuance of common shares 
Dividends paid on common shares 
Cash (used) provided by continuing operations 
Cash (used) provided by financing activities 
Effect of exchange rate changes on cash and cash equivalents 
Increase in cash and cash equivalents 
Cash and cash equivalents at beginning of the year 
Cash and cash equivalents at end of the year 

The accompanying notes are an integral part of these consolidated financial statements. 

$

(381.8) $ (2,071.7)

5
6
7 
15
8 
9

10
20

7

20

17

13
10

92.1 
212.0 
44.7 
8.5 
53.5 
6.5 
(4.6)
- 
14.1 
8.7 
(59.8)
(10.3)
- 
(1.1)
19.1 
1.6 
(7.4)
(5.8)

(23.2)
(17.0)
- 
1.3 
- 
- 
- 
164.8 
125.9 
125.9 

(65.7)
- 
(14.8)
0.2 
- 
(80.3)
(80.3)
(0.8)
39.0 
230.6 
269.6  $

18

12 $

119.2 
1,876.7 
11.8 
80.6 
127.9 
(35.9)
- 
(19.1)
(21.1)
49.8 
(58.9)
(10.6)
12.5 
- 
3.3 
64.5 
(16.0)
48.5 

(79.0)
(1.4)
(17.1)
38.5 
(135.7)
21.2 
0.1 
110.8 
(62.6)
(62.6)

(1.6)
90.0 
- 
0.7 
(9.0)
80.1 
80.1 
3.0 
69.0 
161.6 
230.6 

6 

Sherritt International Corporation 

 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated statements of changes in 
shareholders’ equity 

Canadian $ millions 

Note 

Capital
stock

Deficit

Reserves

Accumulated
other

comprehensive
income (loss)

Total

Balance as at December 31, 2014 

$ 2,772.9  $ (259.9) $

225.2  $

320.5  $ 3,058.7 

Total comprehensive loss: 
  Net loss for the year 

Foreign currency translation differences on foreign operations  18 
18 

  Actuarial loss on pension plans, net of tax 

- 
- 
- 
- 

(2,076.7)
- 
- 
(2,076.7)

Shares issued for: 
  Restricted stock plan (vested) 

Employee share purchase plan (vested) 

Restricted stock plan expense 
Stock option plan expense 

18 
18 

18 
18 

1.6 
0.8 

- 
- 

- 
- 

- 
- 

- 
- 
- 
- 

(1.6)
(0.1)

0.1 
1.3 

- 
579.2 
(0.2)
579.0 

(2,076.7)
579.2 
(0.2)
(1,497.7)

- 
- 

- 
- 

- 
0.7 

0.1 
1.3 

Dividends declared to common shareholders 
Balance as at December 31, 2015 

- 
2,775.3 

(6.0)
(2,342.6)

- 
224.9 

- 
899.5 

(6.0)
1,557.1 

Total comprehensive loss: 
  Net loss for the year 

Foreign currency translation differences on foreign operations  18 
18 

  Actuarial loss on pension plans, net of tax 

Shares issued for: 
  Warrants exercised 

Stock option plan expense 

18 

18 

- 
- 
- 
- 

0.4 

- 

(378.9)
- 
- 
(378.9)

- 
- 
- 
- 

- 
(89.8)
(0.7)
(90.5)

(378.9)
(89.8)
(0.7)
(469.4)

- 

- 

(0.2)

1.8 

- 

- 

0.2 

1.8 

Warrant issuance 
Balance as at December 31, 2016 

- 
16   
  $  2,775.7  $ (2,721.5) $

- 

8.2 
234.7  $

- 

8.2 
809.0  $ 1,097.9 

The accompanying notes are an integral part of these consolidated financial statements. 

Sherritt International Corporation 

7   

 
  
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Notes to the consolidated financial statements 

(All dollar amounts presented in tables are expressed in millions of Canadian dollars except share and per share amounts)  

1.  NATURE OF OPERATIONS AND CORPORATE INFORMATION 

Sherritt International Corporation (“Sherritt” or the “Corporation”) is a world leader in the mining and refining of nickel from 
lateritic ores with projects and operations in Canada, Cuba, and Madagascar. The Corporation is the largest independent energy 
producer in Cuba, with extensive oil and power operations across the island. Sherritt licenses its proprietary technologies and 
provides metallurgical services to mining and refining operations worldwide.   

The Corporation is domiciled in Ontario, Canada and its registered office is 181 Bay Street, Toronto, Ontario, M5J 2T3.  These 
consolidated financial statements were approved and authorized for issuance by the Board of Directors of Sherritt on February 
16, 2017.  The Corporation is listed on the Toronto Stock Exchange.  

2.  BASIS OF PRESENTATION 

2.1 Basis of presentation 

The consolidated financial statements of the Corporation are prepared in accordance with International Financial Reporting 
Standards (IFRS), as issued by the International Accounting Standards Board (IASB).  

The Corporation has consistently applied the same accounting policies to all periods presented. 

The consolidated financial statements are prepared on a going concern basis, under the historical cost convention except for 
certain financial assets and liabilities and cash-settled share-based payments, which have been measured at fair value. All 
financial information is presented in Canadian dollars rounded to the nearest hundred thousand, except as otherwise noted. 

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to 
exercise judgment in applying the Corporation’s accounting policies. These estimates and judgments are continuously evaluated 
and are based on management’s experience and knowledge of relevant facts and circumstances. Actual results may differ from 
estimates.  

Certain of the Corporation’s accounting policies that relate to the financial statements as a whole, as well as estimates and 
judgments it has made and how they affect the amounts reported in the consolidated financial statements, are incorporated in 
this section. To facilitate a better understanding of the Corporation’s consolidated financial statements, additional significant 
accounting policies, estimates and judgments (with the exception of those identified in this note 2) are disclosed throughout the 
following notes:  

8 

Sherritt International Corporation 

 
 
 
Note 

Topic 

4 
4 
6 
7 
9 
12 
14 
15 
15 
15 
17 
19 
20 
23 

Reportable segments 
Revenue recognition 
Investment in an associate 
Joint arrangements 
Income taxes 
Financial instruments 
Inventories 
Property, plant and equipment 
Intangible assets 
Impairment of non-financial assets 
Provisions 
Stock-based compensation 
Statement of cash flows 
Leases 

2.2 Principles of consolidation 

Accounting 
policies 

Critical accounting 
estimates and 
 judgments 

Page 

x 
x 
x 
x 
x 
x 
x 
x 
x 
x 
x 
x 
x 
x 

x 

x 

x 

x 
x 
x 
x 

x 

13 
13 
17 
20 
23 
27 
32 
32 
32 
32 
41 
45 
50 
55 

These consolidated financial statements include the financial position, results of operations and cash flows of the Corporation, 
its subsidiaries, its interest in an associate, its interest in a joint venture, and its share of assets, liabilities, revenues and 
expenses related to its interests in joint operations. Intercompany balances, transactions, income and expenses, profits and 
losses, including gains and losses relating to subsidiaries and joint operations have been eliminated on consolidation. 

The Corporation’s significant subsidiaries, joint arrangements and interest in an associate are as follows: 

Relationship 

Geographic 
location 

Economic 
interest 

Basis of  
accounting 

Metals 

Moa Joint Venture 

Joint venture 

50% 

Equity method 

Composed of the following operating companies: 

International Cobalt Company Inc. 
Moa Nickel S.A. 
The Cobalt Refinery Company Inc. 

Ambatovy Joint Venture 

Associate 

Composed of the following operating companies: 

Ambatovy Minerals S.A. 
Dynatec Madagascar S.A. 

Oil and Gas 

Bahamas 
Cuba 
Canada 

50% 
50% 
50% 

40% 

Madagascar 
Madagascar 

40% 
40% 

Equity method 

Sherritt International (Cuba) Oil and Gas Ltd. 
Sherritt International Oil and Gas Ltd. 

Subsidiary 
Subsidiary 

Cuba 
Canada 

100% 
100% 

Consolidation 
Consolidation 

Power 

Energas S.A. (Energas) 

Joint operation  Cuba 

⅓33 % 

Share of assets, liabilities, 
revenues and expenses 

Subsidiaries 

Subsidiaries are entities over which the Corporation has control. Control is defined as when the Corporation is exposed or has 
rights to the variable returns from the subsidiary and has the ability to affect those returns through its power over the subsidiary.  
Power is defined as existing rights that give the Corporation the ability to direct the relevant activities of the subsidiary.  
Subsidiaries are fully consolidated from the date control is transferred to the Corporation and are de-consolidated from the date 
control ceases.  

Sherritt International Corporation 

9   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Joint arrangements 

A joint arrangement is an arrangement whereby two or more parties are subject to joint control. Joint control is considered to be 
when all parties to the joint arrangement are required to reach unanimous consent over decisions about relevant business 
activities pertaining to the contractual arrangement. The Corporation has two types of joint arrangements: a joint venture and 
joint operations. See note 7 for details. 

Associate 

An associate is an entity over which the Corporation has significant influence. Significant influence is the power to participate in 
operating and financial decisions of the investee, but is not control or joint control over those policies. The Corporation is 
presumed to have significant influence over an entity if it holds, directly or indirectly, 20 percent or more of the voting power of 
the entity or if significant influence can be clearly demonstrated. The Corporation has one associate.  See note 6 for details. 

Impairment of the investment in an associate and investment in a joint venture  

At each reporting date, the Corporation assesses whether there is any indication that the carrying amounts of the Corporation’s 
investment in an associate and investment in a joint venture, including related mineral rights, may be impaired. Significant 
changes in commodity price forecasts, reserve estimates and production forecasts are examples of factors that could indicate 
impairment. 

Impairment is determined as the excess of the carrying amount of the investment in an associate and investment in a joint 
venture over their recoverable amounts (higher of value in use and fair value less costs to sell). The recoverable amount is based 
on estimated future recoverable production, expected commodity or contracted prices (considering current and historical prices, 
price trends and related factors), discount rates, foreign exchange rates, production levels, cash costs of production and 
environmental rehabilitation costs over the life of mine. Cash flow projections are based on detailed mine plans and independent 
estimates of critical commodity prices.  

See note 15 for the Corporation’s policy on impairment of non-financial assets of its subsidiaries and joint operations. 

Critical accounting judgments 

Interests in other entities  

The Corporation applies judgment in determining the classification of its interest in other entities, such as: (i) the determination 
of the level of control or significant influence held by the Corporation; (ii) the legal structure and contractual terms of the 
arrangement; (iii) concluding whether the Corporation has rights to assets and liabilities or to net assets of the arrangement; and 
(iv) when relevant, other facts and circumstances. The Corporation has determined that Energas S.A. and its Oil and Gas 
production-sharing contracts represent joint operations while the Moa Joint Venture represents a joint venture as described in 
IFRS 11, “Joint Arrangements”.  The Corporation has concluded that the Ambatovy Joint Venture represents an investment in an 
associate as described in IAS 28, “Investments in Associates and Joint Ventures”.  All other interests in other entities have been 
determined to be subsidiaries as described in IFRS 10, “Consolidated Financial Statements”. 

Measuring the recoverable amount of the Corporation’s investment in an associate and investment in a joint venture 

The Corporation accounts for its investment in an associate and investment in a joint venture using the equity method. The 
Corporation assesses the carrying amount of its investments at each reporting date to determine whether there are any 
indicators that the carrying amount of the investments may be impaired. 

For purposes of determining the recoverable amount, management calculates the net present value of expected future cash 
flows. Projections of future cash flows are based on factors relevant to the investment’s operations and could include estimated 
recoverable production, commodity or contracted prices, foreign exchange rates, production levels, cash costs of production, 
capital and reclamation costs. Projections inherently require assumptions and judgments to be made about each of the factors 
affecting future cash flows. The determination of the recoverable amount involves a detailed review of the investment’s life of 
mine model and the determination of weighted average cost of capital among other critical factors. 

Changes in any of these assumptions or judgments could result in a significant difference between the carrying amount and the 
recoverable amount of these investments.  Where necessary, management engages qualified third-party professionals to assist in 
the determination of recoverable amounts. 

10  Sherritt International Corporation 

 
 
 
2.3 Foreign currency translation  

The consolidated financial statements are presented in Canadian dollars, the Corporation’s functional and presentation currency. 

Translation of foreign entities 

The functional currency for each of the Corporation’s subsidiaries, joint arrangements and associate is the currency of the 
primary economic environment in which it operates. Operations with foreign functional currencies are translated into the 
Corporation’s presentation currency in the following manner: 

(cid:1)  Monetary and non-monetary assets and liabilities are translated at the spot exchange rate in effect at the reporting 

date;   

(cid:1) 

(cid:1) 

(cid:1) 

Revenue and expense items (including depletion, depreciation and amortization) are translated at average rates of 
exchange prevailing during the period, which approximate the exchange rates on the transaction dates;  

Impairment of assets are translated at the prevailing rate of exchange on the date of the impairment recognition, and; 

Exchange gains and losses that result from translation are recognized as a foreign currency translation adjustment in 
accumulated foreign currency translation reserve. 

Translation of transactions and balances 

Operations with transactions in currencies other than the entity’s functional currency are recognized at the rates of exchange 
prevailing at the date of the transaction as follows: 

(cid:1)  Monetary assets and liabilities are translated at current rates of exchange with the resulting gains or losses recognized 

within financing expense in the consolidated statements of comprehensive income (loss); 

(cid:1) 

(cid:1) 

Non-monetary items are translated at historical exchange rates; and 

Revenue and expense items are translated at the average rates of exchange, except depletion, depreciation and 
amortization, which are translated at the rates of exchange applicable to the related assets, with any gains or losses 
recognized within financing expense in the consolidated statements of comprehensive income (loss). 

3.  ACCOUNTING PRONOUNCEMENTS 

3.1 Adoption of new and amended accounting pronouncements 

In fiscal 2016, there have been no new or amended accounting pronouncements that have had a material impact on the 
Corporation’s consolidated financial statements.  

3.2 Accounting pronouncements issued but not yet effective 

IFRS 9 – Financial Instruments 

IFRS 9, “Financial instruments” (IFRS 9) was issued by the IASB on July 24, 2014 and will replace IAS 39, “Financial instruments: 
recognition and measurement” (IAS 39). IFRS 9 utilizes a single approach to determine whether a financial asset is measured at 
amortized cost or fair value and a new mixed measurement model for debt instruments having only two categories: amortized 
cost and fair value. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its 
business model and the contractual cash flow characteristics of the financial assets.  IFRS 9 also introduces a new expected loss 
impairment model. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. 
The Corporation will not early adopt IFRS 9. The Corporation is currently evaluating the impact of this standard and amendments 
on its consolidated financial statements and expects to report more detailed information, including estimated quantitative 
financial effects, in 2017. 

Sherritt International Corporation 

11   

 
 
 
 
 
 
Notes to the consolidated financial statements 

IFRS 15 - Revenue from Contracts with Customers 

IFRS 15, “Revenue from Contracts and Customers” (IFRS 15) was issued by the IASB on May 28, 2014, and amended on April 12, 
2016, and will replace IAS 18, “Revenue”, IAS 11, “Construction Contracts”, and related interpretations on revenue. IFRS 15 sets 
out the requirements for recognizing revenue that apply to all contracts with customers, except for contracts that are within the 
scope of the standards on leases, insurance contracts and financial instruments. IFRS 15 uses a control based approach to 
recognize revenue which is a change from the risk and reward approach under the current standard. Companies can elect to use 
either a full or modified retrospective approach when adopting this standard and it is effective for annual periods beginning on 
or after January 1, 2018 with early adoption permitted. The Corporation will not early adopt IFRS 15 and is currently evaluating 
its transition method. The Corporation is currently evaluating the impact of this standard and amendments on its consolidated 
financial statements and expects to report more detailed information, including estimated quantitative financial effects, in 2017. 

IFRS 16 – Leases  

IFRS 16, “Leases” (IFRS 16) was issued by the IASB on January 13, 2016, and will replace IAS 17, “Leases”. IFRS 16 will bring most 
leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and financing leases. 
Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. The 
new standard is effective for annual periods beginning on or after January 1, 2019 with early adoption permitted if IFRS 15 has 
also been applied. The Corporation is currently evaluating when it will adopt IFRS 16 and the impact of this standard on its 
consolidated financial statements. 

IFRS 2 – Share-based Payment 

IFRS 2, “Share-based Payment” (IFRS 2) was amended by the IASB on June 20, 2016. The amendments clarify that in estimating the 
fair value of a cash-settled share-based payment, the accounting for the effects of vesting and non‑vesting conditions should 
follow the same approach as for equity‑settled share‑based payments. Other amendments do not apply to the Corporation. The 
amendments are effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The 
Corporation is currently evaluating when it will adopt the amendments. The adoption of these amendments is not expected to 
have a material impact on the Corporation’s consolidation financial statements. 

12  Sherritt International Corporation 

 
4.  SEGMENTED INFORMATION 

Accounting policies 

The accounting policies of the segments are the same as those described in note 2 and other relevant notes and are measured in 
a manner consistent with that of the consolidated financial statements.  

Reportable segments 

The Corporation has determined the following to be reportable segments based on qualitative and quantitative considerations 
discussed within the critical accounting estimates and judgments sections below: 

(cid:1) 

(cid:1) 

(cid:1) 

(cid:1) 

(cid:1) 

(cid:1) 

The Moa JV and Fort Site segment is comprised of mining, processing and refining activities of nickel and cobalt for the 
Corporation’s 50% interest in the Moa Joint Venture in Cuba and Canada and includes the production and sale of 
agricultural fertilizers for its 100% interest in the utility and fertilizer operations in Fort Saskatchewan; 

The Ambatovy JV segment represents the Corporation’s 40% interest in the Ambatovy Joint Venture’s integrated nickel 
and cobalt facility in Madagascar; 

The Metals Other segment is comprised of the Corporation’s three wholly owned subsidiaries established to buy, 
market and sell certain of Ambatovy Joint Venture’s and Moa Joint Venture’s nickel production; 

The Oil and Gas segment includes the oil and gas operations in Cuba as well as the exploration and development of oil 
and gas in Cuba, Spain and Pakistan; 

The Power segment includes the operations in Cuba, which construct and operate electricity generating plants that 
provide electricity in Cuba; and,   

The Corporate and Other segment is comprised of the metallurgical technology business, management of cash and 
short-term investments, general corporate activities and wholly-owned subsidiaries of the Corporation established to 
finance the Ambatovy Joint Venture. 

Revenue recognition 

Revenue from the sale of goods is recognized when the Corporation has transferred to the buyer the significant risks and 
rewards of ownership of the goods, the Corporation retains neither continuing managerial involvement nor effective control over 
the goods sold, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the 
transaction will flow to the Corporation, and the costs incurred or to be incurred in respect of the transaction can be measured 
reliably. Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract.  

Metals 

Metals encompasses the Moa JV, the Ambatovy JV and the Metals Other segments. In Metals, these criteria are generally met 
when the transfer of ownership, as specified in the sales contract, is fulfilled, which is upon shipment or delivery to destination.  

Certain Metals product sales are provisionally priced, with the selling price subject to final adjustment at the end of a quotation 
period, in accordance with the terms of the sale. The quotation period is normally within 90 days after shipment to the customer, 
and final pricing is based on a reference price established at the end of the quotation period.   

Revenue from provisionally priced sales is initially recorded at the estimated fair value of the consideration that is expected to be 
ultimately received based on forecast reference prices. At each reporting date, all outstanding receivables originating from 
provisionally priced sales are marked-to-market based on a forecast of reference prices at that time. The adjustment to accounts 
receivable is recorded as an adjustment to sales revenue. Provisional pricing is only used in the pricing of nickel and cobalt sales 
for which reference prices are established in a freely traded and active market. 

Oil and Gas 

In Oil and Gas, these criteria are met at the time of production based on the Corporation’s working interest. In Cuba, all oil 
production is sold to the Cuban government and, accordingly, delivery coincides with production. The Corporation is allocated a 
share of Cuban oil production pursuant to its production-sharing contracts. 

Sherritt International Corporation 

13   

 
 
 
Notes to the consolidated financial statements 

Revenue from cost recovery oil, up to the total recoverable costs incurred in connection with oil activities, is recognized when 
entitlement to the cost recovery oil component of production is established. The production-sharing contracts limit cost recovery 
oil to a maximum percentage of total production in a calendar quarter, ranging generally between 50% and 60% of total 
production. Revenue from profit oil represents the Corporation’s share of oil production after cost recovery oil production is 
deducted. Recoverable costs that do not provide cost recovery oil entitlements in the current period are included in the 
determination of cost recovery oil entitlements, and thus revenue, in future periods.  

Power 

Substantially all of Power’s revenue is from agencies of the Government of Cuba, with the revenue recognition criteria met at the 
time electricity is delivered or services are performed.  

The facilities located in Boca de Jaruco and Puerto Escondido, Cuba operate under a service concession arrangement.  In 
accordance with the accounting guidance for service concession arrangements, Power revenue on operational facilities is 
recognized at the time electricity is delivered or services are performed, and construction revenue is recorded during periods of 
new construction, enhancement or upgrade activities. The construction revenue relates to the exchange transaction whereby the 
Corporation provides design, construction and operating services at Boca de Jaruco or Puerto Escondido in return for the right to 
charge the Government of Cuba for the future supply of electricity.  

The facilities located in Varadero, Cuba operate under lease arrangements, whereby the Corporation is the lessor. All operating 
lease revenue related to the Varadero facility is contingent on the amount of electricity produced or services rendered and is 
recognized when lease payments become due.  

Critical accounting judgments 

When determining its reportable segments, the Corporation considers qualitative factors, such as operations that offer distinct 
products and services and are considered to be significant by the Chief Operating Decision Maker, identified as the senior 
executive team. The Corporation also considers quantitative thresholds when determining reportable segments, such as if 
revenue, earnings (loss) or assets are greater than 10% of the total consolidated revenue, net earnings (loss), or assets of all the 
reportable segments, respectively. Operating segments that share similar economic characteristics are aggregated to form a 
single reportable segment. Aggregation occurs when the operating segments have similar economic characteristics, and have 
similar (a) products and services; (b) production processes; (c) type or class of customer for their products and services; (d) 
methods used to distribute their products or provide their services; and (e) nature of the regulatory environment, if applicable. 

14  Sherritt International Corporation 

 
 
Supporting information 

Canadian $ millions, for the year ended December 31 

Metals 

Moa JV and
Fort Site

Ambatovy  
JV  

Other 

Oil and
Gas

Power

Corporate 
and Other(1) 

Adjustments for    
Joint Venture
and Associate(2)

339.3  $
(357.3)
(10.4)
- 
- 
- 

264.8   $
(397.3)  
(18.4)  
-   
-   
-   

48.0  $
(46.3) 
(0.9) 
- 
- 
- 

108.6  $
(105.7)
(10.7)
(8.5)
- 
- 

58.6  $
(59.7)
(4.2)
- 
- 
- 

(28.4)

(150.9)  

0.8 

(16.3)

(5.3)

0.9  $

(10.7)
(33.0)
- 
- 
- 

(42.8)

(557.9) $
713.6 
23.1 
- 
(212.0)
(44.7)

2016

Total

262.3 
(263.4)
(54.5)
(8.5)
(212.0)
(44.7)

(77.9)

(320.8)

81.2 
(135.7)
(54.5)
(375.3)
(6.5)
(381.8)

2.9 

(378.9)

Revenue 
Cost of sales 
Administrative expenses 
Impairment of Oil assets 
Share of loss of an associate, net of tax 
Share of loss of a joint venture, net of tax 

(Loss) earnings from operations, associate 
and joint venture 
Financing income 
Financing expense 
Net finance expense 
Loss before tax 
Income tax expense 
Net loss from continuing operations 
Earnings from discontinued operations, net 
of tax (note 17) 
Net loss for the year 

Supplementary information 
Depletion, depreciation and amortization 
Property, plant and equipment expenditures 
Intangible asset expenditures 

Canadian $ millions, as at December 31 
Non-current assets(3) 
Total assets 

$

$

$

48.0  $
31.2 
- 

143.9   $
21.3   
-   

-  $
- 
- 

43.4  $
9.0 
17.0 

34.8  $
1.0 
- 

4.3  $
0.1 
- 

(182.3) $
(39.4)
- 

92.1 
23.2 
17.0 

734.0  $
961.1 

2,620.8   $
2,934.8   

-  $

119.9  $

92.2 

1,194.0 

165.1  $
542.6 

7.3  $

658.9 

(3,209.8) $
(2,576.7)

2016
437.3 
3,806.9 

Canadian $ millions, for the year ended December 31 

Moa JV and
Fort Site

Metals 
Ambatovy  
JV  

Other 

Oil and
Gas

Power

Corporate 
and Other(1) 

Adjustments for    
Joint Venture
and Associate(2)

2015

Total

Revenue 
Cost of sales 
Administrative expenses 
Impairment of Ambatovy JV assets 
Impairment of Oil assets 
Gain on sale of Corporate assets 
Share of loss of an associate, net of tax 
Share of loss of a joint venture, net of tax 

$

412.6  $
(410.9)
(6.1)
- 
- 
- 
- 
- 

 $

332.0 
(558.4)  
(24.6)  
(1,683.1)  

- 
- 
- 
- 

60.5  $
(58.8) 
(1.2) 
- 
- 
- 
- 
- 

162.6  $
(146.9)
(6.7)
- 
(80.6)
- 
- 
- 

52.7  $
(52.6)
(3.8)
- 
- 
- 
- 
- 

2.3  $
(5.2)
(32.1)
- 
- 
19.1 
- 
- 

(686.8) $
914.7 
28.1 
1,683.1 
- 
- 
(1,876.7)
(11.8)

335.9 
(318.1)
(46.4)
- 
(80.6)
19.1 
(1,876.7)
(11.8)

(Loss) earnings from operations, associate 
and joint venture 
Financing income 
Financing expense 
Net finance expense 
Loss before tax 
Income tax recovery 
Net loss from continuing operations 
Loss from discontinued operations, net of tax 
(note 17) 
Net loss for the year 

Supplementary information 
Depletion, depreciation and amortization 
Property, plant and equipment expenditures 
Intangible asset expenditures 

$

(4.4)

(1,934.1)  

0.5 

(71.6)

(3.7)

(15.9)

50.6 

(1,978.6)

75.5 
(204.5)
(129.0)
(2,107.6)
35.9 
(2,071.7)

(5.0)

(2,076.7)

45.2  $
62.4 
- 

 $

202.2 
36.1 
- 

-  $
- 
- 

72.9  $
57.9 
1.4 

33.7  $
4.4 
- 

2.9  $
3.3 
- 

(237.7) $
(85.1)
- 

119.2 
79.0 
1.4 

Canadian $ millions, as at December 31 
Non-current assets(3) 
Total assets 

$

772.0  $

1,039.8 

2,815.9 
3,044.1 

 $

-  $

147.6  $

12.2 

1,219.5 

199.6  $
548.6 

11.0  $

913.8 

(3,440.2) $
(2,688.0)

2015
505.9 
4,090.0 

(1)  Revenues from Corporate and Other primarily relate to sales from the Corporation’s metallurgical technologies business. 

(2)  The Adjustments for Joint Venture and Associate reflect the adjustments for equity-accounted investments in the Ambatovy Joint Venture and Moa Joint 

Venture.  

(3)  Non-current assets are composed of property, plant and equipment and intangible assets. 

Sherritt International Corporation 

15   

 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
   
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
   
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Geographic information 

Canadian $ millions, as at 

North America(3) 
Cuba(3) 
Madagascar 
Europe 
Asia 
Other 

2016
December 31

Non-current
assets(1)

Total
assets(2)

Non-current
assets(1)

2015

December 31
Total
assets(2)

$

$

155.8  $
263.7 
1.0 
16.1 
0.7 
- 

437.3  $

646.2  $

1,164.3 
1,896.5 
54.3 
22.6 
23.0 
3,806.9  $

165.0  $
324.4 
1.3 
14.2 
1.0 
- 

505.9  $

814.9 
1,257.9 
1,975.4 
20.4 
2.6 
18.8 
4,090.0 

(1)  Non-current assets are composed of property, plant and equipment and intangible assets and exclude the non-current assets of equity accounted 

investments. 

(2) 

(3) 

For its geographic information, the Corporation has allocated assets based on their physical location. 

Included within total assets in Cuba is the Moa expansion loan receivable of $264.9 million as at December 31, 2016 ($255.9 million as at December 31, 
2015). The geographical location of the Moa expansion loan receivable is based on the location of the borrower. In the prior year, this amount was 
included within North America.  For consistency of presentation with the current years presented, the comparative amount has been reclassified to Cuba. 

 Canadian $ millions, for the years ended December 31 

North America 
Cuba 
Madagascar 
Europe 
Asia 
Other 

2016
Total
revenue(1)

2015
Total
revenue(1)

$

$

87.6  $

159.6 
2.3 
10.3 
2.1 
0.4 
262.3  $

115.9 
203.3 
1.7 
11.3 
2.3 
1.4 
335.9 

(1) 

For its geographic information, the Corporation has allocated revenue based on the location of the customer. Revenue excludes the revenue of equity 
accounted investments. 

Revenue components 

 Canadian $ millions, for the years ended December 31 

Nickel 
Fertilizer 
Oil and gas 
Power generation 
Other 

(1)  Revenue excludes the revenue of equity accounted investments. 

Significant customers 

2016

Total
revenue(1)

40.7  $
47.9 
104.1 
50.2 
19.4 
262.3  $

$

$

2015

Total
revenue(1)

56.2 
58.9 
157.7 
49.0 
14.1 
335.9 

The Oil and Gas segment derived $101.0 million of its revenue for the year ended December 31, 2016 ($150.6 million for the 
year ended December 31, 2015) directly and indirectly from agencies of the Government of Cuba. 

The Power segment derived $54.8 million of its revenue for the year ended December 31, 2016 ($48.7 million for the year ended 
December 31, 2015) directly and indirectly from agencies of the Government of Cuba. 

The Metals Other segment derived $32.7 million of its revenue for the year ended December 31, 2016 ($54.1 million for the year 
ended December 31, 2015) from a customer who markets and sells nickel. 

No other single customer contributed 10% or more to the Corporation’s revenue for both 2016 and 2015. 

16  Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
   
 
 
 
 
 
 
 
 
 
 
5.  EXPENSES 

Cost of sales includes the following: 

Canadian $ millions, for the years ended December 31 

2016

2015

Employee costs 
Depletion, depreciation and amortization of property, 
  plant and equipment and intangible assets 
Raw materials and consumables 
Repairs and maintenance 
Impairment losses and inventory obsolescence(1) 
Freight and shipping costs 
Construction costs 
Other 

$

$

66.2  $
89.4 

34.6 
38.7 
2.0 
15.6 
4.6 
12.3 
263.4  $

59.1 
116.5 

48.4 
56.6 
2.1 
17.8 
- 
17.6 
318.1 

(1) 

In the third quarter of 2016, the Corporation recognized an impairment loss of $8.5 million (note 15) representing the write-down of certain Oil assets in 
the Oil and Gas segment to their recoverable amount ($80.6 million during the year ended December 31, 2015).  Due to the significance of this 
impairment loss, the amount has been presented separately from cost of sales as impairment of Oil assets in the consolidated statement of 
comprehensive income (loss). 

Administrative expenses include the following: 

Canadian $ millions, for the years ended December 31 

Employee costs 
Severance 
Depreciation 
Stock-based compensation expense (recovery) 
Consulting services and audit fees 
Other 

6.  INVESTMENT IN AN ASSOCIATE 

Accounting policies 

2016

2015

$

$

25.1  $
3.4 
2.7 
12.0 
6.0 
5.3 
54.5  $

32.9 
2.2 
2.7 
(1.0)
5.2 
4.4 
46.4 

The Ambatovy Joint Venture is recognized as an investment in an associate and accounted for using the equity method as 
follows: 

(cid:1) 

(cid:1) 

(cid:1) 

(cid:1) 

(cid:1) 

The Corporation recognizes its share of earnings (loss), net of tax in the consolidated statements of comprehensive 
income (loss), which is adjusted against the carrying amount of its investment in an associate; 

The Corporation recognizes its share of other comprehensive income (loss) in the consolidated statements of changes 
in shareholders’ equity, which is adjusted against the carrying amount of its investment in an associate; 

If the Corporation’s share of losses equals or exceeds the carrying value of its investment in an associate in the future, 
the Corporation does not recognize further losses, unless it has incurred obligations or made payments on behalf of the 
entity;  

Gains and losses on transactions between the Corporation and its associate are eliminated to the extent of the 
Corporation’s interest in this entity. Losses are eliminated only to the extent that there is no evidence of impairment; 
and 

Prior to commercial production, interest revenue on a loan receivable from an associate is fully eliminated. Subsequent 
to commercial production, interest revenue on a loan receivable from an associate is recognized to the extent of 
Sherritt’s economic interest. 

Sherritt International Corporation 

17   

 
 
 
 
 
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Critical accounting judgments 

With respect to post-financial completion cash calls not funded by Sherritt under the Ambatovy Joint Venture financing, Sherritt 
has the option to pay the amounts in cash at any time, at Sherritt’s election.  Until the funding deficit is addressed, and subject to 
continued discussions with the Ambatovy Joint Venture partners, Sherritt will not exercise its Ambatovy Joint Venture voting 
rights. Sherritt has the ability to cure the underfunding and regain its voting rights at any time. Therefore, it is the Corporation’s 
judgment that it continues to have significant influence over the Ambatovy Joint Venture. 

Supporting information 

The Corporation indirectly holds a 40% interest in Ambatovy Minerals S.A. and Dynatec Madagascar S.A. (collectively the 
Ambatovy Joint Venture).  Sherritt is the operator of the Ambatovy Joint Venture and has as its partners, Sumitomo Corporation 
(Sumitomo) and Korea Resources Corporation (Kores).  The Ambatovy Joint Venture has two nickel deposits located near 
Moramanga, Madagascar.  The ore from these deposits is delivered via pipeline to a processing plant and refinery located near 
the Port of Toamasina. 

Deferral of principal repayment on Ambatovy Joint Venture financing 

In August 2016, the Ambatovy Joint Venture financing lenders agreed to up to six principal payment deferrals totaling US$565.1 
million (100% basis), which are to be repaid on a schedule starting in June 2021, or earlier subject to cash flow generation. Until 
June 2019, the Ambatovy Joint Venture will pay semi-annual interest payments only and will not make semi-annual principal 
payments unless there is sufficient free cash flow after required deductions. Deferred principal is subject to an additional 2% 
accrued interest calculated from the date of each deferral. Total principal repayments were nil for the year ended December 31, 
2016 as a result of this deferral (US$188.4 million for the year ended December 31, 2015).  Interest payments of US$54.8 million 
were made to the lenders during the year ended December 31, 2016 (US$34.8 million for the year ended December 31, 2015). 

Ambatovy Joint Venture funding and Shareholders Agreement 

Total post-financial completion cash funding provided by Sumitomo and Kores is US$173.0 million, pursuant to total post-
financial completion cash calls of US$288.3 million, with cash funding of US$143.0 million provided during the year ended 
December 31, 2016. Sherritt has not funded any portion of these cash calls, and continues not to fund. Sherritt’s unfunded 
amounts remain payable. These amounts will be subtracted from future Ambatovy Joint Venture distributions, or may be set off 
against other amounts owed to Sherritt. 

By agreement amongst the partners, Sherritt is not considered to be a defaulting shareholder under the Shareholders Agreement 
for amounts not funded through March 10, 2017, while discussions continue regarding the partnership structure and future 
funding arrangements. As part of this agreement, shareholder funding contributed from and including December 15, 2015, will 
accrue interest at a rate of LIBOR plus 8.0% and will be paid in priority to the subordinated loans payable. Repayments of 
principal and interest will not be made prior to certain conditions being satisfied. Unpaid interest is accrued monthly and 
capitalized to the principal balance semi-annually. As at December 31, 2016, the shareholder funding contributed from and 
including December 15, 2015 amounts to US$173.0 million and has been recognized in the Ambatovy Joint Venture’s statement 
of financial position as Ambatovy subordinated loans payable – post-financial completion. 

Impairment 

During the year ended December 31, 2015, an impairment indicator was identified at the Ambatovy Joint Venture reflecting the 
expectation of a sustained reduction in long-term nickel prices.  The recoverable amount was determined to be $7.1 billion (100% 
basis) as at December 31, 2015.  In determining the recoverable amount for the Ambatovy Joint Venture, a long-term nickel price 
of US$8.50/lb and a discount rate of 9.0% were used in the discounted cash flow calculation. The Corporation has identified the 
Ambatovy Joint Venture operation as one cash-generating unit (“CGU”), which constitutes the Ambatovy Joint Venture reportable 
segment. 

During the year ended December 31, 2015, the Corporation recognized a total impairment of $1.6 billion (40% basis), after tax, 
within the Corporation’s share of loss of an associate, net of tax, in the consolidated statement of comprehensive income (loss).  
The total impairment consisted of the Corporation’s 40% share of the Ambatovy Joint Venture impairment, a deferred tax asset 
write-down, an inventory write-down and an incremental impairment of the Corporation’s mineral rights, net of deferred tax 
adjustments.  

During the year ended December 31, 2016, no impairment was recognized relating to the Corporation’s 40% interest in the 
Ambatovy Joint Venture. 

18  Sherritt International Corporation 

 
The following provides additional information relating to the Corporation’s investment in the Ambatovy Joint Venture: 

Statement of financial position 

Canadian $ millions, 100% basis, as at  

Assets 
Cash and cash equivalents(1) 
Other current assets 
Trade accounts receivable, net 
Inventories 
Deferred income taxes(2) 
Other non-current assets(3) 
Property, plant and equipment 
Total assets 

Liabilities 
Trade accounts payable and accrued liabilities 
Other taxes payable 
Other current financial liabilities 
Current portion of loans and borrowings: 
  Ambatovy Joint Venture financing(4) 
  Ambatovy revolving credit facility(5) 
Non-current portion of loans and borrowings: 
  Ambatovy Joint Venture financing(4) 
  Ambatovy subordinated loans payable(6) 
  Ambatovy subordinated loans payable - post-financial completion(7) 
Environmental rehabilitation provision 
Other non-current liabilities(3) 
Total liabilities 
Net assets of Ambatovy Joint Venture 
Proportion of Sherritt's ownership interest 
Carrying value of investment in an associate 

2016
December 31

2015

December 31

$

$

$

76.7  $
26.0 
109.6 
415.5 
- 
160.2 
6,549.3 
7,337.3 

321.0 
21.7 
0.1 

-  
50.5 

2,118.7  
2,358.5  
242.9  
142.0  
162.2  
5,417.6 
1,919.7  $
40%
767.9 $

39.6 
12.9 
89.6 
426.2 
- 
5.8 
7,036.5 
7,610.6 

317.5 
15.8 
- 

260.7 
60.6 

1,927.9 
3,009.1 
- 
117.6 
8.2 
5,717.4 
1,893.2 
40%
757.3

(1) 

 In accordance with La loi établissant un régime special pour les grands investissements dans le secteur minier malagasy (LGIM), Madagascar’s large scale 
mining investment act, the Ambatovy Joint Venture is required to (a) maintain foreign currency in local bank accounts sufficient to pay 90 days of local 
expenses, or (b) repatriate all revenue from export sales of mining products, less authorized debt service costs, to local bank accounts within 90 days of 
receipt.  The Ambatovy Joint Venture is currently electing to repatriate revenue from export sales, less authorized debt service costs, in compliance with 
the requirements of the LGIM.  

(2)  As at December 31, 2015, the Ambatovy Joint Venture had derecognized its deferred tax asset. As at December 31, 2016, the Ambatovy Joint Venture 

has earned investment tax credits which management has estimated to be $694.2 million (December 31, 2015 - $713.7 million), operating losses of 
$867.9 million (December 31, 2015 - $652.1 million) and $4,359.1 million (December 31, 2015 - $4,117.8 million) of deductible temporary differences 
for which deferred tax assets have not been recognized since the realization of any related tax benefit through future taxable profits is not probable. The 
investment tax credits have an indefinite carry forward period and may be used to partially offset Malagasy income tax otherwise payable by the 
Ambatovy Joint Venture in subsequent years. The operating losses have a 5-year expiry period. 

(3)  As at December 31, 2016, the Ambatovy Joint Venture has recognized a financial asset relating to its right to receive outstanding shareholder funding 
from the Corporation (note 16).  The Ambatovy Joint Venture has also recognized a financial liability relating to future distributions payable to the 
Corporation if and when the funding deficit is cured (note 13).  This financial liability has not been included within the Ambatovy subordinated loans 
payable as the funding has not yet been provided by the Corporation. 

(4)  The Ambatovy Joint Venture financing is project financing with a group of international lenders that matures on June 15, 2024.  For the year ended 
December 31, 2016, US$8.7 million ($11.4 million) of financing costs relating to the deferral of principal repayments were capitalized. The project 
financing became non-recourse to the partners in September 2015 when the project filed the remaining completion certificates and is now solely secured 
by the project assets.  Interest is payable based on LIBOR plus a weighted-average margin of 2.5%.  Deferred principal is subject to an additional 2% 
accrued interest calculated from the date of each deferral. As at December 31, 2016, the Ambatovy Joint Venture had borrowed US$1,601.1 million 
(December 31, 2015 - US$1,601.1 million) under the project financing. 

(5)  The Ambatovy revolving credit facility is a Malagasy Ariary (MGA) 126.0 billion ($50.5 million) revolving credit facility agreement with local financial 

institutions (December 31, 2015 – MGA 140 billion ($60.6 million)) which matures on July 31, 2017.  The facility bears interest rates between 9.00% and 
11.85% and is subordinated to the Ambatovy Joint Venture financing.  As at December 31, 2016, MGA 126.0 billion ($50.5 million) was drawn on the 
revolving credit facility (December 31, 2015 - MGA 140 billion ($60.6 million)).  As at December 31, 2015, the Ambatovy revolving credit facility was also 
comprised of a MGA 20 billion ($8.7 million) overdraft facility which matured on February 29, 2016. 

Sherritt International Corporation 

19   

 
  
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

(6)  The subordinated loans payable is comprised of pro-rata contributions provided by the Ambatovy Joint Venture partners.  The debt bears interest at 

LIBOR plus 6%.  Repayments of principal or interest will not be made prior to certain conditions of the finance agreements being satisfied.  Unpaid 
interest is accrued monthly and capitalized to the principal balance semi-annually.  During the year ended December 31, 2016, US$510.0 million of the 
Ambatovy Joint Venture subordinated loans payable was converted to equity which, at the Corporation’s 40% share, resulted in a US$204.0 million 
($284.1 million) decrease in the Corporation’s subordinated loans receivable. The Corporation has recorded its share of the related subordinated loans 
receivable within advances, loans receivable and other financial assets (note 13).  There was no change to the Corporation’s ownership interest as a 
result of the conversion. 

(7)  The subordinated loans payable – post-financial completion is comprised of the Ambatovy Joint Venture partner contributions from and including 

December 15, 2015, and accrues interest at a rate of LIBOR plus 8.0%. 

Results of operations 

Canadian $ millions, 100% basis, for the years ended December 31 

2016

2015

Revenue 
Cost of sales(1) 
Administrative expenses 
Loss on impairment of property, plant and equipment 
Loss from operations 
Financing income 
Financing expense(2) 
Net financing expense 
Loss before tax 
Income tax expense(3) 
Net loss and comprehensive loss of Ambatovy Joint Venture 
Proportion of Sherritt's ownership interest 
Total 
Intercompany interest expense elimination 
Impairment of mineral rights, net of deferred tax 
Share of loss of an associate, net of tax, including impairment 

$

$

$

662.1  $
(993.3)
(46.0)
- 
(377.2)
1.1 
(218.6)
(217.5)
(594.7)
- 

830.0 
(1,395.9)
(61.4)
(3,044.1)
(3,671.4)
0.2 
(295.3)
(295.1)
(3,966.5)
(48.3)
(594.7) $ (4,014.8)
40%
(1,605.9)
43.7 
(314.5)
(212.0) $ (1,876.7)

40%
(237.9)
25.9 
- 

(1) 

Included in cost of sales for the year ended December 31, 2016 is depreciation and amortization of $358.7 million ($504.2 million for the year ended 
December 31, 2015.  Cost of sales also includes a $101.3 million inventory write-down for the year ended December 31, 2015.) 

(2)  During the year ended December 31, 2016, a gain on the partial reversal of the value added tax (VAT) receivable provision of $38.8 million was 

recognized in financing expense ($11.5 million for the year ended December 31, 2015). 

(3) 

Included in income tax expense for the year ended December 31, 2015 is a $120.6 million write-down of the Ambatovy Joint Venture deferred tax asset. 

7.  JOINT ARRANGEMENTS 

Investment in a joint venture 

Accounting policies 

The Moa Joint Venture is recognized as an investment in a joint venture and accounted for using the equity method as follows: 

(cid:1) 

(cid:1) 

(cid:1) 

(cid:1) 

(cid:1) 

The Corporation recognizes its share of earnings (loss), net of tax in the consolidated statements of comprehensive 
income (loss),  which is adjusted against the carrying amount of its interest in a joint venture; 

The Corporation recognizes its share of other comprehensive income (loss) in the consolidated statements of changes 
in shareholders’ equity, which is adjusted against the carrying amount of its interest in a joint venture; 

If the Corporation’s share of losses equals or exceeds the carrying value of its investment in joint venture in the future, 
the Corporation does not recognize further losses, unless it has incurred obligations or made payments on behalf of the 
entity;  

Gains and losses on transactions between the Corporation and its joint venture are eliminated to the extent of the 
Corporation’s interest in this entity. Losses are eliminated only to the extent that there is no evidence of impairment; 
and 

Interest revenue on a loan receivable from a joint venture is recognized to the extent of Sherritt’s economic interest.  

20  Sherritt International Corporation 

 
  
 
 
 
 
 
 
 
   
 
Supporting information 

The Corporation indirectly holds a 50% interest in the Moa Joint Venture.  The operations of the Moa Joint Venture are currently 
conducted among three companies.  Moa Nickel S.A. owns and operates the mining and processing facilities located in Moa, 
Cuba; The Cobalt Refinery Company Inc. owns and operates the metals refinery located at Fort Saskatchewan; and International 
Cobalt Company Inc. acquires mixed-sulphides from Moa Nickel S.A. and third parties, contracts the refining of such purchased 
materials and then markets finished nickel and cobalt. 

The following provides additional information relating to the Corporation’s investment in the Moa Joint Venture: 

Statement of financial position 

Canadian $ millions, 100% basis, as at  

Assets 
Cash and cash equivalents 
Other current assets 
Trade accounts receivable, net 
Inventories 
Other non-current assets 
Property, plant and equipment 
Deferred income taxes(1) 
Total assets 

Liabilities 
Trade accounts payable and accrued liabilities 
Income taxes payable 
Other current financial liabilities(2) 
Loans and borrowings(3) 
Environmental rehabilitation provision 
Other non-current financial liabilities(4) 
Deferred income taxes 
Total liabilities 
Net assets of Moa Joint Venture 
Proportion of Sherritt's ownership interest 
Total 
Intercompany capitalized interest elimination 
Carrying value of investment in a joint venture 

2016
December 31

2015

December 31

$

$

$

13.9  $
8.4 
86.0 
193.2 
13.3 
1,274.3 
- 
1,589.1 

43.7 
11.8 
72.2 
208.4 
13.9 
1,349.5 
12.1 
1,711.6 

57.2 
5.1 
57.1 
48.3 
77.6 
548.0 
26.1 
819.4 
769.7  $
50%
384.9 
(48.1)
336.8  $

68.3 
2.9 
59.0 
43.9 
80.6 
519.9 
27.6 
802.2 
909.4 
50%
454.7 
(50.5)
404.2 

(1)  During the year ended December 31, 2016, the Moa Joint Venture derecognized its deferred tax asset. As at December 31, 2016, the Moa Joint Venture 

has tax losses of $75.0 million (December 31, 2015 - $53.8 million) for which a deferred tax asset has not been recognized as the realization of tax 
losses at Moa Nickel S.A. are not probable. The tax losses have a 5-year carry forward period from the year incurred and are located in Cuba. 

(2) 

(3) 

(4) 

Included in other current financial liabilities as at December 31, 2016 is a $56.9 million working capital facility with the Corporation (December 31, 2015 
- $56.9 million) (note 13). 

Included in loans and borrowings as at December 31, 2016 is a $48.3 million loan for the construction of the Moa Joint Venture acid plant (December 31, 
2015 - $43.9 million).  The acid plant loan accrues interest at a rate of 10% per annum which is payable monthly. 

Included in other non-current financial liabilities as at December 31, 2016 is $529.9 million in expansion loans of which $264.9 million are with the 
Corporation (December 31, 2015 - $511.8 million, $255.9 million of which are with the Corporation) (note 13). 

Sherritt International Corporation 

21   

 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Results of operations 

Canadian $ millions, 100% basis, for the years ended December 31 

2016

2015

Revenue 
Cost of sales(1) 
Administrative expenses 
Loss from operations 
Financing income 
Financing expense 
Net finance expense 
Loss before tax 
Income tax (expense) recovery(2) 
Net loss and comprehensive loss of Moa Joint Venture 
Proportion of Sherritt's ownership interest 
Total 
Intercompany elimination  
Share of loss of a joint venture, net of tax 

$

$

$

586.2  $
(632.6)
(9.5)
(55.9)
0.2 
(43.6)
(43.4)
(99.3)
(15.7)
(115.0) $
50%
(57.5)
12.8 
(44.7) $

709.5 
(712.8)
(7.0)
(10.3)
0.5 
(41.4)
(40.9)
(51.2)
8.7 
(42.5)
50%
(21.3)
9.5 
(11.8)

(1) 

(2) 

Included in cost of sales for the year ended December 31, 2016 is depreciation and amortization of $76.8 million (for the year ended December 31, 2015 
- $71.1 million). 

Included in income tax (expense) recovery for the year ended December 31, 2016 is an income tax expense of $15.4 million related to the derecognition 
of the deferred tax asset at Moa Nickel S.A. (nil for the year ended December 31, 2015). 

For the year ended December 31, 2016, the Moa Joint Venture (50% basis) paid nil dividends ($12.5 million for the year ended 
December 31, 2015). 

Joint operations 

Accounting policies 

A joint operation is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to 
joint control and whereby each party has rights to the assets and obligations for liabilities relating to the arrangement.  Interests 
in joint operations are accounted for by recognizing the Corporation’s share of assets, liabilities, revenues and expenses. 

Supporting information 

Sherritt’s primary power generating assets are located in Cuba at Varadero, Boca de Jaruco and Puerto Escondido. These assets 
are held by Sherritt through its one-third interest in Energas S.A. (Energas), which is a Cuban joint arrangement established to 
process raw natural gas and generate electricity for sale to the Cuban national electrical grid. Cuban government agencies Union 
Electrica (UNE) and Unión Cuba Petróleo (CUPET) hold the remaining two-thirds interest in Energas. 

On December 15, 2016, the term of the Varadero lease agreement was extended to March 2023. The Corporation continues to 
account for the Varadero lease agreement as an operating lease (note 23) amortized using the straight-line method of 
amortization. The extension will reduce the amortization expense each period as the asset is now amortized to March 2023. This 
change was accounted for prospectively from the date of the extension. For the year ended December 31, 2016, amortization 
expense decreased by approximately US$0.2 million as a result of the extension. 

The following provides information relating to the Corporation’s one-third interest in Energas S.A. (Energas): 

Canadian $ millions, 33 % basis, as at 

⅓

Current assets 
Non-current assets 
Current liabilities 
Non-current liabilities 
Net assets 

22  Sherritt International Corporation 

2016

2015

December 31

December 31

$

$

49.6  $

151.3 
27.0 
86.0 
87.9  $

25.6 
176.2 
21.4 
79.8 
100.6 

 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
Canadian $ millions, 33 % basis, for the years ended December 31 

⅓

Revenue 
Expense 
Net (loss) earnings 

8.  NET FINANCE INCOME (EXPENSE) 

Canadian $ millions, for the years ended December 31 

Revaluation on financial instruments(1) 
Interest income on cash, cash equivalents and short-term investments 
Interest income on investments 
Interest income on advances and loans receivable 
Gain on repurchase of debentures 
Total financing income 

Interest expense and accretion on loans and borrowings 
Unrealized foreign exchange gain (loss) 
Realized foreign exchange (loss) gain 
Other finance charges 
Accretion expense on environmental rehabilitation provisions 
Total financing expense 
Net finance expense 

$

$

$

Note

16

20
20
17, 20

2016

2015

58.6  $
(61.1)

(2.5) $

52.2 
(28.8)
23.4 

2016

2015

2.7  $
2.5 
0.4 
63.0 
12.6  
81.2 

(168.0)
35.9 
(0.6)
(2.0)
(1.0)
(135.7)

(17.7)
2.7 
- 
90.5 
- 
75.5 

(149.9)
(44.4)
1.5 
(10.6)
(1.1)
(204.5)
(129.0)

$

(54.5) $

(1) 

Included in revaluation on financial instruments for the year ended December 31, 2015 is the Corporation’s realized loss on the extinguishment of the 
Ambatovy call option of $13.7 million which expired on September 30, 2015. 

9.  INCOME TAXES 

Accounting policies  

The income tax expense or recovery for the reporting period consists of two components: current and deferred taxes. 

The current income tax payable or recoverable is calculated using the tax rates and legislation that have been enacted or 
substantively enacted at each reporting date in each of the jurisdictions and includes any adjustments for taxes payable or 
recoverable in respect of prior periods. 

Current tax assets and liabilities are offset when they relate to the same jurisdiction, the entity has a legally enforceable right to 
offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. 

Deferred tax assets and liabilities are determined using the statement of financial position liability method based on temporary 
differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. In 
calculating the deferred tax assets and liabilities, the tax rates used are those that have been enacted or substantively enacted at 
each reporting date in each of the jurisdictions and that are expected to apply when the assets are recovered or the liabilities are 
settled. Deferred income tax assets and liabilities are presented as non-current. 

Deferred tax liabilities are recognized on all taxable temporary differences, and deferred tax assets are recognized on all 
deductible temporary differences, carryforward of unused tax losses and carryforward of unused tax credits, with the exception 
of the following items: 

(cid:1) 

(cid:1) 

(cid:1) 

Temporary differences associated with investments in subsidiaries, associates and interests in joint ventures where the 
Corporation is able to control the timing of the reversal of temporary differences and such reversals are not probable in 
the foreseeable future; 

Temporary differences that arise on the initial recognition of assets and liabilities in a transaction that is not a business 
combination and has no impact on either accounting profit or taxable profit; and 

Deferred tax assets are only recognized to the extent that it is probable that sufficient taxable profits exist in future 
periods against which the deductible temporary differences can be utilized.  The probability that sufficient taxable 
profits exist in future periods against which the deferred tax assets can be utilized is reassessed at each reporting date. 
The amount of deferred tax assets recognized is adjusted accordingly. 

Sherritt International Corporation 

23   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current 
tax liabilities when they relate to income taxes levied by the same taxation authority on the same taxable entity and when the 
Corporation has the legal right to offset them. 

Current and deferred taxes that relate to items recognized directly in equity are also recognized in equity. All other taxes are 
recognized in income tax expense in the consolidated statements of comprehensive income (loss).  

Critical accounting estimates  

The Corporation operates in a number of industries in several tax jurisdictions and, consequently, its income is subject to various 
rates and rules of taxation. As a result, the Corporation’s effective tax rate may vary significantly from the Canadian statutory tax 
rate depending upon the profitability of operations in the different jurisdictions.  

The Corporation calculates deferred taxes based upon temporary differences between the assets and liabilities that are reported 
in its consolidated financial statements and their tax bases as determined under applicable tax legislation. The Corporation 
records deferred tax assets when it determines that it is probable that such assets will be realized. The future realization of 
deferred tax assets can be affected by many factors, including current and future economic conditions, net realizable sale prices, 
production rates and production costs, and can either be increased or decreased where, in the view of management, such change 
is warranted.  

Critical accounting judgments 

In determining whether it is probable that a deferred tax asset will be realized, management reviews the timing of expected 
reversals of taxable temporary differences, the estimates of future taxable income and prudent and feasible tax planning that 
could be implemented. Significant judgment may be involved in determining the timing of expected reversals of temporary 
differences. 

Supporting information 

Canadian $ millions, for the years ended December 31 

2016

2015

Current income tax expense (recovery) 
Current period 
Tax rate changes 

Deferred income tax (recovery) expense 
Origination and reversal of temporary differences 
Reduction in tax rate 
Non-recognition of tax assets 

Income tax expense (recovery) 

Tax rate changes  

$

$

12.4  $
- 
12.4 

(34.3)
- 
28.4 
(5.9)
6.5  $

16.2 
(27.2)
(11.0)

(55.9)
(13.5)
44.5 
(24.9)
(35.9)

In 2015, clarification was received from the Cuban government regarding the application of tax rate reductions in Cuba due to a 
new foreign investment law.  As a result, the tax expense for the year ended December 31, 2015 included a tax recovery of $40.7 
million in Oil and Gas. In addition, for the year ended December 31, 2015 a tax recovery of $2.6 million (50% basis) was 
recognized at the Moa Joint Venture, the impact of which is included in the Corporation’s share of (loss) earnings of a joint 
venture. The new foreign investment law in Cuba resulted in the following rate changes: 

Operation 

Oil and Gas 
Power 
Metals - Moa Joint Venture 

24  Sherritt International Corporation 

Prior
Statutory

Tax Rate

30.0%
30.0%
45.0%

Revised
Statutory

Tax Rate

22.5%
15.0%
22.5%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table reconciles income taxes calculated at a combined Canadian federal/provincial income tax rate with the income 
tax expense (recovery) in the consolidated statements of comprehensive income (loss): 

Canadian $ millions, for the years ended December 31 

Loss before tax from continuing operations 
Add share of loss of equity accounted investments 
Parent companies and subsidiaries loss before tax 

Income tax recovery at the combined basic rate of 26.94% (2015 - 26.06%) 
Increase (decrease) in taxes resulting from: 

Difference between Canadian and foreign tax rates 
Reduction in income tax rates 
Non-deductible losses and write-downs 
Non-recognition of tax assets 
Other items 

Deferred tax assets (liabilities) relate to the following temporary differences and loss carry forwards: 

Canadian $ millions, for the year ended December 31, 2016 

2016

2015

(375.3) $ (2,107.6)
256.7 
1,888.5 
(118.6)
(219.1)

(32.0)

(57.1)

9.5 
- 
0.3 
27.9 
0.8 
6.5  $

(16.5)
(40.7)
36.4 
44.5 
(2.5)
(35.9)

$

$

Recognized

in other

comp-

Deferred tax assets 
Environmental rehabilitation obligations 
Property, plant and equipment 

Set off against deferred tax liabilities 
Deferred tax assets 

Deferred tax liabilities 
Property, plant and equipment and intangible assets 
Cuban tax contingency reserve 
Pension and other benefit plans and reserves 

Set off against deferred tax assets 
Deferred tax liabilities 
Net deferred tax (liabilities) assets 
Recovery recognized in net loss 

Opening 
Balance 

-  $

3.7 
3.7 
(3.7)

-  $

(16.9) $
(20.2)
(2.0)
(39.1)
3.7 
(35.4)
(35.4) $

$

$

$

$

Recognized 
in net 

rehensive
loss  income (loss)

-  $

(2.5)
(2.5)
- 
(2.5) $

7.4  $
(0.3)
1.3 
8.4 
- 
8.4 
5.9  $
5.9 

-  $

(0.1)
(0.1)
- 
(0.1) $

0.4  $
0.6 
0.1 
1.1 
- 
1.1 
1.0  $

Closing

Balance

- 
1.1 
1.1 
(1.1)
- 

(9.1)
(19.9)
(0.6)
(29.6)
1.1 
(28.5)
(28.5)

Sherritt International Corporation 

25   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Canadian $ millions, for the year ended December 31, 2015 

Deferred tax assets 
Environmental rehabilitation obligations 
Property, plant and equipment 

Set off against deferred tax liabilities 
Deferred tax assets 

Deferred tax liabilities 
Property, plant and equipment and intangible assets 
Cuban tax contingency reserve 
Pension and other benefit plans and reserves 

Set off against deferred tax assets 
Deferred tax liabilities 
Net deferred tax (liabilities) assets 
Recovery recognized in net loss 

Recognized

in other

comp-

Recognized 
in net 

rehensive
loss  income (loss)

Opening 
Balance 

$

$

$

$

0.3  $

(0.3) $

16.4 
16.7 
(14.4)

(14.9)
(15.2)
- 

2.3  $

(15.2) $

(44.3) $
(22.0)
(3.7)
(70.0)
14.4 
(55.6)
(53.3) $

33.1  $
4.8 
2.2 
40.1 
- 
40.1 
24.9  $
24.9 

-  $

2.2 
2.2 
- 
2.2  $

(5.7) $
(3.0)
(0.5)
(9.2)
- 
(9.2)
(7.0) $

Closing

Balance

- 
3.7 
3.7 
(3.7)
- 

(16.9)
(20.2)
(2.0)
(39.1)
3.7 
(35.4)
(35.4)

As at December 31, 2016, the Corporation had temporary differences of $752.8 million (December 31, 2015 - $838.2 million) 
associated with investments in subsidiaries, associated entities and interests in joint ventures for which no deferred tax liabilities 
have been recognized, as the Corporation is able to control the timing of the reversal of these temporary differences and it is not 
probable that these temporary differences will reverse in the foreseeable future.  

As at December 31, 2016, the Corporation had non-capital losses of $528.5 million (December 31, 2015 - $439.2 million) and 
capital losses of $1,074.0 million (December 31, 2015 - $1,054.0 million) which may be used to reduce future taxable income. 
The Corporation has not recognized a deferred income tax asset on $528.5 million of non-capital losses, $1,074.0 million of 
capital losses and $161.7 million of other deductible temporary differences since the realization of any related tax benefit 
through future taxable profits is not probable.  The capital losses have no expiry dates and the other deductible temporary 
differences do not expire under current tax legislation. The non-capital losses are located in the following countries and expire as 
follows:   

Canadian $ millions, as at December 31, 2016 

Canada 
Barbados 
Spain 

10.  GAIN ON SALE OF CORPORATE ASSETS 

Non-capital

Expiry

losses

2026-2036 $
2017-2024
No expiry

503.2 
21.9 
3.4 

On May 29, 2015, the Corporation completed the sale of its corporate office in Toronto for $21.5 million.  On the sale of the 
property, the Corporation recognized a gain of $19.1 million, which represents the difference between the proceeds, net of 
transaction costs of $0.3 million, and the net book value of $2.1 million. 

26  Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11.  LOSS PER SHARE 

Canadian $ millions, except share amounts in millions and per share amounts in 
dollars, for the years ended December 31 

Net loss from continuing operations 
Earnings (loss) from discontinued operations, net of tax 
Net loss - basic and diluted 

Weighted-average number of common shares - 
basic and diluted(1) 

Net loss from continuing operations per common share, basic and 
diluted 

Earnings (loss) from discontinued operations per common share,  
basic and diluted 

Net loss per common share, basic and diluted 

2016

2015

(381.8) $
2.9 
(378.9) $

(2,071.7)
(5.0)
(2,076.7)

293.9 

293.7 

(1.30) $

(7.05)

0.01  $

(0.02)

(1.29) $

(7.07)

$

$

$

$

$

(1)  The determination of the weighted-average number of common shares - diluted excludes 9.6 million shares related to stock options and 18.8 million 

warrants that were anti-dilutive for the year ended December 31, 2016 (6.2 million and nil, respectively, for the year ended December 31, 2015).   

12.  FINANCIAL INSTRUMENTS 

Accounting policies 

Management determines the classification of financial assets and financial liabilities at initial recognition and, except in very 
limited circumstances, the classification is not changed subsequent to initial recognition. The classification depends on the 
purpose for which the financial instruments were acquired, their characteristics and/or management’s intent. Transaction costs 
with respect to instruments not classified as fair value through profit or loss are recognized as an adjustment to the cost of the 
underlying instruments and amortized using the effective interest method. 

The Corporation’s financial instruments were classified in the following categories: 

Financial assets 

Financial assets, measured at fair value through profit or loss: 

(cid:1) 

Restricted cash; cash equivalents; short-term investments. 

Loans and receivables, measured at amortized cost: 

(cid:1) 

Cash on hand and balances at bank; advances and loans receivable; other financial assets; trade accounts receivable. 

Financial liabilities 

Other financial liabilities, measured at amortized cost: 

(cid:1) 

Trade accounts payable and accrued liabilities; loans and borrowings; other financial liabilities. 

Financial assets, measured at fair value through profit or loss 

An instrument is classified as fair value through profit or loss if it is held for trading or is designated as such upon initial 
recognition. A financial asset is classified as fair value through profit or loss if acquired principally for the purpose of selling in 
the short term or if so designated by management. Financial instruments included in this category are initially recognized at fair 
value and transaction costs are taken directly to earnings along with gains and losses arising from changes in fair value.  

Derivative instruments, including embedded derivatives, are recorded at fair value unless exempted from derivative treatment as 
normal purchase and sale. All changes in their fair value are recorded in net earnings (loss).  

Financial assets and liabilities, measured at amortized cost 

Trade accounts receivable are initially recognized at fair value net of transaction costs and are subsequently measured at 
amortized cost reduced for any impairment losses. An allowance for impairment of trade accounts receivable is established when 
there is objective evidence that an amount will not be collectible or, in the case of long-term receivables, if there is evidence that 
the amount will not be collectible in accordance with payment terms. 

Sherritt International Corporation 

27   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Cash on hand and balances at bank and advances and loans receivable are initially recognized at fair value net of transaction 
costs and are subsequently measured at amortized cost. Interest revenue on advances and loans receivable are recognized using 
the effective interest method. 

Trade accounts payable and accrued liabilities are initially recognized at fair value net of transaction costs and are subsequently 
measured at amortized cost using the effective interest method. 

Loans and borrowings include short-term loans and long-term loans. These liabilities are initially recognized at fair value net of 
transaction costs and are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction 
costs) and the redemption amount is recorded in financing expense or financing income in the consolidated statements of 
comprehensive income (loss) over the period of the borrowings using the effective interest method. 

Loans and borrowings are classified as a current liability unless the Corporation has an unconditional right to defer settlement 
for at least 12 months after the consolidated statements of financial position date. 

Other financial assets primarily include other loans and receivables. Other financial liabilities primarily include other loans and 
payables. Other financial assets are initially recognized at fair value net of transaction costs and are subsequently measured at 
amortized cost. Other financial liabilities are initially recognized at fair value net of transaction costs and are subsequently 
measured at amortized cost using the effective interest method. 

Derecognition of financial assets and liabilities 

A financial asset is derecognized when its contractual rights to the cash flows that compose the financial asset expire or 
substantially all the risks and rewards of the asset are transferred. A financial liability is derecognized when the obligation under 
the liability is discharged, cancelled or expired. Gains and losses on derecognition are recognized within financing income and 
financing expense, respectively.  

Impairment of financial assets, carried at amortized costs 

At each reporting date, the Corporation assesses whether there is any objective evidence that a financial asset or a group of 
financial assets is impaired. A financial asset or a group of financial assets is impaired if there is objective evidence that the 
estimated future cash flows of the financial asset or the group of financial assets have been negatively impacted. Evidence of 
impairment may include indications that debtors are experiencing financial difficulty, default or delinquency in interest or 
principal payments, or other observable data which indicates that there is a measurable decrease in the estimated future cash 
flows.  

If an impairment loss has occurred, the loss is measured as the difference between the asset’s carrying amount and the present 
value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value 
of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a financial asset has a 
variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.   

The carrying amount of the asset is reduced through the use of an allowance account, and the loss is recognized in financing 
expense. Interest income continues to be accrued on the reduced carrying amount using the rate of interest used to discount the 
future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of financing income. 
Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all 
collateral has been realized or has been transferred to the Corporation.  

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after 
the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance 
account. If an impairment is later recovered, the recovery is credited to financing income. 

Financial instrument measurement hierarchy 

All financial instruments are required to be measured at fair value on initial recognition. For those financial assets or liabilities 
measured at fair value at each reporting date, financial instruments and liquidity risk disclosures require a three-level hierarchy 
that reflects the significance of the inputs used in making the fair value measurements. These levels are defined below: 

Level 1:  Determined by reference to unadjusted quoted prices in active markets for identical assets and liabilities that the entity 

can access at the measurement date; 

Level 2:   Valuations using inputs other than the quoted prices for which all significant inputs are based on observable market 

data, either directly or indirectly; and 

Level 3:  Valuations using inputs that are not based on observable market data. 

28  Sherritt International Corporation 

 
Supporting information 

Cash, cash equivalents and short-term investments 

Cash and cash equivalents consist of: 

Canadian $ millions, as at 

Cash equivalents 
Cash on hand and balances with banks 
Restricted cash 

2016
December 31

2015
December 31

$

$

162.9  $
105.7 
1.0  
269.6  $

118.9 
110.7 
1.0 
230.6 

The Corporation’s cash balances are deposited with major financial institutions rated A- or higher by Standard and Poor’s except 
for institutions located in Madagascar and Cuba that are not rated. The total cash held in Madagascan and Cuban bank deposit 
accounts was $3.8 million and $26.8 million, respectively, as at December 31, 2016 (December 31, 2015 – $4.0 million and $3.8 
million, respectively).  

As at December 31, 2016, $25.5 million of cash on the Corporation’s consolidated statements of financial position was held by 
Energas (December 31, 2015 – $0.8 million).  These funds are for use by the joint operation. 

The Corporation’s cash equivalents consist of Government of Canada treasury bills, term deposits with maturities of 90 days or 
less and demand deposits redeemable upon 31 days request.  The term deposits and demand deposits are with major financial 
institutions.  As at December 31, 2016, the Corporation had $122.9 million in Government of Canada treasury bills, $25.0 
million in term deposits and $15.0 million in demand deposits (December 31, 2015 - $93.9 million, $25.0 million and nil, 
respectively) included in cash and cash equivalents and $40.0 million in Government of Canada treasury bills included in short-
term investments (December 31, 2015 - $204.8 million). 

Fair value measurement 

As at December 31, 2016, the carrying amounts of trade accounts receivable, current portion of advances, loans receivable and 
other financial assets, current portion of other loans and borrowings, current portion of other financial liabilities, trade accounts 
payable and accrued liabilities are at fair value or approximate fair value due to their immediate or short terms to maturity. 

The fair values of non-current loans and borrowings and other non-current financial assets and liabilities approximate their 
carrying amount except as indicated in the below table.  Due to the use of judgment and uncertainties in the determination of 
the estimated fair values, these values should not be interpreted as being realizable in the immediate term. 

The following table presents financial instruments with carrying amounts different from their fair values(1): 

Canadian $ millions, as at 

Note

2016

December 31  

Hierarchy
level

Carrying
value

Fair
value

Carrying
value

2015

December 31
Fair
Value

Liabilities: 
  8.00% senior unsecured debentures due 2021 
  7.50% senior unsecured debentures due 2023 
  7.875% senior unsecured debentures due 2025 
  Ambatovy Joint Venture additional partner loans(2) 
  Ambatovy Joint Venture partner loans(2) 
Assets: 
  Ambatovy subordinated loans receivable(3) 
  Energas conditional sales agreement(3) 
  Moa Joint Venture expansion loans receivable(3) 
(1)  The carrying values are net of financing costs.  Fair values exclude financing costs and are based on market closing prices. 

211.8  $
239.5 
233.1 
1,367.5 
133.3 

162.8  $
181.3 
177.5 
77.7 
66.3 

959.8 
101.3 
198.2 

943.4 
168.6 
264.9 

1 $
1
1
2
2

16
16
16
16
16

13
13
13

2
2
2

247.3  $
246.5 
240.3 
1,303.2 
134.6 

140.0 
135.0 
130.0 
106.4 
20.1 

1,187.2 
157.5 
255.9 

1,308.7 
167.7 
225.7 

(2)  The fair values of the Ambatovy Joint Venture partner loans and Ambatovy Joint Venture additional partner loans are calculated by discounting future 

cash flows using rates that are based on market rates adjusted for the Corporation’s credit quality for instruments with similar maturity horizons.  

(3)  The fair values of the Ambatovy subordinated loans receivable, Energas conditional sales agreement and Moa Joint Venture expansion loans receivable 

are calculated by discounting future cash flows using rates that are based on market rates adjusted for the entity’s credit quality. 

Sherritt International Corporation 

29   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

The following table presents financial assets, measured at fair value through profit or loss on a recurring basis: 

Canadian $ millions, as at 

  Cash equivalents 

Short-term investments 

  Restricted cash 
  Ambatovy call option 

Hierarchy

2016
level December 31

2015

December 31

1  $
1 
1 
3 

162.9  $
40.0 
1.0 
- 

118.9 
204.8 
1.0 
- 

The following is a reconciliation of the beginning to ending balance for the Ambatovy call option included in Level 3: 

Canadian $ millions 

Balance, beginning of the year 
Revaluation on financial instruments in net finance expense 
Effect of movements in exchange rates 
Balance, end of the year 

For the
year ended
December 31
2016

-  $
- 
- 
-  $

For the
year ended

December 31

2015

15.5 
(17.7)
2.2 
- 

Note

8

$

$

Upon achieving financial completion on September 21, 2015, the Corporation’s Ambatovy call option became exercisable for a 
two-year period or until SNC-Lavalin exercised its put option. The Ambatovy call option related to the right of the Corporation 
and Sumitomo Corporation to acquire SNC-Lavalin’s 5% equity interest in the Ambatovy Joint Venture.  SNC-Lavalin’s put option 
related to the right to divest of its 5% equity interest to the Corporation and Sumitomo Corporation. The Corporation had the 
right to decline such an offer.  On September 30, 2015, SNC-Lavalin exercised its put option. The Corporation declined its option 
to acquire its share of SNC-Lavalin’s interest.  As a result, the Ambatovy call option expired and the Corporation realized a loss of 
$13.7 million on the extinguishment of this financial instrument through net finance expense.  

Trade accounts receivable, net  

Canadian $ millions, as at 

Trade accounts receivable 
Allowance for doubtful accounts 
Accounts receivable from joint operations 
Accounts receivable from joint venture 
Accounts receivable from associate 
Other 

Aging of receivables not impaired: 

Canadian $ millions, as at 

Not past due 
Past due no more than 30 days 
Past due for more than 30 days but no more than 60 days 
Past due for more than 60 days 

2016

2015

December 31

December 31

211.4  $
(11.0)
0.4 
11.4 
33.9 
39.7 
285.8  $

186.6 
(11.8)
0.7 
20.2 
33.8 
28.8 
258.3 

2016

December 31

2015
December 31

227.7  $
25.2 
6.3 
26.6 
285.8  $

170.6 
26.9 
11.8 
49.0 
258.3 

  $

$

$

$

Payment terms for oil sales to an agency of the Cuban government are based on Gulf Coast No. 6 Fuel Oil (FO#6) reference 
prices. If the FO#6 price is greater than US$29.50, payment terms are 180 days from the date of invoice.  If FO#6 price is 
between US$24.76 and US$29.50, payment terms are 150 days from the date of invoice.  If FO#6 price is between US$20.01 and 
US$24.75, payment terms are 120 days from the date of invoice.  If FO#6 price is equal to or less than US$20.00, payment terms 
are 90 days from the date of invoice.  

Payment terms for electricity and by-product sales to Cuban state enterprises are 60 days from the date of invoice. 

30  Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
   
 
 
 
 
 
 
 
   
 
 
 
 
 
 
13.  ADVANCES, LOANS RECEIVABLE AND OTHER FINANCIAL ASSETS 

Canadian $ millions, as at 

Advances and loans receivable 
Ambatovy subordinated loans receivable(1) 
Energas conditional sales agreement(1) 
Moa Joint Venture expansion loans receivable(1) 
Moa Joint Venture working capital facility 
Other 

Other financial assets 

Current portion of advances, loans receivable and other financial assets 

2016
  December 31

2015

December 31

  $

943.4  $
192.4 
264.9 
56.9 
10.8 

157.8 
1,626.2 
(83.5)  
1,542.7  $

  $

1,187.2 
182.0 
255.9 
56.9 
1.2 

- 
1,683.2 
(82.7)
1,600.5 

(1)  As at December 31, 2016, the non-current portions of the Ambatovy subordinated loans receivable, Energas conditional sales agreement and the Moa 
Joint Venture expansion loans receivable are $943.4 million, $168.6 million and $264.9 million, respectively (December 31, 2015 – $1,187.2 million, 
$157.5 million and $255.9 million, respectively). 

Ambatovy subordinated loans receivable 

A funding agreement was entered into by the Corporation with the Ambatovy Joint Venture to finance the development of the 
Ambatovy Project. The facility bears interest at six-month LIBOR plus 6%. Repayments of principal or interest will not be made 
prior to certain conditions of the Ambatovy Joint Venture senior debt finance agreements being satisfied. Unpaid interest is 
accrued monthly and capitalized to the principal balance semi-annually.  For the year ended December 31, 2016, no post-
financial completion cash funding was provided to the Ambatovy Joint Venture ($135.7 million for the year ended December 31, 
2015).  During the years ended December 31, 2016 and December 31, 2015, the Ambatovy Joint Venture converted US$510.0 
million and US$1.5 billion, respectively, of its subordinated loans payable to equity (note 6) which, at the Corporation’s 40% 
share, resulted in a US$204.0 million and US$618.0 million ($284.1 million and $840.0 million), respectively, decrease in the 
Corporation’s subordinated loans receivable. There was no change to the Corporation’s ownership interest as a result of the 
conversions. 

Energas conditional sales agreement  

A conditional sales agreement was entered into by the Corporation with Energas to finance construction activity on specific 
power generating assets in Cuba. The agreement directs the Corporation to arrange for the performance of certain construction 
activity on behalf of Energas, and contains design specifications for each new construction phase. The Corporation retains title to 
the constructed assets until the loan is fully repaid. The facility bears interest at 8%. Income generated by the constructed assets 
will be used to repay the facilities. Until the loan is fully repaid, all of the income generated by these assets is paid to the 
⅓33 % 
Corporation. The amount of advances and loans receivable from Energas are presented net of the elimination of the 
proportionately consolidated intercompany balances. 

Moa Joint Venture expansion loans receivable 

The Moa Joint Venture expansion loans receivable is a funding agreement entered into by the Corporation in prior years to 
finance expansion.  This loans receivable has a fixed interest rate of 6.5%.  In June 2015, the maturity date of this agreement was 
extended to December 31, 2026. Repayments are being made from available distributable cash flows from the Moa Joint Venture. 

Moa Joint Venture working capital facility 

The Moa Joint Venture working capital facility is a working capital facility for use by the Moa Joint Venture.  In November 2016, 
the maturity of the working capital facility was extended to January 31, 2017 and the maximum credit available was reduced 
from $90.0 million to $65.0 million.  The interest rates increased from prime plus 2.25% or bankers’ acceptance plus 3.25% to 
prime plus 2.50% or bankers’ acceptance plus 3.50%. 

On January 31, 2017, the credit facility was renewed with a maximum credit available of $65.0 million, $13.7 million of which 
matures on April 21, 2017 and the remaining $51.3 million matures on January 30, 2018.  The maximum credit available will 
further decrease by 4.167% quarterly beginning April 28, 2017.  Collectively, these reductions in available credit will result in 
outstanding credit of $38.6 million at January 30, 2018.  The interest rates increased from prime plus 2.50% or bankers’ 
acceptance plus 3.50% to prime plus 3.50% or bankers’ acceptance plus 4.50%. 

Sherritt International Corporation 

31   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Other financial assets 

As at December 31, 2016, included in other financial assets is $154.9 million related to the Corporation’s right to receive future 
distributions from the Ambatovy Joint Venture (note 16). This non-current financial asset has not been included within Ambatovy 
subordinated loans receivable as the funding has not yet been provided by the Corporation (note 6). 

14.  INVENTORIES 

Accounting policies 

Raw materials, materials in process and finished products are valued at the lower of average production cost and net realizable 
value, with cost determined on a moving weighted-average basis. Spare parts and operating materials within inventory are valued 
at the lower of average cost and net realizable value, and recognized as cost of sales when used.  

The cost of inventory includes all costs related to bringing the inventory to its current condition, including mining and processing 
costs, labour costs, supplies, direct and allocated indirect operating overhead and depreciation expense, where applicable, 
including allocation of fixed and variable costs.  

Write-downs to net realizable value may be reversed, up to the amount previously written down, when circumstances support an 
increased inventory value. 

Supporting information 

Canadian $ millions, as at 

Materials in process 
Finished products 

Spare parts and operating materials 

2016

2015

December 31

December 31

$

$

0.1  $
11.0  
11.1 
28.5 
39.6  $

- 
7.7 
7.7 
30.3 
38.0 

For the year ended December 31, 2016, the cost of inventories included in cost of sales was $46.9 million ($65.1 million for the 
year ended December 31, 2015). 

15.  NON-FINANCIAL ASSETS 

Accounting policies 

Property, plant and equipment 

Property, plant and equipment include acquisition costs, capitalized development costs and pre-production expenditures that are 
recorded at cost less accumulated depreciation and accumulated impairment losses. Costs of property, plant and equipment are 
incurred while construction is in progress and before the commencement of commercial production. Once the construction of an 
asset is substantially complete, and the asset is ready for its intended use, these costs are depreciated. 

Plant and equipment 

Plant and equipment include assets under construction, equipment and processing, refining, power generation and other 
manufacturing facilities. 

The Corporation recognizes major long-term spare parts and standby equipment as plant and equipment when the parts and 
equipment are significant and are expected to be used over a period greater than a year. Major inspections and overhauls 
required at regular intervals over the useful life of an item of plant and equipment are recognized in the carrying amount of the 
related item if the inspection or overhaul provides benefit exceeding one year. 

Plant and equipment are depreciated using the straight-line method based on estimated useful lives, once the assets are available 
for use. Plant and equipment may have components with different useful lives. Depreciation is calculated based on each 
individual component’s useful life. New components are capitalized to the extent that they meet the recognition criteria of an 
asset. The carrying amount of the replaced component is derecognized, and any gain/loss is included in net earnings (loss). If 
the carrying amount of the replaced component is not known, it is estimated based on the cost of the new component less 
estimated depreciation. The useful lives of the Corporation’s plant and equipment are as follows: 

32  Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
 
 
Buildings and refineries 
Machinery and equipment               
Office equipment      
Fixtures and fittings  
Assets under construction 

Oil and Gas properties 

5 to 40 years 
3 to 50 years 
3 to 35 years 
3 to 35 years 
not depreciated during development period 

Oil and Gas properties include acquisition costs and development costs related to properties in production, under development 
and held for future development. Ongoing pre-development costs relating to properties held for future development are 
capitalized as incurred. Development costs incurred to access reserves at producing properties and properties under 
development are capitalized and are depreciated on a unit-of-production basis over the life of such reserves. Reserves are 
measured based on proven and probable reserves. 

Capitalization of borrowing costs 

Borrowing costs on funds directly attributable to finance the acquisition, construction or production of a qualifying asset are 
capitalized until such time as substantially all the activities necessary to prepare the qualifying asset for its intended use or sale 
are complete. A qualifying asset is one that takes a substantial period of time to prepare the asset for its intended use. Where 
money borrowed specifically to finance a project is invested to earn interest income, the income generated is also capitalized to 
reduce the total capitalized borrowing costs.  

Where the funds used to finance a project form part of general borrowings, interest is capitalized based on the weighted-average 
interest rate applicable to the general borrowings outstanding during the period of construction. 

Derecognition 

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to 
arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference 
between the net disposal proceeds and the carrying amount of the item) is included in net earnings (loss) in the period the item 
is derecognized. 

Intangible assets 

Intangible assets are developed internally or acquired as part of a business combination. Internally generated assets are 
recognized at cost and primarily arise as a result of exploration and evaluation activity and service concession arrangements. 
Intangible assets acquired as part of a business combination are recognized separately from goodwill, if the asset is separable or 
arises from contractual or legal rights, and are initially recorded at their acquisition date fair value.  

The useful lives of intangible assets are assessed as either finite or indefinite. 

Intangible assets with a finite life are amortized over their useful economic lives on a straight-line or units-of-production basis, as 
appropriate. The amortization expense is included in cost of sales unless otherwise noted. Intangible assets that are not yet 
ready for use are not amortized until put into use.  

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at 
the cash-generating unit level. The Corporation has no identifiable intangible assets for which the expected useful life is 
indefinite. 

Exploration and evaluation 

Exploration and evaluation (E&E) expenditures are measured using the cost model and generally include the costs of licenses, 
technical services and studies, seismic studies, exploration drilling and testing, and directly attributable overhead and 
administration expenses including remuneration of operating personnel and supervisory management. These costs do not 
include general prospecting or evaluation costs incurred prior to having obtained the rights to explore an area, which are 
expensed as they are incurred. 

E&E expenditures related to Oil and Gas properties are capitalized and carried forward until technical feasibility and commercial 
viability of extracting the resource is established. The technical feasibility and commercial viability is established when economic 
quantities of proven and/or probable reserves are determined to exist, at which point the E&E assets attributable to those 
reserves are reviewed for impairment before being transferred to property, plant and equipment.  

Sherritt International Corporation 

33   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Service concession arrangements 

Service concession arrangements are contracts between private sector and government entities and can involve the construction, 
operation or upgrading of public infrastructure.  Service concession arrangements can be classified as financial assets (where the 
operator has an unconditional right to receive a specified amount of cash or other financial asset over the life of the 
arrangement) or intangible assets (where the operator’s future cash flows are not specified). 

Through its interest in Energas, the Corporation has been contracted to design, construct and operate electrical generating 
facilities at Boca de Jaruco and Puerto Escondido, Cuba, on behalf of the Cuban government. The sale price of electricity is 
contractually fixed, but decreases after loans provided by the Corporation to fund the construction are fully repaid. Ownership of 
these facilities will be transferred to the Cuban government for nil consideration at the end of the contract term which ends in 
2023. Energas bears the demand risk on revenues related to assets covered under service concession arrangements as receipts 
are based on usage rather than an unconditional right to receive cash.  As a result, the Boca de Jaruco and Puerto Escondido 
assets have been classified as intangible assets and represent the Corporation’s right to charge the Government of Cuba for 
future electricity and by-products delivered.    

During periods of new construction, enhancement or upgrade activities, the Corporation records a new intangible asset and a 
corresponding construction revenue amount to reflect the right to charge the Cuban government for an incremental future 
supply of electricity.  The construction expenses relating to the new construction activity are expensed as incurred. The net result 
of the construction activity is a nil impact to net earnings. Once operational, the carrying amount of the new service concession 
intangible asset, including capitalized interest, is amortized on a straight-line basis over the remaining contract term.  

Repair, maintenance and replacement costs incurred in relation to service concession intangible assets are expensed as incurred. 

Amortization 

The following intangible assets are amortized on a straight-line basis over the following estimated useful lives: 

Service concession arrangements 
Exploration and evaluation   

12 years 
not amortized during development period 

Impairment of non-financial assets 

The Corporation assesses the carrying amount of non-financial assets including property, plant and equipment and intangible 
assets at each reporting date to determine whether there is any indication of impairment. Internal factors, such as estimated 
reserves, budgets and forecasts, as well as external factors, such as expected future prices, costs and other market factors are 
also monitored to determine if indications of impairment exist.  

An impairment loss is the amount equal to the excess of the carrying amount over the recoverable amount. The recoverable 
amount takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best 
use.  To achieve this, the recoverable amount is the higher of value in use (being the net present value of expected pre-tax future 
cash flows of the relevant asset) and fair value less costs to sell the asset(s).  

Impairment is assessed at the cash-generating unit (CGU) level. A CGU is the smallest identifiable group of assets that generates 
cash inflows largely independent of the cash inflows from other assets or group of assets. The assets of the corporate head office 
are allocated on a reasonable and consistent basis to CGUs or groups of CGUs.  

If, after the Corporation has previously recognized an impairment loss, circumstances indicate that the recoverable amount of the 
impaired assets is greater than the carrying amount, the Corporation reverses the impairment loss by the amount the revised 
recoverable amount exceeds its carrying amount, to a maximum of the previous impairment loss. In no case shall the revised 
carrying amount exceed the original carrying amount, after depreciation or amortization, that would have been determined if no 
impairment loss had been recognized. An impairment loss or a reversal of an impairment loss is recognized in the consolidated 
statements of comprehensive income (loss). 

Impairment of exploration and evaluation expenditures at Oil and Gas 

Upon determination of proven and probable reserves, the related E&E assets attributable to those reserves are tested for 
impairment prior to being transferred to property, plant and equipment. Capitalized E&E costs are reviewed and evaluated for 
impairment at each reporting date for events or changes in circumstances that indicate the carrying amount may not be 
recoverable from future cash flows of the property. 

34  Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
Critical accounting estimates 

Property, plant and equipment 

Property, plant and equipment is the largest component of the Corporation’s assets and, as such, the capitalization of costs, the 
determination of estimated recoverable amounts and the depletion and depreciation of these assets have a significant impact on 
the Corporation’s financial results.  

Certain assets are depreciated using a unit-of-production basis, which involves the estimation of recoverable reserves in 
determining the depletion and/or depreciation rates of the specific assets. Each item’s life, which is assessed annually, is 
assessed for both its physical life limitations and the economic recoverable reserves of the property at which the asset is located. 

For those assets depreciated on a straight-line basis, management estimates the useful life of the assets and their components, 
which in certain cases may be based on an estimate of the producing life of the property. These assessments require the use of 
estimates and assumptions including market conditions at the end of the asset’s useful life, costs of decommissioning the asset 
and the amount of recoverable reserves. 

Asset useful lives and residual values are re-evaluated at each reporting date. 

Reserves for Oil and Gas properties 

Reserves are estimates of the amount of product that can be economically and legally extracted from the Corporation’s oil and 
gas properties. Reserve estimates are an integral component in the determination of the commercial viability of a site, depletion 
amounts charged to the cost of sales and any impairment analysis.  

In calculating reserves, estimates and assumptions are required about a range of geological, technical and economic factors, 
including quantities, production techniques, production decline rates, production costs, commodity prices and exchange rates. In 
addition, future changes in regulatory environments, including government levies or changes in the Corporation’s rights to 
exploit the resource imposed over the producing life of the reserves may also significantly impact estimates. 

Critical accounting judgments 

Exploration and evaluation  

Management must make judgments when determining when to transfer E&E expenditures from intangible asset to property, 
plant and equipment, which is normally at the time when commercial viability is achieved.  Assessing commercial viability 
requires management to make certain judgments as to future events and circumstances, in particular whether an economically 
viable operation can be established. Any such judgments may change as new information becomes available. If after having 
capitalized the expenditure, a decision is made that recovery of the expenditure is unlikely, the amount capitalized is recognized 
in cost of sales in the consolidated statements of comprehensive income (loss).  

Service concession arrangements 

The Corporation determined that the contract terms regarding the Boca de Jaruco and Puerto Escondido, Cuba, facilities operated 
by Energas represent service concession arrangements as described in IFRIC 12, “Service concession arrangements” (IFRIC 12). 
The Corporation uses judgment to determine whether the grantor sets elements of the services provided by the operator, 
whether the grantor retains any significant ownership interest in the infrastructure at the end of the agreement, and to determine 
the classification of the service concession asset as either a financial asset or intangible asset.  

Commercial viability 

Management uses the best available information to determine when a development project reaches commercial viability which is 
generally based on management’s assessment of when economic quantities of proven and/or probable reserves are determined 
to exist and the point at which future costs incurred to develop a mine on the property are capitalized. Management also uses 
the best available information to determine when a project achieves commercial production, the stage at which pre-production 
costs cease to be capitalized.  

For assets under construction, management assesses the stage of each construction project to determine when a project is 
commercially viable. The criteria used to assess commercial viability are dependent upon the nature of each construction project 
and include factors such as the asset purpose, complexity of a project and its location, the level of capital expenditure compared 
to the construction cost estimates, completion of a reasonable period of testing of the mine plant and equipment, ability to 
produce the commodity in saleable form (within specifications), and ability to sustain ongoing production of the commodity. 

Sherritt International Corporation 

35   

 
 
Notes to the consolidated financial statements 

Impairment of non-financial assets 

The Corporation assesses the carrying amount of non-financial assets including property, plant and equipment and intangible 
assets subject to depreciation and amortization at each reporting date to determine whether there are any indicators that the 
carrying amount of the assets may be impaired or require a reversal of impairment. Impairment is assessed at the CGU level and 
the determination of CGUs is an area of judgment. 

For purposes of determining fair value, management assesses the recoverable amount of the asset using the net present value of 
expected future cash flows. Projections of future cash flows are based on factors relevant to the asset and could include 
estimated recoverable production, commodity or contracted prices, foreign exchange rates, production levels, cash costs of 
production, capital and reclamation costs. Projections inherently require assumptions and judgments to be made about each of 
the factors affecting future cash flows. Changes in any of these assumptions or judgments could result in a significant difference 
between the carrying amount and fair value of these assets. Where necessary, management engages qualified third-party 
professionals to assist in the determination of fair values.  

Supporting information 

Property, plant and equipment 

Canadian $ millions, for the year ended December 31 

Cost 
Balance, beginning of the year 
Additions 
Additions and changes in estimates to environmental rehabilitation provisions 
Disposals and derecognition 
Effect of movements in exchange rates 
Balance, end of the year 

Depletion, depreciation and impairment losses 
Balance, beginning of the year 
Depletion and depreciation 
Impairments 
Disposals and derecognition 
Effect of movements in exchange rates 
Balance, end of the year 
Net book value 

Oil and Gas

equipment

Plant,

properties

and land

Total

2016

$

1,564.0  $

2.9 
4.9 
- 
(51.0)
1,520.8  $

1,507.8  $
30.0 
8.0 
- 
(48.9)
1,496.9  $
23.9  $

$

$

$
$

716.9  $
20.7 
(5.5)
(30.1)
(14.6)
687.4  $

2,280.9 
23.6 
(0.6)
(30.1)
(65.6)
2,208.2 

422.0  $
39.2 
0.5 
(26.0)
(10.8)
424.9  $
262.5  $

1,929.8 
69.2 
8.5 
(26.0)
(59.7)
1,921.8 
286.4 

36  Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Canadian $ millions, for the year ended December 31 

Cost 
Balance, beginning of the year 
Additions 
Additions and changes in estimates to environmental rehabilitation provisions 
Disposals and derecognition 
Effect of movements in exchange rates and other 
Reclassified to assets held for sale 
Balance, end of the year 

Depletion, depreciation and impairment losses 
Balance, beginning of the year 
Depletion and depreciation 
Impairments 
Disposals and derecognition 
Effect of movements in exchange rates and other 
Reclassified to assets held for sale 
Balance, end of the year 
Net book value 

Canadian $ millions 

Assets under construction, included in above 

As at December 31, 2016 
As at December 31, 2015 

Impairment of Oil assets 

Oil and Gas

equipment

Plant,

properties

and land

Total

2015

$

1,303.6  $
32.1 
6.7 
(1.3)
222.9 
- 

$

1,564.0  $

$

$
$

1,227.5  $
59.8 
78.5 
(1.3)
143.3 
- 

1,507.8  $
56.2  $

649.9  $
42.1 
(5.8)
(27.4)
62.1 
(4.0)
716.9  $

303.9  $
38.5 
2.1 
(26.0)
106.6 
(3.1)
422.0  $
294.9  $

1,953.5 
74.2 
0.9 
(28.7)
285.0 
(4.0)
2,280.9 

1,531.4 
98.3 
80.6 
(27.3)
249.9 
(3.1)
1,929.8 
351.1 

Plant,

equipment

and land

$

16.6 
18.3 

The Corporation has the following four cash-generating units (“CGUs”) within its Oil and Gas segment: Puerto Escondido/Yumuri, 
Puerto Escondido/Yumuri extension (“PE/YU extension”), Spain and Varadero West. These CGUs are determined by geographical 
area or production-sharing contract (“PSC”). Any impairment of these CGUs will be recognized within the consolidated statements 
of comprehensive income (loss) as Impairment of Oil assets. 

In the third quarter of 2015, the Corporation recognized an impairment loss of $80.6 million representing the write-down of 
certain CGUs in the Oil and Gas segment to their recoverable amount as a result of lower oil price forecasts and drilling results 
from development wells at the PE/YU extension that were below expectations. The impaired CGUs consisted of Puerto 
Escondido/Yumuri, PE/YU extension and Spain. The recoverable amounts of the impaired CGUs were based on value in use and 
were $54.4 million as at September 30, 2015. In determining value in use for the CGU, the cash flows were discounted at a rate 
of 10.0%. The drilling results used in the value in use were derived from internal estimates. In the fourth quarter of 2015, an 
independent qualified reserve analysis was received. Based on the Corporation’s review of this report, no additional impairment 
was recognized in 2015. 

During the third quarter of 2016, the Corporation recognized an impairment loss of $8.5 million representing the write-down of 
the PE/YU extension CGU, within the Oil and Gas segment, to its recoverable amount. This impairment was the result of a 
decrease in internally forecasted oil reserves at the PE/YU extension due to two oil wells being shut-in as a result of low oil 
production. The PE/YU extension was the only CGU where an impairment indicator was identified. Its recoverable amount was 
determined to be negligible based on value in use analysis at September 30, 2016. In determining value in use for the PE/YU 
extension CGU, the cash flows were discounted at a rate of 10.0%. 

In the fourth quarter of 2016, an independent qualified reserve analysis was received. Based on the Corporation’s review of this 
report, no additional impairment was recognized in 2016. 

Sherritt International Corporation 

37   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Intangible assets 

Canadian $ millions, for the year ended December 31 

2016

Contractual

Exploration

concession

arrange-

and

arrange-

Service

ments

Evaluation

ments

Other

Total

$

$

$

$
$

$

$

$

$
$

27.0  $
- 
- 
- 
27.0  $

23.0  $
1.8 
- 
- 
- 
24.8  $
2.2  $

13.8  $
18.8 
- 
0.3 
32.9  $

12.3  $
- 
- 
- 
- 
12.3  $
20.6  $

235.5  $
4.6 
- 
(6.8)
233.3  $

88.2  $
19.6 
- 
- 
(2.3)
105.5  $
127.8  $

Service

Contractual

Exploration

concession

arrange-

and

ments

Evaluation

arrange-

ments

27.0  $
- 
- 
- 
27.0  $

21.2  $
1.8 
- 
- 
- 
23.0  $
4.0  $

12.3  $
1.4 
- 
0.1 
13.8  $

12.3  $
- 
- 
- 
- 
12.3  $
1.5  $

198.5  $

- 
- 
37.0 
235.5  $

57.1  $
18.7 
- 
- 
12.4 
88.2  $
147.3  $

9.1  $
- 
- 
- 
9.1  $

7.1  $
1.7 
- 
- 
- 
8.8  $
0.3  $

285.4 
23.4 
- 
(6.5)
302.3 

130.6 
23.1 
- 
- 
(2.3)
151.4 
150.9 

2015

Other

Total

9.1  $
- 
- 
- 
9.1  $

6.9  $
0.2 
- 
- 
- 
7.1  $
2.0  $

246.9 
1.4 
- 
37.1 
285.4 

97.5 
20.7 
- 
- 
12.4 
130.6 
154.8 

Cost 
Balance, beginning of the year 
Additions through internal development 
Disposals 
Effects of movements in exchange rates 
Balance, end of the year 

Amortization and impairment losses 
Balance, beginning of the year 
Amortization 
Disposals 
Impairments 
Effect of movements in exchange rates 
Balance, end of the year 
Net book value 

Canadian $ millions, for the year ended December 31 

Cost 
Balance, beginning of the year 
Additions through internal development 
Disposals 
Effect of movements in exchange rates 
Balance, end of the year 

Amortization and impairment losses 
Balance, beginning of the year 
Amortization 
Disposals 
Impairments 
Effect of movements in exchange rates 
Balance, end of the year 
Net book value 

Contractual arrangements 

In 2003, in connection with the acquisition of outside interests in Sherritt Power Corporation, the Corporation acquired 
significant long-term contractual arrangements.  

Exploration and evaluation   

In 2014, the Corporation signed two new PSCs with the Government of Cuba, encompassing areas of 967 and 261 square 
kilometres, respectively referred to as Block 8A and Block 10. Both PSCs have a term of 25 years.  Exploration and evaluation 
assets include capitalized expenditures on these two blocks, and primarily consist of exploration drilling performed on Block 10. 

38  Sherritt International Corporation 

 
 
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service concession arrangements  

In 2016, construction of the Puerto Escondido/Yumuri pipeline was completed and the pipeline became operational.  Also 
included in service concession arrangements is construction at the Energas Boca de Jaruco facility completed in 2014.  Revenues 
and expenses relating to the construction activity for the year ended December 31, 2016 is $4.6 million (December 31, 2015 - 
nil).  Expenses incurred in relation to the construction activity are included in cost of sales in the consolidated statements of 
comprehensive income (loss). 

Other 

In 2007, the Corporation acquired scientific and technical knowledge related primarily to hydrometallurgical technologies for the 
treatment and recovery of non-ferrous metals. 

16.  LOANS, BORROWINGS AND OTHER FINANCIAL LIABILITIES 

Loans and borrowings 

Canadian $ millions, as at 

Non-recourse loans and borrowings 
Ambatovy Joint Venture additional partner loans 

Other loans and borrowings 
8.00% senior unsecured debentures due 2021 
7.50% senior unsecured debentures due 2023 
7.875% senior unsecured debentures due 2025 
Ambatovy Joint Venture partner loans 
Syndicated revolving-term credit facility 
Line of credit 
Vendor financing 

Current portion of other loans and borrowings 

Senior unsecured debentures 

2016
Note December 31

2015
December 31

12 $

1,367.5  $

1,303.2 

12 $
12
12
12

$

211.8  $
239.5 
233.1 
133.3 
43.0 
- 
- 
860.7 
(43.0) 
817.7  $

247.3 
246.5 
240.3 
134.6 
55.0 
35.0 
1.2 
959.9 
(91.2)
868.7 

During the year ended December 31, 2016, the maturity dates of the outstanding senior unsecured debentures (the “Notes”) were 
extended by three years from 2018, 2020 and 2022 to 2021, 2023 and 2025, respectively (the “Extension”). The applicable 
interest rates and existing covenants for the Notes remain unchanged. The Noteholders that voted in favour of the Extension 
received, at the option of the Noteholder, either:  

• 

• 

cash consent consideration equal to 2% of the principal amount of the debentures; or,  

73.25 warrants for each $1,000 of principal amount of debentures held.  The warrants have a term of 5 years, are not 
listed on any exchange and have an exercise price of $0.74 per share. 

During the year ended December 31, 2016, 19.1 million warrants were granted to the Noteholders that elected for this option 
with a fair value of $0.43 per warrant which totalled $8.2 million.  The fair value of the warrants was determined using the Black-
Scholes option valuation model using observable market data and an expected dividend of 0% and was recognized in Reserves 
(note 18).  Cash consent fees paid to Noteholders that voted in favour of the extension and other transaction fees totalled $14.8 
million and have been capitalized to the Notes on a pro-rata basis. 

The 8.00% senior unsecured debentures, due 2021, are net of financing costs of $8.2 million at December 31, 2016 (December 
31, 2015 - $2.7 million).   

The 7.50% senior unsecured debentures, due 2023, are net of financing costs of $10.5 million at December 31, 2016 (December 
31, 2015 - $3.5 million).   

The 7.875% senior unsecured debentures, due 2025, are net of financing costs of $16.9 million at December 31, 2016 
(December 31, 2015 - $9.7 million). 

Sherritt International Corporation 

39   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
   
 
 
 
Notes to the consolidated financial statements 

During the year ended December 31, 2016, the Corporation repurchased $30.0 million aggregate principal amount of its 8.00% 
senior unsecured debentures due 2021 for $17.4 million.  A gain of $12.6 million was recognized during the year ended 
December 31, 2016 within net finance expense in the consolidated statements of comprehensive income (loss) (note 8).  

Under the Corporation’s indenture agreement the Corporation is subject to certain covenants, including financial covenants 
which, if exceeded, limit or prohibit the incurrence of indebtedness and the ability to make certain distributions. The financial 
covenants are as follows; earnings before interest, taxes, depreciation and amortization (EBITDA)-to-interest expense ratio of no 
less than 2:1 and total indebtedness-to-EBITDA ratio not to exceed 3:1.  

Ambatovy Joint Venture additional partner loans 

Sherritt has arrangements with its Ambatovy Joint Venture partners, Sumitomo and Kores, for a mechanism through which the 
joint venture partners would finance the Corporation’s pro-rata share of shareholder funding requirements for the Ambatovy 
Joint Venture up to US$600.9 million plus accrued interest. 

These loans, which are fully drawn, are non-recourse to the Corporation except in circumstances where there is a direct breach 
by the Corporation of restrictions in the loan documents, which limit the activities of certain subsidiaries and the use of proceeds 
from the loans to the development of the Ambatovy mine.  

Interest and principal on these loans will be repaid solely through the Corporation’s share of the distributions from the Ambatovy 
Joint Venture. However, the Corporation has the right to prepay some or all of the loans at its option. Until the Ambatovy Joint 
Venture additional partner loans and the Ambatovy Joint Venture partner loans, as described below, are fully repaid, 45% of the 
Corporation’s share of distributions will be applied to repay the Ambatovy Joint Venture additional partner loans, 25% will be 
applied to repay the Ambatovy Joint Venture partner loans and the remaining 30% will be payable to the Corporation. When one 
loan has been repaid in full, 70% of such distributions will be applied to repay the loan that remains outstanding and the 
Corporation will receive the balance of the distributions until such time as both loans have been repaid in full and the 
Corporation will be entitled to receive all of its distributions.  

Each lender individually has the right to exchange some or all of its Ambatovy Joint Venture additional partner loan for up to a 
maximum 15% equity interest, in aggregate, at any time. Exercise of these rights in full would reduce Sherritt’s interest in the 
Ambatovy Joint Venture to 25%. This right is subject to senior project lender consent and Sherritt’s right to repay such loans and 
avoid the reduction in its equity interest.  

The lenders’ conversion option incorporated in these loan agreements is an embedded derivative. The lenders’ conversion option 
has been bifurcated from the loan and ascribed a nominal value. These loans carry interest at a rate of six-month LIBOR plus 7.0% 
per annum.  

The principal amount outstanding under this facility at December 31, 2016 was $1,367.5 million, including accrued interest 
(December 31, 2015 - $1,303.2 million). This amount is net of financing costs of $1.9 million at December 31, 2016 (December 
31, 2015 - $2.2 million).  

Ambatovy Joint Venture partner loans 

In 2008, the Ambatovy Joint Venture partners finalized agreements to provide Sherritt with loans of up to US$236.0 million to be 
used to fund Sherritt’s contributions for the project. The loans are provided at an interest rate based on a six-month LIBOR plus 
1.125% with a 15-year term. Should Ambatovy distributions be insufficient to repay the loans in full, the Corporation will have the 
option to repay any outstanding balance in either cash or its common shares. 

The principal amount outstanding under this facility at December 31, 2016 was $133.3 million, including accrued interest 
(December 31, 2015 - $134.6 million).  This amount is net of financing costs of $0.5 million at December 31, 2016 (December 
31, 2015 - $0.5 million).  The Corporation’s ability to draw additional amounts on the facility expired on August 22, 2014. 

Syndicated revolving-term credit facility  

In November 2016, the maturity of the syndicated revolving-term credit facility was extended to January 31, 2017 and the 
maximum credit available was reduced from $115.0 million to $90.0 million.  The total available draw was based on eligible 
receivables and inventory. The interest rates increased from prime plus 2.25% or bankers’ acceptance plus 3.25% to prime plus 
2.50% or bankers’ acceptance plus 3.50%.  Transaction costs related to this amendment were expensed. 

The facility was subject to the following financial covenants: net financial debt-to-EBITDA covenant of 4.25:1, net financial debt-
to-equity covenant of 0.55:1 and EBITDA-to-interest expense covenant of not less than 1.75:1. If net financial debt-to-EBITDA is 
greater than 3.75:1, unrestricted cash must be greater than 50% of the lower of the borrowing base amount and facility amount.  

40  Sherritt International Corporation 

 
As at December 31, 2016, the Corporation has $46.8 million of letters of credit outstanding pursuant to this facility (December 
31, 2015 - $47.5 million). As at December 31, 2016, $43.0 million has been drawn on this facility (December 31, 2015 - $55.0 
million). 

On January 31, 2017, the syndicated revolving-term credit facility was renewed with a maximum credit available of $90.0 million, 
$13.7 million of which matures on April 21, 2017 and the remaining $76.3 million matures on January 30, 2018. The maximum 
credit available will further decrease by 4.167% quarterly beginning April 28, 2017.  Collectively, these reductions in available 
credit will result in outstanding credit of $63.6 million at January 30, 2018.  The interest rates increased from prime plus 2.50% 
or bankers’ acceptance plus 3.50% to prime plus 3.50% or bankers’ acceptance plus 4.50%.  The facility is subject to the following 
financial covenants and restrictions: 

• 

• 

• 

Net financial debt-to-EBITDA covenant of 4.25:1, increasing to 4.75:1 by maturity; 

EBITDA-to-interest expense covenant of not less than 1.75:1; and 

Limits on capital expenditures, funding of the Ambatovy Joint Venture and Moa Joint Venture, and maintenance of a 
minimum balance of $180.0 million of cash and cash equivalents and short-term investments held by the Corporation’s 
wholly-owned subsidiaries. 

Line of credit  

On February 23, 2016, the Corporation repaid the outstanding balance of $35.0 million and terminated its line of credit.  

Covenants 

As at December 31, 2016, there are no events of default on the Corporation’s borrowings or debentures.  

Other financial liabilities 

Canadian $ millions, as at 

Other non-current financial liabilities(1) 
Stock-based compensation liability 

Current portion of other financial liabilities 

2016

2015

December 31

December 31

$

$

155.7  $
12.3 
168.0 
(5.0)
163.0  $

0.3 
3.1 
3.4 
(1.5)
1.9 

(1) 

Included in other non-current financial liabilities is $154.9 million related to the Corporation’s obligation for outstanding shareholder funding to the 
Ambatovy Joint Venture.  This obligation represents cash calls that were not funded during the year ended December 31, 2016 (note 6). The Corporation 
has also recognized a financial asset relating to its right to future distributions from the Ambatovy Joint Venture if and when this financial obligation is 
cured (note 13). 

17.  PROVISIONS 

Accounting policies 

Provisions are recognized when the Corporation has a present obligation (legal or constructive) as a result of a past event, it is 
probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount 
of the obligation. Where appropriate, the future cash flow estimates are adjusted to reflect risks specific to the obligation. Where 
the Corporation expects some or all of a provision to be reimbursed, for example, under an insurance contract, the 
reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to 
any provision is presented in cost of sales or administrative expenses, depending on the nature of the provision. If the effect of 
the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate 
that reflects current market assessments of the time value of money. Where discounting is used, the increase in the provision 
due to the passage of time is recognized as financing expense. A contingent liability is disclosed where the existence of an 
obligation will only be confirmed by future events or where the amount of the obligation cannot be measured with reasonable 
reliability. Contingent assets are not recognized, but are disclosed where an inflow of economic benefits is probable.  

Sherritt International Corporation 

41   

 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Environmental rehabilitation  

Provisions for environmental rehabilitation include decommissioning and restoration costs when the Corporation has an 
obligation to dismantle and remove infrastructure and residual materials as well as to restore the disturbed area. Estimated 
decommissioning and restoration costs are provided for in the accounting period when the obligation arising from the 
disturbance occurs, whether this occurs during mine development or during the production phase, based on the net present 
value of estimated future costs. The provision for environmental rehabilitation is reviewed and adjusted each period to reflect 
developments which could include changes in closure dates, legislation, discount rate or estimated future costs. 

The amount recognized as a liability for environmental rehabilitation is calculated as the present value of the estimated future 
costs determined in accordance with local conditions and requirements. An amount corresponding to the provision is capitalized 
as part of property, plant and equipment and is depreciated over the life of the corresponding asset. The impact of amortization 
or unwinding of the discount rate applied in establishing the net present value of the provision is recognized in financing 
expense. The applicable discount rate is a pre-tax rate that reflects the current market assessment of the time value of money 
which is determined based on government bond interest rates and inflation rates. 

Changes to estimated future costs are recognized in the consolidated statements of financial position by either increasing or 
decreasing the rehabilitation liability and rehabilitation asset if the initial estimate was originally recognized as part of an asset 
measured in accordance with IAS 16, “Property, Plant and Equipment”. Any reduction in the rehabilitation liability and therefore 
any deduction from the rehabilitation asset may not exceed the carrying amount of that asset. If it does, any excess over the 
carrying amount is taken immediately to cost of sales.  

If the change in estimate results in an increase in the rehabilitation provision and therefore an addition to the carrying amount of 
the asset, the entity is required to consider whether the new carrying amount is recoverable, and whether this is an indication of 
impairment of the asset as a whole. If indication of impairment of the asset as a whole exists, the Corporation tests for 
impairment in accordance with IAS 36, “Impairment of Assets”. If the carrying amount of the revised mine assets, net of 
rehabilitation provisions, exceeds the recoverable value, that portion of the increase is charged directly to cost of sales. For 
closed sites, changes to estimated costs are recognized immediately in cost of sales. Also, rehabilitation obligations that arise as 
a result of the production phase of a mine are expensed as incurred. 

Where rehabilitation is conducted systematically over the life of the operation, rather than at the time of closure, provision is 
made for the estimated cost of outstanding rehabilitation work at each statement of financial position date and any increase in 
overall cost is expensed. 

Critical accounting estimates 

The Corporation’s operations are subject to environmental regulations in Canada, Cuba, Madagascar and other countries in 
which the Corporation operates. Many factors such as future changes to environmental laws and regulations, life of mine 
estimates, the cost and time it will take to rehabilitate the property and discount rates, all affect the carrying amount of 
environmental rehabilitation provisions. As a result, the actual cost of environmental rehabilitation could be higher than the 
amounts the Corporation has estimated. For certain operations, actual costs will ultimately be determined after site closure in 
agreement with predecessor companies. 

The environmental rehabilitation provision is assessed quarterly and measured by discounting the expected cash flows. The 
applicable discount rate is a pre-tax rate that reflects the current market assessment of the time value of money which is 
determined based on government bond interest rates and inflation rates. The actual rate depends on a number of factors, 
including the timing of rehabilitation activities that can extend decades into the future and the location of the property. 

Supporting information 

Canadian $ millions, as at 

Environmental rehabilitation provisions  
Other provisions 

Current portion of provisions 

42  Sherritt International Corporation 

2016

2015

December 31

December 31

$

$

103.2  $
11.4 
114.6 
(12.2) 
102.4  $

107.8 
18.8 
126.6 
(18.8)
107.8 

 
 
 
 
  
 
 
  
 
Environmental rehabilitation provisions 

Provisions for environmental rehabilitation obligations are recognized in respect of Oil and Gas, Power and mining operations 
and include associated infrastructure and buildings, such as oil and gas production facilities, refinery, fertilizer and utilities 
facilities.  The obligations normally take place at the end of the asset’s useful life.   

The following is a reconciliation of the environmental rehabilitation provisions: 

Canadian $ millions, for the years ended December 31 

Note

2016

2015

Balance, beginning of the year 
Additions 
Change in estimates 
Utilized during the year 
Accretion 
Effect of movement in exchange rates 
Balance, end of the year 

$

$

8

107.8  $

- 
(0.6)
(1.3)
1.0 
(3.7)
103.2  $

101.7 
0.2 
0.7 
(0.1)
1.1 
4.2 
107.8 

The Corporation has estimated that it will require approximately $143.0 million in undiscounted cash flows to settle these 
obligations.  The payments are expected to be funded by cash generated from operations. Discount rates from 2.00% to 9.86% 
were applied to expected future cash flows to determine the carrying value of the environmental rehabilitation provision. 

Other provisions  

The following is a reconciliation of other provisions: 

Canadian $ millions, for the years ended December 31 

Balance, beginning of the year 
Additions 
Utilized during the year 
Balance, end of the year 

2016

2015

$

$

18.8  $
- 
(7.4)
11.4  $

25.1 
5.0 
(11.3)
18.8 

On October 31, 2013, a breach of an onsite water containment pond occurred at the Coal operations’ Obed Mountain mine near 
Hinton, Alberta.  The release consisted of 670,000 cubic metres of process water, containing water mixed with clay, mud, slate 
and coal particles.  The Corporation continues to be subject to financial obligations relating to the Obed breach subsequent to 
the sale of the Coal operations. 

Other provisions include additions of nil for the year ended December 31, 2016 ($5.0 million for the year ended December 31, 
2015, for financial obligations relating to the Obed breach reflecting management’s best estimate of penalties arising from 
regulatory charges, including the provincial charges laid in October 2015 by the Alberta Crown Prosecutor).  As the Obed breach 
occurred within the Coal operations, any change in estimate is included within discontinued operations in the consolidated 
statements of comprehensive income (loss). 

For the year ended December 31, 2016, the Corporation has recognized $7.4 million in cash used by discontinued operations in 
the consolidated statements of cash flow ($16.0 million for the year ended December 31, 2015, of which $4.7 million was for 
amounts payable not included in other provisions).  Cash used by discontinued operations relates to cash paid to settle the 
obligations retained by the Corporation post-disposition. 

In December 2016, the Corporation recognized $2.9 million in income within earnings (loss) from discontinued operations in the 
consolidated statements of comprehensive income (loss) related to an insurance claim reimbursement for the Obed breach.  The 
corresponding receivable has been included within other financial assets in the consolidated statements of financial position. 

Contingencies  

A number of the Corporation’s subsidiaries and affiliates have operations located in Cuba. The Corporation will continue to be 
affected by the difficult political relationship between the United States and Cuba. The Corporation has received letters from U.S. 
citizens claiming ownership of certain Cuban properties or rights in which the Corporation has an indirect interest, and explicitly 
or implicitly threatening litigation. Having regard to legal and other developments in the United States, and remedies available in 
Canada and in Europe, the Corporation believes that the impact of any claims against it will not be material. 

Sherritt International Corporation 

43   

 
 
 
 
  
 
  
   
Notes to the consolidated financial statements 

In addition to the above matter, the Corporation and its subsidiaries are also subject to routine legal proceedings and tax audits. 
The Corporation does not believe that the outcome of any of these matters, individually or in aggregate, would have a material 
adverse effect on its consolidated net earnings, cash flow or financial position. 

18.  SHAREHOLDERS’ EQUITY 

Capital Stock 

The Corporation’s common shares have no par value and the authorized share capital is composed of an unlimited number of 
common shares.  The changes in the Corporation’s outstanding common shares were as follows:  

Canadian $ millions, except share amounts, for the years ended December 31 

Note

Number 

2016 
Capital stock

Number

Capital stock

2015

Balance, beginning of the year 
Restricted stock plan (vested) 
Employee share purchase plan (vested) 
Warrants exercised 
Balance, end of the year 

The following dividends were paid: 

19
19

293,853,001  $

- 
- 
321,922 
294,174,923  $

2,775.3 
- 
- 
0.4 
2,775.7 

293,271,191  $

260,400 
321,410 
- 

293,853,001  $

2,772.9 
1.6 
0.8 
- 
2,775.3 

Canadian $ millions, except per share amounts, for the years ended December 31 

Per share

2016

Total

Per share

Dividends paid 

$

-  $

-  $

0.030  $

2015

Total

9.0 

On September 17, 2015, the Corporation’s Board of Directors suspended its quarterly dividend of $0.01 per common share. 

Reserves 

Canadian $ millions, for the years ended December 31 
Stated capital reserve 
Balance, beginning of the year 
Warrant issuance 
Warrants exercised 
Balance, end of the year 

Stock-based compensation reserve(1) 

Balance, beginning of the year 
Restricted stock plan (vested) 
Restricted stock plan expense 
Employee share purchase plan (vested) 
Stock option plan expense 
Balance, end of the year 
Total reserves, end of the year 

Note

2016

2015

$

16

217.8  $
8.2 
(0.2) 
225.8 

217.8 
- 
- 
217.8 

$

$

7.1  $
- 
- 
- 
1.8 
8.9 
234.7  $

7.4 
(1.6)
0.1 
(0.1)
1.3 
7.1 
224.9 

(1) 

 Stock-based compensation reserve relates to equity-settled compensation plans issued by the Corporation to its directors, officers and employees. 

44  Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income 

Canadian $ millions, for the years ended December 31 
Foreign currency translation reserve 
Balance, beginning of the year 
Foreign currency translation differences on foreign operations 
Balance, end of the year 

Actuarial (losses) gains on defined benefit obligation 
Balance, beginning of the year 
Actuarial losses on pension plans, net of tax 
Balance, end of the year 
Total accumulated other comprehensive income  

19.  STOCK-BASED COMPENSATION PLANS 

Accounting policies 

2016

2015

$

$

$
$

903.0  $
(89.8)
813.2 

(3.5) $
(0.7)
(4.2) $
809.0  $

323.8 
579.2 
903.0 

(3.3)
(0.2)
(3.5)
899.5 

The Corporation operates a number of equity-settled and cash-settled share-based compensation plans under which it issues 
equity instruments of the Corporation, or makes cash payments based on the value of the underlying equity instrument of the 
Corporation, to directors, officers and employees in exchange for services. 

The Corporation’s equity-settled compensation plans include the stock options plan and the Restricted Stock Plan (“RSP”). Equity-
settled stock options obligations are settled by the issuance of shares from treasury. RSP obligations are settled by the purchase 
of shares on the open market. The fair value of grants issued under the stock options plan are determined at the date of grant 
using the Black-Scholes option valuation model. They are only re-measured if there is a modification to the terms of the option, 
such as a change in exercise price or legal life. The fair value of the RSP obligation is measured as the value at which the shares 
are purchased on the market. The fair value of the equity-settled compensation plans is recognized as an expense over the 
expected vesting period with a corresponding entry to shareholders’ equity. 

The Corporation’s cash-settled share plans, including stock options with tandem stock appreciation rights (“Options with Tandem 
SARs”), Restricted Share Units (“RSUs”) and Deferred Share Units (“DSUs”), are recognized as liabilities at the date of grant.  

The fair value of the liability of the Options with Tandem SARs is determined based on the application of the Black-Scholes option 
valuation model at the date granted and expensed over the vesting period of the awards based on management’s estimate of the 
number of shares expected to vest. Projections are reviewed at each reporting date up to the vesting date to reflect 
management’s best estimates and adjusted as required. Movements in the liability between reporting dates are recognized as an 
adjustment to the liability and an offsetting expense or recovery. At each reporting date until settlement, the fair value of the 
awards is re-measured based on revised pricing parameters of the model based on market conditions at the reporting date and 
estimates of forfeiture rates. Options with Tandem SARs permit awards to be settled in shares. If this occurs, the liability is 
transferred directly to equity as part of the consideration for the equity instruments issued. 

The fair value of the RSU liability at the date of grant and at each subsequent reporting date until settlement is based on the 
market value of the Corporation’s shares. If the Corporation’s share price changes between reporting dates then the fair value of 
the RSU liability is adjusted and an offsetting expense or recovery is recognized in the statement of comprehensive income (loss). 
The adjusted fair value of the RSU liability is then amortized over the remaining vesting period.  For RSUs issued with 
performance requirements, the fair value at the date of grant and at each subsequent reporting date until settlement is based on 
performance metrics which are defined at the time of issuance and on the market value of the Corporation’s shares with the 
liability expensed over the vesting period.  Adjustments recorded are amortized over the remaining vesting period.  

The fair value of DSUs at the date of grant and at each subsequent reporting date until settlement is based on the market value 
of the shares with the liability expensed over the vesting period. Movements in the liability between reporting dates are 
recognized as an adjustment to the liability and an offsetting expense or recovery. The adjustment amount is amortized over the 
remaining vesting period. 

Sherritt International Corporation 

45   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
Notes to the consolidated financial statements 

Supporting information 

Stock options and options with tandem stock appreciation rights 

The Corporation maintains a stock option plan, pursuant to which securities of the Corporation may be issued as compensation. 
Eligible participants are those persons designated from time to time by the Human Resources Committee of the Board of 
Directors (the Committee) from among the executive officers and certain senior employees of the Corporation or its subsidiaries 
who occupy responsible managerial or professional positions and who have the capacity to contribute to the success of the 
Corporation.  

Under the Corporation’s stock option plan, the Committee has the discretion to attach Tandem SARs to options, which entitles 
the holder to a cash payment of the difference between the option’s exercise price and the volume-weighted average trading 
price of a share on the Toronto Stock Exchange for the five trading days preceding the exercise date.  Options with Tandem SARs 
have not been issued since March 2010. 

The maximum number of stock options issuable is 17,500,000. The remaining number of options which may be issued under 
the stock option plan is 1,686,588 at December 31, 2016. Under the stock option plan, the exercise price of each option equals 
the volume-weighted average trading price over the five days prior to the date the option is granted. An option’s maximum term 
is 10 years. Options vest on such terms as the Committee determines, generally in three equal instalments on the annual 
anniversary date of the grant of the options. When options with or without Tandem SARs are exercised, the related options are 
cancelled and the shares underlying such options are issued and are no longer available for issuance under the stock option plan. 

The following is a summary of stock option activity: 

Canadian $, except number of options, for the years ended December 31 

Outstanding, beginning of the year 
Granted 
Forfeited 
Expired 
Outstanding, end of the year 
Options exercisable, end of the year 

2016 

Weighted-

average

exercise

price

Number of

options

5.80 
0.68 
- 
11.34 
3.57 
6.57 

5,518,752  $
2,075,600 
(1,090,003)
(355,000)
6,149,349  $
3,497,447  $

Number of

options

6,149,349  $
3,802,400 
- 
(353,333)
9,598,416  $
4,270,510  $

The following table summarizes information on stock options outstanding and exercisable: 

As at December 31 

 Range of exercise prices 

 $0.68 - $2.10 
 $2.11 - $5.05 
 $5.06 - $9.77 
 $9.78 - $15.23 
Total 

Number
outstanding

3,802,400 
2,836,800 
2,344,216 
615,000 
9,598,416 

Weighted-
average

remaining

contractual
life (years)

Weighted-

average

exercise
price

Number
exercisable

9.1  $
7.7 
4.0 
0.9 
6.9  $

-  $

0.68 
2.49  1,311,294 
6.55  2,344,216 
615,000 

14.98 

3.57  4,270,510  $

2015

Weighted-

average

exercise

price

7.52 
2.07 
5.40 
11.97 
5.80 
8.22 

2016

Exercisable
weighted-

average

exercise
price

- 
2.65 
6.55 
14.98 
6.57 

As at December 31, 2016, 1,670,216 options with tandem SARs (December 31, 2015 – 2,023,549) and 7,928,200 options 
without tandem SARs (December 31, 2015 – 4,125,800) remained outstanding for which the Corporation has recognized a 
compensation expense of $1.9 million for the year ended December 31, 2016 (compensation expense of $0.8 million for the 
year ended December 31, 2015).  The carrying amount of liabilities associated with stock options with tandem SARs is $0.1 
million as at December 31, 2016 (December 31, 2015 – nil).  

46  Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Inputs for measurement of grant date fair values 

The fair value at the grant date of the stock options was measured using Black-Scholes.  The following summarizes the weighted 
average fair value measurement factors for options granted during the year: 

Canadian $, except as noted, for the years ended December 31 

 Share price at grant date 
 Exercise price 
 Risk-free interest rates (based on 10-year Government of Canada bonds) 
 Expected volatility 
 Expected dividend yield 
 Expected life of options 
 Weighted-average fair value of options granted during the year 

2016

2015

$
$

$

0.68  $
0.68  $
1.14%
55.12%
0.00%
10 years

0.43  $

2.07 
2.07 
1.50%
51.78%
1.74%
10 years
1.00 

Expected volatility is estimated based on the average historical share price volatility for a period equal to the expected life of the 
option. The expected life of the option is estimated to equal its legal life at the time of grant. The expected dividend yield is 
determined by comparing the most recent dividend payment to the share price at grant date. 

Other stock-based compensation 

Restricted Share Units (RSUs) 

Under the terms of the Executive Share Unit Plan, the RSUs are available to be granted to executives and employees. The RSUs 
represent a right to receive a cash amount payable by the Corporation to a participant at the end of the vesting period for RSUs 
determined by reference to the market price of the common shares multiplied by the number of RSUs held by the participant as 
adjusted for dividend equivalents credited. RSUs are issued subject to vesting conditions, including performance criteria, if any, 
which are set by the Committee. The RSUs vest at the sole discretion of the Committee.  RSUs vest not later than the earlier of (a) 
the earlier of: (i) December 31 of the third calendar year following the calendar year in respect of which the RSUs were granted or 
(ii) the date set out in the RSU grant agreement; and (b) the date of death of a participant. The vesting date set out in the grant 
agreement is typically the third anniversary of the grant date. The Corporation shall redeem all of a participant’s vested RSUs on 
the vesting date and may, at the discretion of the Committee, redeem all or any part of a participant’s unvested RSUs prior to the 
vesting date.   

Beginning in 2013, the Corporation began issuing performance based RSUs to certain employees, which vest at the end of three 
years.  Under the plan, each unit awarded is equivalent to a common share. A liability is accrued related to the units awarded and 
a compensation expense is recognized in the consolidated statement of comprehensive income (loss) over the service period 
required for employees to become fully entitled to the award. At the maturity date, the participant receives cash representing the 
value of the units. The final number of units that vest will vary from 80% to 120% of the number of outstanding units on the 
vesting date (initial number awarded plus additional units for dividend equivalents) based on the Corporation’s total shareholder 
return relative to a benchmark index comprised of mining and oil and gas companies.  The number of RSUs subject to a 
performance condition based on the Corporation’s relative total shareholder return outstanding at December 31, 2016 was 
16,150,734 (December 31, 2015 – 7,132,981). 

In the first quarter of 2016, the Corporation’s Board of Directors approved an additional one-time grant of performance based 
RSUs to certain employees which vest at December 31, 2018. Under the plan, each unit awarded is equivalent to a common 
share. A liability is accrued related to the units awarded and a compensation expense is recognized in the consolidated 
statement of comprehensive income (loss) over the service period required for employees to become fully entitled to the award. 
At the maturity date, the participant receives cash representing the value of the units. The final number of units that vest will be 
either 0%, 50% or 100% of the initial number awarded, plus dividend equivalents (if any), depending on the Corporation’s ability 
to achieve certain net direct cash cost (NDCC) milestones in the Corporation’s Metals operations. The number of RSUs subject to 
this performance condition outstanding at December 31, 2016 was 8,448,555 (December 31, 2015 – nil). 

Sherritt International Corporation 

47   

 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Deferred Share Units (DSUs) 

Under the terms of the Non-executive Directors’ Deferred Share Unit Plan, the DSUs are available to be granted to non-executive 
directors. The DSUs represent a right to receive a cash amount payable by the Corporation to a participant following departure 
from the Board of Directors. The value payable is determined by reference to the market price of the common shares multiplied 
by the number of DSUs held by the participant as adjusted for dividend equivalents credited. DSUs vest on the later of (a) the 
grant date or (b) the date that any terms of vesting conditions attached to the DSUs are satisfied. DSUs generally vest on the 
grant date. DSUs are redeemed by the Corporation at the election of the participant by filing a notice of redemption not earlier 
than the participant’s termination date and not later than December 1st of the calendar year following the termination date. 

Restricted Stock Plan (RSP) 

The Corporation has a Restricted Stock Plan intended for senior executives, under which the Committee may grant restricted 
shares to employees of the Corporation. Under the terms of the plan, shares that are issued are subject to vesting conditions, 
which are set by the Committee for each grant of restricted stock. The shares granted under this plan are purchased on the open 
market by a trustee and held in each participant’s custodial account until the vesting conditions have been met, or the shares are 
forfeited. The participant owns the restricted shares but cannot dispose or otherwise transfer ownership of them until the 
restrictions and performance conditions, if any, specified by the Committee at the time of grant have been satisfied. 

For accounting purposes, these shares are excluded from the number of outstanding common shares of the Corporation and 
reduce the capital stock of the Corporation. As the shares vest, the shares are included in the number of outstanding common 
shares of the Corporation and the capital stock of the Corporation is increased accordingly. The Corporation purchased nil 
common shares during the year ended December 31, 2016 (for the year ended December 31, 2015 the Corporation purchased 
nil common shares). These shares are excluded from the calculation of the weighted-average number of common shares used for 
the purposes of calculating basic earnings per share. 

Employee Share Purchase Plan 

The Employee Share Purchase Plan (Share Purchase Plan) was intended to allow eligible employees of the Corporation to purchase 
shares of the Corporation by means of automatic payroll deductions. On June 30, 2015, the purchase period ended and the Share 
Purchase Plan was closed. 

A summary of the Share Purchase Plan units, RSUs, DSUs and RSP units outstanding as at December 31, 2016 and 2015 and 
changes during the year ended is as follows: 

For the year ended December 31 

2016

 Outstanding, beginning of the year 
 Issued  
 Exercised 
 Forfeited 
 Outstanding, end of the year 
 Units exercisable, end of the year 

RSU

DSU

RSP

7,208,937 
19,083,980 
(1,149,336)
(473,400)

738,699 
943,390 
- 
- 
24,670,181  1,682,089 
n/a 1,682,089 

27,000 
- 
- 
- 
27,000 
n/a

48  Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the year ended December 31 

 Outstanding, beginning of the year 
 Issued  
 Dividends credited 
 Exercised 
 Forfeited 
 Adjusted on settlement 
 Vested 
 Outstanding, end of the year 
 Units exercisable, end of the year 

Share

Purchase Plan

RSU

DSU

293,280 
- 
- 
(326,875)
(133,940)
167,535 
- 
- 
n/a

4,696,518 
3,568,505 
87,802 
- 
(445,577)
- 
(698,311)
7,208,937 
n/a

375,314 
455,155 
6,267 
- 
- 
- 
(98,037)
738,699 
738,699 

2015

RSP

287,400 
- 
- 
- 
- 
- 
(260,400)
27,000 
n/a

For other stock-based compensation plans the Corporation recorded a compensation expense of $10.1 million for the year ended 
December 31, 2016 (compensation recovery of $1.8 million for the year ended December 31, 2015).  The carrying amount of 
liabilities associated with cash-settled compensation arrangements is $12.2 million as at December 31, 2016 (December 31, 
2015 - $3.1 million).  

Measurement of fair values at grant date 

The fair value of the RSUs, DSUs and RSPs are determined by reference to the market value and performance conditions, as 
applicable, of the shares at the time of grant. The following summarizes the grant date fair values for the RSU and DSU units 
granted during the period: 

Canadian $, for the years ended December 31 

RSU 
DSU 

2016 

2015

0.68 
0.76 

2.05 
1.70 

The intrinsic value of cash-settled stock-based compensation awards vested and outstanding as at December 31, 2016 was $11.4 
million (December 31, 2015 - $3.1 million). 

Employee share ownership plan 

The Corporation offers an employee share ownership plan (ESOP) for eligible employees. Under the ESOP, contributions by the 
Corporation and eligible employees will be used by the plan administrator to make purchases of common shares of the 
Corporation on the open market. Each eligible employee may contribute up to 10% of the employee’s salary to the ESOP. The 
Corporation will match 50% of employee contributions to the plan, up to a maximum annual contribution. Employer contributions 
will be used by the plan administrator to purchase additional common shares in the Corporation. These additional shares cannot 
be sold or withdrawn until the employee has participated in the plan for a continuous 24 month period. Shareholder approval is 
not required for this plan or any amendments to this plan. 

The Corporation accounts for its contributions to the employee share ownership plan (ESOP) as compensation and benefits 
expense when the amounts are contributed to the plan. Compensation and benefits expense related to this plan was $0.6 million 
for the year ended December 31, 2016 ($0.6 million for the year ended December 31, 2015). 

Sherritt International Corporation 

49   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
Notes to the consolidated financial statements 

20.  SUPPLEMENTAL CASH FLOW INFORMATION 

Accounting policies 

The Corporation presents the consolidated statements of cash flow using the indirect method.  The Corporation presents interest 
paid and received as an operating activity in the consolidated statements of cash flow. Dividends paid are presented as a 
financing activity and dividends received are presented as an operating activity in the consolidated statements of cash flow. 

Supporting information 

Other operating items includes the following: 

 Canadian $ millions, for the years ended December 31 

Note

2016

2015

Add (deduct) non-cash items: 
  Accretion expense on environmental rehabilitation provisions 
  Stock-based compensation expense (recovery), net 
  Other items 
Cash flow arising from changes in: 
  Other finance charges 
  Realized foreign exchange (loss) gain 

Net change in non-cash working capital includes the following: 

 Canadian $ millions, for the years ended December 31 

Trade accounts receivable, net 
Inventories 
Prepaid expenses 
Trade accounts payable and accrued liabilities 
Deferred revenue 

8, 17 $
19

8
8

$

1.0  $

12.0 
8.7 

(2.0)
(0.6)
19.1  $

1.1 
(1.0)
12.3 

(10.6)
1.5 
3.3 

2016

2015

$

$

(45.3) $
(2.1)
2.0 
71.3 
(11.8)
14.1  $

38.1 
(3.6)
(7.5)
(55.3)
7.2 
(21.1)

21.  FINANCIAL RISK AND CAPITAL RISK MANAGEMENT  

Risk management policies and hedging activities 

The Corporation is sensitive to changes in commodity prices, foreign exchange and interest rates. The Corporation’s Board of 
Directors has overall responsibility for the establishment and oversight of the Corporation’s risk management framework. 
Although the Corporation has the ability to address its price-related exposures through the use of options, futures and forward 
contracts, it does not generally enter into such arrangements. The Corporation reduces the business-cycle risks inherent in its 
commodity operations through industry diversification.  

Credit risk 

Sherritt’s sales of nickel, cobalt, oil, gas and electricity expose the Corporation to the risk of non-payment by customers. Sherritt 
manages this risk by monitoring the creditworthiness of its customers, covering some exposure through receivables insurance, 
documentary credit and seeking prepayment or other forms of payment security from customers with an unacceptable level of 
credit risk. In addition, there are certain credit risks that arise due to the fact that all sales of oil and electricity in Cuba are made 
to agencies of the Cuban government. Although Sherritt seeks to manage its credit risk exposure, there can be no assurance that 
the Corporation will be successful in eliminating the potential material adverse impacts of such risks. 

50  Sherritt International Corporation 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cuba 

The Corporation has credit risk exposure related to its share of cash, accounts receivable and advances and loans receivable 
associated with its businesses located in Cuba or businesses which have Cuban joint venture partners as follows: 

Canadian $ millions, as at 

Cash 
Trade accounts receivable, net 
Advances and loans receivable 
Total 

2016
December 31

2015

December 31

$

$

27.3  $

106.4 
610.4 
744.1  $

9.8 
155.8 
585.7 
751.3 

The table above reflects the Corporation’s maximum credit exposure to Cuban counterparties which may differ from balances in 
the consolidated results due to eliminations in accordance with accounting principles for subsidiaries and joint ventures. 

Madagascar 

The Corporation has credit risk exposure in Madagascar related to its share (40% basis) of net accounts receivable of $43.8 
million (December 31, 2015 - $35.8 million) associated with the Ambatovy Joint Venture including value added tax (VAT) 
receivables of $9.5 million (40% basis) (December 31, 2015 - $6.2 million) from the government of Madagascar.  The VAT 
receivable is net of a provision of $58.3 million (40% basis) (December 31, 2015 - $100.5 million) reflecting an assessment of the 
likelihood of receipt of these amounts.  During the year ended December 31, 2016, a gain on the partial reversal of this provision 
of $15.6 million (40% basis) was recognized in financing expense ($4.5 million for the year ended December 31, 2015). As at 
December 31, 2016, total overdue VAT receivable (net of provision) for the Ambatovy Joint Venture amount to $5.8 million (40% 
basis) (December 31, 2015 - $5.5 million). 

Liquidity risk 

Liquidity risk is the risk that the Corporation will not be able to meet its obligations associated with financial liabilities.  Liquidity 
risk arises from the Corporation’s financial obligations and in the management of its assets, liabilities and capital structure. The 
Corporation manages this risk by regularly evaluating its liquid financial resources to fund current and long-term obligations and 
to meet its capital commitments in a cost-effective manner.  

The main factors that affect liquidity include realized sales prices, production levels, cash production costs, working capital 
requirements, capital-expenditure requirements, scheduled repayments of long-term loans and borrowing obligations, credit 
capacity and debt and equity capital market conditions.  

The Corporation’s liquidity requirements are met through a variety of sources, including cash and cash equivalents, cash 
generated from operations, existing credit facilities, leases, and debt and equity capital markets. 

At December 31, 2016, considering the Corporation’s financial position, the Corporation currently does not expect to access 
public debt and equity capital markets for financing over the next 12 months. However, the Corporation may access these 
markets.  

Based on management’s assessment of its financial position and liquidity profile at December 31, 2016, the Corporation will be 
able to satisfy its current and long-term obligations as they come due.  

The agreements establishing certain jointly controlled entities require the unanimous consent of shareholders to pay dividends. It 
is not expected that this restriction will have a material impact on the ability of the Corporation to meet its obligations. 

Sherritt International Corporation 

51   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to the consolidated financial statements 

Financial obligation maturity analysis  

The Corporation’s significant contractual commitments, obligations, and interest and principal repayments in respect of its 
financial liabilities, provisions and operating leases are presented in the following table: 

Falling

Falling

due

Falling

due

Falling 

due 

Falling

due

Falling

due in

due within

between

between

between 

between

more than

Canadian $ millions, as at December 31, 2016 

Total 

1 year

1-2 years

2-3 years

3-4 years 

4-5 years

5 years

Trade accounts payable and  

  accrued liabilities 
Income taxes payable  
Senior unsecured debentures 
Ambatovy Joint Venture additional  
  partner loans (non-recourse)(1) 
Ambatovy Joint Venture  
  partner loans(1) 
Syndicated revolving-term credit 

facility 
Provisions 
Operating leases 
Other 
Total 

$

148.3  $
4.4 
1,116.3 

148.3  $
4.4 
56.0 

-  $
- 
56.0 

-  $
- 
56.0 

-  $
- 
56.0 

-  $
- 
276.0 

- 
- 
616.3 

3,236.3 

160.0 

- 

- 

44.9 
154.3 
17.0 
0.9  

$ 4,882.4  $

44.9 
16.3 
2.9 
-  

272.8  $

- 

- 

- 
5.1 
3.0 
-  
64.1  $

- 

- 

- 
- 
3.0 
-  
59.0  $

- 

- 

- 

- 

3,236.3 

160.0 

- 
- 
3.0 
-  
59.0  $

- 
- 
1.0 
-  

- 
132.9 
4.1 
0.9 
277.0  $ 4,150.5 

(1)  Ambatovy Joint Venture additional partner loans and partner loans are loans provided by the Ambatovy Joint Venture partners to finance Sherritt’s portion 

of the funding requirements of the Joint Venture, bearing interest of LIBOR plus a margin of 7% and 1.125%, respectively. These partner loans are to be 
repaid from the Corporation’s share of cash distributions from the Ambatovy Joint Venture (note 16).  The amounts above are based on management’s 
best estimate of future cash flows including estimating assumptions such as commodity prices, production levels, cash costs of production, capital and 
reclamation costs.  The Ambatovy Joint Venture additional partner loans are non-recourse to Sherritt unless there is a direct breach of certain restrictions 
stipulated in the loan documents.  The maturity analysis table includes an estimate of interest repayments. 

As a result of the Corporation’s 40% interest in the Ambatovy Joint Venture, its proportionate share of significant undiscounted 
commitments of the joint venture include accounts payable of $128.4 million, income taxes payable of $8.7 million, 
environmental rehabilitation commitments of $241.9 million, other contractual commitments of $34.8 million and senior debt 
financing and working capital facility of $1,093.0 million. 

As a result of the Corporation’s 50% interest in the Moa Joint Venture, its proportionate share of significant undiscounted 
commitments of the joint venture include accounts payable of $28.6 million, income taxes payable of $2.6 million, advances and 
loans payable of $272.5 million, environmental rehabilitation commitments of $92.7 million and other commitments of $0.3 
million. 

Market risk 

Market risk is the potential for financial loss from adverse changes in underlying market factors, including foreign exchange 
rates, commodity prices, interest rates and stock-based compensation costs.  

Foreign exchange risk 

Many of Sherritt’s businesses transact in currencies other than the Canadian dollar.  The Corporation is sensitive to foreign 
exchange exposure when commitments are made to deliver products quoted in foreign currencies or when the contract currency 
is different from the product price currency.  Derivative financial instruments are not used to reduce exposure to fluctuations in 
foreign exchange rates.  The Corporation is also sensitive to foreign exchange risk arising from the translation of the financial 
statements of subsidiaries with a functional currency other than the Canadian dollar impacting other comprehensive income 
(loss). 

Based on financial instrument balances as at December 31, 2016, a strengthening or weakening of $0.05 of the Canadian dollar 
to the U.S. dollar with all other variables held constant could have a favourable or unfavourable impact of approximately $56.9 
million, respectively, on net loss. 

Based on financial instrument balances as at December 31, 2016, a strengthening or weakening of $0.05 of the Canadian dollar 
to the U.S. dollar with all other variables held constant could have an unfavourable or favourable impact of approximately $43.0 
million, respectively, on other comprehensive loss. 

52  Sherritt International Corporation 

 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
   
   
   
   
   
   
 
   
   
   
   
   
   
   
 
 
 
 
 
 
Commodity price risk  

The Corporation is exposed to fluctuations in certain commodity prices. Realized prices for finished products and for input 
commodities are the most significant factors affecting the Corporation’s revenue and earnings. Revenue, earnings and cash flows 
from the sale of nickel, cobalt and oil are sensitive to changes in market prices over which the Corporation has little or no 
control. 

The Corporation has the ability to address its price-related exposures through the limited use of options, future and forward 
contracts, but has not entered into such arrangements for the years ended December 31, 2016 and December 31, 2015. Sherritt 
reduces the business-cycle risks inherent in its commodity operations through industry diversification. 

The Corporation has certain provisional pricing agreements in Metals. These provisionally priced transactions are periodically 
adjusted to actual as prices are confirmed as the settlement occurs within a short period of time. In periods of volatile price 
movements, adjustments may be material to the Ambatovy Joint Venture or Moa Joint Venture. 

Interest rate risk 

The Corporation is exposed to interest rate risk based on its outstanding loans and borrowings, and short-term and other 
investments.  A change in interest rates could affect future cash flows or the fair value of financial instruments.  

Based on the balance of short-term and long-term loans and borrowings, cash equivalents, short-term and long-term 
investments, and advances and loans receivable at December 31, 2016, excluding interest capitalized to project costs, a 1.0% 
decrease or increase in the market interest rate could decrease or increase the Corporation’s net loss by approximately $6.6 
million, respectively.  The Corporation does not engage in hedging activities to mitigate its interest rate risk. 

Stock-based compensation risk 

The Corporation is exposed to a financial risk related to stock-based compensation costs. 

Potential fluctuations in the price of Sherritt’s common shares would have an impact on the stock-based compensation expense. 
Based on balances at December 31, 2016, a strengthening or weakening of $0.50 in the price of the Corporation’s common 
shares would have had an unfavourable or favourable impact of approximately $4.8 million on the Corporation’s net loss, 
respectively. 

Capital risk management 

In the definition of capital, the Corporation includes, as disclosed in its consolidated financial statements and notes: capital 
stock, deficit and available credit facilities. 

Canadian $ millions, as at 

Capital stock 
Deficit 
Available credit facilities 

2016

2015

December 31

December 31

$

2,775.7  $
(2,721.5)
0.2 

2,775.3 
(2,342.6)
2.6 

The Corporation’s objectives, when managing capital, are to maintain financial liquidity and flexibility in order to preserve its 
ability to meet financial obligations throughout the various resource cycles with sufficient capital and capacity to manage 
unforeseen operational and industry developments and to ensure the Corporation has the capital and capacity to allow for 
business growth opportunities and/or to support the growth of its existing businesses.  

In order to maintain or adjust its capital structure, the Corporation may purchase shares for cancellation pursuant to normal 
course issuer bids, issue new shares, repay outstanding debt, issue new debt (secured, unsecured, convertible and/or other types 
of available debt instruments), refinance existing debt with different characteristics, acquire or dispose of assets or adjust the 
amount of cash and short-term investment balances. 

Certain of the Corporation’s credit facilities, loans and debentures have financial tests and other covenants with which the 
Corporation and its affiliates must comply. Non-compliance with such covenants could result in accelerated repayment of the 
related debt or credit facilities and reclassification of the amounts to current liabilities. The Corporation monitors its covenants 
on an ongoing basis and reports on its compliance with the covenants to its lenders on a quarterly basis.  

Refer to note 16 for the Corporation’s compliance with financial covenants as at December 31, 2016. 

Sherritt International Corporation 

53   

 
  
 
 
 
 
Notes to the consolidated financial statements 

22.  RELATED PARTY TRANSACTIONS  

The Corporation and subsidiaries provide goods, labour, advisory and other administrative services to jointly controlled entities 
and an associate at fair value. The Corporation and its subsidiaries also market, pursuant to sales agreements, a portion of the 
nickel, cobalt and certain by-products produced by certain jointly controlled entities and an associate in the Metals business. 

Balances and transactions between the Corporation and its subsidiaries, which are related parties of the Corporation, have been 
eliminated and are not disclosed in this note. A listing of the Corporation’s subsidiaries is included in note 2.2. 

A description of the Corporation’s interests in an associate and its interest in jointly controlled entities are included in notes 6 and 
7, respectively. 

 Canadian $ millions, for the years ended December 31 

2016

2015

Total value of goods and services: 
  Provided to joint operations 
  Provided to joint venture 
  Provided to associate 
  Purchased from joint venture 
  Purchased from associate 
  Net financing income from joint operations 
  Net financing income from associate 
  Net financing income from joint venture 

Canadian $ millions, as at 

Accounts receivable from joint operations 
Accounts receivable from joint venture 
Accounts receivable from associate 
Accounts payable to joint operations 
Accounts payable to joint venture 
Accounts payable to associate 
Advances and loans receivable from associate 
Advances and loans receivable from joint operations 
Advances and loans receivable from joint venture 

$

32.0  $

165.3 
3.4 
405.3 
39.1 
14.4 
38.9 
9.6 

33.2 
169.4 
2.9 
141.0 
53.8 
16.1 
65.6 
8.6 

2016
Note December 31

2015

December 31

12 $
12
12

13
13
13

0.4  $

11.4 
33.9 
- 
81.3 
1.8 
943.4 
192.4 
321.8 

0.7 
20.2 
33.8 
0.2 
5.2 
0.5 
1,187.2 
182.0 
312.8 

Transactions between related parties are generally based on standard commercial terms.  All amounts outstanding are unsecured 
and will be settled in cash.  No guarantees have been given or received on the outstanding amounts.  No expense has been 
recognized in the current or prior periods for bad debts in respect of amounts owed by related parties. 

Key management personnel  

Key management personnel are composed of the Board of Directors, Chief Executive Officer, Chief Operating Officer, Chief 
Financial Officer and Senior Vice Presidents of the Corporation. The following is a summary of key management personnel 
compensation: 

Canadian $ millions, for the years ended December 31 

Short-term benefits 
Post-employment benefits(1) 
Share-based payments 

2016 

2015 

$ 

$ 

7.4  $ 
0.4 
11.6 
19.4  $ 

7.5 
1.8 
6.3 
15.6 

(1) 

Post-employment benefits include a non-registered defined contribution executive supplemental pension plan.  The total cash pension contribution for 
key management personnel was $0.4 million for the year ended December 31, 2016 ($0.4 million for the year ended December 31, 2015). The total 
pension expense that is attributable to key management personnel was $0.2 million for the year ended December 31, 2016 ($0.2 million for the year 
ended December 31, 2015).  

54  Sherritt International Corporation 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
  
 
 
 
 
 
 
 
 
 
  
23.  OPERATING LEASE ARRANGEMENTS 

Accounting policies 

Leases of property, plant and equipment are classified as finance leases when the lessee retains substantially all the risks and 
rewards of ownership. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are 
classified as operating leases. 

Corporation as a lessee 

Finance leases are recognized at the lower of the fair value of the leased property and the present value of the minimum lease 
payments. The corresponding lease obligations, net of finance charges, are recorded as interest-bearing liabilities. Each lease 
payment is allocated between the liability and finance cost when paid.  

Operating lease payments (net of any amortization of incentives) are expensed as incurred. Incentives received from the lessor to 
enter into an operating lease are capitalized and depreciated over the life of the lease.  

Corporation as a lessor 

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Contingent rental 
income is recognised as revenue in the period in which it is earned. Initial direct costs incurred in negotiating and arranging an 
operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as 
rental income. 

Determining whether an arrangement contains a lease 

The Corporation determines whether a lease exists at the inception of an arrangement. A lease exists when one party is 
effectively granted control of a specific asset over the term of the arrangement.  

At inception or upon reassessment of arrangements containing leases, the Corporation separates payments and other 
consideration required related to lease payments from those related to other goods or services using relative fair value or other 
estimation techniques. 

Critical accounting judgments 

The Corporation determined that the Power facilities in Varadero, Cuba are subject to operating lease arrangements. The 
Corporation applies judgment in interpreting these arrangements such as determining which assets are specified in an 
arrangement, determining whether a right to use a specified asset has been conveyed and if relative fair value or another 
estimation technique to separate lease payments from payments for other goods or services should be used. The Corporation 
also uses judgment in applying accounting guidance to determine whether these leases are operating or finance leases. 

Supporting information 

Corporation acts as a lessor 

The Corporation acts as a lessor in operating leases related to the Power facilities in Varadero, Cuba.  All operating lease 
payments related to the Varadero facility are contingent on power generation.  For the year ended December 31, 2016, 
contingent revenue was $15.0 million ($14.1 million for the year ended December 31, 2015). 

24.  COMMITMENTS FOR EXPENDITURES 

Canadian $ millions, as at December 31 

Property, plant and equipment commitments 
Joint venture: 
  Property, plant and equipment commitments 

2016

$

10.3 

3.9 

Sherritt International Corporation 

55