2022
FINANCIAL RESULTS
Sherritt International Corporation
Message from Sherritt’s Chief Executive Officer
This past year was pivotal for Sherritt. We made significant progress towards our key strategic priorities to set the stage for long-term
success. We commenced a low capital intensity expansion program, significantly deleveraged our balance sheet, finalized
transformative payment agreements with our Cuban partners, advanced our portfolio of proprietary technologies, and met our
sustainability targets. Equally important, we had strong operating and financial results including significantly higher Adjusted EBITDA
and Net Earnings.
At our Metals business, we had strong operating results on the strength of higher nickel and fertilizer prices and sales volume. We
advanced our expansion program that will see an increase of approximately 6,500 tonnes of contained nickel and cobalt, or 20%,
annually by the end of 2024 to capitalize on the substantial demand growth stemming from the energy transition. We see an opportunity
to increase production of intermediary products which could enable direct sales of intermediate product into the electric vehicle battery
supply chain, opening further growth opportunities for Sherritt and our partners, while also fully utilizing our existing refinery capacity.
The past year has not been without challenges in our Metals business given the softening in the cobalt market and our lower than
expected cobalt sales in the latter half of the year. However, we expect demand for cobalt to normalize during 2023, as market conditions
rebound and demand from EVs outpace the decline in demand from consumer electronics.
With a key focus on building balance sheet strength, we bought back almost $150 million in second lien secured and junior notes at a
16% discount, reducing our principal by 35% and future annual interest expense by approximately $13 million. Additionally, we finalized
a transformative “Cobalt Swap” agreement with our Cuban partners under which we anticipate to receive more than $700 million in
cobalt and cash distributions over the next five years, half of which will be used to settle our legacy Cuban receivables. Importantly, we
expect to receive the majority of these payments prior to the maturity of the second lien notes in November 2026. In January 2023, the
first month in which the Cobalt Swap was effective, we received our first distribution of 760 tonnes of cobalt, representing 37% of the
targeted annual cobalt volume under the agreement, with an in-kind value of $36 million, demonstrating the significant value of this
transaction.
At our Power business, production exceeded guidance as we experienced better equipment reliability as a result of the maintenance
work we performed in 2021 and access to additional gas supply in 2022. Having the ability to fund maintenance work in 2021 was to a
large extent facilitated by the access we had to foreign currency. This was made possible through our “Moa Swap” that was in place at
the time and we were pleased to extend it for another five years. The Moa Swap provides certainty to the Energas Joint Venture to fund
its foreign currency denominated operating, maintenance, capital costs and dividend repatriations to Sherritt. With this stability, we
extended the Energas Joint Venture contract by 20 years to March 2043.
Our Technologies business supported the Moa JV expansion program and life of mine (LOM) optimization studies, which we anticipate
will extend the Moa LOM to beyond 2040.We did this in addition to our ongoing efforts on advancing the application of our most promising
technologies, including partnering with Open Mineral AG to jointly develop a business case for the implementation of Sherritt’s
proprietary technologies in the hydrometallurgical treatment of complex precious metal concentrates to solve Environmental, Social,
and Governance (ESG) challenges related to arsenic pollution. In 2023, we look forward to entering more external partnerships on
other opportunities.
Throughout all our activities, we remain committed to social and environmental responsibility and continued to advance our diversity
and inclusion initiatives. We continued to make year-over-year enhancements, further improving our industry leading safety performance
across all of our sites. Sherritt had zero work-related fatalities, zero significant environmental incidents, zero security incidents involving
allegations of human rights abuses, and no tailings-related incidents in 2022. We initiated a greenhouse gas emission baseline study
and roadmap to reach our net-zero target by 2050. In addition, we received confirmation of conformity with the London Metals
Exchange’s (LME) Track B Responsible Sourcing Requirements. Sherritt received independent verification that our minerals are not
associated with conflict, risks such as human rights abuses, forced labour, or corruption.
Looking to 2023 and the future, the traction we achieved in meeting our priorities in 2022 built the foundation for future successes.
In closing, we are entering an exciting new phase for Sherritt, only made possible by the experience, skills, determination and innovation
of our employees. Our team is ensuring that we maintain sound operational focus and fiscal responsibility, our operations run as safely
and effectively as possible, and our new technologies will further enhance our business and the environment. I would like to thank all of
our employees for their tremendous efforts, our partners and shareholders for their continued support, and the communities where we
live and work. We will continue to build on the milestones we achieved in 2022, to unlock value for our shareholders, employees and
communities through the coming years.
Leon Binedell
Chief Executive Officer
Sherritt International Corporation
1
SELECTED 2022 DEVELOPMENTS
Sherritt finalized an agreement with its Cuban partners to recover $368 million total outstanding Cuban receivables
over five years beginning January 1, 2023 (the Cobalt Swap). Under this agreement, the Moa JV will prioritize payment
of dividends in the form of finished cobalt to each partner, up to an annual maximum of cobalt, with any additional
dividends in a given year to be distributed in cash. All of the Cuban partner’s share of these cobalt dividends, and
potentially additional cash dividends, will be redirected to Sherritt as payment to settle the receivables until the annual
maximum cobalt volume and dollar amount limits, including the collection of any prior year shortfalls, has been reached.
Subsequent to the year end, the Moa Joint Venture distributed 760 tonnes of finished cobalt to Sherritt with an in-kind
value of US$27.0 million ($36.2 million) (100% basis) under the Cobalt Swap. The title to both Sherritt’s and its partner’s
redirected share of the cobalt was transferred immediately to a Sherritt warehouse in Fort Saskatchewan and other
international warehouses. Sherritt has begun and will continue to sell the cobalt to existing and new customers. As a
result, of the distribution, US$13.5 million ($18.1 million) of the GNC receivable will be settled in the three months ended
March 31, 2023, representing GNC’s 50% portion of cobalt redirected to Sherritt in satisfaction of the receivable under
the Cobalt Swap.
Sherritt and its Cuban partners finalized an extension to the Energas Payment Agreement (the Moa Swap) to fund the
operating and maintenance costs of Energas, as well as cover future payments that would be owed to Sherritt, including
dividends. Sherritt expects to continue to receive approximately US$4.2 million ($5.6 million) per month under a
payment agreement between Sherritt, Moa JV and Energas.
Cuba’s Executive Committee of the Council of Ministers approved the twenty-year extension of the Energas Joint
Venture contract with the Cuban government to March 2043. The extension of this economically beneficial contract
supports Sherritt's on-going investments in Cuba, helps facilitate the Cobalt and Moa Swaps, and supports Cuba’s
long-term energy security.
Sherritt repurchased an aggregate of almost $150 million in principal of its second lien secured notes and junior notes
at a 16% discount, reducing its principal debt by 35% from the beginning of the year and reducing its annual interest
expense by approximately $13 million.
Sherritt received distributions from the Moa JV of $100.6 million (US$76.5 million) which were more than double those
received in each of the three prior years.
Net earnings from continuing operations was $63.7 million, or $0.16 per share in 2022, compared to a net loss from
continuing operations of $13.4 million, or $(0.03) per share, in 2021 while Adjusted EBITDA(1) for 2022 was
$217.6 million compared to $112.2 million in 2021. Higher nickel and fertilizer sales volume and realized prices were
partly offset by higher input commodity prices, a $15.0 million ERO expense adjustment on legacy Oil and Gas Spanish
assets, and a $17.5 million share-based compensation expense. Net earnings from continuing operations were also
impacted by the recognition of a $49.0 million non-cash loss on revaluation of the allowances for expected credit losses
(ACL) related to the repayment of the Energas conditional sales agreement (CSA) receivable under the Cobalt Swap
agreement and a $20.9 million gain on the repurchase of notes.
Sherritt’s adjusted net earnings from continuing operations(1) was $88.4 million, or $0.22 per share, in 2022 compared
to an adjusted net loss from continuing operations of $13.9 million, or $(0.03) per share, in 2021.
Finished nickel production was 32,268 tonnes (100% basis), in line with guidance, representing a 3% increase year-
over-year primarily due to increased refinery reliability, while finished cobalt production of 3,368 tonnes (100% basis)
was materially within guidance and 4% lower than the prior year as a result of the higher nickel-to-cobalt ratio in the
Moa mixed sulphide feed and lower availability of third-party feed.
NDCC(1) at the Moa JV was US$5.14/lb for 2022 compared to US$4.11/lb in 2021. NDCC was higher in the current
year due to higher input commodity costs, including a 119% increase in global sulphur prices, a 109% increase in diesel
prices, and a 40% increase in fuel oil prices. The Cobalt by-product credit was only 2% lower for 2022 compared to
2021 as the higher average-realized prices offset lower sales volume. Net fertilizer by-product credit increased by 210%
compared to 2021 on higher sales volume and average-realized prices. NDCC was slightly above guidance as a result
of higher input commodity prices and lower than anticipated cobalt prices and sales volume during the fourth quarter.
At the Power business unit, electricity production beat updated guidance and unit operating cost(1) was lower than
guidance, primarily as a result of higher equipment availability in 2022 as a result of the completion of maintenance
activities in the prior year and as a result of successful efforts to increase availability of gas.
2
Sherritt International Corporation
Sherritt issued its 2021 sustainability, climate, and tailings management reports as well as its sustainability scorecard
outlining the Corporation’s performance on environmental, social, and governance (ESG) matters. Sherritt continues
to progress on its commitments to achieving net zero greenhouse (GHG) emissions by 2050, obtaining 15% of overall
energy from renewable sources by 2030, reducing nitrogen oxide emission intensity by 10% by 2024, and increasing
the number of women in its workforce to 36% by 2030.
Technologies entered into an agreement with Open Mineral AG to jointly develop a business case in 2023 for the
hydrometallurgical treatment of complex precious metal concentrates. Sherritt will partner with Open Mineral to explore
the implementation of its proprietary technologies to solve ESG and precious metal concentrate market challenges
regarding arsenic pollution.
(1) Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of the MD&A.
MOA JV EXPANSION PROGRAM UPDATE
In 2022, Sherritt embarked on an expansion program focused on increasing annual mixed sulphide precipitate (MSP) production
by 20% or 6,500 tonnes of contained nickel and cobalt (100% basis). The program includes completion of the Slurry Preparation
Plant (SPP), Leach Plant Sixth Train and Fifth Sulphide Precipitation Train as well as construction of additional acid storage
capacity at Moa. The total capital cost is expected to be US$77.0 million (100% basis) or approximately US$13,200 per additional
annual tonne of contained nickel for the full expansion.
In phase one of the program, the completion of the SPP is expected to be completed in early 2024 and is anticipated to deliver
several benefits including reduced ore haulage distances and lower carbon intensity from mining. Upon completion it will increase
MSP production by approximately 1,700 tonnes of contained nickel and cobalt annually. Completion of the second phase of the
program, the Moa processing plant improvements, which is planned for completion by the end of 2024, is expected to increase
MSP production by approximately an additional 4,800 tonnes of contained metals annually and reduce NDCC by approximately
US$0.20/lb.
Refer to the Moa Joint Venture and Fort Site review of operations section for further details.
MOA JV LIFE OF MINE/UPDATED NI 43-101 TECHNICAL REPORT
The work to complete the Economic Cut-Off Grade (ECOG) and Life of Mine (LOM) development continues at the Moa mine.
ECOG and LOM analysis using the latest methodologies are expected to extend the current LOM to beyond 2040.
Development of the NI 43-101 report and peer review will continue in early Q1 2023 with the final NI 43-101 report expected to
be released by the end of Q1 2023.
Sherritt International Corporation
3
2022 FINANCIAL HIGHLIGHTS
$ millions, except per share amount
Revenue
Combined revenue(1)
Earnings from operations and joint venture
Net earnings (loss) from continuing operations
Net earnings (loss) for the period
Adjusted EBITDA(1)
Net earnings (loss) from continuing operations ($ per share)
Cash provided by continuing operations for operating activities
Combined free cash flow(1)
Average exchange rate (CAD/US$)
2022
December 31
For the year ended
2021
December 31
Change
$
$
178.8
850.9
118.7
63.7
63.5
217.6
0.16
90.3
65.1
1.301
110.2
612.8
8.5
(13.4)
(18.4)
112.2
(0.03)
1.3
14.5
1.254
62%
39%
nm(2)
575%
445%
94%
633%
nm
349%
4%
(1) Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of the MD&A.
(2) Not meaningful (nm).
$ millions, as at December 31
Cash and cash equivalents
Loans and borrowings
2022
2021
Change
$
$
123.9
350.9
145.6
444.5
(15%)
(21%)
On a full year basis, cash and cash equivalents at December 31, 2022 of $123.9 million, were down from $145.6 million at
December 31, 2021. During 2022, cash decreased primarily due to the use of $125.2 million to repurchase $149.1 million in
principal of second lien secured notes and junior notes, $29.1 million for interest on the second lien secured notes, and
$28.5 million for capital expenditures. Partly offsetting these uses, Sherritt received $100.6 million of distributions from the Moa
Joint Venture, drew $37.0 million drawn on the revolving credit facility, and realized $31.3 million of cash from continuing
operations at the Fort Site as a result of higher fertilizer sales.
Of the $123.9 million of cash and cash equivalents, $20.3 million was held in Canada, and $96.7 million was held at Energas.
The remaining amounts were held in Cuba and other countries.
Subsequent to the year end, the syndicated revolving-term credit facility was amended to extend its maturity for one year from
April 30, 2024 to April 30, 2025, with no changes to the terms, financial covenants or restrictions.
4
Sherritt International Corporation
MANAGEMENT'S DISCUSSION
AND ANALYSIS
For the year ended December 31, 2022
This Management’s Discussion and Analysis (MD&A) is intended to help the reader understand Sherritt International
Corporation’s operations, financial performance and the present and future business environment. This MD&A, which
has been prepared as of February 8, 2023, should be read in conjunction with Sherritt’s audited consolidated financial
statements for the year ended December 31, 2022. Additional information related to the Corporation, including the
Corporation’s Annual Information Form, is available on SEDAR at www.sedar.com or on the Corporation’s website at
www.sherritt.com.
References to “Sherritt” or the “Corporation” refer to Sherritt International Corporation and its share of consolidated
subsidiaries, joint operations, joint ventures and associate, unless the context indicates otherwise. All amounts are in
Canadian dollars unless otherwise indicated. References to “US$” are to United States (U.S.) dollars and to “€” are to
euro.
Securities regulators encourage companies to disclose forward-looking information to help investors understand a
company’s future prospects. This MD&A 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
Significant factors influencing operations
Review of operations
Moa Joint Venture and Fort Site
Power
Technologies
Corporate
Liquidity
Sources and uses of cash
Capital resources
Capital risk management
Contractual obligations and commitments
8.50% second lien secured notes due 2026
10.75% unsecured PIK option notes due 2029
Syndicated revolving-term credit facility
Capital structure
Common shares
Outlook
Managing risk
Critical accounting estimates and judgments
Accounting pronouncements
Summary of quarterly results
Three-year trend analysis
Off-balance sheet arrangements
Transactions with related parties
Controls and procedures
Supplementary information
Sensitivity analysis
Investment in Moa Joint Venture
Non-GAAP and other financial measures
Forward-looking statements
6
9
10
14
18
18
20
20
26
27
28
29
30
33
33
33
34
35
35
36
36
37
39
48
50
52
53
54
54
55
55
55
56
58
71
Sherritt International Corporation
5
Management’s discussion and analysis
Overview of the business
Sherritt is a world leader in the mining and refining of nickel and cobalt – metals essential for the growing adoption of electric
vehicles. Its Technologies Group creates innovative, proprietary solutions for natural resource-based industries around the
world to improve environmental performance and increase economic value. The Corporation has embarked on a multi-pronged
growth strategy focused on expanding nickel and cobalt production by up to 20% from its 2021 totals and extending the life of
mine at Moa beyond 2040. The Corporation is also the largest independent energy producer in Cuba. The common shares of
the Corporation are listed on the Toronto Stock Exchange under the symbol “S”.
Sherritt
International
Moa Joint
Venture
and Fort Site
Metals Other
Power
Oil & Gas
Technologies
Corporate
(Head Office)
MOA JOINT VENTURE AND FORT SITE
Sherritt is an industry leader in the mining, hydrometallurgical 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 or the Moa
JV). In addition, Sherritt has a wholly-owned fertilizer business, sulphuric acid, utilities, fertilizer storage and administrative
facilities in Fort Saskatchewan, Alberta, Canada (Fort Site) that provide additional sources of income.
The Moa Joint Venture mines, processes and refines nickel and cobalt for sale worldwide (except in the United States). The
Moa Joint Venture is a vertically-integrated joint venture that mines lateritic ore by open pit methods and processes them at its
facilities at Moa, Cuba into mixed sulphide precipitate (MSP) containing nickel and cobalt. The MSP is transported to the refining
facilities in Fort Saskatchewan, Alberta. The resulting nickel and cobalt products are sold to various markets, primarily in Europe,
Japan and China. At the current depletion rates, the concessions of the Moa Joint Venture are planned to be mined until at least
2034. The refinery facilities in Fort Saskatchewan have an annual production capacity of approximately 35,000 tonnes (100%
basis) of nickel and approximately 3,800 tonnes (100% basis) of cobalt.
In 2022, Sherritt embarked on an expansion program focused on increasing annual MSP production by 20% of current production
or 6,500 tonnes of contained nickel and cobalt (100% basis). The expansion program capitalizes on the growing demand for
high purity nickel and cobalt being driven by the accelerated adoption of electric vehicles and builds on the 26-year successful
track record of the Moa Joint Venture. In addition, Sherritt is focused on extending the life of mine at Moa beyond 2040 through
the conversion of mineral resources into reserves using an economic cut-off grade and optimized life of mine (LOM) plan.
The Fort Site provides inputs (ammonia, sulphuric acid and utilities) for the Moa Joint Venture’s metals refinery, produce
agriculture fertilizer for sale in Western Canada and provides additional fertilizer storage and administrative facilities.
METALS OTHER
The Corporation’s Metals Other division includes the Corporation’s 100% interests in wholly-owned subsidiaries established to
buy, market and sell certain Moa Joint Venture’s nickel and cobalt production.
6
Sherritt International Corporation
POWER
Sherritt’s 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 Unión
Eléctrica (UNE) and Unión Cubapetróleo (CUPET) hold the remaining two-thirds interest in Energas. In 2022, Cuba’s Executive
Committee of the Council of Ministers approved the twenty-year extension of the Energas Joint Venture contract with the Cuban
government to March 2043.
Raw natural gas is supplied free of charge to Energas by CUPET. 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 other
agencies of the Cuban government. Sherritt provided the financing for the construction of the Energas facilities and was being
repaid from the cash flows generated by the facilities. Sherritt and its Cuban counter parts entered the Cobalt Swap (see below
for details) agreements in 2022 whereby GNC assumed the liabilities of Energas to repay the construction financing by way of
cobalt dividends commencing in 2023. The Cobalt Swap effectively advanced the repayment of and transferred the construction
financing into a new financial instrument to be repaid over a five-year term. Future profits from the Energas business,
commencing 2023, may now be distributed as dividends to its joint venture partners.
The Energas facilities are comprised of two combined cycle plants at Varadero and Boca de Jaruco that produce low cost
electricity from one of the lowest carbon emitting sources of power in Cuba using steam generated from the waste heat captured
from the gas turbines. Energas’ installed electrical generating capacity is 506 MW, representing approximately 10% of the
national electrical generating capacity in Cuba in 2022.
OIL AND GAS
Sherritt’s Oil and Gas division explores for oil and gas primarily from reservoirs located offshore, but in close proximity to the
coastline along the north coast of Cuba. Specialized long reach directional drilling methods have been used to economically
exploit these reserves from land-based drilling locations.
Under the terms of its production-sharing contracts (PSCs), 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 U.S. Gulf Coast
High Sulfur Fuel Oil (USGC HSFO) reference prices.
Sherritt’s commercial PSCs expired during 2021 and it currently has an interest in three PSCs, each in the exploration phase.
Sherritt has continued its efforts to seek an earn-in partner to develop these exploration blocks or to otherwise extract value from
our interests and expertise in oil and gas in Cuba.
TECHNOLOGIES
Sherritt’s Technologies group (Technologies) is a provider of technical services to both the Moa Joint Venture and other third-
party metals producers and an incubator of industry solutions. The business provides technical support, process optimization
and technology development services to improve operations and support growth initiatives at the Moa Joint Venture and the Fort
Site operations. Similarly, it provides such services to third-party metals producers for consulting fees or for economic interest
in projects aligned with Sherritt’s strategies. Technologies also develops proprietary solutions for commercialization within the
natural resource-based industries, leveraging its considerable expertise in hydrometallurgical processing. Its process solutions
help resource companies become more profitable, more sustainable, and less energy intensive.
CORPORATE
Corporate is composed of the Corporation’s overall management and general corporate activities related to public companies,
including management of cash, cash equivalents and publicly-traded debt.
Sherritt International Corporation
7
Management’s discussion and analysis
ACCOUNTING PRESENTATION
Sherritt manages its mining, oil and gas, power and technologies operations through different legal structures including 100%-
owned subsidiaries, joint 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:
Moa Joint Venture
Metals Other
Oil and Gas
Power
Relationship for
accounting purposes
Joint venture
Subsidiaries
Subsidiary
Joint operation
Interest
50%
100%
100%
33⅓%
Basis of
accounting
Equity method
Consolidation
Consolidation
Share of assets, liabilities
revenues and expenses
The Fort Site, Technologies and Corporate operations are a part of Sherritt International Corporation, the parent company, and
are not separate legal entities.
For financial statement purposes, the Moa Joint Venture is accounted for using the equity method of accounting, which
recognizes the Corporation’s share of earnings (loss) from Moa Joint Venture and its net assets as the Corporation’s investment
in Moa Joint Venture. The financial results and review of operations sections in this MD&A presents amounts by reportable
segment, based on the Corporation’s economic interest. The Corporation’s reportable segments are as follows:
Moa Joint Venture and Fort Site: Includes the Corporation’s 50% interest in the Moa Joint Venture and 100% interest in the
utility and fertilizer operations in Fort Saskatchewan.
Metals Other: Includes the Corporation’s 100% interests in wholly-owned subsidiaries established to buy, market and sell certain
Moa Joint Venture’s nickel and cobalt production.
Oil and Gas: Includes the Corporation’s 100% interest in its Oil and Gas business.
Power: Includes the Corporation’s 33⅓% interest in Energas, S.A. (Energas).
Technologies: Includes the Corporation’s 100% interest in its Technologies business.
Corporate: Head office activities.
Operating and financial results presented in this MD&A for reportable segments can be reconciled to note 5 of the consolidated
financial statements for the year ended December 31, 2022.
NON-GAAP AND OTHER FINANCIAL MEASURES
Management uses the following non-GAAP and other financial measures in this MD&A and other documents: combined revenue,
adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA), average-realized price, unit operating
cost/net direct cash cost (NDCC), adjusted net earnings/loss from continuing operations, adjusted earnings/loss from continuing
operations per share, combined spending on capital and combined free cash flow.
Management uses these measures 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/or evaluate the results of its underlying business. These measures are intended to provide additional information, not to
replace International Financial Reporting Standards (IFRS) measures, and 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. Further information on the composition and usefulness of each non-GAAP and other financial measure, including
reconciliation to their most directly comparable IFRS measures, is included in the Non-GAAP and other financial measures
section starting on page 58.
8
Sherritt International Corporation
Strategic priorities
The table below lists Sherritt’s Strategic Priorities for 2022, and summarizes how the Corporation has performed against those
priorities.
2022 Strategic Priorities
Selected Actions
Status
ESTABLISH SHERRITT AS A
LEADING GREEN METALS
PRODUCER
Accelerate plans to expand Moa JV nickel
and cobalt production by up to 20% from
the combined 34,710 tonnes produced in
2021.
Rank in lowest quartile of HPAL nickel
producers for NDCC.
LEVERAGE TECHNOLOGIES
FOR TRANSFORMATIONAL
GROWTH
Support Moa JV expansion, operational
improvements, and life of mine
extension.
Sherritt and its Moa JV advanced the US$77.0 million (100% basis)
two-phase expansion to increase total mixed sulphide precipitate
intermediate production by 6,500 tonnes of contained metals at Moa
at a low capital intensity of approximately US$13,200 per annual
tonne of contained nickel. The program remains on time and budget
for completion in 2024.
Implementation of ECOG methodology is expected to extend the
current LOM to beyond 2040.
NDCC(1) for 2022 of US$5.14/lb ranked Sherritt in the first cost quartile
for HPAL nickel producers and the second cost quartile of all nickel
producers.
Normalization of key input costs and cobalt by-product credits would
help return Sherritt to ranking in the first quartile.
Continued to support the Moa JV expansion and life of mine extension
at Moa.
Advance Technologies solutions toward
commercialization.
Continued to advance development and commercialization of most
promising and innovative technologies, including:
ACHIEVE BALANCE SHEET
STRENGTH
Maximize collections of overdue Cuban
receivables.
Maximize available liquidity to support
growth strategy.
Chimera/D-POX – engaged with interested parties to advance batch
testing and piloting programs for specific copper and precious metal
opportunities.
DSH – advanced assessment of the technology on bio-oils and
refinery vacuum residues. Batch testing demonstrated the ability to
produce a renewable diesel product.
NGL – completed unit operations piloting and initial engineering work
to refine key operating and commercial aspects. Engaged with
external parties on the potential to jointly develop this technology.
Signed agreements to recover the full amount – $368.0 million – of
receivables on the Energas CSA and Oil and Gas trade receivables by
the end of 2027 through the use of the Cobalt Swap.
Repurchased approximately $150 million principal amount of notes at
a 16% discount reducing debt by 35% from the beginning of the year
and annual interest expense of approximately $13 million.
BE RECOGNIZED AS A
SUSTAINABLE
ORGANIZATION
Continue to optimize costs to reflect
operating footprint.
Implemented measures relating
employee costs that resulted in savings of approximately $3 million.
to director compensation and
Deliver on actions identified in the
Sustainability Report.
Issued Sherritt’s 2021 sustainability reports and scorecard
October 2022.
in
Achieve year-over-year ESG
improvements including reduction of
carbon intensity.
Developed a climate plan to advance a road map to achieve long-term
net-zero GHG emissions by 2050.
Continued replacing vehicles and equipment with EVs and electric
equipment at Moa and the Fort Site.
Deliver on ‘Diversity and Inclusion’ global
framework
Made progress in defining metrics, analyzing workforce demographics
and aligning Sustainability (CSR) investments with D&I initiatives.
MAXIMIZE VALUE FROM
CUBAN ENERGY
BUSINESSES
Extend economically beneficial Energas
power generation contract beyond 2023.
Improved gender balance in the operations senior management team
and board.
Received approval for extension of the Energas Joint Venture contract
to March 2043, and finalized extension of the Moa Swap agreement to
support liquidity and secure sustainable operations.
Power was successful in working with its Cuban partners to
successfully increase gas supply in the fourth quarter.
(1) Non-GAAP and other financial measures. For additional information, see the Non-GAAP and other financial measures section.
Sherritt International Corporation
9
Management’s discussion and analysis
Highlights
MOA JOINT VENTURE AND FORT SITE
Revenue in Q4 2022 increased by 21% to $221.6 million from $183.2 million in the same period last year. Full year 2022 revenue
was $786.8 million, 40% higher than 2021 revenue of $560.6 million. Revenue increases in the current-year periods were largely
attributable to higher sales volume and average-realized prices(1) for nickel and fertilizer. Nickel revenue was 32% and 42%
higher while fertilizer by-product revenue was 41% and 75% higher in the three months and year ended December 31, 2022,
respectively, compared to the same periods in the prior year.
Sherritt’s share of finished nickel production in Q4 2022 totaled 4,112 tonnes, 4% lower than the 4,266 tonnes produced in
Q4 2021. Q4 2022 nickel production was impacted by lower mixed sulphide feed availability at the refinery. For the full year
2022, finished nickel production was 16,134 tonnes, 3% higher than the 15,592 tonnes produced in 2021 primarily due to of
improved equipment reliability and the drawdown of feed stock inventory at the refinery.
Finished cobalt production for Q4 2022 was 423 tonnes, down 11% from the 476 tonnes produced in Q4 2021 as a result of
lower feed coupled with higher nickel-to-cobalt ratio; while for the full year 2022, cobalt production was down 4% to 1,684 tonnes
from 1,763 tonnes in 2021 primarily due higher nickel-to-cobalt ratio in the Moa mixed sulphide feed and lower availability of
cobalt rich third-party feed.
Finished nickel sales volume in Q4 2022 was higher than production volume during the quarter bringing inventory back to more
typical levels following a build-up in Q3. Finished cobalt sales volume and prices continued to be impacted by contract delays,
logistical challenges and a general near-term softness in the market due to high global inventory levels and weaker downstream
demand for cobalt which we expect to normalize during 2023. Moa JV cobalt inventory remained higher than normal but is
expected to reduce to more typical levels as market conditions rebound.
Full year 2022 NDCC(1) was US$5.14/lb compared to US$4.11/lb in 2021 as increased MPR costs more than offset higher net
fertilizer by-product credits. Overall for the year, cobalt by-product credit was only slightly lower than in 2021 as higher average-
realized price in 2022 on lower sales volume offset the lower average-realized price on higher sales volume in 2021.
Finished nickel production of 32,268 tonnes (100% basis), was in line with guidance, while finished cobalt production of
3,368 tonnes (100% basis) was materially within guidance year. NDCC at the Moa JV was slightly above guidance as a result
of higher input commodity prices and lower than anticipated cobalt prices and sales volume during the fourth quarter. Sustaining
spending on capital(1) for the Moa JV and Fort Site was above guidance while growth spending on capital was lower as a result
of logistics challenges in getting materials to the site.
(1) Non-GAAP and other financial measures. For additional information, see the Non-GAAP and other financial measures section.
MOA JV EXPANSION PROGRAM UPDATE
In 2022, Sherritt embarked on an expansion program focused on increasing annual mixed sulphide precipitate (MSP) production
by 20% or 6,500 tonnes of contained nickel and cobalt (100% basis). The program includes completion of the Slurry Preparation
Plant (SPP), Leach Plant Sixth Train and Fifth Sulphide Precipitation Train as well as construction of additional acid storage
capacity at Moa. The total capital cost is expected to be US$77.0 million (100% basis) or approximately US$13,200 per additional
annual tonne of contained nickel for the full expansion.
In phase one of the program, the completion of the SPP is expected to be completed in early 2024 and is anticipated to deliver
several benefits including reduced ore haulage distances and lower carbon intensity from mining. Upon completion it will increase
MSP production by approximately 1,700 tonnes of contained nickel and cobalt annually. Completion of the second phase of the
program, the Moa processing plant improvements, which is planned for completion by the end of 2024, is expected to increase
MSP production by approximately an additional 4,800 tonnes of contained metals annually and reduce NDCC by approximately
US$0.20/lb. Progress in the quarter included:
Slurry Preparation Plant:
Construction of the SPP is progressing on schedule with civil construction 100% complete, and all contracts for supply
of materials and services awarded. Structural steel pre-fabrication is ongoing with 65% erected and field assembly of
major equipment has commenced.
10 Sherritt International Corporation
Moa Processing Plant:
The final stage of the Feasibility Study, encompassing the full project scope, has been submitted for approval to the
Cuban authorities and approval is anticipated in Q1 2023; and
Bids have been received and are being evaluated for the long lead items for the Leach Plant Sixth Train and contracts
for these items will be awarded in Q1 2023. A detailed project execution schedule is currently being developed.
Refer to the Moa Joint Venture and Fort Site review of operations section for further details.
MOA JV LIFE OF MINE/UPDATED NI 43-101 TECHNICAL REPORT
The work to complete the Economic Cut-Off Grade (ECOG) and Life of Mine (LOM) development continues at the Moa mine.
ECOG and LOM analysis using the latest methodologies are expected to extend the current LOM to beyond 2040. Progress in
the quarter included:
Resource model classifications were updated and a new LOM was generated based on the ECOG methodology; and
Sherritt and the Moa JV continued engagement with the Oficina Nacional de Recursos Minerales (ONRM), Cuba’s
Natural Resources Agency, and gained alignment on the latest resource models and ECOG methodology. The Joint
Venture will continue to collaborate with the ONRM to prepare detailed mine plans using the new methodologies in
2023.
Development of the NI 43-101 report and peer review will continue in early Q1 2023 with the final NI 43-101 report expected to
be released by the end of Q1 2023.
POWER
Power production of 159 GWh in Q4 2022 and 568 GWh during the full year 2022, was 22% and 26% higher, respectively, than
the same periods in the prior year. In 2022, power production was higher primarily due to higher electricity production equipment
availability as a result of the completion of maintenance activities in the prior year and additional gas supply. The increase in
electricity production in Q4 is a result of successful efforts to increase availability of gas enabled Power to exceed its updated
annual guidance.
Unit operating costs(1) for the three months and year ended December 31, 2022 were $21.41/MWh, down 6%, and $19.39/MWh,
down 16%, respectively, from the same periods in 2021. The improvement in each of the current-year periods was driven by
higher electricity production and sale. The annual unit cost was lower than the updated guidance range as a result of higher than
anticipated gas availability and lower than anticipated maintenance costs in Q4.
During Q4, Sherritt and its Cuban partners finalized an extension to the Energas Payment Agreement (the Moa Swap) to fund
the operating and maintenance costs and capital of Energas, as well as cover future payments that would be owed to Sherritt,
including dividends. Sherritt expects to continue to receive approximately US$4.2 million ($5.6 million) per month under a
payment agreement between Sherritt, Moa Joint Venture and Energas. The Moa JV converts foreign currency to Cuban pesos
through Energas to support Moa JV’s local Cuban operating activities. The foreign currency is then paid to Sherritt primarily to
facilitate foreign currency payments for the Energas operations and capital as well as to fund dividend repatriations to Sherritt.
Sherritt received $22.8 million (US$16.8 million) and $54.6 million (US$41.4 million) from Energas in Q4 and the full year 2022,
respectively, pursuant to the Moa Swap agreement which was primarily used to facilitate foreign currency payments for the
Energas operations and capital.
Also during Q4, Cuba’s Executive Committee of the Council of Ministers approved the twenty-year extension of Energas’ Joint
Venture generation contract with the Cuban government to March 2043. The extension of this economically beneficial contract
supports Sherritt's on-going investments in Cuba, helps facilitate the Cobalt and Moa Swaps, and supports Cuba’s long-term
energy security.
(1) Non-GAAP and other financial measures. For additional information, see the Non-GAAP and other financial measures section.
Sherritt International Corporation
11
Management’s discussion and analysis
NICKEL AND COBALT PRICE
Nickel prices closed Q4 2022 at US$13.80/lb on December 31, 2022 compared to US$10.11/lb on September 30, 2022. The
range for the quarter was between US$9.73/lb and US$13.84/lb. Class I supply and inventory remained tight, causing the London
Metals Exchange (LME) prices to rally in late Q4 reaching a high of US$13.84/lb on December 28 due to the covering of short
positions from prior months, with sentiment improving slightly on the expectation that relaxation of COVID-related restrictions in
China will increase commodity demand. The average nickel price for Q4 was US$11.47/lb compared to US$10.01/lb for Q3 2022,
a 15% increase while the average nickel price for 2022 was US$11.61/lb, 38% higher than the average for 2021 at US$8.39/lb.
Cobalt prices closed Q4 2022 at US$20.90/lb on December 31, 2022 compared to US$25.90/lb on September 30, 2022. The
price continued to decline in Q4, from a peak of US$26.15/lb in early October to a low of US$20.90/lb by December 31, 2022.
The average cobalt price for Q4 was US$23.00/lb compared to US$26.26/lb for Q3 2022, a 12% decrease while the average
cobalt price for 2022 was US$30.75/lb, 26% higher than the average for 2021 at US$24.24/lb. A continued post-pandemic
decline following strong pandemic-related purchases of consumer electronics, coupled with advancement of high-nickel
chemistries and lithium iron phosphate (LFP) cathode active materials (CAM) in lithium-ion batteries has led to decreased near-
term cobalt demand, even with stronger aerospace demand. This lower overall demand, coupled with strong supply growth of
cobalt from Indonesia HPAL MHP projects has led to cobalt continuing to trade at lower prices, highlighting near-term weakness
in the chemical sector. The anticipated growth in supply may be hampered by slower than anticipated ramp up in new projects
from large-scale NPI, matte and HPAL projects which may partly negate the downward pressure on pricing.
Refer to the Significant factors influencing operations section in this MD&A for further updates on nickel and cobalt.
DISTRIBUTIONS FROM MOA JOINT VENTURE
During the three months and year ended December 31, 2022 Sherritt received distributions from the Moa Joint Venture of
$57.2 million (US$42.5 million) and $100.6 million (US$76.5 million), respectively. The amount received in Q4 resulted in H2
distributions exceeding those received in H1, and the total amount received in 2022 was more than double the amount received
in each of the last three years.
Subsequent to period end, the Moa Joint Venture distributed 760 tonnes of finished cobalt to the Corporation with an in-kind
value of US$27.0 million ($36.2 million) (100% basis) under the Corporation’s agreement with its Cuban partners to recover its
total outstanding Cuban receivables over five years (the Cobalt Swap). The title to both Sherritt’s and its partner’s redirected
share of the cobalt was transferred immediately to a Sherritt warehouse in Fort Saskatchewan and other international
warehouses. Sherritt has begun and will continue to sell the cobalt to existing and new customers.
PURCHASE OF SECOND LIEN SECURED NOTES AND JUNIOR NOTES
During 2022, Sherritt completed two transactions to repurchase an aggregate of approximately $150 million of second lien
secured notes and junior notes at a total 16% discount, reducing outstanding principal by 35% from the beginning of the year
and annual interest expense by approximately $13 million per year. These transactions support Sherritt’s continued focus on
deleveraging its balance sheet.
RECOVERY OF TOTAL OUTSTANDING CUBAN RECEIVABLES
During Q4, Sherritt finalized the Cobalt Swap agreement with its Cuban partners to recover its total outstanding Cuban
receivables over five years, beginning January 1, 2023. Under this agreement, the Moa JV will prioritize payment of dividends
in the form of finished cobalt to each partner, up to an annual maximum volume of cobalt, with any additional dividends in a
given year to be distributed in cash. All of the Cuban partner’s share of these cobalt dividends, and potentially additional cash
dividends, will be redirected to Sherritt as payment to settle the receivables until the annual maximum cobalt volume and dollar
amount limits, including the collection of any prior year shortfalls, has been reached.
As a result of the distribution of cobalt under the Cobalt Swap agreement subsequent to the quarter end, discussed above,
US$13.5 million ($18.1 million) of the GNC receivable will be settled in the three months ended March 31, 2023, representing
GNC’s 50% portion of cobalt redirected to the Corporation in satisfaction of the receivable.
Sherritt has begun and will continue to sell the cobalt to existing and new customers.
12 Sherritt International Corporation
WORKING CAPITAL
Sherritt ended 2022 with cash and cash equivalents of $123.9 million, down from $145.6 million at the end of last year. Of these
amounts, $20.3 million was held in Canada, down from $64.9 million as at December 31, 2021, and $96.7 million was held at
Energas, up from $78.6 million as at December 31, 2021. Cash decreased primarily due to the use of $125.2 million to
repurchase $149.1 million in principal of second lien secured notes and junior notes, $29.1 million of interest paid on the second
lien secured notes, and $28.5 million of capital expenditures, partly offset by $100.6 million of distributions received from the
Moa Joint Venture, $37.0 million draw on the revolving credit facility, and $31.3 million of cash provided by continuing operations
at the Fort Site as a result of higher fertilizer sales.
In 2022, the Corporation achieved annual savings of approximately $3.0 million in employee costs as a result of measures
implemented relating to director compensation, the reduction of 10% of the Corporate office salaried workforce and key
management personnel changes made in 2021.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
In Q4, Sherritt issued its 2021 sustainability, climate and tailings management reports as well as its sustainability scorecard
outlining the Corporation’s performance on ESG matters.
Successes seen in 2021 carried into 2022 and included:
Further improved upon safety performance, with the Total Recordable Incident Frequency Rate of 0.14 and the Lost
Time Incident Frequency Rate of 0.07, a decrease of 59% and 50%, respectively, between 2021 and 2022.
Donations of another approximately $1 million to community investment projects in 2022.
Completed a Task Force on Climate-related Disclosures (TFCD)-aligned Risk and Opportunity Assessment for the Fort
Site.
Initiated a Greenhouse Gas Emissions Baseline Study in the Energas business.
Advanced project planning for carbon capture opportunities at the Fort Site.
Received confirmation of conformity with the LME’s Track B Responsible Sourcing Requirements. Sherritt received
independent verification that its minerals are not associated with conflict, risks such as human rights abuses, forced
labour, or corruption.
Improved gender balance in the operations senior management team and board.
Sherritt continues to meet safety and production targets at all its sites, prioritizing the health and safety of its employees,
contractors and the communities in which Sherritt operates. Once again in 2022, across all Sherritt’s sites, there were zero work-
related fatalities, zero significant environmental incidents, zero security incidents involving allegations of human rights abuses,
and no material tailings-related incidents.
DEVELOPMENTS SUBSEQUENT TO QUARTER END
The Moa Joint Venture distributed 760 tonnes of finished cobalt to Sherritt with an in-kind value of US$27.0 million
($36.2 million) (100% basis) under the Cobalt Swap agreement with its Cuban partners to recover its total outstanding
Cuban receivables over five years. The title to both Sherritt’s and its partner’s redirected share of the cobalt was
transferred immediately to a Sherritt warehouse in Fort Saskatchewan and other international warehouses. Sherritt has
begun and will continue to sell the cobalt to existing and new customers.
As a result, of the distribution, US$13.5 million ($18.1 million) of the GNC receivable will be settled in the three months
ended March 31, 2023, representing GNC’s 50% portion of cobalt redirected to Sherritt in satisfaction of the receivable
under the Cobalt Swap.
The syndicated revolving-term credit facility has been amended to extend its maturity for one year from April 30, 2024
to April 30, 2025, with no changes to the terms, financial covenants or restrictions.
Sherritt International Corporation
13
Management’s discussion and analysis
Financial results
$ millions, except as otherwise noted
FINANCIAL HIGHLIGHTS
Revenue
Combined revenue(1)
Earnings from operations and joint venture
Net (loss) earnings from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net (loss) earnings for the period
Adjusted net (loss) earnings from continuing operations(1)
Adjusted EBITDA(1)
Net (loss) earnings from continuing operations ($ per share)
(basic and diluted)
Net earnings (loss) ($ per share)
(basic and diluted)
CASH
Cash and cash equivalents
Cash provided (used) by continuing operations for
operating activities
Combined free cash flow(1)
Distributions received from Moa Joint Venture
OPERATIONAL DATA
For the three months ended
2021
December 31
2022
December 31
2022
Change December 31
For the year ended
2021
December 31
Change
$
$
48.6
237.1
(0.1)
(7.3)
0.3
(7.0)
(7.5)
19.7
36.6
198.6
20.5
14.4
(0.3)
14.1
14.8
46.4
33% $
19%
(100%)
(151%)
200%
(150%)
(151%)
(58%)
$
178.8
850.9
118.7
63.7
(0.2)
63.5
88.4
217.6
110.2
612.8
8.5
(13.4)
(5.0)
(18.4)
(13.9)
112.2
62%
39%
nm(2)
575%
96%
445%
736%
94%
$
(0.02) $
0.04
(150%) $
0.16
$
(0.03)
633%
(0.02)
0.04
(150%)
0.16
(0.05)
420%
$
123.9
$
145.6
(15%) $
123.9
$
145.6
(15%)
40.3
43.2
57.2
(13.4)
(26.4)
-
401%
264%
-
90.3
65.1
100.6
1.3
14.5
35.9
nm
349%
180%
COMBINED SPENDING ON CAPITAL(1)
28.9
$
12.4
133% $
80.5
$
38.8
107%
PRODUCTION VOLUMES
Finished nickel (50% basis, tonnes)
Finished cobalt (50% basis, tonnes)
Fertilizer (tonnes)
Electricity (gigawatt hours) (33⅓% basis)
AVERAGE EXCHANGE RATE (CAD/US$)
AVERAGE-REALIZED PRICES (CAD)(1)
Nickel ($ per pound)
Cobalt ($ per pound)
Fertilizer ($ per tonne)
Electricity ($ per megawatt hour)
UNIT OPERATING COSTS(1)
Nickel (NDCC) (US$ per pound)
Electricity ($ per megawatt hour)
4,112
423
62,254
159
1.358
15.55
25.72
647.03
58.54
7.00
21.41
$
$
$
$
4,266
476
65,021
130
1.260
11.16
31.88
545.08
54.33
(4%)
(11%)
(4%)
22%
8%
16,134
1,684
250,147
568
15,592
1,763
245,059
450
1.301
1.254
39% $
(19%)
19%
8%
$
14.93
34.26
759.91
56.47
10.30
25.88
438.75
54.05
3%
(4%)
2%
26%
4%
45%
32%
73%
4%
3.60
22.72
94% $
(6%)
5.14
19.39
$
4.11
23.06
25%
(16%)
(1) Non-GAAP and other financial measures. For additional information, see the Non-GAAP and other financial measures section.
(2) Not meaningful (nm).
Consolidated revenue, which excludes revenue from the Moa Joint Venture as it is accounted for under the equity method, for
the three months and year ended December 31, 2022 of $ 48.6 million and $ 178.8 million, respectively, was higher compared
to the same periods in the prior year primarily due to higher fertilizer and power generation revenue.
Combined revenue, which includes the Corporation’s consolidated financial results and the results of its 50% share of the Moa
Joint Venture is a measure management uses to assess the Corporation’s financial performance. Combined revenue for the
three months and year ended December 31, 2022 of $237.1 million and $850.9 million, respectively, and is comprised of the
following:
14 Sherritt International Corporation
Combined revenue(1) is composed of the following:
(1) Non-GAAP and other financial measure. For additional information, see the Non-GAAP and other financial measures section.
For the three months ended December 31, 2022, net loss from continuing operations was $7.3 million, or $nil per share,
compared to a net earnings of $14.4 million, or $0.04 per share in the same period in the prior year. For the year ended
December 31, 2022, the net earnings from continuing operations was $63.7 million, or $0.16 per share, compared to net loss of
$13.4 million, or $0.03 per share in the prior year.
The change in earnings (loss) from continuing operations is detailed below:
Sherritt International Corporation
15
Management’s discussion and analysis
Excludes Oil and Gas ERO expense on Spanish assets, disclosed separately.
(1)
(2) Other primarily relates to gains (losses) in net finance expense, administrative expenses excluding share-based compensation expense/recovery, Moa Joint
Venture royalties and other contributions.
At the Moa Joint Venture and Fort Site, revenue for the three months ended December 31, 2022 was 21% higher than the same
period in the prior year primarily due to higher nickel and fertilizer average-realized prices and higher sales volumes, partially
offset by lower cobalt average-realized prices and sales volume. Revenue for the year ended December 31, 2022 was 40%
higher than the prior year primarily due to higher nickel and fertilizer average-realized prices and sales volumes. Despite lower
revenue in Q4, cobalt revenue for 2022 was 3% higher than 2021 as the higher realized and reference prices in 2022 offset
lower sales volume. Additionally, revenue at Power was 30% higher in Q4 2022 and 31% higher for the full-year 2022, primarily
due to higher equipment availability as a result of the completion of maintenance activities in the prior year and additional gas
supply. The increase in electricity production in Q4 is a result of successful efforts to increase availability of gas.
At the Moa Joint Venture and Fort Site, cost of sales for the three months ended and year ended December 31, 2022 was 31%
and 28% higher, respectively, than the same periods in the prior year primarily due to higher input commodity prices, primarily
sulphur, diesel and fuel oil included in MPR and higher nickel sales volumes for 2022. Additionally, Oil and Gas recognized a
$12.8 million ERO expense adjustment on its’ legacy Spanish assets in Q4 2022.
For the three months ended December 31, 2022, administrative expenses increased by $7.5 million compared to the same
period in the prior year primarily due to an increase in the share-based compensation expense of $9.8 million as a result of
changes in the market value of the Corporation’s share price, partly offset by a $0.3 million decrease employee costs.
Administrative expenses for the year ended December 31, 2022 decreased by $10.3 million compared to 2021 primarily due to
a $6.4 million decrease in severance and contractual benefits and a $2.8 million decrease in employee costs. Share-based
compensation expense in 2022 was $1.4 million higher as the increase in the market value of the Corporation’s share price
during the year exceeded the change in market price of the shares and the accelerated expensing as a result of the departures
of two senior executives and the May 2021 reduction of 10% of the Corporate office salaried workforce in the prior year.
During the year ended December 31, 2022, the Corporation recognized non-cash losses on the revaluation of allowances for
expected credit losses on the Energas CSA of $49.0 million, compared to $2.7 million in the prior year. The increase loss related
to the impact of the Cobalt Swap in part as a result of the suspension of interest on the Energas CSA over the five-year period
of the agreement. There was no change in the allowance in Q4 2022.
The Corporation recognized $20.9 million in total gains on the two transactions to repurchase $149.1 million of principal of
second lien secured notes and junior notes during the year. In 2021, the Corporation recognized a gain on the repurchase of
notes of $2.1 million.
16 Sherritt International Corporation
ADJUSTED EBITDA
Total Adjusted EBITDA(1) for the three months and year ended December 31, 2022 was $19.7 million and $217.6 million,
respectively, compared to $46.4 million and $112.2 million, respectively, in the same periods in the prior year, representing a
57% decrease in Q4 2022 and a 94% increase for 2022 over the same periods in the prior year.
Adjusted EBITDA by segment is as follows:
(1) Non-GAAP and other financial measure. For additional information, see the Non-GAAP and other financial measures section.
Sherritt International Corporation
17
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
2022
2021
Change
Current assets
Current liabilities
Working capital(1)
Current ratio(2)
Cash and cash equivalents
Investment in Moa Joint Venture
Non-current advances, loans receivable and other financial assets
Property, plant and equipment
Total assets
Loans and borrowings
Provisions
Total liabilities
Deficit
Shareholders' equity
(1) Working capital is calculated as the Corporation’s current assets less current liabilities.
The current ratio is calculated as the Corporation’s current assets to current liabilities.
(2)
$
$
429.3
$
367.6
61.7
1.17:1
123.9
$
756.0
207.1
148.6
390.0
221.9
168.1
1.76:1
145.6
642.4
190.2
150.9
1,555.6
1,398.0
350.9
106.2
860.7
(2,835.0)
694.9
444.5
108.0
813.0
(2,898.5)
585.0
10%
66%
(63%)
(34%)
(15%)
18%
9%
(2%)
11%
(21%)
(2%)
6%
2%
19%
Significant factors influencing operations
As a commodity-based business, Sherritt’s operating results are primarily influenced by the prices of nickel and cobalt. In 2022,
fertilizer market changes also had a significant impact on operating results.
Nickel
Nickel prices closed Q4 2022 at US$13.80/lb on December 31, 2022 compared to US$10.11/lb on September 30, 2022. The
range for the quarter was between US$9.73/lb and US$13.84/lb. Class I supply and inventory remained tight, causing the London
Metals Exchange (LME) prices to rally in late Q4 reaching a high of US$13.84/lb on December 28 due to the covering of short
positions from prior months, with sentiment improving slightly on the expectation that relaxation of COVID-related restrictions in
China will increase commodity demand. The average nickel price for Q4 was US$11.47/lb compared to US$10.01/lb for
Q3 2022, a 15% increase while the average nickel price for 2022 was US$11.61/lb, 38% higher than the average for 2021 at
US$8.39/lb.
Total inventory levels on the LME and Shanghai Futures Exchange (SHFE) combined remained near-term range bound and
ended the quarter at 56,621 tonnes, about 5% higher than at Q3 level of 54,444 tonnes and 46% lower than at the end of 2021
(104,292 tonnes).
In December 2022, Wood Mackenzie estimated nickel demand to increase by 45% from 2023 to 2027. The continued strong
growth in nickel supply, especially additions in Indonesia from Class II sources, NPI (nickel pig iron), matte and to a lesser extent
MHP (mixed hydroxide precipitate) via HPAL (high pressure acid leach) is set to marginally outpace demand, resulting in the
potential for a marginally oversupplied market in the near term. This is, however, in a market that is anticipated to reach demand
of over 4,000 ktpa by 2026 up from 2,900 ktpa in 2022. The combined growth of stainless steel and lithium-ion battery
consumption, as well as potential slower than anticipated ramp up of new projects to support supply, especially large-scale NPI,
matte and HPAL projects in Indonesia, is expected to keep the nickel market in relative balance, leading to prices remaining at
support levels required to incentivize continued new project growth.
On a shorter-term basis, the first half of 2023 is expected to reflect transitory downward pressure on nickel prices, as high energy
prices and the conflict in Ukraine weigh on sentiment and stainless production in Europe. In the Far East, stainless production
is expected to recover as China returns from the Spring Festival holiday in late January, fresh from the relaxation of COVID-
related lockdowns, but subject to the potential disruptions due to future outbreaks. Global lithium-ion battery demand will continue
to support consumption of nickel in the form of nickel sulphate, although consumption of Class I materials in this market segment
is expected to diminish as Class II materials (especially matte and MHP) continue to be produced in large quantities in Indonesia,
putting pressure on nickel sulphate premiums.
18 Sherritt International Corporation
In the long-term (2027- 2032), continued strong demand from the electric vehicle and energy storage system sectors will shift
the lithium-ion batteries market share to 30% from 15% by 2028. Despite stainless applications’ continued growth, albeit at a
slower rate, its market share is expected to shrink to 54% from 64%. The combined growth of batteries and stainless steel is
expected to push the market balance to a deficit, with new supply required to maintain market balance, thus supporting robust
prices over the long-term.
Cobalt
Cobalt prices closed Q4 2022 at US$20.90/lb on December 31, 2022 compared to US$25.90/lb on September 30, 2022. The
price continued to decline in Q4, from a peak of US$26.15/lb in early October to a low of US$20.90/lb by December 31, 2022.
The average cobalt price for Q4 was US$23.00/lb compared to US$26.26/lb for Q3 2022, a 12% decrease while the average
cobalt price for 2022 was US$30.75/lb, 26% higher than the average for 2021 at US$24.24/lb.
A continued post-pandemic decline following strong pandemic-related purchases of consumer electronics, coupled with
advancement of high-nickel chemistries and lithium iron phosphate (LFP) cathode active materials (CAM) in lithium-ion batteries
has led to decreased near-term cobalt demand, even with stronger aerospace demand. This lower overall demand, coupled with
strong supply growth of cobalt from Indonesia HPAL MHP projects has led to cobalt continuing to trade at lower prices,
highlighting near-term weakness in the chemical sector. The anticipated growth in supply may be hampered by slower than
anticipated ramp up in new projects from large-scale NPI, matte and HPAL projects which may partly negate the downward
pressure on pricing.
The expected proliferation of EV’s provides a positive longer-term outlook for demand, which is expected to increase despite
the EV industry’s efforts to minimize cobalt content to reduce both battery cost and supply risk. CRU estimates cobalt demand
growth to increase at an 11% CAGR from 2023 to 2027 with EV battery consumption driving much of this increase, at a
13% CAGR. The cobalt market is largely levered to the EV growth sector providing strong long-term demand for cobalt and
supporting Sherritt’s growth strategy as a reliable cobalt producer. According to the CRU outlook in December 2022, the global
cobalt market in the short to medium term is expected to shift between balanced to slight surpluses until 2026, with deficits likely
occurring in the long term from 2027 onwards.
Fertilizer
The two main fertilizer products produced at the Fort site are ammonia and ammonium sulphate. Revenue is derived from the
sale of ammonia and ammonium sulphate fertilizers principally into the Western Canadian market. Demand for fertilizer products
is mainly seasonal, consisting of a spring and a fall season. Demand in the spring season is typically greater due to more crop
planting compared to the fall season, leading to higher sales volumes.
The average-realized prices for Sherritt’s fertilizer products in Q4 2022 were 19% higher than in Q4 2021. For 2022, the average-
realized price was 73% higher than in 2021, largely as a result of the significant run up in reference prices in Q1 and Q2 of 2022
with the escalation of the Ukraine conflict.
Prices reflect higher raw material prices for ammonia and ammonium related fertilizer stemming from high natural gas prices
due the Russia-Ukraine war. The war also put further pressure on price of grains with Ukraine being one of the biggest regional
exporters. Strong corn and wheat prices improved the relative affordability in a high fertilizer price environment. A mild winter in
Europe and sufficient gas storage could result in a short-term prices decline; however, energy markets and global geo-political
constraints will continue to influence prices with expected elevated natural gas prices continuing to support ammonia and
ammonium sulphate prices.
Sherritt International Corporation
19
Management’s discussion and analysis
Review of operations
MOA JOINT VENTURE AND FORT SITE
$ millions (Sherritt's share), except as otherwise noted
FINANCIAL HIGHLIGHTS
Revenue(1)
Cost of sales(1)
Earnings from operations
Adjusted EBITDA(2)
CASH FLOW
Cash provided by continuing operations for operating activities $
Free cash flow(2)
PRODUCTION VOLUME (tonnes)
Mixed Sulphides
Finished Nickel
Finished Cobalt
Fertilizer
NICKEL RECOVERY(3) (%)
SALES VOLUME (tonnes)
Finished Nickel(4)
Finished Cobalt
Fertilizer
AVERAGE REFERENCE PRICE (US$ per pound)
Nickel(5)
Cobalt(6)
AVERAGE-REALIZED PRICE(2)
Nickel ($ per pound)
Cobalt ($ per pound)
Fertilizer ($ per tonne)
UNIT OPERATING COST(2) (US$ per pound)
Nickel - net direct cash cost(2)
SPENDING ON CAPITAL(2)
Sustaining
Growth
For the three months ended
2021
2022
December 31
December 31 Change
2022
December 31
For the year ended
2021
183.2
142.7
36.2
49.4
21% $
31%
(14%)
(8%)
786.8
576.9
200.2
254.0
8.9
0.6
863% $
nm(7)
177.1
112.9
December 31 Change
$
$
560.6
451.4
98.3
152.3
40%
28%
104%
67%
90.5
56.5
96%
100%
3,881
4,266
476
65,021
3%
(4%)
(11%)
(4%)
16,248
16,134
1,684
250,147
16,498
15,592
1,763
245,059
85%
90%
(6%)
87%
86%
(2%)
3%
(4%)
2%
1%
$
$
$
221.6
186.9
31.0
45.6
85.7
61.8
4,000
4,112
423
62,254
4,486
386
61,664
11.47
23.00
15.55
25.72
647.03
7.00
22.3
4.4
26.7
$
$
$
$
$
$
$
$
$
$
4,169
474
51,748
8%
(19%)
19%
15,879
1,379
170,427
15,603
1,775
168,782
2%
(22%)
1%
8.99
29.89
28% $
(23%)
11.61
30.75
11.16
31.88
545.08
39% $
(19%)
19%
14.93
34.26
759.91
$
$
8.39
24.34
10.30
25.88
438.75
38%
26%
45%
32%
73%
3.60
94% $
5.14
$
4.11
25%
12.1
-
12.1
84% $
-
121% $
66.7
7.4
74.1
$
$
37.7
-
37.7
77%
-
97%
(1) Revenue and cost of sales of Moa Joint Venture and Fort Site is composed of revenue/cost of sales, respectively, recognized by the Moa Joint Venture at Sherritt’s
50% share, which is equity-accounted and included in share of earnings (loss) of Moa Joint Venture, net of tax, and revenue/cost of sales recognized by Fort Site,
which is included in consolidated revenue. For a breakdown of revenue between Moa Joint Venture and Fort Site, see the Combined revenue section in the Non-
GAAP and other financial measures section.
(2) Non-GAAP and other financial measures. For additional information, see the Non-GAAP and other financial measures section.
(3)
(4)
(5)
(6)
(7)
The nickel recovery rate measures the amount of finished nickel that is produced compared to the original nickel content of the ore that was mined.
For the three months and year ended December 31, 2021, excludes 600 tonnes (50% basis) of finished nickel purchased from and sold to a third party as it was not
internally produced.
The average nickel reference price for the year ended December 31, 2022 was impacted by the suspension of nickel trading and disruption events on the LME during
the month of March 2022.
Average standard-grade cobalt published price per Argus for three months and year ended December 31, 2022 and Fastmarkets MB for the three months and year
ended December 31, 2021.
nm = not meaningful
20 Sherritt International Corporation
(1) Non-GAAP and other financial measure. For additional information, see the Non-GAAP and other financial measures section.
Revenue, cost of sales and NDCC(2) are composed of the following:
$ millions, except as otherwise noted
December 31
December 31
Change
December 31
December 31
Change
For the three months ended
2022
2021
For the year ended
2022
2021
REVENUE
Nickel
Cobalt
Fertilizers
Other
COST OF SALES(1)
Mining, processing and refining (MPR) costs
Third-party feed costs
Third-party finished nickel costs
Fertilizers
Selling costs
Other
NET DIRECT CASH COST(2) (US$ per pound of nickel)
Mining, processing and refining costs
Third-party feed costs
Cobalt by-product credits
Other(3)
$
$
$
$
$
$
153.8
22.0
39.9
5.9
221.6
118.4
7.3
-
28.2
6.3
12.1
172.3
8.73
0.53
(1.63)
(0.63)
7.00
$
$
$
$
$
$
116.7
33.4
28.3
4.8
183.2
63.5
7.7
13.7
26.6
5.1
12.9
129.5
32% $
(34%)
41%
23%
21% $
86% $
(5%)
(100%)
6%
24%
(6%)
33% $
5.66
0.55
(2.87)
0.26
3.60
54% $
(4%)
43%
(342%)
94% $
522.8
104.2
129.5
30.3
786.8
349.7
24.8
-
78.6
20.5
49.5
523.1
7.76
0.54
(2.30)
(0.86)
5.14
$
$
$
$
$
$
368.4
101.3
74.1
16.8
560.6
238.5
22.8
13.7
67.1
17.8
37.7
397.6
42%
3%
75%
80%
40%
47%
9%
(100%)
17%
15%
31%
32%
5.71
0.51
(2.35)
0.24
4.11
36%
6%
2%
(458%)
25%
Excludes depletion, depreciation and amortization.
(1)
(2) Non-GAAP and other financial measure. For additional information, see the Non-GAAP and other financial measures section.
(3)
Includes the Moa Joint Venture and Fort Site refinery fertilizer by-product profit or loss and marketing costs, discounts, and other by-product credits.
The following table summarizes average prices for key input commodities for the Moa Joint Venture and Fort Site:
Sulphur (US$ per tonne)
Diesel (US$ per litre)
Fuel oil (US$ per tonne)
Natural gas cost ($ per gigajoule)
For the three months ended
2022
2021
For the year ended
2022
2021
December 31
December 31
Change
December 31
December 31
Change
$
$
417.64
1.33
517.71
5.29
270.18
0.57
448.29
4.80
55% $
133%
15%
10%
$
454.57
1.15
539.35
5.37
207.43
0.55
385.83
3.76
119%
109%
40%
43%
Sherritt International Corporation
21
Management’s discussion and analysis
(1) Other is primarily composed of sulphuric acid revenue and costs, third-party feed costs, selling costs, administrative costs and depletion, depreciation and amortization.
22 Sherritt International Corporation
Revenue in Q4 2022 increased by 21% to $221.6 million from $183.2 million in the same period last year. Full year 2022 revenue
was $786.8 million, 40% higher than 2021 revenue of $560.6 million. Revenue increases in the current-year periods were largely
attributable to higher sales volume and average-realized prices(1) for nickel and fertilizer. Nickel revenue was 32% and 42%
higher while fertilizer by-product revenue was 41% and 75% higher in the three months and year ended December 31, 2022,
respectively, compared to the same periods in the prior year.
Cobalt revenue was 34% lower in Q4 2022 and marginally higher in full year 2022 compared to the same periods in the prior
year. The decline in cobalt revenue for Q4 2022 was a result of both a 19% lower average realized price and a 19% lower sales
volume as a result of continued near-term softness in the market. Despite the lower Q4 cobalt revenue, revenue for 2022 was
3% higher than 2021 as the higher realized and reference prices in 2022 offset lower sales volume.
Mixed sulphides production at the Moa JV in Q4 2022 was 4,000 tonnes, up 3% from the 3,881 tonnes produced in Q4 2021.
The variance was primarily due to higher leach train availability compared to the prior year which was impacted by unplanned
maintenance. Full year 2022 production was 16,248 tonnes, slightly lower than the 16,498 tonnes produced in 2021 as a result
of mining limitations caused by a combination of higher precipitation, lower diesel supply and lower equipment availabilities.
Sherritt’s share of finished nickel production in Q4 2022 totaled 4,112 tonnes, 4% lower than the 4,266 tonnes produced in
Q4 2021. Q4 2022 nickel production was impacted by lower mixed sulphide feed availability at the refinery.
Finished cobalt production for Q4 2022 was 423 tonnes, down 11% from the 476 tonnes produced in Q4 2021 due lower feed
coupled with a higher nickel-to-cobalt ratio.
For the full year 2022, finished nickel production was 16,134 tonnes, 3% higher than the 15,592 tonnes produced in 2021
primarily due to improved equipment reliability during the year and the drawdown of feed stock inventory at the refinery.
Full year 2022, cobalt production was down 4% to 1,684 tonnes from 1,763 tonnes in 2021 primarily due to the higher nickel-to-
cobalt ratio in the Moa mixed sulphide feed and lower availability of cobalt rich third-party feed.
As a result, 2022 finished nickel production was in line with guidance and finished cobalt production materially within guidance.
Finished nickel sales volume in Q4 2022 was higher than production volume during the quarter bringing inventory back to more
typical levels following a build-up in Q3. Finished cobalt sales volume and prices continued to be impacted by contract delays,
logistical challenges and a general near-term softness in the market due to high global inventory levels and weaker downstream
demand for cobalt which we expect to normalize during 2023. Moa JV cobalt inventory remained higher than normal but is
expected to reduce to more typical levels as market conditions rebound.
Fertilizer production for the three months and year ended December 31, 2022 was 4% lower and 2% higher, respectively,
compared to the same period in the prior year, in line with metals production.
Mining, processing and refining (MPR) costs per pound of nickel sold in Q4 2022 were up 54% from Q4 2021. Higher MPR costs
in Q4 2022 continue to be driven by the rise in input costs, including a 55% increase in global sulphur prices, a 133% increase
in diesel prices, and a 15% increase in fuel oil prices. Sulphur prices have declined since Q3 2022, however they continued to
be higher than 2021. For full year 2022, MPR costs per pound of nickel sold were up 36% primarily due to higher input costs,
including a 119% increase in global sulphur prices, a 109% increase in diesel prices, and a 40% increase in fuel oil prices.
NDCC(1) per pound of nickel sold increased by 94% to US$7.00/lb in Q4 2022 from US$3.60/lb in Q4 2021. The higher NDCC
was primarily due to higher MPR costs, discussed above, and lower cobalt by-product credits, partly offset by higher net fertilizer
by-product credits.
Full year 2022 NDCC was US$5.14/lb compared to US$4.11/lb in 2021 as increased MPR costs more than offset higher net
fertilizer by-product credits. Overall for the year, cobalt by-product credit was only slightly lower than in 2021 as higher average-
realized price in 2022 on lower sales volume offset the lower average-realized price on higher sales volume in 2021. Full year
2022 NDCC was slightly above the updated guidance range primarily as a result higher input commodity prices and lower than
anticipated cobalt prices and sales volume during the fourth quarter.
Sustaining spending on capital(1) in Q4 2022 was $22.3 million, up 84% from $12.1 million in Q4 2021. The year-over-year
increase was due primarily to higher planned spending at both the Moa JV and Fort Site. Growth spending on capital, which
represents spending on the joint venture’s expansion program, was $4.4 million, most of which was related to spending on the
slurry preparation plant.
Sustaining spending on capital for 2022 of $66.7 million was above guidance while growth spending on capital of $7.4 million
was lower than guidance primarily as a result of logistics challenges in getting materials to the site.
(1) Non-GAAP and other financial measures. For additional information see the Non-GAAP and other financial measures section.
Sherritt International Corporation
23
Management’s discussion and analysis
Moa JV expansion program update
In 2022, Sherritt embarked on an expansion program focused on increasing annual mixed sulphide precipitate (MSP) production
by 20% or 6,500 tonnes of contained nickel and cobalt (100% basis). The program includes completion of the Slurry Preparation
Plant (SPP), Leach Plant Sixth Train and Fifth Sulphide Precipitation Train as well as construction of additional acid storage
capacity at Moa. The total capital cost is expected to be US$77.0 million (100% basis) or approximately US$13,200 per additional
annual tonne of contained nickel for the full expansion.
In phase one of the program, the completion of the SPP is expected to be completed in early 2024 and is anticipated to deliver
several benefits including reduced ore haulage distances and lower carbon intensity from mining. Upon completion it will increase
MSP production by approximately 1,700 tonnes of contained nickel and cobalt annually. Completion of the second phase of the
program, the Moa processing plant improvements, which is planned for completion by the end of 2024 is expected to increase
annual MSP production by approximately an additional 4,800 tonnes of contained metals annually and reduce NDCC(1) by
approximately US$0.20/lb.
With substantial growth in demand stemming from EV batteries, Sherritt sees an opportunity to focus its strategy on increasing
production of intermediary products that will enable it to fully utilize existing capacity at the refinery and also consider direct sales
of intermediate product into the EV battery supply chain. Of the total increased production, Sherritt estimates that two thirds of
the increased Moa feed will be processed into finished nickel and cobalt and the remaining could be sold as MSP into the EV
battery supply chain. This increased feed will likely result in the displacement of some current lower margin third-party processing
at the refinery.
The diagram provides a pro forma example of the expected impact of the expansion:
Growth spending on capital(1) is expected to be self-funded by the Moa Joint Venture primarily using operating cash flows. Total
growth spending on capital in 2022 was $14.8 million (100% basis), primarily related to the SPP, ordering of long lead items,
and basic engineering work related to the expansion program.
Progress for the expansion program in Q4 2022 included:
Slurry Preparation Plant:
Construction of the SPP is progressing on schedule with civil construction 100% complete, and all contracts for supply
of materials and services awarded. Structural steel pre-fabrication is ongoing with 65% erected and field assembly of
major equipment has commenced; and
24 Sherritt International Corporation
Up until Q4 2022, US$19.5 million (100% basis) in spending has been committed and is prioritized on long lead
materials and equipment, construction supplies and civil, mechanical, and electrical construction.
Moa Processing Plant:
The Moa processing expansion consists of the completion of the Leach Plant Sixth Train and Fifth Sulphide Precipitation Train
and construction of additional acid storage capacity.
The final stage of the Feasibility Study, encompassing the full project scope, has been submitted for approval to the
Cuban authorities and approval is anticipated in Q1 2023; and
Bids have been received and are being evaluated for the long lead items for the Leach Plant Sixth Train and contracts
for these items will be awarded in Q1 2023. A detailed project execution schedule is currently being developed.
Basic engineering will commence in Q1 2023 on the Fifth Sulphide Precipitation Train and additional acid storage capacity.
Moa JV Life of mine/Updated NI 43-101 technical report
The work to complete the Economic Cut-Off Grade (ECOG) and Life of Mine (LOM) development continues at the Moa mine.
ECOG and LOM analysis using the latest methodologies are expected to extend the current LOM to beyond 2040. Progress in
the quarter included:
Resource model classifications were updated and a new LOM was generated based on the ECOG methodology; and
Sherritt and Moa JV continued engagement with the Oficina Nacional de Recursos Minerales (ONRM), Cuba’s Natural
Resources Agency, and gained alignment on the latest resource models and ECOG methodology. The Joint Venture
will continue to collaborate with the ONRM to prepare detailed mine plans using the new methodologies in 2023.
Development of the NI 43-101 report and peer review will continue in early Q1 2023 with the final NI 43-101 report expected to
be released by the end of Q1 2023.
Sherritt International Corporation
25
Management’s discussion and analysis
POWER
$ millions (Sherritt's share, 33⅓% basis), except as otherwise noted
For the three months ended
2021
2022
December 31
2022
December 31 Change December 31
For the year ended
2021
December 31 Change
FINANCIAL HIGHLIGHTS
Revenue
Cost of sales
Earnings (loss) from operations
Adjusted EBITDA(1)
$
CASH FLOW
Cash provided by continuing operations for operating activities $
Free cash flow(1)
PRODUCTION AND SALES VOLUME
Electricity (GWh(2))
AVERAGE-REALIZED PRICE(1)
Electricity (per MWh(2))
UNIT OPERATING COST(1)
Electricity (per MWh)
SPENDING ON CAPITAL(1)
Sustaining
$
$
10.5
4.9
4.5
6.1
13.5
12.0
159
8.1
7.0
0.5
4.5
0.8
0.7
30% $
(30%)
800%
36%
$
37.1
24.2
8.7
22.3
28.3
26.1
(0.6)
15.1
31%
(7%)
nm(3)
48%
nm $
nm
$
37.4
32.3
18.1
18.0
107%
79%
130
22%
568
450
26%
$
58.54
$
54.33
8% $
56.47
$
54.05
4%
21.41
22.72
(6%)
19.39
23.06
(16%)
$
$
1.6
1.6
$
$
0.1
0.1
nm $
nm $
5.1
5.1
$
$
0.1
0.1
nm
nm
(1) Non-GAAP and other financial measures. For additional information see the Non-GAAP and other financial measures section.
(2) Gigawatt hours (GWh), Megawatt hours (MWh).
(3)
nm = not meaningful
(1) Non-GAAP and other financial measures. For additional information see the Non-GAAP and other financial measures section.
Power revenue is composed of the following:
$ millions (33⅓% basis)
Electricity sales
By-products and other
For the three months ended
2021
2022
December 31
2022
December 31 Change December 31
For the year ended
2021
December 31 Change
$
$
9.4
1.1
10.5
$
$
7.0
1.1
8.1
34% $
-
30% $
32.1
5.0
37.1
$
$
24.3
4.0
28.3
32%
25%
31%
Revenue in Power for the three months and year ended December 31, 2022 was $10.5 million and $37.1 million, respectively,
which is up 30% and 31% compared to the same periods in the prior year primarily due to higher equipment availability in 2022
as a result of the completion of maintenance activities in the prior year and additional gas supply.
Electricity production in Q4 and full-year 2022 was 159 GWh and 568 GWh compared to 130 GWh and 450 GWh, respectively
in the prior year periods. The increase in electricity production in Q4 is a result of successful efforts to increase availability of
gas which enabled Power to beat its updated annual guidance.
26 Sherritt International Corporation
Unit operating costs(1) for the three months and year ended December 31, 2022 were $21.41/MWh, and $19.39/MWh, down 6%
and 16%, respectively, from the same periods in 2021. The improvement in each of the current-year periods was driven by
higher electricity production and sale volume. The annual unit cost was lower than the updated guidance range as a result of
higher than anticipated gas availability and lower than anticipated maintenance costs in Q4.
The Power business unit had $1.6 million and $5.1 million spending on capital(1) in the Q4 and for the full year 2022, respectively,
primarily driven by maintenance activities much of which was deferred from the prior year. Spending on capital was at guidance
for the year.
Additionally during the quarter:
Sherritt and its Cuban partners finalized an extension to the Energas Payment Agreement to fund the operating,
maintenance costs and capital of Energas, as well as cover future payments that would be owed to Sherritt, including
dividends (the Moa Swap). Under the agreement between Sherritt, Moa JV and Energas, Sherritt receives
approximately US$4.2 million ($5.6 million) per month; and
Cuba’s Executive Committee of the Council of Ministers approved the twenty-year extension of the Energas Joint
Venture contract with the Cuban government to March 2043.
Sherritt received $22.8 million (US$16.8 million) and $54.6 million (US$41.4 million) from Energas in Q4 and the full year 2022,
respectively, pursuant to the Moa Swap agreement which was primarily used to facilitate foreign currency payments for the
Energas operations and capital.
Sherritt continues to work with its Cuban partners to access additional gas supply for the Boca facility from two new gas wells to
be drilled in Puerto Escondido that are scheduled to begin production in Q4 2023.
(1) Non-GAAP and other financial measures. For additional information see the Non-GAAP and other financial measures section.
TECHNOLOGIES
$ millions
FINANCIAL HIGHLIGHTS
Revenue
Cost of sales
Loss from operations
For the three months ended
2021
2022
December 31
2022
December 31 Change December 31
For the year ended
2021
December 31 Change
$
$
$
0.5
(4.9)
(4.4) $
0.2
(4.1)
(3.9)
150% $
20%
13% $
$
1.8
(16.6)
(14.8) $
0.6
(13.5)
(12.9)
200%
23%
15%
During the three months ended December 31, 2022, Sherritt Technologies (Technologies) continued to support the Moa JV’s
expansion strategy. These activities included establishing an updated life of mine plan based on an economic cut-off grade for
determining reserves to optimize mine planning and upgrade resources into reserves, as well as supporting on-going process
plant capacity testing and debottlenecking work at both Moa and the Fort Site locations.
Sherritt Technologies continued to advance development and commercialization of its most promising and innovative proprietary
technologies:
“Chimera”/”D-POX” – a suite of processes for the treatment of complex copper and precious metals concentrates (or other high
arsenic content feeds) that enable high recoveries of base and precious metals while providing a significant step change in the
stabilization of arsenic bearing solid waste. Chimera combines complex copper concentrate and laterite processing into a single
facility that enables additional environmental and economic benefits and the production of nickel and cobalt intermediate by-
products. D-POX is a pressure oxidation process that enables treatment of higher arsenic concentrations while simplifying silver
recovery.
During the quarter, Technologies continued discussions with potential interested parties within the copper and precious
metals industries and advanced proposals for potential batch testing and piloting programs on existing concentrate
feeds and specific development project opportunities.
Sherritt International Corporation
27
Management’s discussion and analysis
Technologies entered into an agreement with Open Mineral AG to jointly develop a business case in 2023 for the
hydrometallurgical treatment of complex precious metal concentrates. Sherritt will partner with Open Mineral to explore
the implementation of its proprietary technologies to solve ESG and precious metal concentrate market challenges
regarding arsenic pollution. Open Mineral is a physical commodity trader powered by technology and market
intelligence, enabling profitable and efficient trading of raw material commodities and has been recognized by the World
Economic Forum as a Technology Pioneer (2019) and was an S&P Global Metals Awards Winner as a Rising Star
Company (2020).
Dense slurry hydroprocessing (DSH) – a metallurgical reactor technology being applied to the processing of bio-oils into second-
generation renewable fuels, upgrading of refinery vacuum residue to create value add products and upgrading heavy oils and
bitumen. Utilizing the DSH reactor platform for bio-oils would overcome many of the challenges associated with commonly
utilized fixed bed designs.
During Q4, Technologies continued to advance its assessment of the technology on bio-oils and refinery vacuum
residues. Batch testing and process condition refinements demonstrated improvements in the renewable diesel product
quality to satisfy industry requirements.
Technologies also continued engagement with specific external refineries on the potential to add significant value to
their operations with the ability for significant conversion of their vacuum residues into higher value products.
Implementation of a cost-effective, laboratory-scale catalyst-life testing system continues, with testing to commence in
Q1 2023. Sherritt Technologies will continue to work with interested external parties to secure interest and support to
advance a full piloting program for the new catalyst system on bio-oils and refinery residues in 2023.
Next-generation laterite (NGL) processing – a novel processing flowsheet with the potential to make processing of lateritic ores
more economically viable and sustainable while enabling the supply of nickel and cobalt products from lateritic ores to the battery
sector.
Following completion of the unit operation pilot testing in Q2 2022 which demonstrated the ability for selective leaching
of nickel and cobalt from both saprolite and limonite ores, in Q3 the piloting on the other unit operations were completed
and results demonstrated high metal extraction rates into a final mixed hydroxide product.
During the quarter, additional batch tests and initial engineering work was completed to refine key operating and commercial
aspects of the process. Technologies commenced discussions with specific external parties on the potential to jointly develop
this technology and looks to conduct batch testing on specific projects in 2023.
CORPORATE
$ millions
EXPENSES
Administrative expenses
For the three months ended
2021
2022
December 31
December 31 Change
2022
December 31
For the year ended
2021
December 31 Change
$
11.7
$
4.3
172% $
28.1
$
36.5
(23%)
Corporate’s administrative expenses are primarily composed of employee costs, share-based compensation expenses, legal
fees and third-party consulting and audit fees.
Administrative expenses at Corporate for the three months ended December 31, 2022 were $7.4 million higher compared to the
same period in the prior year primarily due to an $8.0 million increase in share-based compensation expense primarily due to
an increase in the Corporation’s share price and additional units that vested during the period.
For the year ended December 31, 2022, administrative expenses were $8.4 million lower compared to 2021 primarily due to
severance and other contractual benefits expense of $6.1 million recognized in the comparative period. Share-based
compensation expenses were comparable in both periods.
28 Sherritt International Corporation
Liquidity
As at December 31, 2022, total available liquidity was $178.4 million, which is composed of cash and cash equivalents of
$123.9 million and $54.5 million of available credit facilities and excludes restricted cash of $1.4 million. Refer to the Capital
resources section for further details on the 8.50% second lien secured notes due 2026, the 10.75% unsecured PIK options notes
due 2029 and the syndicated revolving-term credit facility, including repurchases of the notes in the year ended
December 31, 2022.
The main factors that affect liquidity include realized sales prices, collection of receivables, production levels, cash production
costs, working capital requirements, capital expenditure requirements, the timing of distributions from the Moa Joint Venture,
repayments of non-current loans and borrowings, 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, derivatives and debt and equity capital markets.
Cash and cash equivalents as at December 31, 2022 decreased by $21.7 million from December 31, 2021. The components
of this change are shown below:
Excludes interest paid on 8.50% second lien secured notes due 2026 and distributions received from Moa Joint Venture presented separately above.
(1)
(2) Other is composed of the effect of exchange rate changes on cash and cash equivalents, receipts of advances, loans receivable and other financial assets, repayment
of other financial liabilities, fees paid on repurchase of notes and cash used by discontinued operations.
The Corporation’s cash and cash equivalents are deposited in the following countries:
$ millions, as at December 31, 2022
Canada
Cuba
Other
Cash
20.2 $
101.7
1.9
123.8 $
$
$
Cash
equivalents
0.1 $
-
-
0.1 $
Total
20.3
101.7
1.9
123.9
The Corporation's share of cash and cash equivalents in the Moa Joint Venture, not included in the above balances:
$
21.8
Sherritt International Corporation
29
Management’s discussion and analysis
SOURCES AND USES OF CASH
The Corporation’s cash provided (used) by operating, investing and financing activities are summarized in the following table as
derived from the Corporation’s consolidated statements of cash flow.
$ millions
Cash provided (used) by operating activities
Cash provided (used) by operating activities:
Fort Site
Metals Other
Oil and Gas
Power
Technologies
Corporate(1)
Distributions received from Moa Joint Venture
Interest paid on 8.50% second lien secured notes due 2026
Other cash provided by operating activities
Cash provided (used) by continuing operations
Cash used by discontinued operations
Cash provided (used) by operating activities
Cash used by investing activities
Cash used by financing activities
Effect of exchange rate changes on cash and cash
Decrease in cash and cash equivalents
Cash and cash equivalents:
Beginning of the period
End of the period(3)
For the three months ended
2021
2022
December 31
December 31 Change
2022
December 31
For the year ended
2021
December 31 Change
$
$
$
$
$
$
(0.1) $
(4.1)
(1.7)
13.5
(4.5)
(6.0)
57.2
(13.9)
(0.1)
40.3
(0.3)
40.0
$
(6.7) $
(45.8)
(1.2)
(13.7) $
12.7
(3.2)
2.3
0.8
(3.6)
(7.7)
-
(14.8)
0.1
(13.4)
(0.2)
(13.6)
(2.7)
(1.0)
(0.5)
(17.8)
(101%) $
(28%)
(174%)
nm(2)
(25%)
22%
-
6%
(200%)
401%
(50%)
394% $
(148%) $
nm
(140%)
23% $
31.3
(5.5)
(3.9)
37.4
(15.1)
(25.5)
100.6
(29.1)
0.1
90.3
(1.6)
88.7
$
$
(23.4) $
(93.3)
6.3
(21.7) $
5.5
5.0
4.2
18.1
(12.4)
(25.1)
35.9
(30.0)
0.1
1.3
(5.7)
(4.4)
(9.9)
(6.9)
(0.6)
(21.8)
469%
(210%)
(193%)
107%
(22%)
(2%)
180%
3%
-
6846%
72%
2116%
(136%)
nm
nm
-
137.6
123.9
$
$
163.4
145.6
(16%) $
(15%) $
145.6
123.9
$
$
167.4
145.6
(13%)
(15%)
Excluding distributions received from Moa Joint Venture and interest paid on 8.50% second lien secured notes due 2026, presented separately above.
(1)
(2) Not meaningful (nm).
(3)
As at December 31, 2022, $96.7 million of the Corporation’s cash and cash equivalents was held by Energas (December 31, 2021 - $78.9 million).
The following significant items affected the sources and uses of cash:
Cash provided by operating activities was higher for the three months and year ended December 31, 2022 compared to the
same periods in the prior year, primarily as a result of the following:
Lower cash provided by operating activities at Fort Site for the three months ended December 31, 2022 primarily due
to timing of working capital receipts. Higher cash provided by operating activities for the year ended December 31, 2022
primarily due to 73% higher average-realized fertilizer prices;
For the year ended December 31, 2022, higher cash used by operating activities at Metals Other primarily due to timing
of working capital receipts and payments;
Higher cash used by operating activities at Oil and Gas for the three months ended December 31, 2022 primarily due
to lower receipts on oil and gas service revenue compared to the prior year period. Higher cash used by operating
activities for the year ended December 31, 2022 primarily due to lower Cuban energy receipts;
Higher cash provided by operating activities at Power for the three months and year ended December 31, 2022 primarily
due to higher electricity production and higher receipts from Cuban energy payments in the current year periods;
Higher distributions received from Moa Joint Venture for the three months and year ended December 31, 2022 primarily
due to higher average-realized prices(1) of nickel and cobalt.
(1) Non-GAAP and other financial measure. For additional information, see the Non-GAAP and other financial measures section.
Included in investing and financing activities for the three months and year ended December 31, 2022 are expenditures on
property, plant and equipment and intangible assets, repurchase of notes, increase in loans and borrowings, and net proceeds
from the sale of property, plant and equipment, which were higher than the prior year periods.
30 Sherritt International Corporation
RECOVERY OF TOTAL OUTSTANDING CUBAN RECEIVABLES
On October 13, 2022, the Corporation signed the Cobalt Swap with its Cuban partners to recover its total outstanding Cuban
receivables over five years, beginning January 1, 2023. Under the agreement, the Moa Joint Venture, at the discretion of its
Board of Directors, will prioritize payment of dividends in the form of finished cobalt to each partner (Sherritt and GNC), up to an
annual maximum volume of cobalt, with any additional dividends in a given year to be distributed in cash. All of GNC’s share of
these cobalt dividends, and potentially additional cash dividends, will be redirected to Sherritt as payment to recover the
receivables until an annual dollar limit, including the collection of any prior year shortfalls, has been reached.
Under the terms of the Cobalt Swap, GNC agreed to assume certain liabilities of amounts owed to Sherritt by Energas S.A.
(Energas) and CUPET in order to fully repay outstanding amounts over a five-year period. As a result of signing the agreement
on October 13, 2022, GNC became party to the contractual provisions of the agreement and the existing receivables from
Energas and CUPET were modified. The modification was determined to be a substantial modification and the existing
receivables for amounts owing from Energas and CUPET were derecognized, with a GNC receivable recognized at fair value
on initial recognition in the consolidated statements of financial position.
The principal balance of the GNC receivable as at December 31, 2022 is $368.0 million, representing the former Energas CSA
receivable of $336.3 million, including accrued interest, and the former trade accounts receivable from CUPET of $31.7 million
(collectively, Energas/CUPET liabilities). The Corporation retains title to the power generating assets financed by the former
Energas CSA described below, now assumed by GNC, until the GNC receivable is fully repaid.
As a result of the exchange, Sherritt no longer has the responsibility for collection on the amounts solely from Energas and
CUPET. Energas and CUPET will remain liable for payment of the Energas/CUPET liabilities, as applicable, only to the extent
not satisfied by GNC. On distribution of any redirected amounts from GNC in cobalt or cash to Sherritt, GNC will receive an
equivalent payment from Energas/CUPET denominated in Cuban pesos. As a result of the Corporation’s one-third interest in
Energas, a joint operation, and recognition of its share of liabilities, the Corporation recognized one-third of Energas’ liability to
GNC at fair value on initial recognition in its consolidated statement of financial position as at December 31, 2022.
No interest will accrue on the Corporation’s GNC receivable over the five-year period. In the event that the total outstanding
receivables are not fully repaid by December 31, 2027, interest will accrue retroactively at 8.0% from January 1, 2023 on the
unpaid principal amount, and the unpaid principal and interest amounts will become due and payable by GNC to Sherritt.
Under the Cobalt Swap, over the five years beginning January 1, 2023, the Moa Joint Venture, at the discretion of its Board of
Directors, will dividend a maximum of 2,082 tonnes of finished cobalt annually to the joint venture partners. Accordingly, Sherritt
will receive a maximum of 1,041 tonnes of finished cobalt dividends per year in respect of its 50% share of the Moa Joint Venture.
GNC will redirect its 50% share of the total Moa Joint Venture dividends, up to 1,041 tonnes of finished cobalt per year, to Sherritt
as repayment towards the outstanding receivables, provided that the total cobalt volume redirected has a value of at least
US$57.0 million, subject to the following:
if the total annual finished cobalt dividend redirected by GNC has a value of less than US$57.0 million, GNC’s share of
any cash distributions from the Moa Joint Venture in such year will be redirected to Sherritt until the value of physical
cobalt and cash distributions in the aggregate totals US$57.0 million;
if the maximum cobalt volume distributed (1,041 tonnes) is not met in a given year, the volume deficit will be added to
the threshold in the following year; and
any shortfall in the annual minimum payment will also be added to the following year, such that the full repayment is
made within five years.
The recovery of the outstanding receivables is based on an in-kind value of cobalt, calculated as a cobalt reference price from
the month preceding distribution, modified mutually between the Corporation and GNC in consideration of selling costs incurred
by the Corporation. Upon receipt of the finished cobalt dividends, the title to both Sherritt and GNC’s redirected share of the
finished cobalt will be transferred immediately to Sherritt and the physical product will be moved to a Sherritt warehouse in Fort
Saskatchewan, from which Sherritt will sell the finished cobalt in the open market.
Subsequent to period end, the Moa Joint Venture distributed 760 tonnes of finished cobalt to the Corporation with an in-kind
value of US$27.0 million ($36.2 million) (100% basis) under the Corporation’s agreement with its Cuban partners to recover its
total outstanding Cuban receivables over five years (note 8). As a result, US$13.5 million ($18.1 million) of the GNC receivable
will be recovered in the three months ended March 31, 2023, representing GNC’s 50% portion of cobalt redirected to the
Corporation in satisfaction of the receivable.
Sherritt International Corporation
31
Management’s discussion and analysis
The below diagram summarizes the key components of the Cobalt Swap:
RECONCILIATION OF CASH AND CASH EQUIVALENTS TO ADJUSTED EBITDA
The Corporation’s increase and decrease in cash and cash equivalents reconciles to Adjusted EBITDA(1) as follows for the three
months and year ended December 31, 2022:
$ millions
Adjusted EBITDA(1)
Add (deduct):
Moa Joint Venture Adjusted EBITDA(1)
Distributions from the Moa Joint Venture
Interest received on Energas conditional sales agreement
Interest paid
Net change in non-cash working capital
Share-based compensation expense
Share-based compensation payments
Loss on environmental rehabilitation provisions
Other(2)
Cash provided by continuing operations for operating activities per
financial statements
Deduct:
Cash used by discontinued operations
Repurchase of notes
Increase in loans, borrowings and other financial liabilities
Property, plant, equipment and intangible asset expenditures
Net proceeds from sale of property, plant and equipment
Fees paid on repurchase of notes
Effect of exchange rate changes on cash and cash equivalents
Other(2)
Change in cash and cash equivalents
For the three months ended
December 31, 2022
For the year ended
December 31, 2022
$
19.7
$ 217.6
(37.3)
57.2
0.9
(15.1)
(8.6)
10.7
(0.1)
15.0
(2.1)
40.3
(0.3)
(80.4)
37.0
(9.9)
-
(1.0)
(1.2)
1.8
(13.7)
$
(213.7)
100.6
0.9
(32.0)
(10.6)
17.5
(5.8)
15.0
0.8
90.3
(1.6)
(125.2)
37.0
(28.5)
1.3
(2.2)
6.3
0.9
(21.7)
$
(1) Non-GAAP and other financial measure. For additional information see the Non-GAAP and other financial measures section.
(2) Other is composed of interest received, income taxes paid, receipts of advances, loans receivable and other financial assets and repayment of other financial liabilities.
32 Sherritt International Corporation
The Moa Joint Venture’s Adjusted EBTIDA is based on revenue, cost of sales and other expenses recognized by the Moa Joint
Venture based on the accrual method. Moa Joint Venture’s distributions are determined based on available cash in excess of
liquidity requirements including anticipated nickel and cobalt prices, planned spending on capital at the Moa Joint Venture
including growth capital, working capital needs and other expected liquidity requirements. Available cash is also impacted by
changes in working capital primarily related to changes in inventory, and timing of receipts and payments, including receipts on
nickel and cobalt sales subsequent to shipment.
Capital resources
CAPITAL RISK MANAGEMENT
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.
Subject to the limitations within the indenture and revolving credit agreements, 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 (unsecured, convertible and/or other types of available debt instruments), issue subscription
receipts exchangeable for common shares and/or other securities, issue warrants exercisable to acquire common shares and/or
other securities, issue units of securities comprised of more than one of equity securities, debt securities, subscription receipts
and/or warrants, refinance existing debt with different characteristics, acquire or dispose of assets or adjust the amount of cash
and short-term investment balances.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS(1)
The following table provides a summary of consolidated significant liquidity and capital commitments based on existing
commitments and debt obligations (including accrued interest). For amounts payable that are not fixed, including mandatory
redemptions discussed below, the amount disclosed is determined by reference to the conditions existing as at December 31,
2022.
Canadian $ millions, as at December 31, 2022
Total
Falling
due within
1 year
Falling
due
between
1-2 years
Falling
due
between
2-3 years
Falling
due
between
3-4 years
Falling
due
between
4-5 years
Falling
due in
more than
5 years
Trade accounts payable and
accrued liabilities
Income taxes payable
8.50% second lien secured notes due 2026
(includes principal, interest and premium)
10.75% unsecured PIK option notes due 2029
(includes principal and interest)
Syndicated revolving-term credit facility
Provisions
Energas payable
Lease liabilities
Capital commitments
Total
$
$
209.7 $
1.0
209.7 $
1.0
- $
-
- $
-
- $
-
323.1
18.8
18.8
18.8
266.7
148.7
50.2
192.9
112.1
15.9
5.5
1,059.1 $
-
3.9
15.7
15.2
2.7
5.5
272.5 $
-
46.3
10.7
25.6
2.5
-
103.9 $
-
-
1.5
26.6
2.4
-
49.3 $
-
-
0.2
26.2
1.3
-
294.4 $
- $
-
-
-
-
0.3
18.5
1.3
-
20.1 $
-
-
-
148.7
-
164.5
-
5.7
-
318.9
(1)
Excludes the contractual obligations and commitments of the Moa Joint Venture, which are disclosed separately below and non-recourse to the Corporation.
Sherritt International Corporation
33
Management’s discussion and analysis
8.50% SECOND LIEN SECURED NOTES DUE 2026
During the year ended December 31, 2020, the Corporation issued 8.50% second lien secured notes (“Second Lien Notes”) with
a principal amount of $357.5 million maturing on November 30, 2026. Interest is payable semi-annually, in April and October,
in cash. The indenture governing the Second Lien Notes (the “Second Lien Notes Indenture”) requires mandatory redemptions
from excess cash (subject to the minimum liquidity condition noted below and the other terms and conditions set forth in the
Second Lien Notes Indenture). The mandatory excess cash flow redemption provision is in effect beginning with the two-quarter
period ending June 30, 2021 and mandatory redemptions are based on excess cash flow (a measure calculated based on cash
provided by (used in) operating activities excluding Energas, less sustaining property, plant and equipment expenditures
excluding Energas, plus all cash distributed by Energas to the Corporation held in Canada, including cash distributions received
by the Corporation from GNC pursuant to the Cobalt Swap and its assumption of the Energas CSA), which mandatory
redemption shall be required to be made only if the Corporation has minimum liquidity of $75.0 million calculated in accordance
with the Second Lien Notes Indenture. Expected mandatory excess cash flow redemptions have been included in the calculation
of the effective interest rate of the Second Lien Notes.
Mandatory redemptions of the Corporation’s 8.50% second lien secured notes during the year ended December 31, 2022 were
not required as the conditions pursuant to the redemption provisions of the indenture agreement were not met.
For the two-quarter period ended December 31, 2022, excess cash flow, as defined in the second lien secured notes indenture
agreement, was $43.4 million. At the interest payment date in April 2023, the Corporation will be required to redeem, at par, total
second lien secured notes up to an amount equal to 50% of excess cash flow, or $21.7 million, subject to minimum liquidity of
$75.0 million being maintained before and after such payment is made, as defined in the indenture agreement.
The liquidity amount is defined in the indenture as all unrestricted cash, cash equivalents and short-term investments measured
in accordance with IFRS, held by the Corporation and its restricted subsidiaries in bank accounts located in Canada, less the
principal amount drawn on the syndicated revolving-term credit facility, plus the total amount of cash used on all repurchases of
second lien secured notes and unsecured PIK option notes during the relevant two-fiscal quarter period.
As such, the $80.4 million of cash used to repurchase second lien secured notes and unsecured PIK option notes during the six
months ended December 31, 2022 and any outstanding amounts drawn on the syndicated revolving-term credit facility as at the
interest payment date in April 2023 will be taken into account when calculating the minimum liquidity amount. The 8.50% second
lien secured notes due 2026 also include an option for the Corporation to redeem all or part of the notes outstanding prior to
maturity at a price equal to 107% of the principal amount so redeemed, which was determined to be an embedded derivative.
The fair value of this embedded derivative was nominal at inception and has not been presented separately from the Second
Lien Notes within the Corporation’s consolidated statements of financial position.
The Second Lien Notes Indenture provides for a 7% premium on (i) any optional early redemptions made at the election of the
Corporation prior to maturity as mentioned above, and (ii) on repayment on the maturity date, provided that the aggregate amount
of all premium payments paid by Sherritt with respect to the foregoing shall collectively not be less than $25.0 million. Mandatory
redemptions do not incur a premium and ultimately do not affect the timing of when this 7% premium is paid. This premium is
due upon the earlier of optional redemption and maturity of the 8.50% second lien secured notes due 2026 and is accreted over
the life of the instrument.
Under the Second Lien Notes Indenture, the Corporation is subject to various restrictions, which limit, among other things, the
incurrence of indebtedness, liens, asset sales and payment of distributions and other restricted payments, unless certain financial
ratios are met and subject to certain customary carve-outs and permissions, often referred to as “baskets”. If the ratio of earnings
before interest, taxes, depreciation and amortization (“EBITDA”)-to-interest expense, both as defined in the agreement, is above
2.5:1, unsecured debt can be incurred without the use of a basket and restricted payments can be made to the extent the
Corporation has sufficient room in an applicable basket, including the “builder basket” as calculated under the Second Lien Notes
Indenture.
During the year ended December 31, 2022, the Corporation repurchased $129.2 million of principal of the 8.50% second lien
secured notes due 2026 on the open market at a cost of $114.2 million, plus $1.1 million of accrued interest, resulting in a gain
on repurchase of notes of $11.2 million (note 8).
During the year ended December 31, 2021, the Corporation repurchased $7.0 million of principal of the 8.50% second lien
secured notes due 2026 on the open market at a cost of $4.6 million, plus $0.2 million of accrued interest, resulting in a gain on
repurchase of notes of $2.1 million (note 8).
34 Sherritt International Corporation
As at December 31, 2022, the outstanding principal amount of the 8.50% second lien secured notes due 2026 is $221.3 million
(as at December 31, 2021 - $350.5 million).
Other non-cash changes on the 8.50% second lien secured notes due 2026 consists of the gain on repurchase of notes, net of
interest and accretion of a 7% premium.
10.75% UNSECURED PIK OPTION NOTES DUE 2029
During the year ended December 31, 2020, the Corporation issued 10.75% unsecured PIK option notes with a principal amount
of $75.0 million maturing on August 31, 2029. Interest is payable semi-annually in cash or in-kind, at Sherritt’s election. Expected
payments of interest in-kind until the maturity of the note have been included in the calculation of the effective interest rate.
During the year ended December 31, 2022, the Corporation elected not to pay cash interest of $8.1 million on the 10.75%
unsecured PIK option notes due 2029 and added the payment-in-kind interest to the principal amount owed to noteholders
($7.6 million during the year ended December 31, 2021).
During the year ended December 31, 2022, the Corporation repurchased $19.9 million of principal of the 10.75% unsecured PIK
option notes due 2029 on the open market at a cost of $10.9 million, resulting in a gain on repurchase of notes of $9.7 million
(note 8).
As at December 31, 2022, the outstanding principal amount of the 10.75% unsecured PIK option notes due 2029 is $70.8 million
($82.6 million for the year ended December 31, 2021).
Other non-cash changes on the 10.75% unsecured PIK option notes due 2029 consists of the gain on repurchase of notes, net
of capitalized interest and accretion. Accrued and unpaid interest on these loans is capitalized to the principal balance semi-
annually in January and July at the election of the Corporation.
SYNDICATED REVOLVING-TERM CREDIT FACILITY
On October 28, 2021, the syndicated revolving-term credit facility was amended and its maturity extended for two years from
April 30, 2022 to April 30, 2024. The maximum credit available increased from $70.0 million to $100.0 million and the interest
rates are bankers’ acceptance plus 4.00%, which remain unchanged. Borrowings on the credit facility are available to fund
working capital and capital expenditures. Spending on capital expenditures cannot exceed $75.0 million in a fiscal year. This
restriction does not apply to capital expenditures of Moa Nickel S.A. The total available draw is based on eligible receivables
and inventories, which are pledged as collateral. Certain cash held in banks in Canada is also pledged as collateral.
The facility is subject to the following financial covenants and restrictions:
Net Available Cash covenant, as defined in the agreement, of $25.0 million. The amount compared against this
covenant is composed of cash and cash equivalents and short-term investments of the Corporation and its wholly-
owned subsidiaries held in Canada, plus undrawn amounts on the credit facility;
Senior Secured Net Debt-to-EBITDA covenant, as defined in the agreement, of less than 2:1. Senior Secured Net Debt
is calculated as first-lien debt, or amounts drawn on the credit facility, any derivative liability and any additional security
ranked equal to first-lien debt, less cash and cash equivalents and short-term investments of the Corporation and its
wholly-owned subsidiaries held in Canada up to $25.0 million. EBITDA is calculated on a 12-month trailing basis with
Energas included on a cash basis;
EBITDA-to-Interest Expense covenant, as defined in the agreement, of not less than 1.5:1 prior to September 30, 2022
and not less than 2:1 thereafter. EBITDA is calculated on a 12-month trailing basis with Energas included on a cash
basis. Interest expense excludes the payment-in-kind (PIK) interest on the Corporation’s 10.75% unsecured PIK option
notes due 2029; and
Minimum Tangible Net Worth covenant, as defined in the agreement, of $600.0 million plus 50% of positive net
earnings. Tangible Net Worth is calculated as total assets, less intangible assets, less amounts drawn on the credit
facility, less the principal amount of the 8.50% second lien secured notes due in 2026, less the principal amount of the
10.75% unsecured PIK option notes due in 2029, less any derivative liability and less any additional secured financing
ranked equal to first-lien debt.
Sherritt International Corporation
35
Management’s discussion and analysis
As at December 31, 2022, the Corporation has $0.5 million of letters of credit outstanding pursuant to this facility (December
31, 2021 - $9.9 million). As at December 31, 2022, $45.0 million was drawn on this facility (December 31, 2021 - $8.0 million).
Effective June 30, 2020, the Corporation did not renew a $47.0 million letter of credit issued to support its share of the
environmental rehabilitation obligations held by its Spanish Oil and Gas operations. On October 29, 2021, the environmental
rehabilitation obligations held by the Corporation’s Spanish Oil and Gas operations were secured by a parent company guarantee
of €31.5 million until December 31, 2023, with no impact on the Corporation’s available liquidity.
In May 2022, Sherritt received consent from its lenders to expand the allowable use of proceeds to include repurchases of its
notes.
Subsequent to period end, the syndicated revolving-term credit facility was amended to extend its maturity for one year from
April 30, 2024 to April 30, 2025, with no other changes to the terms, financial covenants or restrictions above.
CAPITAL STRUCTURE
$ millions, except as otherwise noted
Loans and borrowings
Other financial liabilities(1)
Total debt
Shareholders' equity
Total debt-to-capital(2)
Common shares outstanding
Stock options outstanding
2022
December 31
2021
December 31
Change
$
$
350.9 $
170.2
521.1 $
694.9
43%
444.5
40.9
485.4
585.0
45%
397,288,680
2,701,741
397,288,680
4,120,191
(21%)
316%
7%
19%
(4%)
-
(34%)
(1)
As at December 31, 2022, other financial liabilities includes the Energas payable recognized as a result of the Cobalt Swap, as described in the Liquidity section of
this MD&A.
(2) Calculated as total debt divided by the sum of total debt and shareholders’ equity.
Common share warrants
Common share warrants were issued as part of the debenture extension in 2016 when 19.1 million warrants with a fair value of
$0.43 were granted to the Noteholders that elected to accept warrants. Warrants were exercisable at any time at an exercise
price of $0.74 per share and had an original term of 5 years. They were not listed on any exchange. During 2021, a negligible
amount of warrants was exercised for negligible proceeds. These warrants expired on July 29, 2021.
Issuance of units
In January 2018, the Corporation completed an equity offering and issued units consisting of 94.5 million common shares and
47.2 million cobalt-linked warrants at $1.40 per unit, for gross proceeds of $132.3 million, less transaction costs of $7.2 million.
The cobalt-linked warrants had an exercise price of $1.95. Each cobalt-linked warrant was exercisable to acquire between 1.00
and 1.25 common shares, determined based on a prescribed cobalt reference price. These warrants expired on January
25, 2021 and no warrants were exercised since issuance.
COMMON SHARES
As at February 8, 2023, the Corporation had 397,288,680 common shares outstanding. An additional 2,701,741 common shares
are issuable upon exercise of outstanding stock options granted to employees and directors pursuant to the Corporation’s stock
option plan.
36 Sherritt International Corporation
Outlook
2022 AND 2023 PRODUCTION VOLUMES, UNIT OPERATING COSTS AND SPENDING ON CAPITAL
GUIDANCE
Production volumes, unit operating costs and spending on capital
Production volumes
Moa Joint Venture (tonnes, 100% basis)
Nickel, finished
Cobalt, finished
Electricity (GWh, 33⅓% basis)(1)
Unit operating costs(2)
Moa Joint Venture - NDCC (US$ per pound)(1)
Electricity - unit operating cost, ($ per MWh)(1)
Spending on capital(2)($ millions)
Sustaining
Moa Joint Venture (50% basis), Fort Site (100% basis)(3)
Power (33⅓% basis)
Growth
Moa Joint Venture (50% basis)(1)
Spending on capital(4)
Year-to-date
actual to
Guidance December 31, 2022
2022
2023
Guidance
32,000 - 34,000
3,400 - 3,700
525 - 550
32,268
3,368
568
30,000 - 32,000
3,100 - 3,400
575 - 625
$4.50 - $5.00
$22.00 - $23.00
$5.14
$19.39
$5.00 - $5.50
$28.50 - $30.00
$60.0
$5.0
$10.0
$75.0
$66.7
$5.1
$7.4
$79.2
$70.0
$4.4
$20.0
$94.4
2022 guidance updated November 2, 2022.
(1)
(2) Non-GAAP financial measures. See the Non-GAAP and other financial measures section for reconciliations of the year-to-date actual amounts to the most directly
comparable IFRS measures.
2022 guidance was updated July 27, 2022.
Excludes spending on capital at Oil and Gas, Technologies, Corporate and Metals Other.
(3)
(4)
2023 will be a transition year for the Moa JV. The key priority will be to ensure the expansion plan remains on time and on
budget. The final draft of the NI 43-101 report is expected to be released by the end of the first quarter using the latest
methodologies for the analysis of the ECOG and LOM, in which the current LOM is expected to extend to beyond 2040. This
transition phase of mine expansion will include accessing new mining areas and bringing the new SPP online in 2024. As a
result, finished nickel production is forecast to be 30,000 – 32,000 tonnes (100% basis), while finished cobalt production is
forecast to be 3,100 – 3,400 tonnes (100% basis).
NDCC at the Moa JV is forecast to be in the range of US$5.00 – US$5.50 per pound of finished nickel sold.
Sherritt’s share of spending on capital(4) is forecast to be $94.4 million:
Sustaining spending on capital of $70.0 million is primarily for infrastructure, the replacement of equipment, and tailings
management at the Moa JV.
Growth spending on capital of $20.0 million is primarily for the continued construction of the new SPP and leach plant
sixth train at the Moa JV.
Sustaining spending on capital of $4.4 million at Power is primarily for maintenance and equipment purchases.
Sherritt International Corporation
37
Management’s discussion and analysis
2023 STRATEGIC PRIORITIES
The table below lists Sherritt’s Strategic Priorities for 2023. Summaries of how the Corporation is performing against these priorities
will be provided on a quarterly basis during 2023.
Strategic Priorities
2023 Actions
ESTABLISH SHERRITT AS A
LEADING GREEN METALS
PRODUCER
Execute on plans to expand Moa JV mixed sulphide precipitate intermediate
production by 20% or 6,500 tonnes of contained metals annually.
Rank in lowest quartile of HPAL nickel producers for NDCC.
Complete and publish NI 43-101 Report.
Expand sales into battery supply chain.
LEVERAGE TECHNOLOGIES FOR
TRANSFORMATIONAL GROWTH
Support Moa JV expansion, operational improvements, ECOG implementation
and life of mine extension, and marketing initiatives.
Advance Technologies solutions toward commercialization with external
partnerships and funding.
Develop innovative processing solutions for treatment of blackmass for battery
recycling.
ACHIEVE BALANCE SHEET
STRENGTH
Effectively leverage collections on the Cobalt Swap agreement.
Maximize available liquidity to support growth strategy.
Continue to optimize costs to reflect operating footprint.
BE RECOGNIZED AS A
SUSTAINABLE ORGANIZATION
Deliver on actions identified in the Sustainability Report.
Achieve year-over-year ESG improvements including reduction of carbon
intensity.
Deliver on ‘Diversity and Inclusion’ global framework.
MAXIMIZE VALUE FROM CUBAN
ENERGY BUSINESSES
Access additional gas supply to increase electrical power generation.
Maximize value from Oil and Gas business.
38 Sherritt International Corporation
Managing risk
For the purposes of this section, all capitalized terms that are not specifically defined herein, have the meaning ascribed to them
in the 2021 AIF.
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. Significant risks include, amongst others:
Liquidity and Access to Capital
Infectious Diseases (COVID-19)
Commodity Risk
Securities Market Fluctuations and Price Volatility
Risks Related to Sherritt’s Operations in Cuba
Risks Related to U.S. Government Policy Towards Cuba
Environmental Risks and Liabilities
Risks to Information Technologies Systems and Cybersecurity
Identification and Management of Growth Opportunities
Depletion of Reserves
Restrictions in Debt Instruments, Debt Covenants and Mandatory Repayments
Reliance on Partners
Mining, Processing and Refining Risks
Operating Risks
COMMODITY RISK
Sherritt’s principal businesses include the sale of several commodities. Revenues, earnings and cash flows from the sale of
nickel, cobalt, oil and fertilizers are sensitive to changes in market prices, over which the Corporation has no control. The
Corporation’s earnings and financial condition depend largely upon the market prices for nickel, cobalt, oil, gas fertilizer and
other commodities, which are volatile. Significant reductions in commodity prices or sustained low commodity prices could have
a material adverse effect on the Corporation’s business, results of operations and financial performance. The prices for
commodities produced by the Corporation can be affected by numerous factors beyond the Corporation’s control, including
expectations for inflation, speculative activities, relative exchange rates to the U.S. dollar, production activities of mining and oil
and gas companies, global and regional supply and demand, supply and market prices for substitute commodities, international
trade dynamics and disputes, political and economic conditions, global conflicts and hostilities and production costs in major
producing regions. The prices for these commodities have fluctuated widely in recent years. Forecasts of commodity prices can
prove to be inaccurate as factors such as supply and demand fundamentals (including the potential growth in the electric vehicle
market), speculative market participation by financial entities, and structural and economic changes may not behave
as predicted.
Sherritt’s current businesses are dependent upon commodity inputs such as natural gas, sulphur, sulphuric acid, electricity, fuel
oil, diesel and materials that are subject to prevailing commodity prices. Costs and earnings from the use of these products are
sensitive to changes in market prices over which Sherritt has no control.
SECURITIES MARKET FLUCTUATIONS AND PRICE VOLATILITY
The securities markets in Canada and elsewhere can experience significant price and volume volatility which can affect the
prices of Sherritt’s securities. The prices of Sherritt’s securities have been, and may continue to be, affected by this market
volatility, as well as varying in response to a number of other events and factors. These factors may include, but are not limited
to: the price of products and commodities; realized prices for production; global demand for electric vehicles and the anticipated
corresponding demand for cobalt and nickel; political and macro-economic factors, including global conflicts and hostilities;
Sherritt’s operating performance; the public’s reaction to the Corporation’s press releases, other public announcements and the
Corporation’s filings with the various securities regulatory authorities; and changes in earnings estimates or recommendations
by research analysts who trade Sherritt securities or the securities of other companies in the resource sector.
Sherritt International Corporation
39
Management’s discussion and analysis
Securities of the Corporation listed on these markets or traded over the counter can experience wide fluctuations which are not
necessarily related to the operating performance, underlying asset values or prospects of the Corporation. Such securities can
be affected by a number of factors outside the Corporation’s control and which affect the price and value of securities more
generally, these factors may include, but are not limited to: changes in interest rates, tax policy, international trade dynamics
and disputes, political and macro-economic factors, including global conflicts and hostilities, as well as economic growth rates.
As such, the Corporation’s securities have been, and could continue to be, subject to significant volatility in trading volumes and
market prices. There can be no assurance that the market price of the Corporation’s securities will accurately reflect the value
of the Corporation’s underlying assets and future business prospects at any time (including the value of its interests in
commodities and their current and forecast market prices).
LIQUIDITY AND ACCESS TO CAPITAL
Sherritt’s ability to fund its capital and operating expenses and to meet its financial obligations depends on being able 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. As noted in the risk factor entitled “Commodity Risk” above, Sherritt’s
earnings and financial condition are highly dependent upon the market prices for nickel, cobalt and other commodities, which
are highly volatile in nature. Depending upon commodity prices in particular, 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. There can be no assurance that Sherritt will have sufficient funds to repay its outstanding Second Lien Notes
and Junior Notes at maturity, nor can there be any assurance that Sherritt will be able to refinance its Notes or raise funds in the
equity capital markets on terms and conditions that would be acceptable. Failure to provide adequate funds to its operations,
execute growth strategies, replace depleted reserves or meet or refinance 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, the Syndicated Facility. The total available draw under the Syndicated
Facility is based on eligible receivables and inventory. If prices for nickel and cobalt decline, this could result in a material
reduction in the amount of funding available under the Syndicated Facility. Certain debt covenants under the Syndicated Facility
are based on ratios involving the Corporation’s EBITDA and/or interest expense and other covenants require the maintenance
of minimum cash balances. The Corporation’s ability to satisfy these covenants could also be negatively affected by decreases
in commodity prices. As a result, there can be no assurance that this Syndicated Facility can be extended or renewed at any
time, or otherwise replaced with a different credit facility on similar terms, or that required consent or waivers under the
Syndicated Facility will be provided without concessions on the part of the Corporation or at all.
Agencies of the Cuban government have significant payment obligations to the Corporation in connection with the Corporation’s
operations in Cuba. Although the risk associated with payment of these obligations may be mitigated by the Cobalt Swap, this
exposure to the Cuban government and its potential inability to timely or fully pay such amounts could have a material adverse
effect on the Corporation’s financial condition and results of operations. Please see the risk factor entitled “Risks Related to
Sherritt’s Operations in Cuba” for additional information. Please see the risk factor entitled “Restrictions in Debt Instruments and
Debt Covenants” for more information on Sherritt’s loans and borrowings and on the effect of non-compliance with certain
debt covenants.
INFECTIOUS DISEASES (COVID-19)
Sherritt’s operations are subject to the risk of emerging infectious diseases or the threat of outbreaks of viruses or other
contagions or epidemic diseases, including the novel coronavirus diseases (COVID-19) pandemic. We are currently monitoring
and regularly assessing the short and medium-term impacts of the COVID-19 virus, including for example supply-chain, mobility,
workforce, market and trade flow impacts, as well as the resilience of Canadian, Cuban and other global financial markets to
support recovery. Any longer term impacts are also being considered and monitored, as appropriate. However, the impact of
this pandemic continues to evolve and its effects on our own operations are uncertain. It is possible that in the future operations
may be temporarily shut down or suspended for indeterminate amounts of time, any of which may, individually or in the
aggregate, have a material and adverse impact on our business, results of operations and financial performance. The extent to
which COVID-19 may impact the Corporation’s business and operations will depend on future developments that are highly
uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of and the
actions required to contain COVID-19 or remedy its impact.
40 Sherritt International Corporation
The global response to the COVID-19 pandemic has resulted in, among other things, border closures, severe travel restrictions,
as well as quarantine, self-isolation and other emergency measures imposed by various governments. Additional government
or regulatory actions or inactions around the world in jurisdictions where Sherritt operates may also have potentially significant
economic and social impacts. If the business operations of the Corporation are disrupted or suspended as a result of these or
other measures, it may have a material adverse effect on Sherritt’s business, results of operations and financial performance.
There are potentially significant adverse impacts of COVID-19 which may include decreased demand or the inability to sell nickel
or cobalt or declines in the price of nickel and cobalt or other unknown but potentially significant impacts. The coronavirus and
efforts to contain it may have a significant effect on commodity prices, and the possibility of a prolonged global economic
downturn may further impact commodity demand and prices.
RISKS RELATED TO SHERRITT’S OPERATIONS IN CUBA
The Corporation directly or indirectly holds significant interests in mining, metals processing, exploration for crude oil and the
generation of electricity in Cuba. The operations of the Cuban businesses and the ability of the Cuban Government to fulfil
payment obligations to the Corporation may be affected by economic and other pressures on Cuba. Risks include, but are not
limited to, fluctuations in official or convertible currency exchange rates, access to foreign exchange, and high rates of inflation.
In addition, in 2021, Cuba experienced increased hardships as a result of the impact of COVID-19 and continued U.S. sanctions,
impacting the country’s tourism and other industries, hampering the country’s foreign currency liquidity and resulting in prolonged
border closures, food and medicine shortages, electricity outages and sporadic civil demonstrations. The former U.S.
administration increased its sanctions against Cuba and its trading partners and these measures had an adverse impact on
Cuba and its economy, as well as its ability to conduct international trade. On January 12, 2021, the former administration
designated Cuba as a State Sponsor of Terrorism, and on May 25, 2021 that designation was renewed by the current
administration. On May 16, 2022, the current U.S. administration indicated some measures will be relaxed related to expanding
communication, travel and commerce between the U.S and Cuba. However, the relaxation of these measures has been modest
and does not affect the former U.S administration’s designation of Cuba as a State Sponsor of Terrorism. Changes in regulations
and political attitudes are beyond the control of Sherritt and may adversely affect its business. Operations may be affected in
varying degrees by such factors as Cuban Government regulations with respect to currency conversion, production, project
approval and execution, price controls, import and export controls, income taxes or reinvestment credits, expropriation of
property, environmental legislation, land use, water use and mine and plant safety. Cuba may also be adversely impacted by
risks associated with the imposition by other countries globally of additional economic restrictions or sanctions, or the indirect
impact on Cuba of sanctions imposed on other countries (such as Russia and Belarus, for example) that could have a material
adverse effect on Cuba or on Sherritt’s ability to operate in Cuba.
Operations in Cuba may also be affected by the fact that, as a Caribbean nation, Cuba regularly experiences hurricanes 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 Corporation, its joint venture partners and
agencies of the Government of Cuba maintain comprehensive disaster plans and the Corporation’s Cuban 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.
There is increased demand from downstream customers that electronics, automotive and other manufacturers demonstrate that
their product supply chains are ethical and responsible. Such responsible sourcing requirements are affecting the metals sector
broadly. Requests for assurance of a responsible cobalt supply chain from the refinery to the mine site are increasingly being
received by downstream customers of the Corporation. The Corporation believes that its supply of minerals is ethical and
responsible and in order to demonstrate this the Corporation is engaged in activities to implement policies and due diligence
systems to independently verify that its mineral supply chain conforms to internationally accepted best practices. While the
Corporation is committed to demonstrating a responsible supply of minerals, the Corporation has no control over the purchasing
decisions of its customers or the factors on which they are based and there is no guarantee that the Corporation’s efforts will
mitigate this potential risk. Please see also the risk factor entitled “Risks Related to U.S. Government Policy Towards Cuba”.
The Cuban Government has allowed, for more than two decades, foreign entities to repatriate profits out of Cuba. However,
there can be no assurance that allowing foreign investment and profit repatriation will continue or that a change in economic
conditions will not result in a change in the policies of the Cuban Government or the imposition of more stringent foreign
investment or foreign exchange restrictions. Such changes are beyond the control of Sherritt and the effect of any such changes
cannot be accurately predicted.
Sherritt International Corporation
41
Management’s discussion and analysis
All sales of Sherritt’s oil production in Cuba are made to an agency of the Government of Cuba, as are all electricity sales made
by Energas. The access of the Cuban Government to foreign exchange is severely limited. As a consequence, from time to time,
the Cuban agencies have had difficulty in discharging their foreign currency obligations. During such times, Sherritt has worked
with these agencies in order to ensure that Sherritt’s operations continue to generate positive cash flow to the extent possible.
However, there is a risk, beyond the control of Sherritt, that receivables and contractual performance due from Cuban entities
will not be paid or performed in a timely manner, or at all. Overdue receivables owed by Cuban entities to Sherritt increased
from US$145.9 million at the beginning of 2021 to US$156.0 million as at December 31, 2021. In addition, if any of these
agencies or the Cuban Government are unable or unwilling to conduct business with Sherritt, or satisfy their obligations to
Sherritt, Sherritt could be forced to close some or all of its Cuban businesses, which could have a material adverse effect upon
Sherritt’s results of operations and financial performance.
Sherritt is entitled to the benefit of certain assurances received from the Government of Cuba and certain agencies of the
Government of Cuba that protect it in many circumstances from adverse changes in law, although such changes remain beyond
the control of the Corporation and the effect of any such changes cannot be accurately predicted.
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.
The U.S. Embargo
In its current form, apart from the Helms-Burton Act, the embargo applies to most transactions directly or indirectly involving
Cuba, Cuban enterprises, Cuban-origin goods, and Cuban nationals and it bars all persons “subject to the jurisdiction of the
United States” from participating in such transactions unless such persons have general or specific licenses from the U.S.
Department of the Treasury (“U.S. Treasury”) authorizing their participation in the transactions. Persons “subject to the
jurisdiction of the United States” include U.S. citizens, U.S. residents, individuals or enterprises located in the United States,
enterprises organized under U.S. laws and enterprises owned or controlled by any of the foregoing. Subsidiaries of U.S.
enterprises are subject to the embargo’s prohibitions. The embargo also targets dealings directly or indirectly involving entities
deemed to be owned or controlled by Cuba and listed as specially designated nationals (“SDNs”). The three entities constituting
the Moa Joint Venture in which Sherritt holds an indirect 50% interest have been deemed SDNs by U.S. Treasury. Sherritt,
however, is not an SDN. The U.S. embargo generally prohibits persons “subject to the jurisdiction of the United States” from
engaging in transactions involving the Cuban-related businesses of the Corporation. Furthermore, generally U.S.-origin
technology, U.S.-origin goods, and many goods produced from U.S.-origin components or with U.S.-origin technology cannot
under U.S. law be transferred to Cuba or used in the Corporation’s operations in Cuba. Additionally, the embargo also prohibits
imports into the United States of Cuban-origin goods, of goods located in or transported from or through Cuba, or of foreign
goods made or derived, in whole or in part, of Cuban-origin goods, including Cuban nickel. In 1992, Canada issued an order
pursuant to the Foreign Extraterritorial Measures Act (Canada) to block the application of the U.S. embargo under Canadian law
to Canadian subsidiaries of U.S. enterprises. However, the general embargo limits Sherritt’s access to U.S. capital, financing
sources, customers, and suppliers.
The Helms Burton Act
Separately from the general provisions of the embargo summarized above, the Helms-Burton Act authorizes sanctions on U.S.
or non-U.S. individuals or entities that “traffic” in Cuban property that was confiscated by the Cuban Government from U.S.
nationals or from persons who have become U.S. nationals. The term “traffic” includes various forms of use of Cuban property
as well as “profiting from” or “participating in” the trafficking of others.
42 Sherritt International Corporation
The Helms-Burton Act authorizes damage lawsuits to be brought in U.S. courts by U.S. claimants against those “trafficking” in
the claimants’ confiscated property. All Presidents of the United States in office since the enactment of the Helms-Burton Act
have suspended the right of claimants for successive six-month periods until the former U.S. administration ceased such
suspensions and allowed Title III to come into effect on May 2, 2019. Since that time a number of lawsuits have been filed
pursuant to Title III in the United States against companies in the U.S., Canada and elsewhere. The Corporation has received
letters in the past from U.S. nationals claiming ownership of certain Cuban properties or rights in which the Corporation has an
indirect interest, including in relation to claims certified by the U.S. Foreign Claims Settlement Commission. However, Sherritt
has not been subjected to any lawsuits in this regard. In the event that any such lawsuits were to be filed, Sherritt does not
believe that its operations would be materially affected because Sherritt’s current minimal contacts with the United States would
likely deprive any U.S. court of personal jurisdiction over Sherritt. Furthermore, even if personal jurisdiction were exercised, any
successful U.S. claimant would currently have to seek enforcement of the U.S. court judgment outside the U.S. in order to reach
material Sherritt assets. Management believes it unlikely that a court in Canada or in any country in which Sherritt has material
assets would enforce a Helms-Burton Act judgment against it.
The Foreign Extraterritorial Measures Act (Canada) was amended as of January 1, 1997 to provide that any judgment given
under the Helms-Burton Act will not be recognized or enforceable in any manner in Canada and certain other countries
implemented “blocking statutes” at that time. The amendments to the Canadian statute permit the Attorney General of Canada
to declare, by order, that a Canadian corporation may sue for and recover in Canada any loss or damage it may have suffered
by reason of the enforcement of a Helms-Burton Act judgment abroad. In such a proceeding, the Canadian court could order
the seizure and sale of any property in which the defendant (i.e., a claimant under the Helms-Burton Act) has a direct or indirect
beneficial interest, or the property of any person who controls or is a member of a group of persons that controls, in law or in
fact, the defendant. The property seized and sold could include shares of any company incorporated under the laws of Canada
or a province.
The Government of Canada also responded to the Helms-Burton Act through diplomatic channels. Other countries, such as the
members of the European Union and the Organization of American States, have expressed their strong opposition to the Helms-
Burton Act as well.
Nevertheless, the threat of potential litigation creates a distraction from constructive business operations and may discourage
some potential investors, lenders, suppliers and customers from doing business with Sherritt and there can be no assurance
that any litigation against Sherritt pursuant to the Helms-Burton Act would not ultimately be successful or have a material adverse
effect on Sherritt’s business, results of operations or financial performance.
In addition to authorizing private lawsuits, the Helms-Burton Act also authorizes the U.S. Secretary of State and the U.S. Attorney
General to exclude from the United States those aliens who engage in certain “trafficking” activities, as well as those aliens who
are corporate officers, principals, or controlling shareholders of “traffickers” or who are spouses, minor children, or agents of
such excludable persons. The U.S. Department of State has deemed Sherritt’s indirect 50% interest in Moa Nickel S.A. to be a
form of “trafficking” under the Helms-Burton Act. In their capacities as officers of the Corporation, certain individuals have been
excluded from entry into the U.S. under this provision. Management does not believe the exclusion from entry into the U.S. of
such individuals will have any material effect on the conduct of the Corporation’s business.
The U.S. Department of State has issued guidelines for the implementation of the immigration provision, which state that it is
“not sufficient in itself for a determination” of exclusion that a person “has merely had business dealings with a person” deemed
to be “trafficking”. Also, the statutory definition of “traffics” relevant to the Helms-Burton Act’s immigration provision explicitly
excludes “the trading or holding of securities publicly traded or held, unless the trading is with or by a person determined by the
Secretary of the Treasury to be a specially designated national”.
The embargo has been, and may be, amended from time to time, including the Helms-Burton Act, and therefore the U.S.
sanctions applicable to transactions with Cuba may become more or less stringent. The stringency and longevity of the U.S.
laws relating to Cuba are likely to continue to be functions of political developments in the United States and Cuba, over which
Sherritt has no control. The former U.S. administration increased its sanctions against Cuba and its trading partners and these
measures have had an adverse impact on Cuba and its economy, as well as its ability to conduct international trade. There can
be no assurance that the current U.S. administration will relax these measures. The pace and extent of any future changes are
uncertain and beyond Sherritt’s control. There can be no assurance that the general embargo and the Helms-Burton Act will not
have a material adverse effect on the Corporation’s business, results of operations or financial performance.
Sherritt International Corporation
43
Management’s discussion and analysis
ENVIRONMENTAL RISKS AND LIABILITIES
The Corporation is subject to risks related to environmental liability, including liability for reclamation costs and related liabilities,
tailings facility failures and toxic gas releases. Mining, like many other extractive natural resource industries, is subject to potential
risks and liabilities associated with the effects on the environment resulting from mineral development and production.
Environmental regulation and increasing environmental awareness is broadening the scope of environmental stewardship
responsibilities. The Corporation may be held responsible for the costs of addressing contamination at, or arising from, current
or former activities. The costs associated with such responsibilities and liabilities may be substantial. The payment of such
liabilities would reduce funds otherwise available and could have a material adverse effect on the Corporation. Additionally, the
Corporation recognizes that material non-compliances would likely impact its social license to operate, the costs of which are
indefinable, but may be significant in scope. An example of such liabilities are the environmental rehabilitation obligations
associated with the Corporation’s legacy Oil and Gas assets in Spain.
As part of the normal course of business, environmental and regulatory authorities may conduct periodic or annual inspections
of the Corporation’s tailings facility, and as a result of these inspections, the Corporation may be required to modify its tailings
management approach, complete additional monitoring work or take remedial actions. Liabilities resulting from non-compliance,
damage, regulatory orders or demands, or similar, could adversely and materially affect the Corporation’s operations and
financial performance.
The Corporation has an obligation under applicable mining, oil and gas and environmental legislation to reclaim certain lands
that it disturbs during mining, oil and gas production or other industrial activities. The Corporation is required to provide financial
security to certain government authorities or third parties for some of its future reclamation costs. Currently, the Corporation
provides this reclamation security by way of bank guarantees, corporate guarantees and irrevocable letters of credit issued
under its Syndicated Facility. The Corporation may be unable to obtain adequate financial security or may be required to replace
its existing security with more expensive forms of security, including cash deposits, which would reduce cash available for
operations. In addition, any increase in costs associated with reclamation and mine closure or termination of oil and gas field
operations resulting from changes in the applicable legislation (including any additional bonding requirements) could have a
material adverse effect on the Corporation’s business, results of operations and financial performance.
In order to adequately prepare for operational changes or closure of its operating sites, Sherritt has estimated environmental
rehabilitation provisions that management believes will meet current regulatory requirements. These future provisions are
estimated by management using closure plans and other similar plans which outline the requirements that are expected to be
carried out to meet the provisions. The provisions are dependent on legislative and regulatory requirements which could change.
Given that the estimate of provisions is based on future expectations, a number of assumptions and judgments are made by
management in the determination of these provisions which may prove to be incorrect. As a result, estimates may change from
time to time and actual payments to settle the provisions may differ from those estimated and such differences may be material.
In 2002 Dynatec acquired Highwood Resources and in 2007 Sherritt International acquired Dynatec and its assets. This
purchase included liabilities and reclamation obligations for three closed mine assets that are being administered by Sherritt
International Corporation. Reclamation, monitoring, reporting, and contact with regulators is ongoing for each of the sites.
RISKS IN RELATION TO INFORMATION TECHNOLOGIES SYSTEMS AND CYBERSECURITY
The global mining industry has seen a rise in cybersecurity threats and the Corporation may be negatively affected by
cybersecurity incidents or other IT systems disruption. The Corporation relies heavily on its information technology systems
including, without limitation, its networks, equipment, hardware, software, telecommunications, and other information technology
(collectively, “IT systems”), and the IT systems of its vendors and third party service providers, to operate its business as a
whole, including mining operations. Although the Corporation has not experienced any material losses to date relating to
cybersecurity, or other IT systems disruptions, there can be no assurance that the Corporation will not incur such losses in the
future. Despite the Corporation’s mitigation efforts including implementing an IT systems security risk management framework,
the risk and exposure to these threats cannot be fully mitigated because of, among other things, the evolving nature of
cybersecurity threats. As a result, cybersecurity and the continued development and enhancement of controls, processes and
practices designed to protect IT systems from cybersecurity threats remain a priority. As these threats continue to evolve, the
Corporation may be required to expend additional resources to continue to modify or enhance protective measures or to
investigate and remediate any cybersecurity vulnerabilities. Any cybersecurity incidents or other IT systems disruption could
result in production downtimes, operational delays, destruction or corruption of data, security breaches, financial losses from
remedial actions, the theft or other compromising of confidential or otherwise protected information, fines and lawsuits, or
damage to the Corporation’s reputation. Any such occurrence could have an adverse impact on the Corporation’s financial
condition and operations.
44 Sherritt International Corporation
The Corporation may also be negatively impacted by the rise of disruptive technologies including robotics, automation, and data
analytics should it not adapt to these technological advancements in a timely manner.
IDENTIFICATION AND MANAGEMENT OF GROWTH OPPORTUNITIES
In order to manage its current operations and any future growth effectively, Sherritt must examine opportunities to replace and
expand its reserves through the exploration of its existing properties and through acquisitions of interests in new properties or
of interests in companies which own such properties. The Corporation’s growth strategy depends on pursuing a range of
expansion opportunities, including without limitation, process technology solutions, the commercialization of certain proprietary
technologies and services, development projects, commercial implementation opportunities, life of mine extension opportunities
and the conversion of mineral resources to reserves. In addition to the risks noted above, factors that could, alone or in
combination, prevent the Corporation from successfully achieving these opportunities may include, without limitation: identifying
suitable commercialization and other partners; successfully advancing discussions and successfully concluding applicable
agreements with external parties and/or partners; successfully attracting required financing; successfully developing and proving
technology required for the potential opportunity; successfully overcoming technical and technological challenges; successful
environmental assessment and stakeholder engagement; successfully obtaining intellectual property protection; successfully
completing test work and engineering studies, prefeasibility and feasibility studies, piloting, scaling from small scale to large
scale production, commissioning, procurement, construction, commissioning, ramp-up to commercial scale production and
completion; and securing regulatory and government approvals. There can be no assurance that any opportunity will be
successful, commercially viable, or will generate any meaningful revenues, savings or earnings, as the case may be for the
Corporation. The Corporation will incur costs in pursuing any particular opportunity, which may be significant.
The development of Sherritt’s business may also be in part dependent on management’s ability to identify, acquire and develop
suitable acquisition opportunities in both new and existing markets. In certain circumstances, acceptable acquisition
opportunities might not be available. Sherritt may also not be able to identify suitable partners with whom it could pursue such
opportunities. Acquisitions involve a number of risks, which may include, without limitation: (i) the possibility that the Corporation,
as a successor owner, may be legally and financially responsible for liabilities of prior owners; (ii) the possibility that the
Corporation may pay more than the acquired company or assets are worth; (iii) the additional expenses associated with
completing an acquisition and amortizing any acquired intangible assets; (iv) the difficulty of integrating the operations and
personnel of an acquired business; (v) the challenge of implementing uniform standards, controls, procedures and policies
throughout an acquired business; (vi) the inability to integrate, train, retain and motivate key personnel of an acquired business;
and (vii) the potential disruption of the Corporation’s ongoing business and the distraction of management from its day-to-day
operations.
Additionally, the future viability of the Corporation will also depend on its ability to implement and improve its operational, financial
and management information systems and to hire, train, motivate, manage and retain its employees. If and when any such
growth occurs, there can be no assurance that the Corporation will be able to manage such growth effectively, that its
management, personnel or systems will be adequate to support the Corporation’s operations or that the Corporation will be able
to achieve the increased levels of revenue commensurate with increased levels of operating expenses associated with this
growth, and failure to do so could have a material adverse effect on the Corporation’s business, financial condition and results
of operations.
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 or new 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 supplies
and environmental protection. Even if the Corporation identifies and acquires 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 facilities, drill wells and construct oil and gas processing facilities.
Sherritt International Corporation
45
Management’s discussion and analysis
In November 2017 the PSC for Block II (Varadero West) reverted to the Cuban Government. The PSC for the PE-Yumuri Block
reverted to the Cuban Government on March 19, 2021. The majority of future oil and gas production will depend on new reserves
in Blocks 10 and 6A 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 increase current reserves.
RESTRICTIONS IN DEBT INSTRUMENTS, DEBT COVENANTS AND MANDATORY REPAYMENTS
Sherritt is a party to certain agreements in connection with the Syndicated Facility, as well as the trust indenture governing the
outstanding Second Lien Notes and the Junior Notes (collectively, the “Indenture”). These agreements and loans contain
covenants which restrict Sherritt’s activities including without limitation, permitted investments, the incurrence of indebtedness,
liens, asset sales, payment of distributions and other restricted payments 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 any of the
covenants contained in the Indenture, the Syndicated Facility or any future debt instruments or credit agreements, could
materially adversely affect the Corporation’s business, results of operations, and financial performance.
RELIANCE ON PARTNERS
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, a breakdown in relations with its partners or the decision of a partner to adopt a competing strategy could have a
material adverse effect on the Corporation’s business, results of operations and financial performance.
MINING, PROCESSING AND REFINING RISKS
The business of mining, processing and refining involves many risks and hazards, including environmental hazards, industrial
accidents, labour-force disruptions, supply problems and delays, unusual or unexpected geological or operating conditions,
geology-related failures, change in the regulatory and geopolitical environment, weather conditions, floods, earthquakes and
water conditions.
Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, the failure of tailings
management facilities and damage to infrastructure, personal injury or death, environmental damage, delays in mining, monetary
losses and possible legal liability. As a result, Sherritt may incur significant liabilities and costs that could have a material adverse
effect upon its business, results of operations and financial performance. In addition, failure to maintain high levels of safety,
health and security could adversely affect the Corporation’s operations, financial performance, reputation and social license
to operate.
Other risks and uncertainties which could impact the performance of mining projects include factors such as the ore
characteristics; adverse impacts from construction or commissioning activities on ongoing operations; and difficulties with
commissioning, changing geological conditions and integrating the operations of newly constructed mines and processing
facilities.
The Corporation’s business is also inherently subject to the risk of disruptive successful technological change in nickel and
cobalt processing or otherwise and to market shifts to substitute products.
OPERATING RISKS
Variability in production at Sherritt’s operations in Cuba is most likely to arise from the following categories of potential risk:
(i) Parts and Equipment – the inherent risk that parts and equipment may fail or fail to perform in accordance with design due to
mechanical or engineering issues (given the location and associated logistics, replacement components may not be immediately
available); (ii) Operational Risk – production is directly affected by the performance of core operators and maintenance teams;
(iii) Weather and Natural Disasters – risks related to increased frequency of severe weather events, including hurricanes in
Cuba, and other natural disasters, including pandemics, that can impede operations before, during and after such events; and
(iv) Supply of Critical Commodities – production may be impacted by the availability of critical commodities to operate the facility.
Please see the Risk Factors entitled “Risks Related to Sherritt’s Operations in Cuba” and “Climate Change/Greenhouse Gas
Emissions” in Sherritt’s 2021 AIF for additional information.
46 Sherritt International Corporation
OTHER RISKS
Below is a list of the other significant business risks as presented in the Corporation’s 2021 AIF. Further detail of these and
other risks and the strategies designed to manage them can be found in the Corporation’s 2021 AIF to the extent not included
herein.
Sourcing and Supply
Uncertainty of gas supply to Energas
Reliance on key personnel and skilled workers
Equipment
failure and other unexpected
failures
Uncertainty of
estimates
resources and
reserves
Risks related to Sherritt’s corporate structure
Political, economic, and other risks of foreign
operations
Project operations – Generally & Capital and
operating cost estimates
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
Competition in product markets
Future market access
Interest rate changes
Insurable risk
Labour relations
Legal rights
Legal contingencies
Accounting policies
Government permits
Government regulation
Anti-corruption and bribery
Controls Relating to Corporate Structure Risk
Sherritt International Corporation
47
Management’s discussion and analysis
Critical accounting estimates and judgments
For the purposes of this section, all capitalized terms that are not specifically defined herein, have the meaning ascribed to them
in the December 31, 2022 consolidated financial statements.
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
Measurement of the allowance for expected credit losses
The Corporation estimates an allowance for credit losses (ACL) using probability-weighted forward-looking scenarios. The
Corporation considers both internal and external sources of information in order to achieve an unbiased measure of the scenarios
used. The Corporation determines an ECL in each scenario and uses external sources and judgment to apply a probability-
weighting to each scenario. The ACL is measured as the present value of the probability-weighted ECL in each scenario,
discounted using the original effective interest rate of the instrument.
Measuring the fair value of the GNC receivable and Energas payable
The Corporation estimates the fair value of the GNC receivable and Energas payable at each reporting period using discounted
cash flows in a Monte Carlo simulation, which includes the use of in-kind forecast cobalt prices and discount rates, which are
significant unobservable inputs, and changes in the fair value of these financial instruments may have a significant impact on
the Corporation’s financial results.
Property, plant and equipment
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.
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.
Environmental rehabilitation provision costs
The Corporation’s environmental rehabilitation provisions are subject to environmental regulations in Canada, Cuba 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.
Environmental rehabilitation provision discount rates
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.
48 Sherritt International Corporation
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 represents a joint operation,
while the Moa Joint Venture represents a joint venture as described in IFRS 11, “Joint Arrangements”. 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 a joint venture and investment in an
associate
The Corporation accounts for its investment in the Moa Joint Venture using the equity method. The Corporation assesses the
carrying amount of the Moa Joint Venture at each reporting date to determine whether there are any indicators that the carrying
amount 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 this investment. Where necessary, management engages qualified third-party professionals to assist in
the determination of the recoverable amount.
Determination of reportable 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.
Cash flow characteristics assessment
The Corporation applies judgment in assessing the contractual features of an instrument to determine if they give rise to cash
flows that are consistent with a basic lending arrangement. Contractual cash flows are consistent with a basic lending
arrangement if they represent cash flows that are solely payments of principal and interest (SPPI).
In performing this assessment, the Corporation takes into consideration contractual features that could change the amount or
timing of contractual cash flows, such that the cash flows are no longer consistent with a basic lending arrangement. If the
Corporation identifies any contractual features that could modify the cash flows of the instrument such that they are no longer
consistent with a basic lending arrangement, the related financial asset is classified and measured at fair value through profit or
loss (FVPL).
Exploration and evaluation (E&E)
Management must make judgments when determining when to transfer E&E expenditures from intangible assets 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
as an impairment in the consolidated statements of comprehensive income (loss).
Sherritt International Corporation
49
Management’s discussion and analysis
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.
Assessment for impairment of non-financial assets
The Corporation assesses the carrying amount of non-financial assets, including property, plant and equipment, intangible assets
subject to depreciation and amortization and assets under construction, 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.
There are a number of potential indicators that could trigger an impairment or impairment reversal, which may require critical
accounting judgments to determine the extent to which external and/or internal factors may impact the assets’ recoverable
amount. Such internal factors include changes to estimated recoverable production, commodity or contracted prices, cash costs
of production, capital and reclamation costs. External factors include the Corporation’s market capitalization deficiency and
changes in economic conditions, including uncertainty as a result of the COVID-19 pandemic, such as its potential impact on
commodity prices.
For purposes of determining fair value, management assesses the recoverable amount of the asset using the higher of value-
in-use and fair value less cost to sell and an appropriate discount rate. 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. In the event that management’s
estimate of future cash flows is not representative of actual events, impairments may be identified, which could have a material
impact on the Corporation’s consolidated financial statements. Where necessary, management engages qualified third-party
professionals to assist in the determination of fair values.
Measuring the fair value of the GNC receivable and Energas payable
The Corporation measures the GNC receivable and Energas payable at fair value. For purposes of determining fair value,
management uses discounted cash flows in a Monte Carlo simulation, which includes the use of in-kind forecast cobalt prices
and discount rates, which are significant unobservable inputs and requires assumptions and judgments to be made.
Management engages a third-party valuation specialist to assist in the valuation. Changes in these assumptions or judgments
may result in a significant change in fair value.
Accounting pronouncements
ADOPTION OF NEW AND AMENDED ACCOUNTING PRONOUNCEMENTS
Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)
In May 2020, the IASB issued Property, Plant and Equipment—Proceeds before Intended Use, which made amendments to IAS
16 Property, Plant and Equipment. The amendments prohibit deducting from the cost of property, plant and equipment amounts
received from selling items produced while preparing the asset for its intended use. Instead, amounts received from selling items
produced while preparing the asset for its intended use will be recognized as revenue and the related cost of sales in the
consolidated statements of comprehensive income (loss).
The amendments apply for annual periods beginning on or after January 1, 2022. Effective January 1, 2022, the Corporation
adopted these requirements. The application of this amendment did not have an impact on the Corporation’s consolidated financial
statements.
50 Sherritt International Corporation
ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE
The Corporation has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective
and no material impact is expected on the Corporation’s consolidated financial statements.
Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12)
In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction, which made
amendments to IAS 12 Income Taxes (“IAS 12”). The amendment narrowed the scope of the IAS 12 recognition exemption
related to the recognition of deferred tax when an entity accounts for transactions, such as leases or decommissioning obligations,
by recognizing both an asset and a liability. The exemption no longer applies to transactions that, on initial recognition, give rise
to equal taxable and deductible temporary differences.
The amendments apply for annual periods beginning on or after January 1, 2023. Earlier application is permitted. The application
of this amendment is not expected to have a material impact on the Corporation’s consolidated financial statements.
Definition of Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of Accounting Estimates, which made amendments to IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors. The amendment replaced the definition of a change in accounting estimates with
a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements
that are subject to measurement uncertainty”. Accounting estimates are developed if accounting policies require items in financial
statements to be measured in a way that involves measurement uncertainty. The amendment clarifies that a change in accounting
estimate that results from new information or new developments is not the correction of an error. In addition, the effects of a
change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates if
they do not result from the correction of prior period errors. A change in an accounting estimate may affect only the current
period’s consolidated statements of comprehensive income (loss), or the consolidated statements of comprehensive income (loss)
of both the current period and future periods. The effect of the change relating to the current period is recognised as income or
expense in the current period. The effect, if any, on future periods is recognised as income or expense in those future periods.
The amendments apply for annual periods beginning on or after January 1, 2023. Earlier application is permitted. The application
of this amendment is not expected to have a material impact on the Corporation’s consolidated financial statements.
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
In October 2022, the IASB finalised issuance of Classification of Liabilities as Current or Non-Current, which made amendments
to IAS 1 Presentation of Financial Statements. The amendment clarifies that only covenants with which an entity is required to
comply on or before the reporting date affect the classification of a liability as current or non-current. In addition, an entity has to
disclose information in the notes that enables users of financial statements to understand the risk that non-current liabilities with
covenants could become repayable within twelve months. Classification is unaffected by the expectations that the Corporation
will exercise its right to defer settlement of a liability. Lastly, the amendment clarifies that settlement refers to the transfer to the
counterparty of cash, equity instruments, other assets or services.
The amendments are effective for annual periods beginning on or after January 1, 2024. Earlier application is permitted. The
Corporation is currently evaluating the impact of this standard on its consolidated financial statements.
Sherritt International Corporation
51
Management’s discussion and analysis
Summary of quarterly results
The following table presents selected amounts derived from the Corporation’s condensed consolidated financial statements:
$ millions, except per share amounts,
for the three months ended
2022
Dec 31
2022
Sept 30
2022
Jun 30
2022
Mar 31
2021
Dec 31
2021
Sep 30
2021
Jun 30
2021
Mar 31
Revenue
$
48.6 $
30.2 $
65.9 $
34.1 $
36.6 $
20.7 $
31.0 $
21.9
Share of earnings of Moa Joint
Venture, net of tax
Net (loss) earnings from continuing
operations
Earnings (loss) from discontinued
operations, net of tax(1)
Net (loss) earnings for the period
23.5
22.0
(7.3)
(26.9)
47.4
81.5
47.9
16.4
33.2
14.4
7.5
17.7
28.1
(15.5)
(10.4)
(1.9)
$
0.3
(7.0) $
0.6
(26.3) $
(0.4)
81.1 $
(0.7)
15.7 $
(0.3)
14.1 $
(0.7)
(16.2) $
(0.3)
(10.7) $
(3.7)
(5.6)
Net (loss) earnings per share, basic ($ per share)
Net (loss) earnings from continuing
operations
Net (loss) earnings
$
(0.02) $
(0.02)
(0.07) $
0.21 $
0.04 $
0.04 $
(0.04) $
(0.03) $
0.00
(0.07)
0.20
0.04
0.04
(0.04)
(0.03)
(0.01)
(1)
Earnings (loss) from discontinued operations, net of tax, relates to the Ambatovy Joint Venture, as well as expenses and insurance recoveries in respect of provisions
retained by the Corporation.
In general, net earnings or losses of the Corporation are primarily affected by production and sales volumes, commodity prices,
maintenance and operating costs, and exchange rates. The average Canadian dollar cost to purchase one U.S. dollar for the
above quarters ranged from $1.2282 (Q2 2021) to $1.3056 (Q3 2022) and period-end rates ranged between $1.2394 (Q2 2021)
to $1.3707 (Q3 2022).
In addition to the impact of commodity prices and sales volumes, the net earnings/losses in the eight quarters were impacted by
the following significant items (pre-tax):
Q4 2022: $7.1 million gain on repurchase of notes, $4.0 million gain on modification of Cuban receivables, $2.4 million
revaluation gain on the GNC receivable, $4.0 million revaluation loss on the Energas payable, $4.1 million of unrealized
foreign exchange losses in continuing operations, $15.0 million loss on environmental rehabilitation provisions and
$10.7 million of share-based compensation expense within cost of sales and administrative expenses;
Q3 2022: $48.5 million revaluation loss on allowances for expected credit losses on Energas conditional sales
agreement receivable, $4.6 million of unrealized foreign exchange gains in continuing operations and $2.6 million of
share-based compensation recovery within cost of sales and administrative expenses;
Q2 2022: $13.8 million gain on repurchase of notes, $17.2 million of share-based compensation recovery within cost
of sales and administrative expenses and $3.8 million of unrealized foreign exchange gains in continuing operations;
Q1 2022: $26.6 million of share-based compensation expense within cost of sales and administrative expenses and
$1.1 million of unrealized foreign exchange gains in continuing operations;
Q4 2021: $1.4 million of unrealized foreign exchange gains in continuing operations and $0.6 million of share-based
compensation expense related to the planned retirement of a senior executive;
Q3 2021: $1.2 million gain on disposal of assets and $3.1 million of other contractual benefits expense related to the
departures of two senior executives;
Q2 2021: $8.6 million of unrealized foreign exchange gains in continuing operations, a $0.8 million gain on repurchase
of notes, $3.7 million of unrealized losses on commodity put options, in addition to a $4.9 million share-based
compensation expense and $2.4 million severance and other contractual benefits expense, both of which related to the
Corporate workforce reduction and departures of two senior executives; and
Q1 2021: $2.6 million of unrealized foreign exchange gains in continuing operations and a $1.3 million gain on
repurchase of notes.
52 Sherritt International Corporation
Three-year trend analysis(1)
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
Revenue
Earnings (loss) from operations and joint venture
Net earnings (loss) from continuing operations
(Loss) earnings from discontinued operations, net of tax
Net earnings (loss) for the year
Adjusted EBITDA(2)
Earnings (loss) per common share (basic and diluted) ($ per share):
Net earnings (loss) from continuing operations
Net earnings (loss) for the year
Total assets
Non-current liabilities
PRODUCTION VOLUMES
Moa Joint Venture (50% basis)
Finished nickel (tonnes)
Finished cobalt (tonnes)
Electricity (gigawatt hours) (33⅓% basis)
$
$
2022
178.8
118.7
63.7
(0.2)
63.5
217.6
0.16
0.16
$
2021
110.2
8.5
(13.4)
(5.0)
(18.4)
112.2
(0.03)
(0.05)
2020
119.8
(197.1)
(85.7)
107.9
22.2
38.9
(0.22)
0.06
1,555.6
493.1
1,398.0
591.1
1,352.2
575.9
16,134
1,684
568
15,592
1,763
450
15,753
1,685
602
The amounts for the year ended December 31, 2020 have been restated to reclassify the Ambatovy Joint Venture as a discontinued operation.
(1)
(2) Non-GAAP and other financial measure. For additional information, see the Non-GAAP and other financial measures section.
In each year, the primary factors affecting on-going operating results are production and sales volumes, commodity prices,
primarily nickel, cobalt, fertilizer and oil; changes in input commodity prices; maintenance and operating costs, which are
discussed in the Review of operations sections; and the foreign exchange relationship between the Canadian and U.S. dollars.
Other impacts such as impairments and gains/losses on sale of assets, among others, are recognized periodically as events
occur.
In addition to the impacts of production volumes, commodity prices and input commodity prices, the following factors impacted
operating results:
In 2022, net earnings from continuing operations was positively impacted by a gain on repurchase of notes of $20.9 million, a
gain on the modification of Cuban receivables of $4.0 million, a gain on the revaluation of the GNC receivable of $2.4 million.
The aforementioned gains were partially offset by a revaluation of allowances for expected credit losses related to the Energas
conditional sales agreement of $49.0 million, primarily as a result of the Cobalt Swap, a loss on revaluation of the Energas
payable of $4.0 million, an impairment loss of intangible assets of $1.3 million and a loss on environmental rehabilitation
provisions of $15.0 million.
In 2021, net loss from continuing operations was negatively impacted by severance and other contractual benefits expense of
$6.1 million and accelerated share-based compensation expense of $6.1 million, both of which related to the departures of two
senior executives, planned retirement of a senior executive and Corporate workforce reduction, coupled with realized losses on
commodity put options of $4.8 million. The aforementioned losses are partially offset by a realized foreign exchange gain of
$10.0 million relating to a Cuban tax liability due to Cuban currency unification, a gain on repurchase of notes of $2.1 million and
a gain on disposal of assets of $1.2 million.
In 2020, net loss from continuing operations was negatively impacted by a loss of $115.6 million on impairment of Oil assets
and a $9.4 million impairment on Power assets, which were partially offset by a $142.3 million gain on debenture exchange. Net
earnings for the year included $107.9 million of earnings from discontinued operations, net of tax, related to the disposition of
the Corporation’s interest in the Ambatovy Joint Venture and reclassification of the Ambatovy Joint Venture’s share of loss of an
associate, net of tax, and other components of comprehensive income (loss).
Sherritt International Corporation
53
Management’s discussion and analysis
Off-balance sheet arrangements
As at December 31, 2022, the Corporation had no options, futures or forward contracts.
Transactions with related parties
The Corporation enters into transactions related to its joint arrangements.
For further detail, refer to notes 7 and 22 of the Corporation’s consolidated financial statements for the year ended December
31, 2022.
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, for the years ended December 31
Total value of goods and services:
Provided to joint operation
Provided to Moa Joint Venture
Purchased from Moa Joint Venture
Net financing income from joint operation
Net financing income from Moa Joint Venture
Canadian $ millions, as at December 31
Accounts receivable from Moa Joint Venture
Accounts payable to Moa Joint Venture
Advances and loans receivable from joint operation
2022
2021
$
22.9 $
302.6
1,216.0
14.4
0.4
15.7
254.2
835.6
14.4
0.5
2022
2021
27.4
127.8
-
18.2
122.0
204.7
Goods and services provided to joint venture primarily relates to services provided by Fort Site to the Moa Joint Venture.
KEY MANAGEMENT PERSONNEL
Key management personnel is composed of the Board of Directors, Chief Executive Officer, Chief Financial Officer, Chief
Commercial Officer, Chief Human Resources Officer, Senior Vice Presidents of the Corporation and the Chief Operating Officer
prior to retirement. 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)
Termination benefits
Share-based payments
2022
2021
$
$
6.7 $
0.3
-
4.5
11.5 $
7.2
0.3
5.3
5.6
18.4
(1) Post-employment benefits include a non-registered defined contribution executive supplemental pension plan. The total cash pension contribution for key management
personnel was nil for the year ended December 31, 2022 (nil for the year ended December 31, 2021). The total pension expense that is attributable to key management
personnel was nil for the year ended December 31, 2022 (nil for the year ended December 31, 2021).
54 Sherritt International Corporation
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, 2022, 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 2022 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, 2022, 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, 2022.
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, 2022 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 - Argus price per pound(1)
Fertilizers - price per tonne(1)
Exchange rate
Strengthening of the Canadian dollar relative
to the U.S. dollar
Operating costs(1)
Natural gas - cost per gigajoule (Moa Joint Venture and Fort Site)
Fuel oil - cost per tonne (Moa Joint Venture and Fort Site)
Sulphur - cost per tonne (Moa Joint Venture and Fort Site)
Approximate
Approximate
change in annual
change in annual
net earnings (loss) basic earnings (loss)
(CAD$ millions)
per share (EPS)
Increase
Increase/
(decrease)
Increase/
(decrease)
US$
US$
$
1.00 $
5.00
50.00
36 $
17
8
0.09
0.04
0.02
$
0.05
(13)
(0.03)
$
US$
US$
1.00
50.00
25.00
(4)
(4)
(3)
(0.01)
(0.01)
(0.01)
(1) Changes are applied at the operating level with the approximate change in net earnings (loss) and basic EPS representing the Corporation’s 50% interest in the Moa
Joint Venture.
Sherritt International Corporation
55
Management’s discussion and analysis
INVESTMENT IN MOA JOINT VENTURE
Explanations for the significant changes in the statements of financial position and statements of comprehensive income (loss)
line items to their respective comparative periods for the Moa Joint Venture are included below.
Statements of financial position
Canadian $ millions, 100% basis, as at
December 31
December 31
Variance
2022
2021
Assets
Cash and cash equivalents
$
43.6 $
48.9
(5.3)Decrease is primarily due to distributions paid to
shareholders, capital additions, income taxes paid
and changes in working capital, which were partially
offset by cash generated from operations.
Other current assets
90.1
14.0
76.1 Increase is primarily due to cash distributions to
Trade accounts receivable, net
178.0
153.4
shareholders, Sherritt and GNC, which have been
paid, but not yet declared as dividends.
24.6 Increase is primarily due to higher nickel average-
realized prices and an increase in the U.S. dollar
relative to the Canadian dollar.
Inventories
399.1
303.7
95.4 Increase is primarily due to an increase in input
commodity prices and higher cobalt inventory
volumes, coupled with an increase in the U.S. dollar
relative to the Canadian dollar.
Other non-current assets
16.8
12.4
4.4
Property, plant and equipment
1,102.8
1,067.6
35.2 Increase is primarily driven by an increase in the U.S.
dollar relative to the Canadian dollar and capital
additions, partially offset by depletion, depreciation
and amortization.
Total assets
1,830.4
1,600.0
230.4
Liabilities
Trade accounts payable and accrued
liabilities
87.9
64.1
23.8 Increase is primarily due to the timing of payments to
suppliers and higher input commodity costs.
Income taxes payable
4.1
13.2
(9.1)Decrease is primarily due to lower taxable earnings
Other current financial liabilities
Loans and borrowings
Environmental rehabilitation provisions
Other non-current financial liabilities
Deferred income taxes
0.2
26.0
84.0
4.6
23.7
Total liabilities
Net assets of Moa Joint Venture
Proportion of Sherritt's ownership interest
Total
Intercompany capitalized interest elimination
Investment in Moa Joint Venture
$
$
230.5
1,599.9 $
50%
800.0
(44.0)
756.0 $
0.2
21.3
105.5
4.9
22.4
231.6
1,368.4
50%
684.2
(41.8)
642.4
in 2022 as compared to 2021 at one of the operating
companies of the Moa Joint Venture.
-
4.7
(21.5)Decrease is primarily related to changes in estimates
as a result of increases in discount rates.
(0.3)
1.3
(1.1)
231.5
Foreign currency translation differences are included in the financial information of the Moa Joint Venture presented in the financial
statements and MD&A, as the Corporation’s presentation currency is the Canadian dollar, while the Moa Joint Venture’s functional
currency is the U.S. dollar. During the year ended December 31, 2022, the U.S. dollar increased in value relative to the Canadian
dollar, resulting in higher assets and lower liabilities reported in Canadian dollars as compared to December 31, 2021.
56 Sherritt International Corporation
Statements of comprehensive income
Canadian $ millions, 100% basis
December 31
December 31
Variance
For the year ended
2022
2021
Revenue
$
1,344.2
$
1,005.1
339.1 Increase is primarily due to increases in nickel and
Cost of sales
(989.4)
(763.9)
(225.5)Increase is primarily due to a 119% increase in sulphur
fertilizers revenue of $308.9 million and $22.1 million,
respectively, and primarily as a result of increases in the
average-realized prices of nickel, cobalt and fertilizers,
partially offset by lower sales volume of cobalt and
fertilizers.
Administrative expenses
Earnings from operations
Financing income
Financing expense
Net finance expense
Earnings before income tax
Income tax expense
prices and a 40% increase in fuel oil prices, coupled
with an increase of $18.0 in planned maintenance costs
and $12.7 million in royalties primarily due to an
increase in nickel and cobalt prices.
(14.0)
227.2
0.2
(10.1)
(0.7)
112.9
0.6
(8.9)Increase is primarily due to the impact of changes in
foreign exchange rates on Euro- and Canadian-dollar
denominated receivables.
(9.9)
217.3
(52.6)
(8.3)
104.6
4.0
(14.7)
340.1
0.8
(19.0)
(18.2)
321.9
(48.6)
Net earnings and comprehensive income
of Moa Joint Venture
$
273.3
$
164.7
108.6
Proportion of Sherritt's ownership interest
Total
Intercompany elimination
Share of earnings of Moa Joint Venture,
net of tax
$
50%
136.7
4.1
140.8
$
50%
82.4
4.1
86.5
-
54.3
-
54.3
For the year ended December 31, 2022, Moa Joint Venture’s revenue was positively impacted and cost of sales and other
expenses were negatively impacted by a stronger average U.S. dollar relative to the Canadian dollar compared to the same
periods in the prior year.
Moa Joint Venture commitments
The Moa Joint Venture’s significant undiscounted commitments, which are non-recourse to the Corporation, are presented below
on a 50% basis:
Environmental rehabilitation commitments of $95.7 million, with no significant payments due in the next five years;
Trade accounts payable and accrued liabilities of $44.0 million;
Income taxes payable of $2.0 million;
Lease liabilities of $0.4 million;
Loans and borrowings of $14.5 million; and
Property, plant and equipment commitments of $12.0 million. $2.5 million (50% basis) in spending on growth capital is
expected in 2022, all of which has been committed, for the ordering of long-lead materials and equipment, and civil and
mechanical construction.
Property, plant and equipment commitments include normal course expenditures and those associated with tailings management
facilities.
Sherritt International Corporation
57
Management’s discussion and analysis
NON-GAAP AND OTHER FINANCIAL MEASURES
Management uses the measures below 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/or evaluate the results of its underlying business. These measures are intended to provide additional information, not to
replace IFRS measures, and 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.
The non-GAAP and other financial measures are reconciled to the most directly comparable IFRS measure in the sections
below.
Combined revenue
The Corporation uses combined revenue as a measure to help management assess the Corporation’s financial performance
across its operations. Combined revenue includes the Corporation’s consolidated revenue and revenue of the Moa Joint Venture
on a 50% basis, which is accounted for using the equity method for accounting purposes.
Management uses this measure to reflect the Corporation’s economic interest in its operations prior to the application of equity
accounting to help allocate financial resources and provide investors with information that it believes is useful in understanding
the scope of Sherritt’s business, based on its economic interest, irrespective of the accounting treatment.
The table below reconciles combined revenue to revenue per the financial statements:
$ millions
December 31
December 31
Change
December 31
December 31
Change
For the three months ended
2022
2021
For the year ended
2022
2021
Revenue by reportable segment
Moa Joint Venture and Fort Site(1)
Metals Other
Oil and Gas
Power
Technologies
Corporate
Combined revenue
Adjustment for Moa Joint Venture
Financial statement revenue
$
$
$
221.6
1.9
2.5
10.5
0.5
0.1
237.1
(188.5)
48.6
$
$
$
183.2
2.1
4.7
8.1
0.2
0.3
198.6
(162.0)
36.6
21% $
(10%)
(47%)
30%
150%
(67%)
19% $
33% $
786.8
8.3
16.2
37.1
1.8
0.7
850.9
(672.1)
178.8
$
$
$
560.6
6.8
15.6
28.3
0.6
0.9
612.8
(502.6)
110.2
40%
22%
4%
31%
200%
(22%)
39%
62%
(1) Revenue of Moa Joint Venture and Fort Site for the three months ended December 31, 2022 is composed of revenue recognized by the Moa Joint Venture of $188.5
million (50% basis), which is equity-accounted and included in share of earnings of Moa Joint Venture, net of tax, and revenue recognized by Fort Site of $33.1 million,
which is included in consolidated revenue (for the three months ended December 31, 2021 - $162.0 million and $21.2 million, respectively). Revenue of Moa Joint
Venture and Fort Site for the year ended December 31, 2022 is composed of revenue recognized by the Moa Joint Venture of $672.1 million (50% basis), which is
equity-accounted and included in share of earnings of Moa Joint Venture, net of tax, and revenue recognized by Fort Site of $114.7 million, which is included in
consolidated revenue (for the three months ended December 31, 2021 - $502.6 million and $58.0 million, respectively).
58 Sherritt International Corporation
Adjusted EBITDA
The Corporation defines Adjusted EBITDA as earnings (loss) from operations and joint venture, which excludes net finance
expense and loss from discontinued operations, net of tax, as reported in the financial statements for the period, adjusted for:
depletion, depreciation and amortization; impairment losses on non-current non-financial assets and investments; and gains or
losses on disposal of property, plant and equipment of the Corporation and the Moa Joint Venture. The exclusion of impairment
losses eliminates the non-cash impact of the losses.
Management uses Adjusted EBITDA internally to evaluate the cash generation potential of Sherritt’s operating divisions on a
combined and segment basis as an indicator of ability to fund working capital needs, meet covenant obligations, service debt and
fund capital expenditures, as well as provide a level of comparability to similar entities. Management believes that Adjusted
EBITDA provides useful information to investors in evaluating the Corporation’s operating results in the same manner as
management and the Board of Directors.
The tables below reconcile earnings (loss) from operations and joint venture per the financial statements to Adjusted EBITDA:
$ millions, for the three months ended December 31
Earnings (loss) from operations and joint venture
per financial statements
Add (deduct):
Depletion, depreciation and amortization
Impairment of intangible assets
Adjustments for share of earnings of Moa Joint Venture:
Depletion, depreciation and amortization
Net finance expense
Income tax recovery
Adjusted EBITDA
$
$ millions, for the three months ended December 31
Earnings (loss) from operations and joint venture
per financial statements
Add (deduct):
Depletion, depreciation and amortization
Adjustments for share of earnings of Moa Joint Venture:
Depletion, depreciation and amortization
Net finance expense
Income tax expense
Adjusted EBITDA
$
4.7
1.3
11.8
(1.6)
3.6
19.7
2021
Total
Moa JV and
Fort Site(1)
Metals
Other
Oil and
Gas
Power
Techno-
logies
Corporate
Adjustment
for Moa
Joint
Venture
2022
Total
$
31.0
$
(0.5) $
(17.1) $
4.5
$
(4.4) $
(11.6) $
(2.0) $
(0.1)
2.8
-
11.8
-
-
45.6
-
-
-
-
-
-
1.3
-
-
-
1.6
-
-
-
-
-
-
-
-
-
0.3
-
-
-
-
-
-
-
(1.6)
3.6
$
(0.5) $
(15.8) $
6.1
$
(4.4) $
(11.3) $
-
$
Moa JV and
Fort Site(1)
Metals
Other
Oil and
Gas
Power
Techno-
logies
Corporate
Adjustment
for Moa
Joint
Venture
$
36.2
$
(0.4) $
(0.7) $
0.5
$
(3.9) $
(4.0) $
(7.2) $
20.5
2.5
10.7
-
-
49.4
$
-
-
-
-
(0.4) $
1.1
-
-
-
0.4
$
4.0
-
-
-
4.5
$
-
0.4
-
-
-
(3.9) $
-
-
-
(3.6) $
-
-
1.5
5.7
-
$
8.0
10.7
1.5
5.7
46.4
Sherritt International Corporation
59
Management’s discussion and analysis
$ millions, for the year ended December 31
Moa JV and
Fort Site(2)
Metals
Other
Oil and
Gas
Power
Techno-
logies
Corporate
Adjustment
for Moa
Joint
Venture
2022
Total
Earnings (loss) from operations and joint venture
per financial statements
Add (deduct):
Depletion, depreciation and amortization
Impairment of intangible assets
Gain on disposal of property, plant and equipment
Adjustments for share of earnings of Moa Joint Venture:
Depletion, depreciation and amortization
Net finance expense
Income tax expense
$
200.2
$
(2.3) $
(16.3) $
8.7
$
(14.8) $
(27.4) $
(29.4) $
118.7
10.3
-
-
43.5
-
-
0.1
-
-
-
-
-
0.8
1.3
(1.3)
-
-
-
13.6
-
-
-
-
-
0.1
-
-
-
-
-
1.1
-
-
-
-
-
-
-
-
-
5.1
24.3
26.0
1.3
(1.3)
43.5
5.1
24.3
Adjusted EBITDA
$
254.0
$
(2.2) $
(15.5) $
22.3
$
(14.7) $
(26.3) $
-
$
217.6
$ millions, for the year ended December 31
Moa JV and
Fort Site(2)
Metals
Other
Oil and
Gas
Power
Techno-
logies
Corporate
Adjustment
for Moa
Joint
Venture
2021
Total
Earnings (loss) from operations and joint venture
per financial statements
Add (deduct):
Depletion, depreciation and amortization
Gain on disposal of property, plant and equipment
Adjustments for share of earnings of Moa Joint Venture:
Depletion, depreciation and amortization
Net finance income
Income tax expense
Adjusted EBITDA
$
98.3
$
(2.0) $
(11.6) $
(0.6) $
(12.9) $
(35.6) $
(27.1) $
8.5
10.8
-
43.2
-
-
152.3
$
0.2
-
6.7
(1.2)
-
-
-
(1.8) $
-
-
-
(6.1) $
$
15.7
-
-
-
-
15.1
0.1
-
1.1
-
-
-
-
(12.8) $
$
-
-
-
(34.5) $
-
-
-
0.8
26.3
-
$
34.6
(1.2)
43.2
0.8
26.3
112.2
(1)
(2)
Adjusted EBITDA of Moa Joint Venture and Fort Site for the three months ended December 31, 2022 is composed of Adjusted EBITDA at Moa Joint Venture of $37.3
million (50% basis) and Adjusted EBITDA at Fort Site of $8.3 million (for the three months ended December 31, 2021 - $50.7 million and $(1.3) million, respectively).
Adjusted EBITDA of Moa Joint Venture and Fort Site for the year ended December 31, 2022 is composed of Adjusted EBITDA at Moa Joint Venture of $213.7 million
(50% basis) and Adjusted EBITDA at Fort Site of $40.3 million (for the year ended December 31, 2021 - $156.3 million and $(4.0) million, respectively).
60 Sherritt International Corporation
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 power excludes by-product revenue, as this revenue is not earned directly for power generation.
Transactions by a Moa Joint Venture marketing company, included in other revenue, are excluded.
Management uses this measure, and believes investors use this measure, to compare the relationship between the revenue per
unit and direct costs on a per unit basis in each reporting period for nickel, cobalt, fertilizer and power and provide comparability
with other similar external operations.
Average-realized price for fertilizer is the weighted-average realized price of ammonia and various ammonium sulphate products.
Average-realized price for nickel and cobalt are expressed in Canadian dollars per pound sold, while fertilizer is expressed in
Canadian dollars per tonne sold and electricity is expressed in Canadian dollars per megawatt hour sold.
The tables below reconcile revenue per the financial statements to average-realized price:
$ millions, except average-realized price and sales volume, for the three months ended December 31
Moa Joint Venture and Fort Site
Nickel
Cobalt
Fertilizer
Power
Other(1)
Adjustment
for Moa Joint
Venture
2022
Total
Revenue per financial statements
Adjustments to revenue:
By-product revenue
Revenue for purposes of average-realized price calculation
Sales volume for the period
Volume units
Average-realized price(2)(3)(4)
$
153.8 $
22.0 $
40.4 $
10.5 $
10.4 $
(188.5) $
48.6
-
153.8
-
22.0
-
40.4
(1.2)
9.3
9.9
Millions of
pounds
15.55 $
0.9
Millions of
pounds
25.72 $
61.7
Thousands
of tonnes
647.03 $
$
159
Gigawatt
hours
58.54
$ millions, except average-realized price and sales volume, for the three months ended December 31
Moa Joint Venture and Fort Site
Nickel
Cobalt
Fertilizer
Power
Other(1)
Adjustment
for Moa Joint
Venture
2021
Total
Revenue per financial statements
Adjustments to revenue:
Third-party finished nickel revenue
By-product revenue
Revenue for purposes of average-realized price calculation
Sales volume for the period
Volume units
Average-realized price(2)(3)(4)
$
116.7 $
33.4 $
28.3 $
8.1 $
12.1 $
(162.0) $
36.6
(14.1)
-
102.6
-
33.4
-
28.3
(1.1)
7.0
9.2
Millions of
pounds
11.16 $
1.0
Millions of
pounds
31.88 $
51.7
Thousands
of tonnes
545.08 $
$
130
Gigawatt
hours
54.33
$ millions, except average-realized price and sales volume, for the year ended December 31
Moa Joint Venture and Fort Site
Nickel
Cobalt
Fertilizer
Power
Other(1)
Adjustment
for Moa Joint
Venture
2022
Total
Revenue per financial statements
Adjustments to revenue:
By-product revenue
Revenue for purposes of average-realized price calculation
Sales volume for the period
Volume units
Average-realized price(2)(3)(4)
$
522.8 $
104.2 $
129.5 $
37.1 $
57.3 $
(672.1) $
178.8
-
522.8
-
104.2
-
129.5
(5.0)
32.1
35.0
Millions of
pounds
14.93 $
3.0
Millions of
pounds
34.26 $
170.4
Thousands
of tonnes
759.91 $
$
568
Gigawatt
hours
56.47
Sherritt International Corporation
61
Management’s discussion and analysis
$ millions, except average-realized price and sales volume, for the year ended December 31
Moa Joint Venture and Fort Site
Nickel
Cobalt
Fertilizer
Power
Other(1)
Adjustment
for Moa Joint
Venture
2021
Total
Revenue per financial statements
Adjustments to revenue:
Third-party finished nickel revenue
By-product revenue
Revenue for purposes of average-realized price calculation
Sales volume for the period
Volume units
Average-realized price(2)(3)(4)
$
368.4 $
101.3 $
74.1 $
28.3 $
40.7 $
(502.6) $
110.2
(14.1)
-
354.3
-
101.3
-
74.1
(4.0)
24.3
34.4
Millions of
pounds
10.30 $
3.9
Millions of
pounds
25.88 $
168.8
Thousands
of tonnes
438.75 $
$
450
Gigawatt
hours
54.05
(1) Other revenue includes revenue from the Metals Other, Oil and Gas, Technologies and Corporate reportable segments.
(2)
(3)
(4)
Average-realized price may not calculate exactly based on amounts presented due to foreign exchange and rounding.
Power, average-realized price per MWh.
Fertilizer, average-realized price per tonne.
62 Sherritt International Corporation
Unit operating cost/NDCC
With the exception of the Moa Joint Venture, which uses NDCC, 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 losses, gains and losses on disposal of 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 NDCC is calculated by dividing cost of sales, as reported in the financial statements, adjusted for the
following: depreciation, depletion, amortization and impairment losses 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, expressed in U.S. dollars.
Unit operating costs for nickel and electricity are key measures that management and investors uses to monitor performance.
NDCC of nickel is a widely-used performance measure for nickel producers. Management uses unit operating costs/NDCC to
assess how well the Corporation’s producing mine and power facilities are performing and to assess overall production efficiency
and effectiveness internally across periods and compared to its competitors.
Unit operating cost (NDCC) for nickel is expressed in U.S. dollars per pound sold, while electricity is expressed in Canadian dollars
per megawatt hour sold.
The tables below reconcile cost of sales per the financial statements to unit operating cost/NDCC:
$ millions, except unit cost and sales volume, for the three months ended December 31
Cost of sales per financial statements
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(2)
Cost of sales for purposes of unit cost calculation
Sales volume for the period
Volume units
Unit operating cost(3)(4)
Unit operating cost (US$ per pound) (NDCC)(5)
$ millions, except unit cost and sales volume, for the three months ended December 31
Cost of sales per financial statements
Less:
Depletion, depreciation and amortization in cost of sales
Adjustments to cost of sales:
Cobalt by-product, fertilizer and other revenue
Third-party finished nickel cost
Impact of opening/closing inventory and other(2)
Cost of sales for purposes of unit cost calculation
Sales volume for the period
Volume units
Unit operating cost(3)(4)
Unit operating cost (US$ per pound) (NDCC)(5)
Moa JV and
Fort Site
Power
Other(1)
Adjustment
for Moa
Joint Venture
2022
Total
$
186.7 $
4.8 $
24.4 $
(159.7) $
56.2
(14.7)
172.0
(67.8)
(10.4)
93.8
(1.5)
3.3
-
-
3.3
9.9
Millions of
pounds
$
$
9.48 $
7.00
159
Gigawatt
hours
21.41
Moa JV and
Fort Site
Power
Other(1)
Adjustment
for Moa
Joint Venture
2021
Total
$
142.7 $
7.0 $
11.2 $
(118.3) $
42.6
(13.2)
129.5
(66.5)
(13.7)
(7.7)
41.6
(4.0)
3.0
-
-
-
3.0
9.2
Millions of
pounds
$
$
4.53 $
3.60
130
Gigawatt
hours
22.72
Sherritt International Corporation
63
Management’s discussion and analysis
$ millions, except unit cost and sales volume, for the year ended December 31
Cost of sales per financial statements
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(2)
Cost of sales for purposes of unit cost calculation
Sales volume for the period
Volume units
Unit operating cost(3)(4)
Unit operating cost (US$ per pound) (NDCC)(5)
$ millions, except unit cost and sales volume, for the year ended December 31
Cost of sales per financial statements
Less:
Depletion, depreciation and amortization in cost of sales
Adjustments to cost of sales:
Cobalt by-product, fertilizer and other revenue
Third-party finished nickel cost
Impact of opening/closing inventory and other(2)
Impairment on assets
Cost of sales for purposes of unit cost calculation
Sales volume for the period
Volume units
Unit operating cost(3)(4)
Unit operating cost (US$ per pound) (NDCC)(5)
Moa JV and
Fort Site
Power
Other(1)
Adjustment
for Moa
Joint Venture
2022
Total
$
576.6 $
24.1 $
56.5 $
(494.6) $
162.6
(53.8)
522.8
(264.0)
(24.9)
233.9
(13.1)
11.0
-
-
11.0
35.0
Millions of
pounds
$
$
6.68 $
5.14
568
Gigawatt
hours
19.39
Moa JV and
Fort Site
Power
Other(1)
Adjustment
for Moa
Joint Venture
2021
Total
$
451.4 $
26.1 $
45.5 $
(382.0) $
141.0
(53.8)
397.6
(192.2)
(13.7)
(14.5)
-
177.2
(15.7)
10.4
-
-
-
10.4
34.4
Millions of
pounds
$
$
5.15 $
4.11
450
Gigawatt
hours
23.06
(1) Other is composed of the cost of sales of the Metals Other, Oil and Gas and Technologies reportable segments.
(2) Other is primarily composed of royalties and other contributions, sales discounts and other non-cash items.
(3) Unit operating cost/NDCC may not calculate exactly based on amounts presented due to foreign exchange and rounding.
Power, unit operating cost price per MWh.
(4)
(5) Unit operating costs in US$ are converted at the average exchange rate for the period.
64 Sherritt International Corporation
Adjusted net earnings/loss from continuing operations and adjusted net earnings/loss from continuing operations per
share
The Corporation defines adjusted net earnings/loss from continuing operations as net earnings/loss from continuing operations
less items not reflective of operational performance. These adjusting items include, but are not limited to, inventory obsolescence,
impairment of assets, gains and losses on the acquisition or disposal of assets, unrealized foreign exchange gains and losses,
gains and losses on financial assets and liabilities and other one-time adjustments. While some adjustments are recurring (such
as unrealized foreign exchange (gain) loss and revaluations of allowances for expected credit losses (ACL)), management
believes that they do not reflect the Corporation’s operational performance or future operational performance. Adjusted net
earnings/loss from continuing operations per share is defined consistent with the definition above and divided by the Corporation’s
weighted-average number of common shares outstanding.
Management uses these measures internally and believes that they provide investors with performance measures with which to
assess the Corporation’s core operations by adjusting for items or transactions that are not reflective of its core operating activities.
The table below reconcile net earnings (loss) from continuing operations and net earnings (loss) from continuing operations per
share, both per the financial statements, to adjusted net earnings (loss) from continuing operations and adjusted net earnings
(loss) from continuing operations per share, respectively:
For the three months ended December 31
$ millions
$/share
$ millions
2022
2021
$/share
Net (loss) earnings from continuing operations
$
(7.3) $
(0.02) $
14.4 $
0.04
Adjusting items:
Sherritt - Unrealized foreign exchange loss (gain) - continuing operations
Corporate - Gain on repurchase of notes
Corporate - Transaction finance charges on repurchase of notes
Corporate - Severance and other contractual benefits expense
Corporate - Unrealized losses on commodity put options
Corporate - Realized loss on commodity put options
Moa Joint Venture - Inventory obsolescence
Fort Site - Inventory obsolescence
Oil and Gas - Impairment of intangible assets
Oil and Gas and Power - Trade accounts receivable, net ACL revaluation
Oil and Gas and Power - Gain on modification of Cuban receivables
Power - Revaluation of Energas payable
Power - Revaluation of GNC receivable
Other(1)
Total adjustments, before tax
Tax adjustments
Adjusted net (loss) earnings from continuing operations
(1) Other items primarily relate to losses in net finance (expense) income.
$
$
4.1
(7.1)
1.1
-
-
-
1.6
0.6
1.3
-
(4.0)
4.0
(2.4)
-
(0.8) $
0.6
(7.5) $
0.01
(0.02)
-
-
-
-
0.01
-
0.01
-
(0.01)
0.01
(0.01)
-
- $
-
(1.4)
-
-
0.6
(2.2)
2.3
0.5
-
-
0.7
-
-
-
0.1
0.6 $
(0.2)
(0.02) $
14.8 $
-
-
-
-
(0.01)
0.01
-
-
-
-
-
-
-
-
-
-
0.04
Sherritt International Corporation
65
Management’s discussion and analysis
For the year ended December 31
$ millions
$/share
$ millions
2022
2021
$/share
Net earnings (loss) from continuing operations
$
63.7 $
0.16 $
(13.4) $
(0.03)
Adjusting items:
Sherritt - Unrealized foreign exchange gain - continuing operations
Corporate - Gain on repurchase of notes
Corporate - Transaction finance charges on repurchase of notes
Corporate - Severance and other contractual benefits expense
Corporate - Unrealized losses on commodity put options
Corporate - Realized losses on commodity put options
Moa Joint Venture - Inventory obsolescence
Fort Site - Inventory obsolescence
Oil and Gas - Gain on disposal of PP&E
Oil and Gas - Impairment of intangible assets
Oil and Gas - Realized foreign exchange gain due to Cuban currency
unification
Oil and Gas and Power - Trade accounts receivable, net ACL revaluation
Oil and Gas and Power - Gain on modification of Cuban receivables
Power - Energas conditional sales agreement ACL revaluation(1)
Power - Revaluation of Energas payable
Power - Revaluation of GNC receivable
Other(2)
(5.4)
(20.9)
2.3
-
(0.9)
0.9
2.1
0.6
(1.3)
1.3
-
0.4
(4.0)
49.0
4.0
(2.4)
-
Total adjustments, before tax
Tax adjustments
Adjusted net earnings (loss) from continuing operations
$
$
25.7 $
(1.0)
88.4 $
(0.01)
(0.06)
0.01
-
-
-
0.01
-
-
-
-
-
(0.01)
0.12
0.01
(0.01)
-
0.06 $
-
0.22 $
(4.7)
(2.1)
-
6.1
0.8
4.8
1.8
1.2
(1.2)
-
(10.0)
0.8
-
2.7
-
-
(0.3)
(0.1) $
(0.4)
(13.9) $
(0.01)
(0.01)
-
0.02
-
0.01
0.01
-
-
-
(0.03)
-
-
0.01
-
-
-
-
-
(0.03)
(1)
Primarily related to a non-cash loss on revaluation of the ACL on the Energas CSA receivable as a result of the Cobalt Swap signed by the Corporation during the
year, in part, due to the suspension of interest over the five-year period of the agreement.
(2) Other items primarily relate to losses in net finance (expense) income.
66 Sherritt International Corporation
Combined spending on capital
The Corporation defines spending on capital for each segment as property, plant and equipment and intangible asset expenditures
on a cash basis adjusted to the accrual basis in order to account for assets that are available for use by the Corporation and the
Moa Joint Venture prior to payment and includes adjustments to accruals. The Moa Joint Venture and Fort Site segment’s
spending on capital includes the Fort Site’s expenditures, plus the Corporation’s 50% share of the Moa Joint Venture’s
expenditures, which is accounted for using the equity method for accounting purposes.
Combined spending on capital is the aggregate of each segment’s spending on capital or the Corporation’s consolidated property,
plant and equipment and intangible asset expenditures and the property, plant and equipment and intangible asset expenditures
of the Moa Joint Venture on a 50% basis, all adjusted to the accrual basis.
Combined spending on capital is used by management, and management believes this information is used by investors, to analyze
the Corporation and the Moa Joint Venture’s investments in non-current assets that are held for use in the production of nickel,
cobalt, fertilizers, oil and gas and power generation.
The tables below reconcile property, plant and equipment and intangible asset expenditures per the financial statements to
combined spending on capital, expressed in Canadian dollars:
$ millions, for the three months ended December 31
Property, plant and equipment expenditures(2)
Intangible asset expenditures(2)
Adjustments:
Accrual adjustment
Spending on capital
$ millions, for the three months ended December 31
Property, plant and equipment expenditures(2)
Intangible asset expenditures(2)
Adjustments:
Accrual adjustment
Spending on capital
$ millions, for the year ended December 31
Moa JV and
Fort Site
Power
Other(1)
Combined
total
Adjustment
for Moa
Joint Venture
2022
Total
derived from
financial
statements
$
$
24.0 $
-
24.0
2.1 $
-
2.1
0.1 $
0.8
0.9
26.2 $
0.8
27.0 $
(15.9) $
-
(15.9) $
10.3
0.8
11.1
2.7
26.7 $
(0.5)
1.6 $
(0.3)
0.6 $
1.9
28.9
Moa JV and
Fort Site
Power
Other(1)
Combined
total
Adjustment
for Moa
Joint Venture
2021
Total
derived from
financial
statements
$
$
8.3 $
-
8.3
0.1 $
-
0.1
0.5 $
0.2
0.7
8.9 $
0.2
9.1 $
(6.2) $
-
(6.2) $
2.7
0.2
2.9
3.8
12.1 $
-
0.1 $
(0.5)
0.2 $
3.3
12.4
Moa JV and
Fort Site
Power
Other(1)
Combined
total
Adjustment
for Moa
Joint Venture
2022
Total
derived from
financial
statements
Property, plant and equipment expenditures(2)
Intangible asset expenditures(2)
Adjustments:
Accrual adjustment
Spending on capital
$
$
64.2 $
-
64.2
5.1 $
-
5.1
0.2 $
0.8
1.0
69.5 $
0.8
70.3 $
(41.8) $
-
(41.8) $
27.7
0.8
28.5
9.9
74.1 $
-
5.1 $
0.3
1.3 $
10.2
80.5
Sherritt International Corporation
67
Management’s discussion and analysis
$ millions, for the year ended December 31
Moa JV and
Fort Site
Power
Other(1)
Combined
total
Adjustment
for Moa
Joint Venture
2021
Total
derived from
financial
statements
Property, plant and equipment expenditures(2)
Intangible asset expenditures(2)
Adjustments:
Accrual adjustment
Spending on capital
$
$
34.0 $
-
34.0
0.1 $
-
0.1
0.9 $
0.8
1.7
35.0 $
0.8
35.8 $
(25.1) $
-
(25.1) $
9.9
0.8
10.7
3.7
37.7 $
-
0.1 $
(0.7)
1.0 $
3.0
38.8
(1)
(2)
Includes property, plant and equipment and intangible asset expenditures of the Oil and Gas and Corporate segments.
Total property, plant and equipment expenditures and total intangible asset expenditures as presented in the Corporation’s consolidated statements of cash flow.
68 Sherritt International Corporation
Combined free cash flow
The Corporation defines free cash flow for each segment as cash provided (used) by continuing operations for operating activities,
less cash expenditures on property, plant and equipment and intangible assets, including exploration and evaluation assets. The
Moa Joint Venture and Fort Site segment’s free cash flow includes the Fort Site’s free cash flow, plus the Corporation’s 50% share
of the Moa Joint Venture’s free cash flow, which is accounted for using the equity method for accounting purposes. The Corporate
segment’s cash used by continuing operations for operating activities is adjusted to exclude distributions received from Moa Joint
Venture.
Combined free cash flow is the aggregate of each segment’s free cash flow or the Corporation’s consolidated cash provided
(used) by continuing operations for operating activities, less consolidated cash expenditures on property, plant and equipment
and intangible assets, including exploration and evaluation assets, less distributions received from Moa Joint Venture, plus cash
provided (used) by continuing operations for operating activities for the Corporation’s 50% share of the Moa Joint Venture, less
cash expenditures on property, plant and equipment and intangible assets for the Corporation’s 50% share of the Moa Joint
Venture. Distributions from the Moa Joint Venture excluded from Corporate cash used by continuing operations for operating
activities are included in the Adjustment for Moa Joint Venture to arrive at total cash provided (used) by continuing operations for
operating activities per the financial statements.
Free cash flow is used by management, and management believes this information is used by investors, to analyze cash flows
generated from operations and assess its operations’ ability to provide cash or its use of cash, after funding cash capital
requirements, to service current and future working capital needs and service debt.
The tables below reconcile cash provided (used) by continuing operations for operating activities per the financial statements to
combined free cash flow:
$ millions, for the three months ended December 31
Moa JV and
Fort Site(1)
Metals
Other
Oil and
Gas
Power
Technol-
ogies
Corporate
Combined
total
2022
Adjustment
for Moa
Joint
Total
derived
from
financial
Venture statements
$
85.7 $
(4.1) $
(1.7) $
13.5 $
(4.5) $
(19.9) $
69.0 $
(28.7) $
40.3
Cash provided (used) by continuing operations
for operating activities(2)
Less:
Property, plant and equipment expenditures
Intangible expenditures
(23.9)
-
-
-
-
(0.2)
(1.5)
-
-
-
(0.2)
-
(25.6)
(0.2)
15.9
-
Free cash flow
$
61.8 $
(4.1) $
(1.9) $
12.0 $
(4.5) $
(20.1) $
43.2 $
(12.8) $
$ millions, for the three months ended December 31
(9.7)
(0.2)
30.4
2021
Cash provided (used) by continuing operations
for operating activities(2)
Less:
Property, plant and equipment expenditures
Intangible expenditures
Free cash flow
Moa JV and
Fort Site(1)
Metals
Other
Oil and
Gas
Power
Technol-
ogies
Corporate
Combined
total
Adjustment
for Moa
Joint
Total
derived
from
financial
Venture statements
$
8.9 $
(3.2) $
2.3 $
0.8 $
(3.6) $
(22.5) $
(17.3) $
3.9 $
(13.4)
(8.3)
-
-
-
-
(0.2)
(0.1)
-
-
-
(0.5)
-
(8.9)
(0.2)
6.2
-
(2.7)
(0.2)
$
0.6 $
(3.2) $
2.1 $
0.7 $
(3.6) $
(23.0) $
(26.4) $
10.1 $
(16.3)
Sherritt International Corporation
69
Management’s discussion and analysis
$ millions, for the year ended December 31
Cash provided (used) by continuing operations
for operating activities(4)
Less:
Property, plant and equipment expenditures
Intangible expenditures
Moa JV and
Fort Site(3)
Metals
Other
Oil and
Gas
Power
Technol-
ogies
Corporate
Combined
total
2022
Adjustment
for Moa
Joint
Total
derived
from
financial
Venture statements
$
177.1 $
(5.5) $
(3.9) $
37.4
$
(15.1) $
(54.6) $
135.4 $
(45.1) $
90.3
(64.2)
-
-
-
(0.1)
(0.8)
(5.1)
-
-
-
(0.1)
-
(69.5)
(0.8)
41.8
-
Free cash flow
$
112.9 $
(5.5) $
(4.8) $
32.3
$
(15.1) $
(54.7) $
65.1 $
(3.3) $
$ millions, for the year ended December 31
(27.7)
(0.8)
61.8
2021
Cash provided (used) by continuing operations
for operating activities(4)
Less:
Property, plant and equipment expenditures
Intangible expenditures
Free cash flow
Moa JV and
Fort Site(3)
Metals
Other
Oil and
Gas
Technol-
Power
ogies Corporate
Combined
total
Adjustment
for Moa
Joint
Total
derived
from
financial
Venture statements
$
90.5 $
5.0 $
4.2 $
18.1 $
(12.4) $
(55.1) $
50.3 $
(49.0) $
1.3
(34.0)
-
-
-
(0.2)
(0.8)
(0.1)
-
-
-
(0.7)
-
(35.0)
(0.8)
25.1
-
$
56.5 $
5.0 $
3.2 $
18.0 $
(12.4) $
(55.8) $
14.5 $
(23.9) $
(9.9)
(0.8)
(9.4)
(1)
Property, plant and equipment expenditures and intangible expenditures for the Moa Joint Venture and Fort Site was $15.9 million and $8.0 million, respectively, for
the three months ended December 31, 2022 (December 31, 2021 - $6.2 million and $2.1 million, respectively).
(2) Cash provided (used) by continuing operations for operating activities for the Moa Joint Venture and Fort Site was $85.8 million and $(0.1) million, respectively, for
(3)
the three months ended December 31, 2022 (December 31, 2021 - $(3.8) million and $12.7 million, respectively).
Property, plant and equipment expenditures and intangible expenditures for the Moa Joint Venture and Fort Site was $41.8 million and $22.4 million, respectively, for
the year ended December 31, 2022 (December 31, 2021 - $25.1 million and $8.9 million, respectively).
(4) Cash provided (used) by continuing operations for operating activities for the Moa Joint Venture and Fort Site was $145.8 million and $31.3 million, respectively, for
the year ended December 31, 2022 (December 31, 2021 - $85.0 million and $5.5 million, respectively).
70 Sherritt International Corporation
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 regarding strategies, plans and estimated production
amounts resulting from expansion of mining operations at the Moa Joint Venture, growing and increasing nickel and cobalt
production, optimizing mine planning and performance, extending the Moa life of mine and completing the economic cut-off
grade development, updating technical reports including the timing of release of a new NI 43-101 report, conversion of mineral
resources to reserves, expansion project update as it relates to the Slurry Preparation Plant and Moa Processing, the purchase
of secured second lien and junior notes, commercializing Technologies projects and growing shareholder value; statements set
out in the “Outlook” section of this MD&A and certain expectations regarding production volumes and increases, inventory levels,
operating costs and capital spending and intensity; sales volumes; revenue, costs and earnings; supply, demand and pricing
outlook in the nickel, cobalt and fertilizer markets; the availability of additional gas supplies to be used for power generation; the
impact of COVID-19; Sherritt’s strategy, plans, targets and goals in respect of environmental and social governance issues,
including climate change and greenhouse gas emissions reduction targets; anticipated payments and intention to recover
outstanding receivables under the Cobalt Swap, including liability amounts at the implementation date, the anticipated end of
historical repayment uncertainty, the anticipated repayment of all outstanding receivables through dividends, including in the
form of finished cobalt or cash; and the timing, and amount of cobalt dividend distributions; distributions from the Corporation’s
Moa Joint Venture in general; future receipts under the Moa Swap agreement; the anticipated second lien secured notes
becoming due in 2026; the impact of the U.S. sanctions on Cuba; anticipated economic conditions in Cuba; sufficiency of
working capital management and capital project funding; strengthening the Corporation’s capital structure and reducing annual
interest expenses; and amounts of certain other commitments.
Forward-looking statements are not based on historical facts, but rather on current expectations, assumptions and projections
about future events, including commodity and product prices and demand; the level of liquidity and access to funding; share
price volatility; production results; realized prices for production; earnings and revenues; global demand for electric vehicles and
the anticipated corresponding demand for cobalt and nickel; the commercialization of certain proprietary technologies and
services; advancements in environmental and greenhouse gas (GHG) reduction technology; GHG emissions reduction goals
and the anticipated timing of achieving such goals, if at all; statistics and metrics relating to Environmental, Social and
Governance (ESG) matters which are based on assumptions or developing standards; environmental rehabilitation provisions;
environmental risks and liabilities; compliance with applicable environmental laws and regulations; risks related to the U.S.
government policy toward Cuba; and certain corporate objectives, goals and plans for 2023. 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 the 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, security market fluctuations and price volatility; level of liquidity and the related ability of the Moa Joint Venture
to pay dividends; access to capital; access to financing; the risk to Sherritt’s entitlements to future distributions (including
pursuant to the Cobalt Swap) from the Moa Joint Venture, the impact of infectious diseases (including the COVID-19 pandemic),
the impact of global conflicts; changes in the global price for nickel, cobalt, oil, gas, fertilizers or certain other commodities; risks
related to Sherritt’s operations in Cuba; risks related to the U.S. government policy toward Cuba, including the U.S. embargo on
Cuba and the Helms-Burton legislation; political, economic and other risks of foreign operations; 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; compliance with applicable environment, health and safety legislation and other
associated matters; risks associated with governmental regulations regarding climate change and greenhouse gas emissions;
risks relating to community relations; maintaining social license to grow and operate; risks related to environmental liabilities
including liability for reclamation costs, tailings facility failures and toxic gas releases; uncertainty about the pace of technological
advancements required in relation to achieving ESG targets; risks to information technologies systems and cybersecurity;
identification and management of growth opportunities; the ability to replace depleted mineral reserves; risk of future non-
compliance with debt restrictions and covenants; risks associated with the Corporation’s joint venture partners; variability in
production at Sherritt’s operations in Cuba; risks associated with mining, processing and refining activities; potential interruptions
in transportation; uncertainty of gas supply for electrical generation; reliance on key personnel and skilled workers; growth
opportunity risks; the possibility of equipment and other failures; uncertainty of resources and reserve estimates; the potential
for shortages of equipment and supplies, including diesel; supplies quality issues; risks related to the Corporation’s corporate
structure; risks associated with the operation of large projects generally; risks related to the accuracy of capital and operating
cost estimates; foreign exchange and pricing risks; 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; legal
contingencies; risks related to the Corporation’s accounting policies; 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; the ability to
accomplish corporate objectives, goals and plans for 2023; and the ability to meet other factors listed from time to time in the
Corporation’s continuous disclosure documents.
Sherritt International Corporation
71
Management’s discussion and analysis
The Corporation, together with its Moa Joint Venture is pursuing a range of growth and expansion opportunities, including without
limitation, process technology solutions, development projects, commercial implementation opportunities, life of mine extension
opportunities and the conversion of mineral resources to reserves. In addition to the risks noted above, factors that could, alone
or in combination, prevent the Corporation from successfully achieving these opportunities may include, without limitation:
identifying suitable commercialization and other partners; successfully advancing discussions and successfully concluding
applicable agreements with external parties and/or partners; successfully attracting required financing; successfully developing
and proving technology required for the potential opportunity; successfully overcoming technical and technological challenges;
successful environmental assessment and stakeholder engagement; successfully obtaining intellectual property protection;
successfully completing test work and engineering studies, prefeasibility and feasibility studies, piloting, scaling from small scale
to large scale production, , procurement, construction, commissioning, ramp-up to commercial scale production and completion;
and securing regulatory and government approvals. There can be no assurance that any opportunity will be successful,
commercially viable, completed on time or on budget, or will generate any meaningful revenues, savings or earnings, as the
case may be, for the Corporation. In addition, the Corporation will incur costs in pursuing any particular opportunity, which may
be significant. Readers are cautioned that the foregoing list of factors is not exhaustive and should be considered in conjunction
with the risk factors described in the Corporation’s other documents filed with the Canadian securities authorities, including
without limitation the Annual Information Form of the Corporation dated March 24, 2022 for the period ending December 31,
2021, which is available on SEDAR at www.sedar.com.
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.
72 Sherritt International Corporation
CONSOLIDATED FINANCIAL
STATEMENTS
As at and for the years ended December 31, 2022 and 2021
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 and significant accounting policies
Note 3 – Critical accounting estimates and judgments
Note 4 – Accounting pronouncements
Note 5 – Segmented information
Note 6 – Expenses
Note 7 – Joint arrangements
Note 8 – Net finance expense
Note 9 – Income taxes
Note 10 – Earnings (loss) per share
Note 11 – Financial instruments
Note 12 – Advances, loans receivable and other financial assets
Note 13 – Inventories
Note 14 – Non-financial assets
Note 15 – Loans, borrowings and other financial liabilities
Note 16 – Provisions and contingencies
Note 17 – Share-based compensation plans
Note 18 – Commitments for expenditures
Note 19 – Supplemental cash flow information
Note 20 – Shareholders’ equity
Note 21 – Financial risk and capital risk management
Note 22 – Related party transactions
Note 23 – Leases
74
75
79
80
81
82
83
83
97
100
101
103
104
105
107
109
109
112
114
114
117
120
121
125
126
127
127
132
133
Sherritt International Corporation 73
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 2022
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/ Leon Binedell
Leon Binedell
President and Chief Executive Officer
February 8, 2023
/s/ Yasmin Gabriel
Yasmin Gabriel
Chief Financial Officer
74 Sherritt International Corporation
Deloitte LLP
Bay Adelaide East
8 Adelaide Street West
Suite 200
Toronto ON M5H 0A9
Canada
Tel: 416-601-6150
Fax: 416-601-6151
www.deloitte.ca
Independent Auditor’s Report
To the Shareholders and the Board of Directors of Sherritt International Corporation
Opinion
We have audited the consolidated financial statements of Sherritt International Corporation (the "Corporation"), which comprise the
consolidated statements of financial position as at December 31, 2022 and 2021, and the consolidated statements of comprehensive
income (loss), changes in shareholders’ equity and cash flow for the years then ended, and notes to the consolidated financial statements,
including a summary of significant accounting policies (collectively referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Corporation as at
December 31, 2022 and 2021, and its financial performance and its cash flows for the years then ended in accordance with International
Financial Reporting Standards ("IFRS").
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards ("Canadian GAAS"). Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We
are independent of the Corporation in accordance with the ethical requirements that are relevant to our audit of the financial statements
in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial
statements for the year ended December 31, 2022. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Assessment of Whether Indicators of Impairment Exist – Refer to Notes 2, 3 and 14 of the Financial Statements
Key Audit Matter Description
The Corporation’s determination of whether or not an indicator of impairment exists requires significant management judgment.
While there are several inputs that are required to determine whether or not an indicator of impairment exists, the judgments with the
highest degree of subjectivity are the inputs to the Corporation’s market capitalization deficiency assessment (specifically, control
premiums, industry‐specific factors and corporation‐specific factors), future commodity prices (nickel and cobalt), future foreign exchange
rates and the discount rates. Auditing these judgments required a high degree of subjectivity in applying audit procedures and in evaluating
the results of those procedures. This resulted in an increased extent of audit effort, including the involvement of valuation specialists.
How the Key Audit Matter Was Addressed in the Audit
With the assistance of valuation specialists, our audit procedures related to inputs to the Corporation’s market capitalization deficiency
assessment (specifically, control premiums, industry‐specific factors and corporation‐specific factors), future commodity prices (nickel and
cobalt), future foreign exchange rates and the discount rate, included the following, among others:
Performed an assessment of the market capitalization to the carrying value of the cash generating units (“CGUs”) which included
assessing control premiums, industry‐specific factors, and corporation‐specific factors;
Sherritt International Corporation 75
Consolidated financial statements
Evaluated the reasonableness of future commodity prices (nickel and cobalt) by comparing management’s forecasts to third‐party
forecasts;
Evaluated the reasonableness of the future foreign exchange rates by comparing our independent research of forecasted rates to
management’s assumed rates;
Evaluated the reasonableness of the discount rate by testing the source information underlying the determination of the discount rate
and developing a range of independent estimates for the discount rate and comparing those to the discount rate selected by
management.
Valuation of Level 3 Financial Instruments – Refer to Notes 2, 8, 11, 12 and 15 of the Financial Statements
Key Audit Matter Description
The Corporation entered into an agreement to settle its total outstanding Cuban receivables and as a result of the transaction the
Corporation recorded a financial asset (“GNC receivable”) and a financial liability (“Energas payable”) at fair value. The fair value of the
financial asset and the financial liability are estimated at each reporting date using a Monte Carlo simulation model which requires
management to make significant estimates and assumptions related to forecasted in‐kind cobalt prices and discount rates.
While there are several inputs required to determine the fair value of the financial asset and the financial liability, the estimates and
assumptions with the highest degree of subjectivity and judgment uncertainty relate to the forecasted in‐kind cobalt prices and discount
rates. Auditing these assumptions and estimates resulted in an increased extent of audit effort, including the involvement of fair value
specialists.
How the Key Audit Matter Was Addressed in the Audit
With the assistance of our fair value specialists, our audit procedures related to the forecasted in‐kind cobalt prices and discount rates,
included the following, among others:
Evaluated the reasonableness of the forecasted in‐kind cobalt prices by comparing management’s forecasts to third‐party information
and testing the source information underlying the determination of the forecasted in‐kind cobalt prices;
Evaluated the reasonableness of the discount rates by testing the source information underlying the determination of the discount
rates and developing a range of independent estimates for the discount rates and comparing those to the discount rates selected by
management.
Other Information
Management is responsible for the other information. The other information comprises:
Management's Discussion and Analysis
The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance
conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified
above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on
this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in
this auditor’s report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor's report. If, based on the work we will perform on
this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to
those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial
Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such
internal control as management determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
76 Sherritt International Corporation
In preparing the financial statements, management is responsible for assessing the Corporation’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Corporation or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Corporation's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout
the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Corporation's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Corporation's
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Corporation to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Corporation to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Sherritt International Corporation
77
Consolidated financial statements
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the
audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in
our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Antonio Ciciretto.
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
February 8, 2023
78 Sherritt International Corporation
Consolidated statements of comprehensive income
(loss)
Canadian $ millions, except per share amounts, for the years ended December 31
Note
2022
2021
Revenue
Cost of sales
Administrative expenses
Impairment of intangible assets
Share of earnings of Moa Joint Venture, net of tax
Earnings from operations and joint venture
Interest income on financial assets measured at amortized cost
Revaluation of allowances for expected credit losses
Other financing items
Financing expense
Net finance expense
Earnings (loss) before income tax
Income tax recoveries (expense)
Net earnings (loss) from continuing operations
Loss from discontinued operations, net of tax
Net earnings (loss) for the year
Other comprehensive income (loss)
Items that may be subsequently reclassified to profit or loss:
Foreign currency translation differences on foreign operations, net of
tax (nil and nil, respectively)
Items that will not be subsequently reclassified to profit or loss:
Actuarial gains on pension plans, net of tax (nil and nil,
respectively)
Other comprehensive income (loss)
Total comprehensive income (loss)
Net earnings (loss) from continuing operations per common share:
Basic and diluted
Net earnings (loss) per common share:
Basic and diluted
The accompanying notes are an integral part of these consolidated financial statements.
5 $
6
6
14
7
8
8
8
8
9
20
20
$
178.8 $
(162.7)
(36.9)
(1.3)
140.8
118.7
12.0
(49.4)
20.6
(38.6)
(55.4)
63.3
0.4
63.7
(0.2)
63.5 $
45.8
0.6
46.4
$
109.9 $
110.2
(141.0)
(47.2)
-
86.5
8.5
15.4
(3.5)
(2.4)
(30.3)
(20.8)
(12.3)
(1.1)
(13.4)
(5.0)
(18.4)
(4.3)
0.8
(3.5)
(21.9)
10 $
0.16 $
(0.03)
10 $
0.16 $
(0.05)
Sherritt International Corporation 79
Consolidated financial statements
Consolidated statements of financial position
Note
December 31
December 31
2022
2021
11 $
12
11
13
7
12
14
14
$
15 $
15
16
15
15
16
9
20
20
20
$
$
$
123.9
1.4
74.8
186.4
37.7
5.1
429.3
756.0
207.1
148.6
13.8
0.8
1,126.3
1,555.6
46.5
209.7
81.8
12.9
15.7
1.0
367.6
304.4
88.4
9.4
90.5
0.4
493.1
860.7
145.6
1.3
18.1
190.7
30.3
4.0
390.0
642.4
190.2
150.9
24.3
0.2
1,008.0
1,398.0
-
196.0
7.4
14.4
3.2
0.9
221.9
444.5
33.5
6.7
104.8
1.6
591.1
813.0
2,894.9
(2,835.0)
233.4
401.6
694.9
1,555.6
$
2,894.9
(2,898.5)
233.4
355.2
585.0
1,398.0
$
Canadian $ millions, as at
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Advances, loans receivable and other financial assets
Trade accounts receivable, net
Inventories
Prepaid expenses
Non-current assets
Investment in Moa Joint Venture
Advances, loans receivable and other financial assets
Property, plant and equipment
Intangible assets
Other non-financial assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Loans and borrowings
Trade accounts payable and accrued liabilities
Other financial liabilities
Deferred revenue
Provisions
Income taxes payable
Non-current liabilities
Loans and borrowings
Other financial liabilities
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
Commitments for expenditures (note 18)
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors,
/s/ Lisa Pankratz
Lisa Pankratz
Director
/s/ Sir Richard Lapthorne
Sir Richard Lapthorne
Director
80 Sherritt International Corporation
Consolidated statements of cash flow
Canadian $ millions, for the years ended December 31
Operating activities
Net earnings (loss) from continuing operations
Add (deduct):
Depletion, depreciation and amortization
Share-based compensation expense
Share of earnings of Moa Joint Venture, net of tax
Impairment of intangible assets
Net finance expense
Income tax expense (recoveries)
Net change in non-cash working capital
Interest received
Interest paid
Income taxes paid
Distributions received from Moa Joint Venture
Share-based compensation payments
Other operating items
Cash provided by continuing operations
Cash used by discontinued operations
Cash provided (used) by operating activities
Investing activities
Property, plant and equipment expenditures
Intangible asset expenditures
Receipts of advances, loans receivable and other financial assets
Net proceeds from sale of property, plant and equipment
Cash used by continuing operations
Cash used by investing activities
Financing activities
Repurchase of notes
Repayment of other financial liabilities
Increase in loans, borrowings and other financial liabilities
Fees paid on repurchase of notes
Fees paid on syndicated revolving-term credit facility amendment
Cash used by continuing operations
Cash used by financing activities
Effect of exchange rate changes on cash and cash equivalents
Decrease 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.
Note
2022
2021
$
63.7 $
(13.4)
5, 6
6
7
14
8
9
19
19
19
7
19
5
5
15
15
8
15
11 $
26.0
17.5
(140.8)
1.3
55.4
(0.4)
(10.6)
2.8
(32.0)
(0.6)
100.6
(5.8)
13.2
90.3
(1.6)
88.7
(27.7)
(0.8)
3.8
1.3
(23.4)
(23.4)
(125.2)
(2.9)
37.0
(2.2)
-
(93.3)
(93.3)
6.3
(21.7)
145.6
123.9 $
35.0
13.9
(86.5)
-
20.8
1.1
24.7
5.6
(32.7)
(2.1)
35.9
(1.7)
0.7
1.3
(5.7)
(4.4)
(9.9)
(0.8)
0.8
-
(9.9)
(9.9)
(4.6)
(1.5)
-
(0.2)
(0.6)
(6.9)
(6.9)
(0.6)
(21.8)
167.4
145.6
Sherritt International Corporation 81
Consolidated financial statements
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, 2020
$ 2,894.9 $
(2,880.1) $
233.3 $
358.7 $
606.8
Total comprehensive (loss) income:
Net loss for the year
Foreign currency translation differences on foreign operations,
net of tax
Actuarial gains on pension plans, net of tax
Stock option plan expense
Balance as at December 31, 2021
Total comprehensive income:
Net earnings for the year
Foreign currency translation differences on foreign operations,
net of tax
Actuarial gains on pension plans, net of tax
20
20
20
20
20
-
-
-
-
(18.4)
-
-
(18.4)
-
-
-
-
-
2,894.9
-
(2,898.5)
0.1
233.4
-
-
-
-
63.5
-
-
63.5
-
-
-
-
-
(4.3)
0.8
(3.5)
-
355.2
-
45.8
0.6
46.4
(18.4)
(4.3)
0.8
(21.9)
0.1
585.0
63.5
45.8
0.6
109.9
Balance as at December 31, 2022
$
2,894.9 $
(2,835.0) $
233.4 $
401.6 $
694.9
The accompanying notes are an integral part of these consolidated financial statements.
82 Sherritt International Corporation
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 and cobalt
– metals essential for the growing adoption of electric vehicles. Its Technologies Group creates innovative, proprietary solutions
for natural resource-based industries around the world to improve environmental performance and increase economic value.
The Corporation has embarked on a multi-pronged growth strategy focused on expanding nickel and cobalt production by up to
20% from its 2021 totals and is expected to extend the life of mine at Moa beyond 2040. The Corporation is also the largest
independent energy producer in Cuba.
The Corporation is domiciled in Ontario, Canada and its registered office is 22 Adelaide Street West, Toronto, Ontario, M5H
4E3. These consolidated financial statements were approved and authorized for issuance by the Board of Directors of Sherritt
on February 8, 2023. The Corporation is listed on the Toronto Stock Exchange.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
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). All financial information is presented in
Canadian dollars rounded to the nearest hundred thousand, except as otherwise noted. References to “US$” are to United
States (U.S.) dollars, to “CUP” are to Cuban pesos and to “€” are to euro.
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. The
going concern basis assumes that the Corporation will continue in operation for the foreseeable future and will be able to realize
its assets and discharge its liabilities and commitments in the normal course of business.
The Corporation has consistently applied the same accounting policies and methods of computation to all periods presented.
2.2 Principles of consolidation
These consolidated financial statements include the financial position, financial performance and cash flows of the Corporation,
its subsidiaries, its interest in a joint venture and its share of assets, liabilities, revenues and expenses related to its interest in a
joint operation. Intercompany balances, transactions, income and expenses, profits and losses, including gains and losses
relating to subsidiaries and joint operation have been eliminated on consolidation.
Sherritt International Corporation 83
Notes to the consolidated financial statements
The Corporation’s significant subsidiaries and joint arrangements are as follows:
Moa Joint Venture
Composed of the following operating companies:
International Cobalt Company Inc.
Moa Nickel S.A.
The Cobalt Refinery Company Inc.
Oil and Gas
Composed of the following operating companies:
Sherritt International (Cuba) Oil and Gas Ltd.
Sherritt International Oil and Gas Ltd.
Power
Energas S.A. ("Energas")
Relationship
Economic
interest
Basis of
accounting
Joint venture
50%
Equity method
Subsidiary
Subsidiary
100%
100%
Consolidation
Consolidation
Joint operation
33⅓%
Share of assets, liabilities,
revenues and expenses
The Fort Site, Technologies and Corporate operations are a part of Sherritt International Corporation, the parent company, and
are not separate legal entities.
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.
Joint arrangements
A joint arrangement is an arrangement whereby two or more parties have joint control. Joint control is considered to be when all
parties to the joint arrangement, which share control, 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 a joint operation.
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 and joint arrangements 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:
Monetary and non-monetary assets and liabilities are translated at the spot exchange rate in effect at the reporting
date;
Revenue and expense items (including depletion, depreciation and amortization) are translated at the 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 foreign currency translation differences on
foreign operations in accumulated other comprehensive income.
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:
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);
84 Sherritt International Corporation
Non-monetary items are translated at historical exchange rates; and
Revenue and expense items are translated at the average rates of exchange prevailing during the period, 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).
2.4 Consolidated statements of cash flow
The Corporation presents the consolidated statements of cash flow using the indirect method. The Corporation presents interest
received and interest paid as operating activities in the consolidated statements of cash flow. Dividends paid are presented as
a financing activity, while distributions received are presented as an operating activity in the consolidated statements of cash
flow.
2.5 Segmented information
The accounting policies of the segments are the same as those described throughout the notes to the financial statements 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:
The Moa JV and Fort Site segment is composed 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, which is accounted for using the equity
method of accounting, and the production and sale of agricultural fertilizers for its 100% interest in the utility and fertilizer
operations in Fort Saskatchewan;
The Metals Other segment is composed of the Corporation’s two wholly-owned subsidiaries established to buy, market
and sell certain of Moa Joint Venture’s nickel and cobalt production;
The Oil and Gas segment is composed of the oil and gas operations in Cuba and Spain, as well as the exploration and
development of oil and gas in Cuba;
The Power segment represents the power operations in Cuba, including the Corporation’s one-third interest in Energas,
which construct and operate power generation facilities that provide electricity in Cuba;
The Technologies segment represents the Corporation’s technology business which provides technical support,
process optimization and technology development services to the Moa Joint Venture, Fort Site operations and third
parties and identifies opportunities for the Corporation to commercialize its research and development for natural
resource-based industries; and
The Corporate segment represents overall management and general corporate activities related to public companies,
including management of cash, cash equivalents and publicly-traded debt.
Sherritt International Corporation 85
Notes to the consolidated financial statements
2.6 Revenue recognition
Revenue from the sale of goods and services is recognized when the Corporation transfers control of the good or service to the
customer, reflecting the amount of consideration to which the Corporation expects to be entitled in exchange for those goods or
services. Control generally transfers to the customer upon shipment or delivery to the destination, as specified in the sales
contract.
Moa JV and Fort Site
Consolidated revenue excludes the revenue of the equity-accounted investment in the Moa Joint Venture. The Corporation
recognizes its share of revenue of the Moa Joint Venture within the share of earnings (loss) of Moa Joint Venture, net of tax in
the consolidated statements of comprehensive income (loss).
Certain product sales at the Moa Joint Venture 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 revalued based on forecast reference prices at that time. The adjustment to trade accounts
receivable, net, is recorded as an adjustment to 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.
Payment for fertilizer sales at Fort Site is generally received before shipment and recognized as deferred revenue until shipment.
Oil and Gas
Oil and Gas product revenue is recognized when control transfers at the time of production and the amount of revenue
recognized is determined based on the Corporation’s working interest. In Cuba, all oil production is sold to an agency of the
Government of Cuba and delivery coincides with production. The Corporation is allocated a share of Cuban oil production
pursuant to its production-sharing contracts.
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, which is 60% of total production for the Puerto
Escondido/Yumuri production-sharing contract. 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.
Revenue from profit oil represents the Corporation’s share of oil production after cost recovery oil production is deducted.
Payment terms for oil sales to an agency of the Cuban government are based on U.S. Gulf Coast High Sulphur Fuel Oil (USGC
HSFO) reference prices and range from 90 days to 180 days from the date of invoice.
Oil and Gas service revenue is recognized at the time that drilling services and equipment are provided to the customer.
Power
Substantially all of Power’s revenue is from agencies of the Government of Cuba.
The facilities located in Boca de Jaruco and Puerto Escondido, Cuba operate under a service concession arrangement.
Revenue from Power on operational facilities is recognized at the time electricity is delivered or services are performed. The
consideration to be received is subject to variability as the quantity of power to be generated is not fixed and the rate for the
power generated declines once construction costs are repaid. Management estimates the transaction price based on expected
power generation and the forecast repayment schedule for construction costs and reassesses this estimate each reporting
period.
Payment terms for electricity and by-product sales to agencies of the Government of Cuba are 60 days from the date of invoice.
86 Sherritt International Corporation
2.7 Joint arrangements
Investment in Moa Joint Venture
A joint venture 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 net assets of the arrangement. The Moa Joint Venture is recognized as an
investment in a joint venture and accounted for using the equity method of accounting as follows:
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;
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;
Revenue/expenses and gains/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 income on a loan receivable from a joint venture is recognized to the extent of Sherritt’s economic interest.
Joint operation
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.
Assessment for impairment of the 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 a joint venture may be impaired.
The investment is impaired if, and only if, there is objective evidence of impairment as a result of one or more loss events and
that loss event (or events) has an impact on the estimated future cash flows from the investment that can be reliably estimated.
Objective evidence that the investment is impaired includes observable data that comes to the attention of the entity about the
following loss events: (a) significant financial difficulty of the joint venture; (b) a breach of contract, such as a default or
delinquency in payments by the joint venture; (c) the entity, for economic or legal reasons relating to its joint venture’s financial
difficulty, granting to the joint venture a concession that the entity would not otherwise consider; (d) it becoming probable that
the joint venture will enter bankruptcy or other financial reorganization; or (e) the disappearance of an active market for the
investment because of financial difficulties of the joint venture.
If there is an indication of impairment, then the impairment test applied follows the principles of impairment for non-financial
assets described in note 2.13.
2.8 Income taxes
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.
Sherritt International Corporation 87
Notes to the consolidated financial statements
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:
Temporary differences associated with investments in subsidiaries 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.
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).
2.9 Discontinued operations
Individual non-current assets or disposal groups are classified, and presented, as discontinued operations if the assets or
disposal groups are disposed of or are classified as held for sale and if the following criteria are met:
The assets or disposal groups represent a separate major line of business or geographical area of operations;
The assets or disposal groups are part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations; or
The assets or disposal groups are a subsidiary acquired exclusively with a view to resale.
Loss from discontinued operations is shown separately in the consolidated statements of comprehensive income (loss) and
consolidated statements of cash flow, and comparative figures are restated.
2.10 Government grants
Government grants are not recognized until there is reasonable assurance that the Corporation has complied with the conditions
attached to the grant and the grant has been received or is receivable.
Government grants that are received as compensation for expenses or losses already incurred, or for the purpose of giving
immediate financial support to the Corporation with no future related costs, are recognized in the consolidated statements of
comprehensive income (loss) as a reduction in the related expense.
88 Sherritt International Corporation
2.11 Financial instruments
Classification and measurement of financial instruments
Management determines the classification of financial assets and financial liabilities at initial recognition and, except in limited
circumstances, the classification is not changed subsequent to initial recognition. The classification of financial assets is based
on the Corporation’s business models for managing these financial assets and their contractual cash flow characteristics.
Transaction costs with respect to financial 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 assets are classified into one of the following three measurement categories:
Financial assets held within a business model for the purpose of collecting contractual cash flows (“held to collect”) that
represent solely payments of principal and interest (“SPPI”) are measured at amortized cost.
Financial assets held within a business model where assets are both held for the purpose of collecting contractual cash
flows or sold prior to maturity and the contractual cash flows represent solely payments of principal and interest are
measured at fair value through other comprehensive income (loss) (“FVOCI”).
Financial assets held within another business model or assets that do not have contractual cash flow characteristics
that are solely payments of principal and interest will be measured at fair value through profit or loss (“FVPL”).
The Corporation’s financial liabilities are measured at amortized cost, except for financial liabilities subsequently measured or
designated at FVPL.
Financial assets measured at amortized cost:
Cash held in banks; restricted cash; advances, loans receivable and other financial assets, except for the General
Nickel Company (“GNC”) receivable, noted below; trade accounts receivable, net
Financial assets measured at FVOCI:
Cash equivalents
Financial assets measured at FVPL:
GNC receivable
Commodity put options
Financial liabilities designated at FVPL:
Energas payable
Financial liabilities measured at amortized cost:
Trade accounts payable and accrued liabilities; loans and borrowings
Financial assets and liabilities, measured at amortized cost
Financial assets and liabilities included in this category are initially recognized at fair value (net of transaction costs, if applicable)
and are subsequently measured at amortized cost using the effective interest method less allowances for expected credit losses
(“ACL”).
Financial assets measured at fair value through other comprehensive income (loss)
Financial assets included in this category are initially recognized at fair value and transaction costs are recognized in net earnings
(loss). Subsequent to initial recognition, unrealized gains and losses on these instruments are recognized in other
comprehensive income (loss). Upon derecognition, realized gains and losses are reclassified from other comprehensive income
(loss) and recognized in net earnings (loss). Interest income and dividends from these instruments are recognized in net
earnings (loss).
Financial assets and liabilities measured at fair value through profit or loss
Financial instruments included in this category are initially recognized at fair value and transaction costs are recognized in net
earnings (loss), along with gains and losses arising from changes in fair value.
Sherritt International Corporation 89
Notes to the consolidated financial statements
Derivative instruments are recorded at fair value unless exempted from derivative treatment as a normal purchase and sale. All
changes in their fair value are recognized in net earnings (loss) within net finance (expense) income.
Financial liabilities designated at fair value through profit or loss upon initial recognition
Financial liabilities included in this category form part of a contract containing one or more embedded derivatives and are initially
recognized at fair value and transaction costs are recognized in net earnings (loss), along with gains and losses arising from
changes in fair value. For such financial liabilities, the amount of change in the fair value that is attributable to changes in the
credit risk of that liability is recognized in other comprehensive income and the remaining amount of change in the fair value of
the liability is recognized in net earnings (loss) within net finance (expense) income.
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.
Modifications of financial instruments
An exchange of a financial instrument with substantially different terms is accounted for as an extinguishment of the original
financial instrument and the recognition of a new financial instrument. The terms are substantially different if the discounted
present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the
original effective interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of
the original financial instrument. If an exchange of debt instruments or modification of terms is accounted for as an
extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchange or
modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the instrument
and are amortised over the remaining term of the modified instrument.
When the Corporation modifies a financial instrument and that modification results in derecognition, the Corporation
derecognizes the original financial instrument and recognizes a new financial instrument. The difference between the carrying
amount of the financial instrument extinguished and the consideration paid, including any non-cash assets transferred or
liabilities assumed, is recognized as a gain or loss in net earnings (loss) within net finance (expense) income.
When the Corporation modifies a financial instrument and that modification does not result in derecognition, the Corporation
revises the gross carrying value of the financial instrument, discounted using the original effective interest rate, and recognizes
a modification gain or loss in net earnings (loss).
Assessment for impairment of financial assets
The Corporation applies a three-stage approach to measure an ACL, using an expected credit loss (“ECL”) approach as required
under IFRS 9 for financial assets measured at amortized cost.
The ECL approach reflects the present value of all cash shortfalls related to default events either (i) over the following twelve
months or (ii) over the expected life of a financial instrument depending on the credit deterioration from inception. The ACL
reflects an unbiased, probability-weighted outcome which considers multiple scenarios based on reasonable and supportable
forecasts.
Stage 1 – Where there has not been a significant increase in credit risk since initial recognition of a financial instrument,
an amount equal to twelve months expected credit loss is recorded. The ECL is computed using a probability of default
occurring over the next twelve months. For instruments with a remaining maturity of less than twelve months, a
probability of default corresponding to the remaining term to maturity is used.
Stage 2 – When a financial instrument experiences a significant increase in credit risk subsequent to origination but is
not considered to be in default, it is included in Stage 2. The lifetime ECL is computed using a probability of default
occurring over the remaining life of the financial instrument. When contractual payments are more than 30 days past
due, it is presumed that credit risk has increased significantly subsequent to origination unless the Corporation has
reasonable and supportable information that demonstrates that the credit risk has not increased significantly since
origination.
90 Sherritt International Corporation
Stage 3 – Financial instruments that are considered to be in default are included in this stage. The Corporation
considers a financial instrument to be in default as a result of one or more loss events that occurred after the date of
initial recognition of the instrument and the loss event has a negative impact on the estimated future cash flows of the
instrument that can be reliably estimated. Similar to Stage 2, the ACL captures the lifetime ECL. When contractual
payments are more than 90 days past due, it is presumed that default has occurred unless the Corporation has
reasonable and supportable information that demonstrates that a more lagging default criterion is more appropriate.
The Corporation assesses whether there has been a significant increase in credit risk since initial recognition of a financial
instrument and its ACL measurement at each reporting date. Increases or decreases in the ACL are recognized as impairment
gains or losses within net finance (expense) income in net earnings (loss).
For trade receivables and contract assets that result from transactions that are within the scope of IFRS 15 and finance lease
receivables that result from transactions that are within the scope of IFRS 16, IFRS 9 allows the Corporation to take a simplified
approach where the ACL is always measured at the lifetime ECL.
The Corporation’s financial assets measured at amortized cost are presented net of the ACL in the consolidated statements of
financial position.
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.
2.12 Inventories
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.
2.13 Non-financial assets
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; machinery and equipment; processing, refining, power generation and
other manufacturing facilities; office equipment; and fixtures and fittings.
Sherritt International Corporation 91
Notes to the consolidated financial statements
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:
Buildings and refineries
Machinery and equipment
Office equipment
Fixtures and fittings
Assets under construction
Right-of-use assets – Plant and equipment
5 to 40 years
3 to 50 years
3 to 35 years
3 to 35 years
not depreciated during development period
The Corporation recognizes a right-of-use asset if a contract is or contains a lease based on the definition of a lease. Right-of-
use assets – plant and equipment include the underlying assets in leases for office space; machinery and equipment; and
computer and telecommunications hardware. The Corporation’s accounting policies for leases in accordance with IFRS 16 are
described in note 2.16.
Oil and Gas properties
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 or disposal of the asset. Any gain or loss arising on derecognition of the asset (measured as the
difference between the net disposal proceeds and the carrying amount of the asset) is included in net earnings (loss) in the
period when the asset 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.
92 Sherritt International Corporation
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.
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
2043. 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 (loss). 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
20 years(1)
not amortized during development period
(1) Service concession arrangements were amortized over 12 years prior to the twenty-year extension of the Energas Joint
Venture contract with the Cuban government during the year ended December 31, 2022. As a result of the extension, the
estimated useful lives of the service concession arrangements were extended by 20 years (note 14).
Assessment for 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, market capitalization 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).
Sherritt International Corporation 93
Notes to the consolidated financial statements
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.
2.14 Provisions
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.
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 recognized immediately in cost of sales.
94 Sherritt International Corporation
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.
2.15 Share-based compensation plans
The Corporation operates cash-settled and equity-settled share-based compensation plans under which it makes cash payments
based on the value of the underlying equity instrument of the Corporation, or issues equity instruments of the Corporation, to
directors, officers and employees in exchange for services.
The Corporation’s cash-settled share plans, including Restricted Share Units (“RSUs”), Performance Share Units (“PSUs”),
Deferred Share Units (“DSUs”) and stock options with tandem stock appreciation rights (“Options with Tandem SARs”) are
recognized as liabilities at the date of grant.
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 consolidated statements of
comprehensive income (loss). The adjusted fair value of the RSU liability is then amortized over the remaining vesting period.
The fair value of the PSU liability 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. If the Corporation’s share price or the expected achievement of the performance
requirements changes between reporting dates then the fair value of the PSU liability is adjusted and an offsetting expense or
recovery is recognized in the consolidated statements of comprehensive income (loss). 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 Corporation’s 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 adjusted fair value of the DSU liability
is then amortized over the remaining vesting period.
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 subsequently re-measured each reporting date based on the market value of the
Corporation’s shares and management’s estimate of the number of shares expected to vest.
The Corporation has one equity-settled compensation plan that is composed of its stock option plan. Stock option obligations
are settled by the issuance of shares from treasury. The fair value of grants issued under the stock option 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 stock option plan is recognized as an
expense over the expected vesting period with a corresponding entry to shareholders’ equity.
2.16 Leases
At inception of a contract, the Corporation assesses whether a contract is or contains a lease based on the definition of a lease.
A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration.
Sherritt International Corporation 95
Notes to the consolidated financial statements
Corporation as a lessee
The Corporation recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is
initially measured at cost, which comprises: the initial amount of the lease liability adjusted for any lease payments made at or
before the commencement date; less, any lease incentives received; plus, any initial direct costs incurred; plus, an estimate of
costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, unless
those costs are incurred to produce inventories.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of
the end of the useful life of the underlying asset or the end of the lease term. The estimated useful life of the underlying asset is
determined on the same basis as that of property, plant and equipment. The lease term is the non-cancellable period of a lease,
including periods covered by an option to extend the lease if the Corporation is reasonably certain to exercise that option and
periods covered by an option to terminate the lease if the Corporation is reasonably certain not to exercise that option. The
carrying amount of the right-of-use asset is periodically reduced by impairment losses when an impairment indicator is present
and an impairment loss is identified, if any, and adjusted for certain remeasurements of the lease liability, if any.
The lease liability is initially measured at the present value of future lease payments not paid at the commencement date,
discounted using the interest rate implicit in the lease, or if that rate cannot be readily determined, the lessee’s incremental
borrowing rate. Generally, the Corporation uses the lessee’s incremental borrowing rate as the discount rate.
The lease liability is subsequently measured at amortized cost using the effective interest method. It is remeasured when there
is a lease modification, a change in future lease payments arising from a change in an index or rate, if there is a change in the
Corporation’s estimate of the amount expected to be payable under a residual value guarantee, or if the Corporation changes
its assessment of whether it will exercise a purchase, extension, or termination option, upon the occurrence of either a significant
event or a significant change in circumstances that is within the control of the Corporation. When the lease liability is remeasured
in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the
consolidated statements of comprehensive income (loss) if the carrying amount of the right-of-use asset is zero. When a lease
modification results in a decrease in scope, the carrying amount of the right-of-use asset is reduced on remeasurement and any
gains or losses are recognized in the consolidated statements of comprehensive income (loss).
The Corporation presents right-of-use assets in property, plant and equipment and lease liabilities in other financial liabilities in
the consolidated statements of financial position.
Non-lease components
The Corporation has elected not to separate non-lease components and account for the lease and non-lease components as a
single lease component for all classes of assets.
Leases of intangible assets
The Corporation, as a lessee, elected not to apply IFRS 16 to leases of intangible assets. Intangible assets are accounted for in
accordance with IAS 38 Intangible Assets.
Short-term leases and leases of low-value assets
The Corporation has elected not to recognize right-of-use assets and lease liabilities for short-term leases with a lease term of
12 months or less and leases of low-value assets. The Corporation recognizes the lease payments associated with these leases
as an expense in the consolidated statements of comprehensive income (loss) on a straight-line basis over the lease term.
Corporation as a lessor
When the Corporation acts a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Corporation makes an overall assessment of whether the lease transfers substantially all of the risks
and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is
an operating lease. As part of this assessment, the Corporation considers certain indicators such as whether the lease is for a
major part of the economic life of the asset.
When the Corporation is an intermediate lessor, it accounts for its interest in the head lease and sub-lease separately. It
assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with
reference to the underlying asset. If a head lease is a short-term lease to which the Corporation applies the exemption described
above, then it classifies the sub-lease as an operating lease.
The Corporation recognizes lease payments received under operating leases as income on a straight-line basis over the lease
term as part of other revenue presented in revenue in the consolidated statements of comprehensive income (loss).
96 Sherritt International Corporation
Revenue is recognized over the lease term of a finance lease. The present value of the lease payments is recognized as a
finance lease receivable presented in advances, loans receivable and other financial assets in the consolidated statements of
financial position. The difference between the gross finance lease receivable and the present value of the lease payments is
initially recognized as unearned interest and presented as a deduction to the gross finance lease receivable. Interest income is
recognized in the consolidated statements of comprehensive income (loss) over the lease term to reflect a constant periodic
rate of return on the Corporation’s net investment in the lease.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
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. The critical accounting estimates and judgments the Corporation has made, and how they affect the amounts reported
in the consolidated financial statements, are incorporated in this section.
Critical accounting estimates
Measurement of the allowance for expected credit losses
The Corporation estimates an ACL using probability-weighted forward-looking scenarios. The Corporation considers both
internal and external sources of information in order to achieve an unbiased measure of the scenarios used. The Corporation
determines an ECL in each scenario and uses external sources and judgment to apply a probability-weighting to each scenario.
The ACL is measured as the present value of the probability-weighted ECL in each scenario, discounted using the original
effective interest rate of the instrument.
Measuring the fair value of the GNC receivable and Energas payable
The Corporation estimates the fair value of the GNC receivable and Energas payable at each reporting period using discounted
cash flows in a Monte Carlo simulation, which includes the use of in-kind forecast cobalt prices and discount rates, which are
significant unobservable inputs, and changes in the fair value of these financial instruments may have a significant impact on
the Corporation’s financial results.
Property, plant and equipment
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.
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.
Environmental rehabilitation provision costs
The Corporation’s environmental rehabilitation provisions are subject to environmental regulations in Canada, Cuba 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.
Environmental rehabilitation provision discount rates
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.
Sherritt International Corporation 97
Notes to the consolidated financial statements
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 represents a joint operation,
while the Moa Joint Venture represents a joint venture as described in IFRS 11, “Joint Arrangements”. 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 the Moa Joint Venture
The Corporation accounts for its investment in the Moa Joint Venture using the equity method. The Corporation assesses the
carrying amount of the Moa Joint Venture at each reporting date to determine whether there are any indicators that the carrying
amount 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 this investment. Where necessary, management engages qualified third-party professionals to assist in
the determination of the recoverable amount.
Determination of reportable 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.
Cash flow characteristics assessment
The Corporation applies judgment in assessing the contractual features of an instrument to determine if they give rise to cash
flows that are consistent with a basic lending arrangement. Contractual cash flows are consistent with a basic lending
arrangement if they represent cash flows that are SPPI.
In performing this assessment, the Corporation takes into consideration contractual features that could change the amount or
timing of contractual cash flows, such that the cash flows are no longer consistent with a basic lending arrangement. If the
Corporation identifies any contractual features that could modify the cash flows of the instrument such that they are no longer
consistent with a basic lending arrangement, the related financial asset is classified and measured at FVPL.
Exploration and evaluation
Management must make judgments when determining when to transfer E&E expenditures from intangible assets 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
as an impairment in the consolidated statements of comprehensive income (loss).
98 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.
Assessment for impairment of non-financial assets
The Corporation assesses the carrying amount of non-financial assets, including property, plant and equipment, intangible assets
subject to depreciation and amortization and assets under construction, 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.
There are a number of potential indicators that could trigger an impairment or impairment reversal, which may require critical
accounting judgments to determine the extent to which external and/or internal factors may impact the assets’ recoverable
amount. Such internal factors include changes to estimated recoverable production, commodity or contracted prices, cash costs
of production, capital and reclamation costs. External factors include the Corporation’s market capitalization deficiency and
changes in economic conditions, including uncertainty as a result of the COVID-19 pandemic, such as its potential impact on
commodity prices.
For purposes of determining fair value, management assesses the recoverable amount of the asset using the higher of value-
in-use and fair value less cost to sell and an appropriate discount rate. 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. In the event that management’s
estimate of future cash flows is not representative of actual events, impairments may be identified, which could have a material
impact on the Corporation’s consolidated financial statements. Where necessary, management engages qualified third-party
professionals to assist in the determination of fair values.
Measuring the fair value of the GNC receivable and Energas payable
The Corporation measures the GNC receivable and Energas payable at fair value. For purposes of determining fair value,
management uses discounted cash flows in a Monte Carlo simulation, which includes the use of in-kind forecast cobalt prices
and discount rates, which are significant unobservable inputs and requires assumptions and judgments to be made.
Management engages a third-party valuation specialist to assist in the valuation. Changes in these assumptions or judgments
may result in a significant change in fair value.
Sherritt International Corporation 99
Notes to the consolidated financial statements
4. ACCOUNTING PRONOUNCEMENTS
Adoption of new and amended accounting pronouncements
Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)
In May 2020, the IASB issued Property, Plant and Equipment – Proceeds before Intended Use, which made amendments to IAS
16 Property, Plant and Equipment. The amendments prohibit deducting from the cost of property, plant and equipment amounts
received from selling items produced while preparing the asset for its intended use. Instead, amounts received from selling items
produced while preparing the asset for its intended use will be recognized as revenue and the related cost of sales in the
consolidated statements of comprehensive income (loss).
The amendments apply for annual periods beginning on or after January 1, 2022. Effective January 1, 2022, the Corporation
adopted these requirements. The application of this amendment did not have an impact on the Corporation’s consolidated financial
statements.
Accounting pronouncements issued but not yet effective
The Corporation has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective
and no material impact is expected on the Corporation’s consolidated financial statements.
Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12)
In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction, which made
amendments to IAS 12 Income Taxes (“IAS 12”). The amendment narrowed the scope of the IAS 12 recognition exemption
related to the recognition of deferred tax when an entity accounts for transactions, such as leases or decommissioning obligations,
by recognizing both an asset and a liability. The exemption no longer applies to transactions that, on initial recognition, give rise
to equal taxable and deductible temporary differences.
The amendments apply for annual periods beginning on or after January 1, 2023. Earlier application is permitted. The application
of this amendment is not expected to have a material impact on the Corporation’s consolidated financial statements.
Definition of Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of Accounting Estimates, which made amendments to IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors. The amendment replaced the definition of a change in accounting estimates with
a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements
that are subject to measurement uncertainty”. Accounting estimates are developed if accounting policies require items in financial
statements to be measured in a way that involves measurement uncertainty. The amendment clarifies that a change in accounting
estimate that results from new information or new developments is not the correction of an error. In addition, the effects of a
change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates if
they do not result from the correction of prior period errors. A change in an accounting estimate may affect only the current
period’s consolidated statements of comprehensive income (loss), or the consolidated statements of comprehensive income (loss)
of both the current period and future periods. The effect of the change relating to the current period is recognised as income or
expense in the current period. The effect, if any, on future periods is recognised as income or expense in those future periods.
The amendments apply for annual periods beginning on or after January 1, 2023. Earlier application is permitted. The application
of this amendment is not expected to have a material impact on the Corporation’s consolidated financial statements.
100 Sherritt International Corporation
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
In October 2022, the IASB finalised issuance of Classification of Liabilities as Current or Non-Current, which made amendments
to IAS 1 Presentation of Financial Statements. The amendment clarifies that only covenants with which an entity is required to
comply on or before the reporting date affect the classification of a liability as current or non-current. In addition, an entity has to
disclose information in the notes that enables users of financial statements to understand the risk that non-current liabilities with
covenants could become repayable within twelve months. Classification is unaffected by the expectations that the Corporation
will exercise its right to defer settlement of a liability. Lastly, the amendment clarifies that settlement refers to the transfer to the
counterparty of cash, equity instruments, other assets or services.
The amendments are effective for annual periods beginning on or after January 1, 2024. Earlier application is permitted. The
Corporation is currently evaluating the impact of this standard on its consolidated financial statements.
5. SEGMENTED INFORMATION
Canadian $ millions, for the year ended December 31
Moa JV and
Fort Site
Metals
Other
Oil and
Gas
Power Technologies
Corporate
Adjustments
for Moa Joint
Venture(1)
2022
Total
Revenue(2)
Cost of sales
Administrative expenses
Impairment of Oil assets
Share of earnings of Moa Joint Venture,
net of tax
Earnings (loss) from operations and
joint venture
Interest income on financial assets
measured at amortized cost
Revaluation of allowances for
expected credit losses
Other financing items
Financing expense
Net finance expense
Earnings before income tax
Income tax recovery
Net earnings from continuing operations
Loss from discontinued operations,
net of tax
Net earnings for the year
$
786.8 $
(577.0)
(9.6)
-
-
8.3 $
(10.8)
0.2
-
-
16.2 $
(28.7)
(2.5)
(1.3)
-
200.2
(2.3)
(16.3)
37.1 $
(24.2)
(4.2)
-
-
8.7
1.8 $
(16.6)
-
-
-
0.7 $
-
(28.1)
-
-
(672.1) $
494.6
7.3
-
140.8
178.8
(162.7)
(36.9)
(1.3)
140.8
(14.8)
(27.4)
(29.4)
118.7
12.0
(49.4)
20.6
(38.6)
(55.4)
63.3
0.4
63.7
(0.2)
$
63.5
Supplementary information
Depletion, depreciation and amortization
Property, plant and equipment expenditures
Intangible asset expenditures
$
53.8 $
64.2
-
0.1 $
-
-
0.8 $
0.1
0.8
13.6 $
5.1
-
0.1 $
-
-
1.1 $
0.1
-
Canadian $ millions, as at December 31
Non-current assets(3)
Total assets
$
639.1 $
0.4 $
8.1 $
15.4 $
1,067.7
131.9
25.9
415.3
0.8 $
1.8
6.0 $
28.0
(43.5) $
(41.8)
-
26.0
27.7
0.8
(507.4) $
(115.0)
2022
162.4
1,555.6
Sherritt International Corporation 101
Notes to the consolidated financial statements
Canadian $ millions, for the year ended December 31
Moa JV and
Fort Site
Metals
Other
Oil and
Gas
Power
Technologies
Corporate
$
560.6 $
(451.4)
(10.9)
-
6.8 $
(9.0)
0.2
-
15.6 $
(23.0)
(4.2)
28.3 $
(26.1)
(2.8)
-
-
0.6 $
(13.5)
-
-
0.9 $
-
(36.5)
-
98.3
(2.0)
(11.6)
(0.6)
(12.9)
(35.6)
Revenue(2)
Cost of sales
Administrative expenses
Share of earnings of Moa Joint Venture,
net of tax
Earnings (loss) from operations and
joint venture
Interest income on financial assets
measured at amortized cost
Revaluation of allowances for
expected credit losses
Other financing items
Financing expense
Net finance expense
Loss before income tax
Income tax expense
Net loss from continuing operations
Loss from discontinued operations,
net of tax
Net loss for the year
Adjustments
for Moa Joint
Venture(1)
2021
Total
(502.6) $
382.0
7.0
110.2
(141.0)
(47.2)
86.5
(27.1)
86.5
8.5
15.4
(3.5)
(2.4)
(30.3)
(20.8)
(12.3)
(1.1)
(13.4)
(5.0)
$
(18.4)
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
$
$
54.0 $
34.0
-
0.2 $
-
-
6.7 $
0.2
0.8
15.7 $
0.1
-
0.1 $
-
-
1.1 $
0.7
-
(42.8) $
(25.1)
-
35.0
9.9
0.8
626.9 $
943.3
0.5 $
125.4
12.5 $
53.1
19.2 $
322.5
0.9 $
1.1
7.1 $
68.2
(491.9) $
(115.6)
2021
175.2
1,398.0
The Adjustments for Moa Joint Venture reflect the adjustments for the equity-accounted investment in the Moa Joint Venture.
(1)
(2) Revenue in the Metals Other segment includes $2.9 million of intersegment revenue, net of elimination, with the Moa JV and Fort Site segment related to marketing of
nickel and cobalt for the year ended December 31, 2022 ($2.9 million for the year ended December 31, 2021).
(3) Non-current assets are composed of property, plant and equipment and intangible assets.
Geographic information
Canadian $ millions, as at
North America
Cuba
Madagascar
Europe
Asia
Other
2022
December 31
Non-current
assets(1)
Total
assets(2)
Non-current
assets(1)
2021
December 31
Total
assets(2)
$
$
142.5 $
19.8
-
0.1
-
-
162.4 $
373.6 $
970.4
0.6
72.9
58.1
80.0
1,555.6 $
148.3 $
26.8
-
0.1
-
-
175.2 $
400.7
832.5
0.7
27.7
64.8
71.7
1,398.0
(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)
For its geographic information, the Corporation has allocated assets based on their physical location or location of the customer/payer.
Canadian $ millions, for the years ended December 31
North America
Cuba
Europe
Australia
2022
Total
revenue(1)
2021
Total
revenue(1)
$
$
125.5 $
37.1
-
16.2
178.8 $
66.2
36.4
1.1
6.5
110.2
(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.
102 Sherritt International Corporation
Disaggregation of revenue by product and service type
Revenue in the below table excludes the revenue of the equity-accounted investment in the Moa Joint Venture:
Canadian $ millions, for the years ended December 31
Fertilizer
Oil and gas product revenue
Oil and gas service revenue
Power generation(1)
Other
2022
Total
2021
Total
revenue
revenue
$
$
117.9 $
-
16.2
32.1
12.6
178.8 $
60.2
8.3
6.5
24.3
10.9
110.2
(1)
Included in power generation revenue for the year ended December 31, 2022 is $25.2 million of revenue from service concession arrangements ($19.1 million for the year
ended December 31, 2021).
Deferred revenue primarily relates to payments for fertilizer sales received before shipment in the Moa JV and Fort Site segment.
All of the deferred revenue as at December 31, 2021 was recognized during the year ended December 31, 2022.
Significant customers
The Oil and Gas segment derived nil revenue for the year ended December 31, 2022 ($8.0 million for the year ended December
31, 2021) directly and indirectly from agencies of the Government of Cuba.
The Power segment derived $37.1 million of its revenue for the year ended December 31, 2022 ($28.3 million for the year ended
December 31, 2021) directly and indirectly from agencies of the Government of Cuba.
The Moa JV and Fort Site segment derived $29.1 million of its revenue for the year ended December 31, 2022 ($17.7 million for
the year ended December 31, 2021) from a Fort Site customer that purchases and sells agriculture products.
No other single customer contributed 10% or more to the Corporation’s revenue in 2022 or 2021.
6. EXPENSES
Cost of sales includes the following:
Canadian $ millions, for the years ended December 31
2022
2021
Employee costs
Severance
Depletion, depreciation and amortization of property,
plant and equipment and intangible assets
Raw materials and consumables
Repairs and maintenance
Shipping and treatment costs
Inventory obsolescence
Loss on environmental rehabilitation provisions
Share-based compensation expense
Changes in inventories and other
$
$
65.1 $
2.8
24.3
99.2
43.8
2.2
0.7
15.0
3.7
(94.1)
162.7 $
57.5
0.6
33.4
63.5
51.2
2.0
1.1
3.1
1.5
(72.9)
141.0
Sherritt International Corporation 103
Notes to the consolidated financial statements
Administrative expenses include the following:
Canadian $ millions, for the years ended December 31
Employee costs
Severance
Depreciation
Share-based compensation expense
Consulting services and audit fees
Other
2022
2021
$
$
18.9 $
0.2
1.7
13.8
3.2
(0.9)
36.9 $
21.7
6.6
1.6
12.4
3.1
1.8
47.2
Corporate office workforce reduction and departures
In the prior year, the Corporation completed a corporate office workforce reduction. Administrative expenses for the year ended
December 31, 2021 included $1.0 million of severance expense and $0.8 million of accelerated share-based compensation
expense related to the May 2021 reduction of 10% of the Corporate office salaried workforce.
In addition to the above, in the prior year, administrative expenses for the year ended December 31, 2021 included $5.1 million
of other contractual benefits expense and $4.7 million of accelerated share-based compensation expense related to the
departures of the two senior executives in 2021, who were key management personnel.
Administrative expenses for the years ended December 31, 2022 and December 31, 2021 also include $1.0 million and $0.6
million, respectively, of accelerated share-based compensation expense related to the retirement of a senior executive in 2022,
who was a member of key management personnel.
Accelerated share-based compensation expense is a result of changes in accounting estimates to reduce the above employees’
vesting periods and forfeiture rates for share-based units previously granted.
7. JOINT ARRANGEMENTS
Investment in Moa Joint Venture
The Corporation indirectly holds a 50% interest in the Moa Joint Venture. The operations of the Moa Joint Venture are 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, Canada; and International
Cobalt Company Inc., incorporated in Bahamas, 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.
During the year ended December 31, 2022, the Moa Joint Venture paid distributions of $201.2 million, of which $100.6 million
were paid to the Corporation representing its 50% ownership interest ($71.7 million and $35.9 million, respectively, for the year
ended December 31, 2021). During the year ended December 31, 2021, General Nickel Company S.A., Sherritt’s joint venture
partner, redirected $16.9 million of its share of distributions from the Moa Joint Venture to the Corporation to fund Energas
operations.
Subsequent to period end, the Moa Joint Venture distributed 760 tonnes of finished cobalt to the Corporation with an in-kind
value of US$27.0 million ($36.2 million) (100% basis) under the Corporation’s agreement with its Cuban partners to recover its
total outstanding Cuban receivables over five years (note 8 and 12). As a result, US$13.5 million ($18.1 million) of the GNC
receivable (note 12) will be recovered in the three months ended March 31, 2023, representing GNC’s 50% portion of cobalt
redirected to the Corporation in satisfaction of the receivable.
104 Sherritt International Corporation
The following provides additional information relating to the Corporation’s investment in the Moa Joint Venture on a 100% basis:
Statements 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
Total assets
Liabilities
Trade accounts payable and accrued liabilities
Income taxes payable
Other current financial liabilities
Loans and borrowings(1)
Environmental rehabilitation provisions
Other non-current financial liabilities
Deferred income taxes
Total liabilities
Net assets of Moa Joint Venture
Proportion of Sherritt's ownership interest
Total
Intercompany capitalized interest elimination
Investment in Moa Joint Venture
2022
2021
December 31
December 31
$
$
$
43.6 $
90.1
178.0
399.1
16.8
1,102.8
1,830.4
87.9
4.1
0.2
26.0
84.0
4.6
23.7
230.5
1,599.9 $
50%
800.0
(44.0)
756.0 $
48.9
14.0
153.4
303.7
12.4
1,067.6
1,600.0
64.1
13.2
0.2
21.3
105.5
4.9
22.4
231.6
1,368.4
50%
684.2
(41.8)
642.4
(1)
Included in loans and borrowings is $11.3 million of current financial liabilities (December 31, 2021 - $10.7 million) and $14.7 million of non-current financial liabilities
(December 31, 2021 - $10.6 million).
Statements of comprehensive income
Canadian $ millions, 100% basis, for the years ended December 31
2022
2021
Revenue
Cost of sales(1)(2)
Administrative expenses(2)
Earnings from operations
Financing income
Financing expense
Net finance expense
Earnings before income tax
Income tax expense(3)
Net earnings and comprehensive income of Moa Joint Venture
Proportion of Sherritt's ownership interest
Total
Intercompany elimination
Share of earnings of Moa Joint Venture, net of tax
$
$
$
1,344.2 $
(989.4)
(14.7)
340.1
0.8
(19.0)
(18.2)
321.9
(48.6)
273.3 $
50%
136.7
4.1
140.8 $
1,005.1
(763.9)
(14.0)
227.2
0.2
(10.1)
(9.9)
217.3
(52.6)
164.7
50%
82.4
4.1
86.5
(1)
(2)
(3)
Included in cost of sales for the year ended December 31, 2022 is depreciation and amortization of $87.0 million ($85.6 million for the year ended December 31, 2021).
For the year ended December 31, 2021, recoveries for the Canada Emergency Wage Subsidy within cost of sales of $4.0 million and within administrative expenses of
$0.2 million.
Income tax expense for the year ended December 31, 2022 decreased since the comparative period primarily due to a decrease in taxable earnings of the operating
companies in the Moa Joint Venture.
Joint operation
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, 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.
The following provides information relating to the Corporation’s interest in Energas on a 33⅓% basis:
Sherritt International Corporation 105
Notes to the consolidated financial statements
Canadian $ millions, 33⅓% basis, as at
Current assets(1)
Non-current assets
Current liabilities
Non-current liabilities
Net assets
(1)
Included in current assets is $96.7 million of cash and cash equivalents (December 31, 2021 - $78.9 million).
Canadian $ millions, 33⅓% basis, for the years ended December 31
Revenue
Income (expenses)
Net earnings (loss)
8. NET FINANCE EXPENSE
Canadian $ millions, for the years ended December 31
Interest income on trade accounts receivable, net
Interest income on advances and loans receivable
Interest income on financial assets measured at amortized cost
Revaluation of allowances for expected credit losses:
Trade accounts receivable, net
Energas conditional sales agreement receivable
Revaluation of allowances for expected credit losses
Gain on modification of Cuban receivables
Revaluation of GNC receivable
Revaluation of Energas payable
Gain on repurchase of notes
Revaluation of cobalt-linked warrants
Unrealized gains (losses) on commodity put options
Realized losses on commodity put options
Other
Other financing items
Interest expense and accretion on loans and borrowings
Unrealized foreign exchange gain
Realized foreign exchange loss
Other interest expense and finance charges
Accretion expense on environmental rehabilitation provisions
Financing expense
Net finance expense
2022
2021
December 31
December 31
118.0 $
11.4
8.3
68.5
52.6 $
97.8
16.8
6.3
98.1
10.2
2022
2021
37.1 $
7.7
44.8 $
28.3
(32.1)
(3.8)
$
$
$
$
Note
2022
2021
$
0.4 $
11.6
12.0
(0.4)
(49.0)
(49.4)
4.0
2.4
(4.0)
20.9
-
0.9
(0.9)
(2.7)
20.6
(39.9)
5.4
(0.2)
(3.6)
(0.3)
(38.6)
(55.4) $
11
11
11
11
16
$
0.5
14.9
15.4
(0.8)
(2.7)
(3.5)
-
-
-
2.1
0.2
(0.8)
(4.8)
0.9
(2.4)
(42.2)
4.7
9.7
(2.2)
(0.3)
(30.3)
(20.8)
Revaluation of allowances for expected credit losses on Energas conditional sales agreement (CSA)
receivable and trade accounts receivable from Union Cuba-Petroleo (CUPET)
On October 13, 2022, the Corporation signed an agreement (the “Cobalt Swap”) with its Cuban partners to recover its total
outstanding Cuban receivables over five years, including the Energas CSA (note 12) and trade accounts receivable from CUPET
(note 11), beginning January 1, 2023, which impacted the Corporation’s ACLs on the Energas CSA and trade accounts receivable
from CUPET as at September 30, 2022.
106 Sherritt International Corporation
During the year ended December 31, 2022, the Corporation recognized a revaluation loss on ACLs on the Energas CSA receivable
of $48.5 million related to the Cobalt Swap. The ACL as at September 30, 2022 used probability-weighted forward-looking
scenarios, including a scenario wherein the receivable is repaid under the Cobalt Swap, which was assigned a high probability
given the Corporation’s expectation as at September 30, 2022 that the Cobalt Swap would be signed and was a significant change
in estimate during the year. The expected credit loss in this scenario was measured based on the fair value of the GNC receivable
recognized during the year ended December 31, 2022, as the Corporation expected the existing Energas CSA receivable to be
substantially modified and derecognized, with a GNC receivable recognized at fair value. The use of the fair value of the GNC
receivable within the expected credit loss model of the Energas CSA as at September 30, 2022 was a significant change in
estimate during the year.
Within this high-profitability scenario, the fair value on initial recognition of the receivable from GNC attributable to the existing
Energas CSA receivable was expected to be lower than the gross carrying value of the Energas CSA receivable, in part as a
result of the suspension of interest over the five-year period of the agreement, which reduced cash flows in this scenario and
resulted in an expected credit loss. The fair value of the receivable from GNC was determined using a Monte Carlo simulation,
which included the following significant unobservable inputs: forecast in-kind cobalt prices and discount rates.
During the year ended December 31, 2022, the Corporation also recognized a revaluation gain on ACLs on the trade accounts
receivable from CUPET of $1.9 million related to the Cobalt Swap, reflecting the expectation of earlier repayment under the Cobalt
Swap, which is included in the revaluation of ACLs on trade accounts receivable, net in the table above.
Gain on modification of Cuban receivables
During the year ended December 31, 2022, pursuant to the Cobalt Swap, the Corporation recognized a gain on modification of
the Cuban receivables of $4.0 million as a result of the substantial modification and derecognition of the Energas CSA and trade
accounts receivable from CUPET and recognition of the GNC receivable and Energas payable at fair value, net of transaction
costs.
Realized foreign exchange gain due to Cuban currency unification
During the year ended December 31, 2021, the Corporation recognized a $10.0 million realized foreign exchange gain within
financing expense relating to a Cuban tax liability due to Cuban currency unification. Prior to currency unification, the Cuban
tax liability was payable in Cuban convertible pesos (CUC) at the previous exchange rate of 1 CUC:US$1. As a result of Cuban
currency unification and confirmation from the Government of Cuba received during the year ended December 31, 2021, the
Cuban tax liability was payable in Cuban pesos (CUP) at the current exchange rate of 24 CUP:US$1, resulting in a foreign
exchange gain. The Cuban tax liability was paid during the year ended December 31, 2021 and the foreign exchange gain was
recognized as a realized foreign exchange gain.
9. INCOME TAXES
Canadian $ millions, for the years ended December 31
Current income tax expense
Current period
Deferred income tax expense (recovery)
Origination and reversal of temporary differences
Non-recognition of tax assets
Income tax (recoveries) expense
2022
2021
0.8 $
0.8
1.0
1.0
(10.7)
9.5
(1.2)
(0.4) $
(28.7)
28.8
0.1
1.1
$
$
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):
Sherritt International Corporation 107
Notes to the consolidated financial statements
Canadian $ millions, for the years ended December 31
2022
2021
Earnings (loss) before income tax from continuing operations
Less: share of earnings of Moa Joint Venture
Parent companies and subsidiaries loss before income tax
Income tax recovery at the combined basic rate of 23.5% (2021 - 23.5%)
(Decrease) increase in taxes resulting from:
Difference between Canadian and foreign tax rates
Non-recognition of tax assets
Other items
$
63.3 $
(140.8)
(77.5)
(18.2)
7.2
9.7
0.9
(0.4) $
$
(12.3)
(86.5)
(98.8)
(23.2)
(3.2)
27.9
(0.4)
1.1
Deferred tax assets (liabilities) relate to the following temporary differences and loss carry forwards:
Canadian $ millions, for the year ended December 31, 2022
Deferred tax assets
Property, plant and equipment
Other financial reserves
Deferred tax assets
Set off against deferred tax liabilities
Deferred tax liabilities
Property, plant and equipment and intangible assets
Cuban tax contingency reserve
Other financial reserves
Deferred tax liabilities
Set off against deferred tax assets
Net deferred tax (liabilities) assets
Canadian $ millions, for the year ended December 31, 2021
Deferred tax assets
Property, plant and equipment
Other financial reserves
Deferred tax assets
Set off against deferred tax liabilities
Deferred tax liabilities
Property, plant and equipment and intangible assets
Cuban tax contingency reserve
Other financial reserves
Deferred tax liabilities
Set off against deferred tax assets
Net deferred tax liabilities
Opening
Balance
Recognized
in net
earnings
Recognized
in other
comp-
rehensive
income
0.7 $
0.7
1.4
(1.4)
-
(1.0) $
(1.0)
(1.0)
(3.0)
1.4
(1.6) $
- $
(0.6)
(0.6)
0.7 $
-
1.1
1.8
1.2 $
- $
-
-
$
- $
-
-
-
- $
Opening
Balance
Recognized
in net
earnings
Recognized
in other
comp-
rehensive
income
1.2 $
0.7
1.9
(1.9)
-
(1.2) $
(1.0)
(1.1)
(3.3)
1.9
(1.4) $
(0.5) $
-
(0.5)
0.2 $
-
0.1
0.3
(0.2) $
- $
-
-
$
- $
-
-
-
- $
$
$
$
$
$
$
$
$
Closing
Balance
0.7
0.1
0.8
(0.8)
-
(0.3)
(1.0)
0.1
(1.2)
0.8
(0.4)
Closing
Balance
0.7
0.7
1.4
(1.4)
-
(1.0)
(1.0)
(1.0)
(3.0)
1.4
(1.6)
As at December 31, 2022, the Corporation had temporary differences of $532.1 million (December 31, 2021 - $394.6 million)
associated with investments in subsidiaries and interests in the Moa Joint Venture 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.
108 Sherritt International Corporation
As at December 31, 2022, the Corporation had non-capital losses of $962.2 million (December 31, 2021 - $948.2 million) and
capital losses of $1,128.5 million (December 31, 2021 - $1,128.8 million) which may be used to reduce future taxable income.
The Corporation has not recognized a deferred tax asset on $962.2 million (December 31, 2021 - $948.2 million) of non-capital
losses, $1,128.5 million (December 31, 2021 - $1,128.8 million) of capital losses and $234.4 million (December 31, 2021 - $252.2
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, 2022
Canada
Other jurisdictions
10. EARNINGS (LOSS) PER SHARE
Canadian $ millions, except share amounts in millions and per share amounts in dollars, for the years ended December 31
Net earnings (loss) from continuing operations
Loss from discontinued operations, net of tax
Net earnings (loss) for the year - basic and diluted
Weighted-average number of common shares - basic and diluted(1)
Net earnings (loss) from continuing operations per common share:
Basic and diluted
Loss from discontinued operations, net of tax, per common share:
Basic and diluted
Net earnings (loss) per common share:
Basic and diluted
Expiry
Non-capital
losses
2026-2042 $
Various
748.0
214.2
2022
63.7
(0.2)
63.5
$
$
2021
(13.4)
(5.0)
(18.4)
397.3
397.3
0.16
$
(0.03)
(0.00) $
(0.01)
0.16
$
(0.05)
$
$
$
$
$
(1)
The determination of the weighted-average number of common shares - diluted excludes 2.7 million shares related to stock options that were anti-dilutive for the year
ended December 31, 2022 (4.1 million that were anti-dilutive for the year ended December 31, 2021).
11. FINANCIAL INSTRUMENTS
Cash and cash equivalents
Cash and cash equivalents consist of:
Canadian $ millions, as at
Cash equivalents(1)
Cash held in banks
2022
2021
December 31
December 31
$
$
0.2 $
123.7
123.9 $
16.1
129.5
145.6
(1)
The financial instrument fair value measurement hierarchy for cash equivalents is level 1.
Cash and cash equivalents of the Corporation and its wholly-owned subsidiaries held in Canada was $20.3 million as at
December 31, 2022 (December 31, 2021 - $64.2 million).
The Corporation’s cash balances are deposited with major financial institutions rated at least A by Standard and Poor’s, or its
equivalent by other credit rating agencies, except for institutions located in Cuba that are not rated. The total cash held in Cuban
bank deposit accounts was $101.6 million as at December 31, 2022 (December 31, 2021 - $80.6 million).
As at December 31, 2022, $96.7 million of the Corporation’s cash and cash equivalents was held by Energas (December 31,
2021 - $78.9 million). These funds are for use locally by the joint operation, including repayment of Energas’ payable to GNC
(note 15), and will be transferred to the Corporation upon foreign exchange approval.
Sherritt International Corporation 109
Notes to the consolidated financial statements
The Corporation’s cash equivalents consist of demand deposits redeemable upon 31 days request. The demand deposits are
with major financial institutions. As at December 31, 2022, the Corporation had $0.2 million in demand deposits (December 31,
2021 - $16.1 million) included in cash and cash equivalents.
Cuban currency unification
On January 1, 2021, the Cuban government unified its two currencies and discontinued use of the Cuban convertible peso
(CUC), with a six-month transition period for the CUC to be phased out of the economy. The Cuban peso (CUP) remains as the
sole Cuban currency at an exchange rate of 24 CUP:US$1 as at December 31, 2022.
There was no impact to the functional currencies of the Corporation’s Cuban entities as a result of currency unification and the
U.S. dollar remains the functional currency of these Cuban entities. The Corporation recognized a realized foreign exchange
gain of $10.0 million within financing expense upon payment of a Cuban tax liability during the year ended December 31, 2021
as a result of currency unification and confirmation received from the Government of Cuba (note 8). During the year ended
December 31, 2021, the Corporation also incurred lower labour and other service costs at its Cuban entities as a result of
currency unification. The Corporation continues to monitor the impact of currency unification on its Cuban operations. All Cuban
receivables remain owing to the Corporation.
Fair value measurement
As at December 31, 2022, the carrying amounts of cash and cash equivalents; restricted cash; trade accounts receivable, net;
current portion of advances, loans receivable and other financial assets; current portion of loans and borrowings; current portion
of other financial liabilities; and 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 values different from their fair values:
Canadian $ millions, as at
Liabilities:
8.50% second lien secured notes due 2026(1)
10.75% unsecured PIK option notes due 2029(1)
2022
December 31
Hierarchy
level
Carrying
value
Fair
value
Carrying
value
2021
December 31
Fair
value
1 $
1
233.6 $
70.8
185.9 $
38.9
354.5 $
82.6
196.3
28.9
Note
15
15
(1)
The fair values of the 8.50% second lien secured notes due 2026 and 10.75% unsecured PIK option notes due 2029 are based on market closing prices.
Trade accounts receivable, net
Canadian $ millions, as at
Trade accounts receivable
Allowance for expected credit losses
Accounts receivable from Moa Joint Venture
Other
Aging of trade accounts receivable, net
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
110 Sherritt International Corporation
2022
2021
December 31
December 31
155.8 $
(19.5)
27.4
22.7
186.4 $
174.0
(21.8)
18.2
20.3
190.7
2022
2021
December 31
December 31
169.9 $
4.4
3.3
8.8
186.4 $
152.1
4.7
8.5
25.4
190.7
$
$
$
$
Allowance for expected credit losses
Financial assets measured at amortized cost are presented net of their ACLs within the consolidated statements of financial
position.
Canadian $ millions
December 31
Revaluation(1)
Derecognition
As at
2021
Foreign exchange
and other non-cash
items
As at
2022
December 31
Lifetime expected credit losses
Trade accounts receivable, net
Energas conditional sales agreement(2)
$
(21.8) $
(8.0)
(0.4) $
(49.0)
2.2 $
57.0
0.5 $
-
(19.5)
-
For the year ended December 31, 2022
For the year ended December 31, 2021
Canadian $ millions
December 31
Revaluation(1)
As at
2020
Foreign exchange and other
non-cash items
As at
2021
December 31
Lifetime expected credit losses
Trade accounts receivable, net
Energas conditional sales agreement(2)
$
(21.4) $
(5.3)
(0.8) $
(2.7)
0.4 $
-
(21.8)
(8.0)
(1) Revaluation of ACLs are recognized within net finance expense (note 8).
(2)
Included in the $49.0 million revaluation loss presented above is a $48.5 million loss on revaluation of the ACL on the Energas CSA recognized during the year ended
December 31, 2022 as a result of the Cobalt Swap signed by the Corporation with its Cuban partners to recover its total outstanding Cuban receivables over five years, as
disclosed in note 8.
Fair value hierarchy
The GNC receivable (note 12) is a financial instrument subsequently measured at FVPL and the Energas payable (note 15) is
a financial instrument designated at FVPL at initial recognition, as it contains an embedded derivative. Their fair values are
determined using discounted cash flows in a Monte Carlo simulation, which uses significant inputs that are not based on
observable market data and require significant judgment. As a result, the GNC receivable and Energas payable are included in
Level 3 of the fair value hierarchy. The Corporation’s valuation process, including its valuation policy and procedures for fair
value measurements included in Level 3, is determined by the Corporation’s management and fair value is calculated each
reporting period with the assistance of a third-party valuation specialist. Fair value measurement, and changes in fair value from
period to period, are reviewed for reasonability by management each reporting period.
The following significant unobservable inputs were used to determine the fair value of the GNC receivable as at December 31,
2022:
Forecast in-kind cobalt prices from US$18/lb to US$24/lb. A 10% increase in forecast in-kind cobalt prices would
increase the fair value by $10.1 million, while a 10% decrease in forecast in-kind cobalt prices would decrease the fair
value by $7.7 million. The settlement of the GNC receivable is based on an in-kind value of cobalt, calculated as a
cobalt reference price from the month preceding distribution, modified mutually between the Corporation and GNC in
consideration of selling costs incurred by the Corporation.
Discount rate of 12%. A 5% increase in the discount rate would decrease the fair value by $27.7 million, while a 5%
decrease in the discount rate would increase the fair value by $32.1 million.
The following is a reconciliation of the fair value of the GNC receivable from initial recognition on October 13, 2022 to December
31, 2022:
Canadian $ millions, for the year ended December 31
Balance, initial recognition
Revaluation of GNC receivable in net finance (expense) income
Settlements
Balance, end of year
2022
Note
December 31
$
8
12 $
280.2
2.4
(3.5)
279.1
Sherritt International Corporation 111
Notes to the consolidated financial statements
The following significant unobservable inputs were used to determine the fair value of the Energas payable as at December 31,
2022:
Forecast in-kind cobalt prices from US$18/lb to US$24/lb. A 10% increase in forecast in-kind cobalt prices would
increase the fair value by $3.4 million, while a 10% decrease in forecast in-kind cobalt prices would decrease the fair
value by $2.4 million.
Discount rate of 12%. A 5% increase in the discount rate would decrease the fair value by $9.2 million, while a 5%
decrease in the discount rate would increase the fair value by $10.7 million.
The following is a reconciliation of the fair value of the Energas payable from initial recognition on October 13, 2022 to December
31, 2022:
Canadian $ millions, for the year ended December 31
Balance, initial recognition
Revaluation of Energas payable in net finance (expense) income
Settlements
Balance, end of year
Note
$
8
15 $
2021
79.6
4.0
(1.0)
82.6
12. ADVANCES, LOANS RECEIVABLE AND OTHER FINANCIAL ASSETS
Canadian $ millions, as at
Advances and loans receivable
GNC receivable(1)
Energas conditional sales agreement(2)
Other financial assets
Finance lease receivables
Current portion of advances, loans receivable and other financial assets(3)
Non-current portion of advances, loans receivable and other financial assets
2022
December 31
2021
December 31
Note
11 $
279.1
-
2.8
281.9
(74.8)
207.1
$
$
$
-
204.7
3.6
208.3
(18.1)
190.2
(1) As at December 31, 2022, the non-current portion of the GNC receivable agreement is $205.2 million (December 31, 2021 - nil).
(2) As at December 31, 2022, the non-current portion of the Energas conditional sales agreement is nil (December 31, 2021 - $187.4 million).
(3)
Included in the current portion of advances, loans receivable and other financial assets is the GNC receivable of $73.9 million (December 31, 2021 - nil). As at December
31, 2021, the current portion of advances, loans receivable and other financial assets included the Energas conditional sales agreement of $17.3 million.
GNC receivable
On October 13, 2022, the Corporation signed the Cobalt Swap with its Cuban partners to recover its total outstanding Cuban
receivables over five years, beginning January 1, 2023. Under the agreement, the Moa Joint Venture, at the discretion of its
Board of Directors, will prioritize payment of dividends in the form of finished cobalt to each partner (Sherritt and GNC), up to an
annual maximum volume of cobalt, with any additional dividends in a given year to be distributed in cash. All of GNC’s share of
these cobalt dividends, and potentially additional cash dividends, will be redirected to Sherritt as payment to recover the
receivables until an annual dollar limit, including the collection of any prior year shortfalls, has been reached.
Under the terms of the Cobalt Swap, GNC agreed to assume certain liabilities of amounts owed to Sherritt by Energas S.A.
(Energas) and CUPET in order to fully repay outstanding amounts over a five-year period. As a result of signing the agreement
on October 13, 2022, GNC became party to the contractual provisions of the agreement and the existing receivables from
Energas and CUPET were modified. The modification was determined to be a substantial modification and the existing
receivables for amounts owing from Energas and CUPET were derecognized, with a GNC receivable recognized at fair value
on initial recognition in the consolidated statements of financial position.
The principal balance of the GNC receivable as at December 31, 2022 is $368.0 million, representing the former Energas CSA
receivable of $336.3 million, including accrued interest, and the former trade accounts receivable from CUPET of $31.7 million
(collectively, Energas/CUPET liabilities). The Corporation retains title to the power generating assets financed by the former
Energas CSA described below, now assumed by GNC, until the GNC receivable is fully repaid.
112 Sherritt International Corporation
As a result of the exchange, Sherritt no longer has the responsibility for collection on the amounts solely from Energas and
CUPET. Energas and CUPET will remain liable for payment of the Energas/CUPET liabilities, as applicable, only to the extent
not satisfied by GNC. On distribution of any redirected amounts from GNC in cobalt or cash to Sherritt, GNC will receive an
equivalent payment from Energas/CUPET denominated in Cuban pesos. As a result of the Corporation’s one-third interest in
Energas, a joint operation, and recognition of its share of liabilities, the Corporation recognized one-third of Energas’ liability to
GNC at fair value on initial recognition in its consolidated statement of financial position as at December 31, 2022.
No interest will accrue on the Corporation’s GNC receivable over the five-year period. In the event that the total outstanding
receivables are not fully repaid by December 31, 2027, interest will accrue retroactively at 8.0% from January 1, 2023 on the
unpaid principal amount, and the unpaid principal and interest amounts will become due and payable by GNC to Sherritt.
Under the Cobalt Swap, over the five years beginning January 1, 2023, the Moa Joint Venture, at the discretion of its Board of
Directors, will dividend a maximum of 2,082 tonnes of finished cobalt annually to the joint venture partners. Accordingly, Sherritt
will receive a maximum of 1,041 tonnes of finished cobalt dividends per year in respect of its 50% share of the Moa Joint Venture.
GNC will redirect its 50% share of the total Moa Joint Venture dividends, up to 1,041 tonnes of finished cobalt per year, to Sherritt
as repayment towards the outstanding receivables, provided that the total cobalt volume redirected has a value of at least
US$57.0 million, subject to the following:
if the total annual finished cobalt dividend redirected by GNC has a value of less than US$57.0 million, GNC’s share of
any cash distributions from the Moa Joint Venture in such year will be redirected to Sherritt until the value of physical
cobalt and cash distributions in the aggregate totals US$57.0 million;
if the maximum cobalt volume distributed (1,041 tonnes) is not met in a given year, the volume deficit will be added to
the threshold in the following year; and
any shortfall in the annual minimum payment will also be added to the following year, such that the full repayment is
made within five years.
The settlement of the outstanding receivables is based on an in-kind value of cobalt, calculated as a cobalt reference price from
the month preceding distribution, modified mutually between the Corporation and GNC in consideration of selling costs incurred
by the Corporation. Upon receipt of the finished cobalt dividends, the title to both Sherritt and GNC’s redirected share of the
finished cobalt will be transferred immediately to Sherritt and the physical product will be moved to a Sherritt warehouse in Fort
Saskatchewan, from which Sherritt will sell the finished cobalt in the open market.
Subsequent to period end, the Moa Joint Venture distributed 760 tonnes of finished cobalt to the Corporation with an in-kind
value of US$27.0 million ($36.2 million) (100% basis) under the Corporation’s agreement with its Cuban partners to recover its
total outstanding Cuban receivables over five years (note 8). As a result, US$13.5 million ($18.1 million) of the GNC receivable
will be recovered in the three months ended March 31, 2023, representing GNC’s 50% portion of cobalt redirected to the
Corporation in satisfaction of the receivable.
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 directed the Corporation to arrange for the performance of certain construction
activity on behalf of Energas, and contained design specifications for each new construction phase. The Corporation retains title
to the constructed assets until the loan is fully repaid. The facility bore interest at 8.0%. Income generated by the constructed
assets was used to repay the facilities. Until the loan is fully repaid, all of the income generated by these assets is paid to the
Corporation. The amount of advances and loans receivable from Energas was presented net of its one-third share of Energas’
liabilities as a result of the Corporation’s one-third interest in Energas, a joint operation.
As a result of the Cobalt Swap signed on October 13, 2022 and substantial modification of the financial asset, the Energas
conditional sales agreement was derecognized during the year ended December 31, 2022.
Moa Joint Venture revolving-term credit facility
The Moa Joint Venture revolving-term credit facility is provided by the Corporation to the Moa Joint Venture to fund working
capital and capital expenditures. During the year ended December 31, 2020, the Moa Joint Venture revolving-term credit facility
was renewed and its maturity extended to April 30, 2022. The maximum credit available remained at $45.0 million and the
interest rates remained at prime plus 3.00% or bankers’ acceptance plus 4.00%.
Sherritt International Corporation 113
Notes to the consolidated financial statements
On October 28, 2021, the Moa Joint Venture revolving-term credit facility was amended and its maturity extended for two years
from April 30, 2022 to April 30, 2024. The maximum credit available increased from $45.0 million to $75.0 million and the interest
rates are bankers’ acceptance plus 4.00%, which remain unchanged. Borrowings on the facility are available to fund working
capital and capital expenditures of $45.0 million and $30.0 million, respectively. As at December 31, 2022, nil was drawn on the
facility (December 31, 2021 - nil).
Subsequent to period end, the Moa Joint Venture revolving-term credit facility was amended to extend its maturity for one year
from April 30, 2024 to April 30, 2025, with no other changes to the terms or restrictions above.
13. INVENTORIES
Canadian $ millions, as at
Raw materials
Materials in process
Finished products
Spare parts and operating materials
2022
2021
December 31
December 31
$
$
0.1 $
0.3
14.6
15.0
22.7
37.7 $
0.1
0.4
8.6
9.1
21.2
30.3
For the year ended December 31, 2022, the cost of inventories included in cost of sales was $81.4 million ($64.2 million for the
year ended December 31, 2021).
14. NON-FINANCIAL ASSETS
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 and depreciation
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
Right-of-use
Plant,
assets - Plant,
2022
Oil and Gas
equipment
equipment
properties
and land
and land
Total
$
$
$
$
$
59.8 $
-
(0.2)
-
0.2
59.8 $
59.5 $
-
-
-
0.3
59.8 $
- $
584.0 $
27.7
(15.2)
(8.2)
19.9
608.2 $
443.2 $
13.2
0.3
(6.9)
18.6
468.4 $
139.8 $
13.6 $
0.2
-
-
0.1
13.9 $
3.8 $
1.3
-
-
-
5.1 $
8.8 $
657.4
27.9
(15.4)
(8.2)
20.2
681.9
506.5
14.5
0.3
(6.9)
18.9
533.3
148.6
114 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
Balance, end of the year
Depletion, depreciation and impairment losses
Balance, beginning of the year
Depletion and depreciation
Disposals and derecognition
Effect of movements in exchange rates
Balance, end of the year
Net book value
Extension of Energas’ power generation contract
Right-of-use
Plant,
assets - Plant,
2021
Oil and Gas
equipment
equipment
properties
and land
and land
Total
$
$
$
$
$
168.6 $
0.2
3.3
(106.2)
(6.1)
59.8 $
167.8 $
0.5
(102.8)
(6.0)
59.5 $
0.3 $
679.0 $
9.6
(3.5)
(97.6)
(3.5)
584.0 $
524.5 $
19.4
(98.4)
(2.3)
443.2 $
140.8 $
13.5 $
0.1
-
-
-
13.6 $
2.4 $
1.4
-
-
3.8 $
9.8 $
861.1
9.9
(0.2)
(203.8)
(9.6)
657.4
694.7
21.3
(201.2)
(8.3)
506.5
150.9
During the year ended December 31, 2022, Cuba’s Executive Committee of the Council of Ministers approved the twenty-year
extension of the Energas Joint Venture contract with the Cuban government to March 2043, which was set to expire in March
2023. As a result, the estimated useful lives of property, plant and equipment and intangible assets in the Power reportable
segment were extended.
Expiry of the Puerto Escondido/Yumuri production-sharing contract
The Puerto Escondido/Yumuri production-sharing contract with an agency of the Government of Cuba expired in March 2021,
resulting in the derecognition of $197.3 million of cost and accumulated depreciation of property, plant and equipment. The net
book value of the property, plant and equipment was nil upon expiry.
Canadian $ millions
Assets under construction, included in above
As at December 31, 2022
As at December 31, 2021
Plant,
equipment
and land
$
24.1
8.5
Sherritt International Corporation 115
Notes to the consolidated financial statements
Intangible assets
Canadian $ millions, for the year ended December 31
2022
Cost
Balance, beginning of the year
Additions
Effects of movements in exchange rates
Balance, end of the year
Amortization and impairment losses
Balance, beginning of the year
Amortization
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
Effect of movements in exchange rates
Balance, end of the year
Amortization
Balance, beginning of the year
Amortization
Effect of movements in exchange rates
Balance, end of the year
Net book value
Exploration and evaluation
Service
Contractual
Exploration
concession
arrange-
and
ments
Evaluation
arrange-
ments
27.0 $
-
-
27.0 $
26.5 $
0.4
-
-
26.9 $
0.1 $
114.2 $
1.2
0.5
115.9 $
220.4 $
-
14.7
235.1 $
107.3 $
-
1.3
-
108.6 $
7.3 $
203.5 $
11.1
-
14.1
228.7 $
6.4 $
Service
Contractual
Exploration
concession
arrange-
and
ments
Evaluation
arrange-
ments
27.0 $
-
-
27.0 $
26.2 $
0.3
-
26.5 $
0.5 $
113.4 $
0.8
-
114.2 $
221.3 $
-
(0.9)
220.4 $
107.3 $
-
-
107.3 $
6.9 $
190.7 $
13.4
(0.6)
203.5 $
16.9 $
$
$
$
$
$
$
$
$
$
$
Other
Total
9.1 $
-
-
9.1 $
9.1 $
-
-
-
9.1 $
- $
370.7
1.2
15.2
387.1
346.4
11.5
1.3
14.1
373.3
13.8
2021
Other
Total
9.1 $
-
-
9.1 $
9.1 $
-
-
9.1 $
- $
370.8
0.8
(0.9)
370.7
333.3
13.7
(0.6)
346.4
24.3
Exploration and evaluation assets include three production-sharing contracts (PSCs) with the Government of Cuba, respectively
referred to as Block 6A, Block 8A and Block 10. Exploration and evaluation assets include capitalized expenditures on these
three blocks, and primarily consist of geological, geophysical and engineering expenditures. During the year ended December
31, 2022, the Corporation recognized an impairment loss of $1.3 million related to Block 8A, as the Corporation no longer expects
to explore this area. The Block 10 contract expires in 2043 and the Block 6A contract expires in 2045.
Service concession arrangements
Service concession arrangements include the Puerto Escondido/Yumuri pipeline and the Energas Boca de Jaruco power
generation facility.
116 Sherritt International Corporation
233.6
70.8
46.5
350.9
(46.5)
304.4
As at
2021
15. LOANS, BORROWINGS AND OTHER FINANCIAL LIABILITIES
Loans and borrowings
As at
2021
Canadian $ millions
Note
December 31
8.50% second lien secured notes due 2026
10.75% unsecured PIK option notes due 2029
Syndicated revolving-term credit facility
Current portion of loans and borrowings
Non-current portion of loans and borrowings
11 $
11
$
$
354.5 $
82.6
7.4
444.5 $
-
444.5
For the year ended December 31, 2022
Cash flows
Non-cash changes
Increase in other
loans and
borrowings
Repurchase of
notes
As at
2022
Other
December 31
- $
-
37.0
37.0 $
(114.2) $
(11.0)
-
(125.2) $
(6.7) $
(0.8)
2.1
(5.4) $
$
For the year ended December 31, 2021
Cash flows
Non-cash changes
As at
2020
Repurchase
Canadian $ millions
December 31
of notes
Fees paid
Other
December 31
8.50% second lien secured notes due 2026
10.75% unsecured PIK option notes due 2029
Syndicated revolving-term credit facility
Current portion of loans and borrowings
Non-current portion of loans and borrowings
$
$
$
358.4 $
75.0
8.0
441.4 $
(8.0)
433.4
(4.6) $
-
-
(4.6) $
- $
-
(0.6)
(0.6) $
0.7 $
7.6
-
8.3 $
$
354.5
82.6
7.4
444.5
-
444.5
8.50% second lien secured notes due 2026
During the year ended December 31, 2020, the Corporation issued 8.50% second lien secured notes (“Second Lien Notes”) with
a principal amount of $357.5 million maturing on November 30, 2026. Interest is payable semi-annually, in April and October,
in cash. The indenture governing the Second Lien Notes (the “Second Lien Notes Indenture”) requires mandatory redemptions
from excess cash (subject to the minimum liquidity condition noted below and the other terms and conditions set forth in the
Second Lien Notes Indenture). The mandatory excess cash flow redemption provision is in effect beginning with the two-quarter
period ending June 30, 2021 and mandatory redemptions are based on excess cash flow (a measure calculated based on cash
provided by (used in) operating activities excluding Energas, less sustaining property, plant and equipment expenditures
excluding Energas, plus all cash distributed by Energas to the Corporation held in Canada, including cash distributions received
by the Corporation from GNC pursuant to the Cobalt Swap and its assumption of the Energas CSA), which mandatory
redemption shall be required to be made only if the Corporation has minimum liquidity of $75.0 million calculated in accordance
with the Second Lien Notes Indenture. Expected mandatory excess cash flow redemptions have been included in the calculation
of the effective interest rate of the Second Lien Notes.
Mandatory redemptions of the Corporation’s 8.50% second lien secured notes during the year ended December 31, 2022 were
not required as the conditions pursuant to the redemption provisions of the indenture agreement were not met.
For the two-quarter period ended December 31, 2022, excess cash flow, as defined in the second lien secured notes indenture
agreement, was $43.4 million. At the interest payment date in April 2023, the Corporation will be required to redeem, at par, total
second lien secured notes up to an amount equal to 50% of excess cash flow, or $21.7 million, subject to minimum liquidity of
$75.0 million being maintained before and after such payment is made, as defined in the indenture agreement.
The liquidity amount is defined in the indenture as all unrestricted cash, cash equivalents and short-term investments measured
in accordance with IFRS, held by the Corporation and its restricted subsidiaries in bank accounts located in Canada, less the
principal amount drawn on the syndicated revolving-term credit facility, plus the total amount of cash used on all repurchases of
second lien secured notes and unsecured PIK option notes during the relevant two-fiscal quarter period.
Sherritt International Corporation 117
Notes to the consolidated financial statements
As such, the $80.4 million of cash used to repurchase second lien secured notes and unsecured PIK option notes during the six
months ended December 31, 2022 and any outstanding amounts drawn on the syndicated revolving-term credit facility as at the
interest payment date in April 2023 will be taken into account when calculating the minimum liquidity amount. The 8.50% second
lien secured notes due 2026 also include an option for the Corporation to redeem all or part of the notes outstanding prior to
maturity at a price equal to 107% of the principal amount so redeemed, which was determined to be an embedded derivative.
The fair value of this embedded derivative was nominal at inception and has not been presented separately from the Second
Lien Notes within the Corporation’s consolidated statements of financial position.
The Second Lien Notes Indenture provides for a 7% premium on (i) any optional early redemptions made at the election of the
Corporation prior to maturity as mentioned above, and (ii) on repayment on the maturity date, provided that the aggregate amount
of all premium payments paid by Sherritt with respect to the foregoing shall collectively not be less than $25.0 million. Mandatory
redemptions do not incur a premium and ultimately do not affect the timing of when this 7% premium is paid. This premium is
due upon the earlier of optional redemption and maturity of the 8.50% second lien secured notes due 2026 and is accreted over
the life of the instrument.
Under the Second Lien Notes Indenture, the Corporation is subject to various restrictions, which limit, among other things, the
incurrence of indebtedness, liens, asset sales and payment of distributions and other restricted payments, unless certain financial
ratios are met and subject to certain customary carve-outs and permissions, often referred to as “baskets”. If the ratio of earnings
before interest, taxes, depreciation and amortization (“EBITDA”)-to-interest expense, both as defined in the agreement, is above
2.5:1, unsecured debt can be incurred without the use of a basket and restricted payments can be made to the extent the
Corporation has sufficient room in an applicable basket, including the “builder basket” as calculated under the Second Lien Notes
Indenture.
During the year ended December 31, 2022, the Corporation repurchased $129.2 million of principal of the 8.50% second lien
secured notes due 2026 on the open market at a cost of $114.2 million, plus $1.1 million of accrued interest, resulting in a gain
on repurchase of notes of $11.2 million (note 8).
During the year ended December 31, 2021, the Corporation repurchased $7.0 million of principal of the 8.50% second lien
secured notes due 2026 on the open market at a cost of $4.6 million, plus $0.2 million of accrued interest, resulting in a gain on
repurchase of notes of $2.1 million (note 8).
As at December 31, 2022, the outstanding principal amount of the 8.50% second lien secured notes due 2026 is $221.3 million
(as at December 31, 2021 - $350.5 million).
Other non-cash changes on the 8.50% second lien secured notes due 2026 consists of the gain on repurchase of notes, net of
interest and accretion of a 7% premium.
10.75% unsecured PIK option notes due 2029
During the year ended December 31, 2020, the Corporation issued 10.75% unsecured PIK option notes with a principal amount
of $75.0 million maturing on August 31, 2029. Interest is payable semi-annually in cash or in-kind, at Sherritt’s election. Expected
payments of interest in-kind until the maturity of the note have been included in the calculation of the effective interest rate.
During the year ended December 31, 2022, the Corporation elected not to pay cash interest of $8.1 million on the 10.75%
unsecured PIK option notes due 2029 and added the payment-in-kind interest to the principal amount owed to noteholders ($7.6
million during the year ended December 31, 2021).
During the year ended December 31, 2022, the Corporation repurchased $19.9 million of principal of the 10.75% unsecured PIK
option notes due 2029 on the open market at a cost of $10.9 million, resulting in a gain on repurchase of notes of $9.7 million
(note 8).
As at December 31, 2022, the outstanding principal amount of the 10.75% unsecured PIK option notes due 2029 is $70.8 million
($82.6 million for the year ended December 31, 2021).
Other non-cash changes on the 10.75% unsecured PIK option notes due 2029 consists of the gain on repurchase of notes, net
of capitalized interest and accretion. Accrued and unpaid interest on these loans is capitalized to the principal balance semi-
annually in January and July at the election of the Corporation.
118 Sherritt International Corporation
Syndicated revolving-term credit facility
On October 28, 2021, the syndicated revolving-term credit facility was amended and its maturity extended for two years from
April 30, 2022 to April 30, 2024. The maximum credit available increased from $70.0 million to $100.0 million and the interest
rates are bankers’ acceptance plus 4.00%, which remain unchanged. Borrowings on the credit facility are available to fund
working capital and capital expenditures. Spending on capital expenditures cannot exceed $75.0 million in a fiscal year. This
restriction does not apply to capital expenditures of Moa Nickel S.A. The total available draw is based on eligible receivables
and inventories, which are pledged as collateral. Certain cash held in banks in Canada is also pledged as collateral.
The facility is subject to the following financial covenants and restrictions:
Net Available Cash covenant, as defined in the agreement, of $25.0 million. The amount compared against this
covenant is composed of cash and cash equivalents and short-term investments of the Corporation and its wholly-
owned subsidiaries held in Canada, plus undrawn amounts on the credit facility;
Senior Secured Net Debt-to-EBITDA covenant, as defined in the agreement, of less than 2:1. Senior Secured Net Debt
is calculated as first-lien debt, or amounts drawn on the credit facility, any derivative liability and any additional security
ranked equal to first-lien debt, less cash and cash equivalents and short-term investments of the Corporation and its
wholly-owned subsidiaries held in Canada up to $25.0 million. EBITDA is calculated on a 12-month trailing basis with
Energas included on a cash basis;
EBITDA-to-Interest Expense covenant, as defined in the agreement, of not less than 1.5:1 prior to September 30, 2022
and not less than 2:1 thereafter. EBITDA is calculated on a 12-month trailing basis with Energas included on a cash
basis. Interest expense excludes the payment-in-kind (PIK) interest on the Corporation’s 10.75% unsecured PIK option
notes due 2029; and
Minimum Tangible Net Worth covenant, as defined in the agreement, of $600.0 million plus 50% of positive net
earnings. Tangible Net Worth is calculated as total assets, less intangible assets, less amounts drawn on the credit
facility, less the principal amount of the 8.50% second lien secured notes due in 2026, less the principal amount of the
10.75% unsecured PIK option notes due in 2029, less any derivative liability and less any additional secured financing
ranked equal to first-lien debt.
As at December 31, 2022, the Corporation has $0.5 million of letters of credit outstanding pursuant to this facility (December 31,
2021 - $9.9 million). As at December 31, 2022, $45.0 million was drawn on this facility (December 31, 2021 - $8.0 million).
Effective June 30, 2020, the Corporation did not renew a $47.0 million letter of credit issued to support its share of the
environmental rehabilitation obligations held by its Spanish Oil and Gas operations. On October 29, 2021, the environmental
rehabilitation obligations held by the Corporation’s Spanish Oil and Gas operations were secured by a parent company guarantee
of €31.5 million until December 31, 2023, with no impact on the Corporation’s available liquidity.
In May 2022, Sherritt received consent from its lenders to expand the allowable use of proceeds to include repurchases of its
notes.
Subsequent to period end, the syndicated revolving-term credit facility was amended to extend its maturity for one year from
April 30, 2024 to April 30, 2025, with no other changes to the terms, financial covenants or restrictions above.
Other financial liabilities
Canadian $ millions, as at
Energas payable(1)
Lease liabilities
Share-based compensation liability
Other financial liabilities(2)
Current portion of other financial liabilities(2)
Non-current portion of other financial liabilities
2022
2021
Note
December 31
December 31
11 $
6, 17
$
82.6 $
12.6
34.6
40.4
170.2
(81.8)
88.4 $
-
14.2
22.8
3.9
40.9
(7.4)
33.5
(1) As at December 31, 2022, the non-current portion of the Energas payable is $68.2 million (December 31, 2021 - nil).
(2) As at December 31, 2022, the current portion of other financial liabilities includes the Energas payable of $14.4 million (December 31, 2021 - nil), a share-based
compensation liability of $28.2 million (note 17) (December 31, 2021 - $5.6 million) and a $37.2 million (December 31, 2021 - nil) other financial liability to the Moa Joint
Venture for distributions received that have not yet been declared as dividends, which will be extinguished upon declaration of the dividends.
Sherritt International Corporation 119
Notes to the consolidated financial statements
Energas payable
On October 13, 2022, the Corporation signed the Cobalt Swap with its Cuban partners to recover its total outstanding Cuban
receivables over five years, beginning January 1, 2023 (note 12). As a result of the Corporation’s one-third interest in Energas,
a joint operation, and recognition of its share of liabilities, the Corporation recognized one-third of Energas’ liability to GNC at
fair value on initial recognition in its consolidated statement of financial position (note 11), which represents amounts owing from
Energas to GNC upon distribution of redirected cobalt or cash amounts from GNC to Sherritt to be paid in Cuban pesos. The
principal balance of the Energas payable as at December 31, 2022 is $112.1 million (33 ⅓ basis).
No interest will accrue on Energas’ payable to GNC over the five-year period. In the event that the total outstanding receivables
are not fully repaid by December 31, 2027, interest will accrue retroactively at 8.0% from January 1, 2023 on the unpaid principal
amount, and the unpaid principal and interest amounts will become due and payable by Energas to GNC.
Lease liabilities
Canadian $ millions
Lease liabilities
Canadian $ millions
Lease liabilities
16. PROVISIONS
Canadian $ millions, as at
Environmental rehabilitation provisions
Other provisions
Current portion of provisions(1)
Non-current portion of provisions
For the year ended December 31, 2022
Cash flows
Non-cash changes
As at
2021
December 31
Principal
repayments
(note 23)
Interest paid
(notes 19 and
23)
Effect of
movement in
exchange
rates
As at
2022
Other
December 31
$
14.2 $
(1.9) $
(0.8) $
- $
1.1 $
12.6
For the year ended December 31, 2021
Cash flows
Non-cash changes
As at
2020
December 31
Principal
repayments
(note 23)
Interest paid
(notes 19 and
23)
Effect of
movement in
exchange rates
As at
2021
Other
December 31
$
15.7 $
(1.5) $
(0.9) $
- $
0.9 $
14.2
2022
2021
December 31
December 31
$
$
103.6 $
2.6
106.2
(15.7)
90.5 $
103.8
4.2
108.0
(3.2)
104.8
(1)
The current portion of provisions includes a current environmental rehabilitation provision of $14.7 million related to the Corporation's Spanish Oil and Gas operations.
Environmental rehabilitation provisions
Provisions for environmental rehabilitation obligations are recognized in respect of Fort Site mining operations, Oil and Gas and
Power 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.
120 Sherritt International Corporation
The following is a reconciliation of the environmental rehabilitation provisions:
Canadian $ millions, for the years ended December 31
Note
2022
2021
Balance, beginning of the year
Change in estimates
Gain on settlement of environmental rehabilitation provisions
Utilized during the year
Accretion
Effect of movement in exchange rates
Balance, end of the year
$
$
19
8
103.8 $
(0.4)
(0.1)
(0.5)
0.3
0.5
103.6 $
109.9
0.1
(1.2)
(1.1)
0.3
(4.2)
103.8
Change in estimates includes the impact of changes in discount rates, which ranged from 3.34% to 7.18% as at December 31,
2022 and were applied to expected future cash flows to determine the carrying value of the environmental rehabilitation
provisions (as at December 31, 2021 – discount rates from 1.08% to 5.45%).
The Corporation has estimated that it will require approximately $192.9 million in undiscounted cash flows to settle these
obligations. The payments are expected to be funded by cash generated from operations.
Other provisions
The following is a reconciliation of other provisions:
Canadian $ millions, for the years ended December 31
Balance, beginning of the year
Change in estimates
Utilized during the year
Balance, end of the year
Contingencies
2022
4.2 $
-
(1.6)
2.6 $
2021
2.2
4.1
(2.1)
4.2
$
$
A number of the Corporation’s subsidiaries have operations located in Cuba. The Corporation will continue to be affected by the
difficult political relationship between the United States and Cuba. The former U.S. administration had announced that it would
no longer suspend the right of claimants to bring lawsuits under Title III of the Helms-Burton Act, effective May 2, 2019. The
Corporation has received letters in the past from U.S. nationals claiming ownership of certain Cuban properties or rights in which
the Corporation has an indirect interest, including in relation to claims certified by the U.S. Foreign Claims Settlement
Commission. However, Sherritt has not been subjected to any lawsuits in this regard. In the event that any such lawsuits were
to be filed, Sherritt does not believe that its operations would be materially affected because Sherritt’s minimal contacts with the
United States would likely deprive any U.S. court of personal jurisdiction over Sherritt. Furthermore, even if personal jurisdiction
were exercised, any successful U.S. claimant would have to seek enforcement of the U.S. court judgment outside the U.S. in
order to reach material Sherritt assets. The Corporation believes it unlikely that a court in any country in which Sherritt has
material assets would enforce a Helms-Burton Act judgment against it.
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 (loss), cash flow or financial position.
17. SHARE-BASED COMPENSATION PLANS
Cash-settled share-based compensation plans
On an annual basis, the Corporation’s Board of Directors approves the grant of cash-settled share-based units to certain
employees. The units are in the form of: i) Restricted Share Units (“RSUs”) with no performance conditions, which vest at the
end of three years and ii) Performance Share Units (“PSUs”) subject to performance conditions, which vest at the end of three
years.
Sherritt International Corporation 121
Notes to the consolidated financial statements
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. RSUs are issued subject to vesting conditions, which are set by the Human Resources Committee of the Board of
Directors (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.
Under the plan, each RSU 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 statements 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 number of RSUs subject to no performance conditions outstanding at December 31, 2022 was
31,424,431 (December 31, 2021 – 32,985,216).
PSUs
PSUs represent a right to receive a cash amount payable by the Corporation to a participant at the end of the vesting period
determined by reference to the market price of the common shares multiplied by the number of PSUs held by the participant as
adjusted for dividend equivalents credited, if any. Under the plan, each PSU 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 statements of
comprehensive income (loss) over the 3-year service period required for employees to become fully entitled to the award. The
PSUs are issued subject to vesting conditions, including performance conditions, which are set by the Human Resources
Committee. The vesting of PSUs will be subject to the achievement of two equally-weighted performance conditions measured
over the 3-year vesting period: (i) the Corporation’s total shareholder return relative to benchmark indices composed of mining
and oil and gas companies (a market condition); and (ii) certain specified internal measures related to achieving strategic
objectives and unit cost of production compared to budget (non-market conditions). The value of PSUs that vest will vary from
0% to 200% based on the achievement of the market and non-market performance conditions. The number of PSUs subject to
these performance conditions outstanding at December 31, 2022 was 31,424,431 (December 31, 2021 – 32,985,216).
Deferred Share Units (DSUs)
Under the terms of the Non-Executive Directors’ DSU 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.
Cash payments for share-based units are made in the first quarter of each year and are dependent upon the market value of
the Corporation's shares on the settlement date, and in the case of PSUs, cash payments are also dependent upon the
achievement of the market and non-market performance conditions described above. The market value of the Corporation’s
shares as at December 31, 2022 and December 31, 2021 was $0.50 and $0.38, respectively.
A summary of the Corporation’s RSU and PSU outstanding and vested as at December 31, 2022 is shown below. The
Corporation’s share-based compensation liabilities are measured based on the vested units at the end of each reporting period.
122 Sherritt International Corporation
As at December 31
Grant year
2020
2021
2022
Outstanding, end of the period
Vested, end of the period
RSU
20,061,555
6,187,151
5,175,725
31,424,431
26,110,137
2022
PSU
20,061,555
6,187,151
5,175,725
31,424,431
26,110,137
A total of 5,695,560 Deferred Share Units (DSU) are outstanding and vested as at December 31, 2022, granted between 2012
and 2022.
During the year ended December 31, 2022, the Corporation recognized a share-based compensation expense of $17.5 million,
during which time the market value of the Corporation’s shares increased by $0.12 and additional units vested. During the year
ended December 31, 2021, the Corporation recognized a share-based compensation expense of $13.9 million, which included
accelerated share-based compensation expense of $6.1 million, related to the Corporate office workforce reduction, departures
of two senior executives and planned retirement of a senior executive, and during which time the market value of the
Corporation’s shares decreased by $0.02.
A summary of the RSU, PSU and DSU units outstanding as at December 31, 2022 and 2021 and changes during the year ended
is as follows:
For the year ended December 31
Outstanding, beginning of the year
Granted
Exercised
Forfeited
Outstanding, end of the year
Units exercisable, end of the year
For the year ended December 31
Outstanding, beginning of the year
Granted
Exercised
Forfeited
Outstanding, end of the year
Units exercisable, end of the year
RSU
PSU
2022
DSU
32,985,216
5,238,226
(6,506,942)
(292,069)
31,424,431
n/a
32,985,216
5,238,226
(3,448,703)
(3,350,308)
31,424,431
n/a
4,800,812
1,216,684
(321,936)
-
5,695,560
5,695,560
RSU
PSU
2021
DSU
29,404,740
6,321,768
(2,229,187)
(512,105)
32,985,216
n/a
30,070,740
6,321,768
(1,158,080)
(2,249,212)
32,985,216
n/a
4,211,397
910,192
(320,777)
-
4,800,812
4,800,812
For cash-settled share-based compensation plans, the Corporation recorded a compensation expense of $17.5 million for the
year ended December 31, 2022 ($13.9 million for the year ended December 31, 2021). The carrying amount of liabilities
associated with cash-settled share-based compensation plans is $34.6 million as at December 31, 2022 (December 31, 2021 -
$22.8 million).
Sherritt International Corporation 123
Notes to the consolidated financial statements
Share-based compensation liability
Canadian $ millions, as at
Share-based compensation liability
Current portion of share-based compensation liability
Non-current portion of share-based compensation liability
Share-based compensation expense
Canadian $ millions
Share-based compensation expense
Measurement of fair values at grant date
2022
December 31
2021
December 31
Note
15 $
$
34.6 $
(28.2)
6.4 $
22.8
(5.6)
17.2
For the year ended
2022
2021
Note
December 31
December 31
6 $
17.5 $
13.9
The fair value of the RSUs, PSUs and DSUs 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 weighted-average grant date fair values for the
RSU, PSU and DSU units granted during the period:
Canadian $, for the years ended December 31
RSU
PSU
DSU
2022
2021
$
0.60 $
0.60
0.45
0.60
0.60
0.49
The intrinsic value of cash-settled share-based compensation awards vested and outstanding as at December 31, 2022 was
$34.6 million (December 31, 2021 - $22.8 million).
Equity-settled stock option plan 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 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 8,193,728 at December 31, 2022. 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.
124 Sherritt International Corporation
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
Expired
Outstanding, end of the year
Options exercisable, end of the year
2022
Weighted-
average
exercise
price
Number of
options
1.78
2.50
1.40
1.40
8,978,031 $
(4,857,840)
4,120,191 $
4,120,191 $
2021
Weighted-
average
exercise
price
1.97
2.14
1.78
1.78
Number of
options
4,120,191 $
(1,418,450)
2,701,741 $
2,701,741 $
The following table summarizes information on stock options outstanding and exercisable:
As at December 31
Range of exercise prices
outstanding
life (years)
price
exercisable
Weighted-
average
remaining
Number
contractual
Weighted-
average
exercise
Number
2022
Exercisable
weighted-
average
exercise
price
$0.68 - $1.20
$1.21 - $2.11
$2.12 - $3.00
$3.01 - $5.14
Total
1,670,476
645,465
283,900
101,900
2,701,741
3.4 $
3.8
1.6
0.4
3.2 $
0.83
1.63
2.99
4.71
1.40
1,670,476 $
645,465
283,900
101,900
2,701,741 $
0.83
1.63
2.99
4.71
1.40
As at December 31, 2022, 2,701,741 options without tandem SARs (December 31, 2021 – 4,120,191) remained outstanding for
which the Corporation has recognized a share-based compensation expense of nil for the year ended December 31, 2022
(expense of $0.1 million for the year ended December 31, 2021).
Share-based compensation risk
The Corporation is exposed to financial risk related to share-based compensation costs. Potential fluctuations in the price of
Sherritt’s common shares would have an impact on share-based compensation expense. Based on balances as at December
31, 2022, a $0.10 decrease in the price of the Corporation’s common shares could increase the Corporation’s net earnings (loss)
by approximately $7.0 million for cash-settled share-based units. A $0.10 increase in the price of the Corporation’s common
shares could decrease the Corporation’s net earnings (loss) by approximately $7.2 million for cash-settled share-based units.
18. COMMITMENTS FOR EXPENDITURES
Canadian $ millions, as at December 31
Property, plant and equipment commitments
2022
5.5
$
Sherritt International Corporation 125
Notes to the consolidated financial statements
19. SUPPLEMENTAL CASH FLOW INFORMATION
Working capital is defined as the Corporation's current assets less current liabilities and was $61.7 million as at
December 31, 2022 ($168.1 million - December 31, 2021).
Net change in non-cash working capital
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
Interest received
Interest received includes the following:
Canadian $ millions, for the years ended December 31
Interest received on finance lease receivables
Interest received on Energas conditional sales agreement
Other interest received
Interest paid
Interest paid includes the following:
Canadian $ millions, for the years ended December 31
Interest paid on lease liabilities
Interest paid on 8.50% second lien secured notes due 2026
Other interest paid
Other operating items
Other operating items includes the following:
Canadian $ millions, for the years ended December 31
Add (deduct) non-cash items:
Loss on environmental rehabilitation provisions
Other items
Cash flows arising from changes in:
Other finance charges
Realized foreign exchange (loss) gain
Environmental rehabilitation provisions
126 Sherritt International Corporation
2022
2021
(11.0) $
(7.2)
(0.9)
7.4
1.1
(10.6) $
(47.6)
(5.5)
(0.3)
70.0
8.1
24.7
2022
2021
0.2 $
0.9
1.7
2.8 $
0.3
4.0
1.3
5.6
$
$
$
$
Note
2022
2021
15, 23 $
$
(0.8) $
(29.1)
(2.1)
(32.0) $
(0.9)
(30.0)
(1.8)
(32.7)
Note
2022
2021
$
$
16
15.0
1.7 $
(2.8)
(0.2)
(0.5)
13.2 $
3.1
(0.3)
(0.7)
(0.3)
(1.1)
0.7
20. 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
Number
2022
Capital stock
Number
Capital stock
2021
Balance, beginning of the year
Warrants exercised - 2016 debenture extension(1)
Balance, end of the year
397,288,680
-
397,288,680
$
$
2,894.9
-
2,894.9
397,284,652 $
4,028
397,288,680 $
2,894.9
-
2,894.9
During the year ended December 31, 2021, the 2016 debenture warrants expired and nil warrants were outstanding as at
December 31, 2022 (December 31, 2021 – nil).
Reserves
Canadian $ millions, for the years ended December 31
Stated capital reserve
Balance, beginning of the year
Balance, end of the year
Share-based compensation reserve(1)
Balance, beginning of the year
Stock option plan expense
Balance, end of the year
Total reserves, end of the year
2022
2021
222.2 $
222.2
222.2
222.2
11.2 $
-
11.2
233.4 $
11.1
0.1
11.2
233.4
$
$
$
(1) Share-based compensation reserve relates to equity-settled compensation plans issued by the Corporation to its directors, officers and employees.
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, net of tax
Balance, end of the year
Actuarial losses on pension plans
Balance, beginning of the year
Actuarial gains on pension plans, net of tax
Balance, end of the year
Total accumulated other comprehensive income
2022
2021
360.4 $
45.8
406.2
(5.2)
0.6
(4.6)
401.6 $
364.7
(4.3)
360.4
(6.0)
0.8
(5.2)
355.2
$
$
21. FINANCIAL RISK AND CAPITAL RISK MANAGEMENT
COVID-19 and Cuba risk
The Corporation’s operations are subject to the risk of emerging infectious diseases or the threat of outbreaks of viruses or other
contagions or epidemic diseases, including the novel COVID-19 pandemic. The global response to the COVID-19 pandemic
has resulted in, among other things, border closures, severe travel restrictions, as well as quarantine, self-isolation and other
emergency measures imposed by various governments. Additional government or regulatory actions or inactions around the
world in jurisdictions where the Corporation operates may also have potentially significant economic and social impacts. If the
business operations of the Corporation are disrupted or suspended as a result of these or other measures, it may have a material
adverse effect on the Corporation’s business, results of operations and financial performance. There are potentially significant
adverse impacts of COVID-19 which may include decreased demand or the inability to sell nickel or cobalt or declines in the
price of nickel and cobalt, supply chain delays or disruptions, or other unknown but potentially significant impacts. COVID-19
and efforts to contain it may have a significant effect on commodity prices, and the possibility of a prolonged global economic
downturn may further impact commodity demand and prices.
Sherritt International Corporation 127
Notes to the consolidated financial statements
The Corporation continues to monitor the impact of the COVID-19 pandemic, including the impact on economic activities in
Canada, Cuba and globally. During the years ended December 31, 2022 and December 31, 2021, the Corporation took a
number of measures to safeguard the health of its employees and their local communities while continuing to operate safely and
responsibly. Government-ordered restrictions resulted in health and safety measures being put in place at operations in Canada
and Cuba.
Operations at these sites continued during the years ended December 31, 2022 and December 31, 2021, with COVID-19 having
a limited impact on mining and refining activities and no material impact on finished nickel and cobalt production at the Moa Joint
Venture and Fort Site during the years ended December 31, 2022 and December 31, 2021.
During the years ended December 31, 2022, and December 31, 2021, Cuba experienced increased hardships as a result of the
impact of COVID-19 and continued U.S. sanctions, impacting the country’s tourism and other industries, hampering the country’s
foreign currency liquidity and resulting in prolonged border closures, food and medicine shortages, electricity outages and
sporadic civil demonstrations. The foregoing may contribute to increased political, economic and related risks to the Corporation.
See the discussion of risks associated with COVID-19 in “Risk Factors – Liquidity and Access to Capital” and “Risk Factors –
Political, Economic and Other Risks of Foreign Operations” in the Corporation’s Annual Information Form.
The timing and amount of receipts of Cuban energy payments were negatively impacted during the year ended December 31,
2022, as they are dependent upon Cuba’s economy, which has been affected by restrictions on tourism as a result of COVID-
19, consequences of the Cuban currency unification, as well as U.S. sanctions limiting Cuba’s access to foreign currency. Prior
to derecognition as a result of the Cobalt Swap (note 8), the uncertainty on the timing and amount of receipts of Cuban energy
payments impacted judgments made by the Corporation, including those relating to determining the collection and carrying
values of Cuban trade accounts receivable for the Oil and Gas and Power segments (note 11), and the Energas conditional
sales agreement (note 12), in addition to the recoverable values of the Corporation’s non-current non-financial assets in Cuba
(note 14). The carrying values of trade accounts receivable for the Oil and Gas and Power segments and the Energas conditional
sales agreement prior to derecognition as a result of the Cobalt Swap reflected the Corporation’s exposure to credit risk. The
net carrying value represented the Corporation’s best estimate of amounts collectible as at the reporting date. As a result of the
Cobalt Swap, the Corporation no longer has the responsibility for collection of the receivable amounts solely from Energas and
CUPET, which are dependent upon Cuba’s economy, and instead will collect from GNC, the Corporation’s Moa Joint Venture
partner. GNC receives distributions from the Moa Joint Venture, which is less dependent upon Cuba’s economy as it earns
foreign currency from nickel and cobalt sales to customers outside of Cuba.
As a result of the COVID-19 pandemic, the Corporation's financial position, performance and cash flows could be impacted by
COVID-19 and the full extent of the impact cannot be reasonably estimated at this time. For the years ended December 31,
2022 and December 31, 2021, there have been no significant impacts from COVID-19 on the Corporation, other than the items
described above.
Risk management policies and hedging activities
The Corporation is sensitive to changes in commodity prices, foreign exchange rates and interest rates. The Corporation’s Board
of Directors has overall responsibility for the establishment and oversight of the Corporation’s risk management framework. The
Corporation reduces the business-cycle risks inherent in its commodity operations through industry diversification and the limited
use of options, discussed below in the liquidity risk and commodity price risk sections.
Credit risk
Sherritt’s sales of nickel, cobalt, fertilizers, 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.
128 Sherritt International Corporation
Cuba
The Corporation has credit risk exposure related to its share of cash, trade accounts receivable, net 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(1)
Total
2022
2021
Note
December 31
December 31
$
$
12, 22
101.7 $
7.2
279.2
388.1 $
80.7
40.4
204.7
325.8
(1) Advances and loans receivable as at December 31, 2022 includes the GNC receivable pursuant to the Cobalt Swap (note 12), which the Corporation recovers from GNC.
Although GNC is located in Cuba, it is less dependent upon Cuba’s economy, as GNC earns foreign currency from the Moa Joint Venture, whose nickel and cobalt sales
are with customers outside of Cuba. Advances and loans receivable as at December 31, 2021 includes the Energas conditional sales agreement.
The table above reflects the Corporation’s maximum credit exposure to Cuban counterparties.
Allowance for expected credit losses
The Corporation uses a three-stage approach to measure an ACL, using an ECL approach as required under IFRS 9 for financial
assets measured at amortized cost.
The following table presents the Corporation’s financial assets measured at amortized cost, the stage that they are in for ACL
measurement and the balance of the ACL as at December 31, 2022. The gross carrying value of the financial asset best
represents the maximum exposure to credit risk at the reporting date:
Canadian $ millions
Trade accounts receivable, net(1)
Note
ECL stage(1)
Gross
carrying value
ACL
Net
carrying value
11
n/a $
205.9 $
(19.5) $
186.4
(1)
For trade accounts receivable, net, the Corporation has applied the simplified approach in IFRS 9 to measure the ACL at lifetime ECL. The Corporation determines the
ACL based on the past due status of the debtors, adjusted as appropriate to reflect current and estimated future economic conditions.
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 non-current obligations
and to meet its capital commitments in a cost-effective manner.
levels, cash
The main factors that affect liquidity include realized sales prices, collection of receivables,
production costs, working capital requirements, capital expenditure requirements, scheduled repayments of loans, borrowing
and other financial liabilities, credit capacity and debt and equity capital market conditions.
production
The Corporation’s liquidity requirements are met through a variety of sources, including cash and cash equivalents, cash
generated from operations and distributions from the Moa Joint Venture (including pursuant to the Cobalt Swap), existing credit
facilities, leases, and debt and equity capital markets.
Based on management’s assessment of its financial position and liquidity profile as at December 31, 2022, the Corporation will
be able to satisfy its current and non-current 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.
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 share-based compensation costs.
Sherritt International Corporation 129
Notes to the consolidated financial statements
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, 2022, a weakening or strengthening 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 $3.2
million, respectively, on the Corporation’s net earnings (loss).
Based on financial instrument balances as at December 31, 2022, a weakening or strengthening 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 $5.0
million, respectively, on the Corporation’s other comprehensive income (loss).
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, fertilizer 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. During the year ended December 31, 2020, the Corporation entered into put options on nickel, all of which expired by
December 31, 2021 and settled in January 2022. The Corporation has not entered into such agreements during the year ended
December 31, 2022 for 2023. Sherritt also reduces the business-cycle risks inherent in its commodity operations through
industry diversification.
The Corporation has certain provisional pricing agreements at the Moa Joint Venture. These provisionally-priced transactions
are periodically adjusted to actual prices 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 Moa Joint Venture.
Interest rate risk
The Corporation is exposed to interest rate risk based on its outstanding loans and borrowings, 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 current and non-current loans and borrowings, cash equivalents, and current and non-current advances
and loans receivable at December 31, 2022, excluding interest capitalized to project costs, a 1.0% decrease or increase in the
market interest rate would not have a material impact on the Corporation’s net earnings (loss). The Corporation does not engage
in hedging activities to mitigate its interest rate risk.
Share-based compensation risk
Refer to note 17 for the Corporation’s exposure to financial risk related to share-based compensation costs.
Capital risk management
In the definition of capital, the Corporation includes, as disclosed in its consolidated financial statements and notes: capital stock,
deficit, loans and borrowings, other financial liabilities and available credit facilities.
130 Sherritt International Corporation
Canadian $ millions, as at
Capital stock
Deficit
Loans and borrowings
Other financial liabilities
Available credit facilities
2022
2021
December 31
December 31
$
2,894.9 $
(2,835.0)
350.9
170.2
54.5
2,894.9
(2,898.5)
444.5
40.9
82.1
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.
Subject to the limitations within the indenture and revolving credit agreements, 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 (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 loans and borrowings 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
facility 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 periodic basis.
Financial obligation maturity analysis
The Corporation’s significant contractual commitments, obligations, and interest and principal repayments in respect of its
financial liabilities recognized, income taxes payable and provisions are presented in the following table. For amounts payable
that are not fixed, including mandatory redemptions of the 8.50% second lien notes due 2026 (note 15), the amount disclosed
is determined by reference to the conditions existing as at December 31, 2022.
Canadian $ millions, as at December 31, 2022
Total
1 year
Falling
due within
Falling
due
between
1-2 years
Falling
due
between
2-3 years
Falling
due
between
3-4 years
Falling
due
between
4-5 years
Falling
due in
more than
5 years
Trade accounts payable and
accrued liabilities
Income taxes payable
8.50% second lien secured notes
due 2026 (includes principal,
interest and premium)
10.75% unsecured PIK option notes
due 2029 (includes principal and
interest)
Syndicated revolving-term credit
facility
Provisions
Energas payable
Lease liabilities
Total
$
209.7 $
209.7 $
1.0
323.1
1.0
18.8
148.7
-
-
46.3
10.7
25.6
50.2
192.9
112.1
15.9
1,053.6 $
$
3.9
15.7
15.2
2.7
267.0 $
2.5
103.9 $
- $
-
- $
-
- $
-
18.8
18.8
266.7
- $
-
-
-
-
-
-
-
148.7
-
164.5
-
5.7
318.9
-
-
-
-
1.5
26.6
2.4
49.3 $
0.2
26.2
1.3
294.4 $
0.3
18.5
1.3
20.1 $
The Moa Joint Venture’s significant undiscounted commitments, which are non-recourse to the Corporation, are presented below
on a 50% basis:
Environmental rehabilitation commitments of $95.7 million, with no significant payments due in the next five years;
Trade accounts payable and accrued liabilities of $44.0 million;
Income taxes payable of $2.0 million;
Lease liabilities of $0.4 million;
Loans and borrowings of $14.5 million; and
Property, plant and equipment commitments of $12.0 million.
Sherritt International Corporation 131
Notes to the consolidated financial statements
Property, plant and equipment commitments include normal course expenditures and those associated with tailings management
facilities.
22. RELATED PARTY TRANSACTIONS
The Corporation and subsidiaries provide goods, labour, advisory and other administrative services to jointly controlled entities 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.
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 jointly controlled entities is included in notes 2.2 and 7.
Canadian $ millions, for the years ended December 31
2022
2021
Total value of goods and services:
Provided to joint operation
Provided to Moa Joint Venture
Purchased from Moa Joint Venture
Net financing income from joint operation
Net financing income from Moa Joint Venture
Canadian $ millions, as at
Accounts receivable from Moa Joint Venture
Accounts payable to Moa Joint Venture
Advances and loans receivable from joint operation
$
22.9 $
302.6
1,216.0
14.4
0.4
15.7
254.2
835.6
14.4
0.5
Note
11
12, 21
2022
2021
December 31
December 31
27.4
127.8
-
18.2
122.0
204.7
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 Financial Officer, Chief
Commercial Officer, Chief Human Resources Officer, Senior Vice Presidents of the Corporation and the Chief Operating Officer
prior to retirement. 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)
Termination benefits
Share-based payments
2022
2021
$
$
6.7 $
0.3
-
4.5
11.5 $
7.2
0.3
5.3
5.6
18.4
(1) Post-employment benefits include a non-registered defined contribution executive supplemental pension plan. The total cash pension contribution for key management
personnel was nil for the year ended December 31, 2022 (nil for the year ended December 31, 2021). The total pension expense that is attributable to key management
personnel was nil for the year ended December 31, 2022 (nil for the year ended December 31, 2021).
132 Sherritt International Corporation
23. LEASES
Corporation as a lessee
The Corporation’s portfolio of leases primarily consists of office space, machinery and equipment and computer and
telecommunications hardware. The Corporation’s lease liabilities are disclosed in notes 15 and 21.
Amounts recognized in the consolidated statements of comprehensive income (loss):
Canadian $ millions, for the years ended December 31
Expenses for variable lease payments not included in the measurement of lease liabilities
Expenses relating to short-term leases
$
2022
1.6 $
2.1
Amounts recognized in the consolidated statements of cash flows:
Canadian $ millions, for the years ended December 31
Note
2022
Interest paid on lease liabilities
Principal repayments on lease liabilities
Included in net loss from continuing operations:
Variable lease payments not included in initial measurement of lease liability
Payments for short-term leases (for which no lease liability is recognized)
Corporation as a lessor
15, 19 $
15
$
0.8 $
1.9
1.6
2.1
6.4 $
2021
1.7
1.9
2021
0.9
1.5
1.7
1.9
6.0
The Corporation acts as a lessor in an operating lease of office space and in finance sub-leases of office and storage
space. The Corporation’s finance lease receivables are disclosed in note 12.
The Corporation’s undiscounted lease payments to be received on finance lease receivables are presented in the
following table:
Canadian $ millions, as at December 31, 2022
1 year
1-2 years
2-3 years
3-4 years
4-5 years
5 years
Total
income
(note 12)
Receivable Receivable Receivable Receivable Receivable Receivable
Unearned
investment
in
in
in
in
in
in
finance
in the lease
Net
Undiscounted lease receipts on
finance leases
$
1.0 $
1.0 $
1.1 $
- $
- $
- $
3.1 $
0.3 $
2.8
Sherritt International Corporation 133
2023 Guidance
Finished nickel production (100% basis)
Finished cobalt production (100% basis)
(1)
Net direct cash cost
Spending on capital
(1)(2)
Electricity production
(1)
Unit Operating Cost
Spending on capital
(1)(2)
per MWh
Moa JV and Fort Site
Power (33 ⅓%)
30,000 – 32,000 tonnes
3,100 – 3,400 tonnes
US$5.00 – $5.50/lb
C$90M
575 – 625 GWh
C$28.50 – $30.00
C$4.4M
Shareholder Information
INVESTOR INQUIRIES
Investor Relations
Sherritt International Corporation
22 Adelaide St. West
TRANSFER AGENT AND REGISTRAR
TSX Trust Company
P.O Box 700 Station B
Montreal, Quebec, Canada
H3B 3K3
nd
Floor
Suite 42
Toronto, Ontario, Canada
M5H 4E3
Telephone: 416-935-2451
Toll-free: 1-800-704-6698
Fax: 416-935-2283
Email: Investor@sherritt.com
Website: www.sherritt.com
Telephone: 416-682-3860
Toll-free (N. America) 1-800-387-0825
Fax: 514-985-8843
Toll-free (N. America) 1-888-249-6189
Email: shareholderinquiries@tmx.com
Website: www.tsxtrust.com
AUDITORS
Deloitte LLP, Toronto
STOCK EXCHANGE LISTING
Toronto Stock Exchange – TSX:S
Common Shares - S
1.
2.
Non-GAAP financial measures, see the Non-GAAP and other financial measures section of the MD&A for details.
Sustaining spending on capital is based on Sherritt’s interest – Moa JV - 50% of expenditures for Moa JV and 100% expenditures for Fort Site
fertilizer and utilities (C$70 million); Power is 33-1/3% (C$4.4 million). Growth spending of capital is for Moa JV (C$20 million, 100% basis).
Sherritt International Corporation
22 Adelaide Street West, Suite 4220
Toronto, ON M5H 4E3
For further investor information contact:
Telephone: 416.935.2451
Toll-free 1.800.704.6698
www.sherritt.com