2023
FINANCIAL RESULTS
Sherritt International Corporation
Message from Sherritt’s Chief Executive Officer
Sherritt’s legacy of resilience and innovation has long been our hallmark in overcoming adversity. The year 2023 presented us
with unique challenges, including a significant operational setback at our ammonia plant due to unplanned maintenance and
difficulties implementing the new mine plan at the Moa JV. Yet, despite these setbacks, our timely and strategic response,
characterized by decisive and corrective actions, has set us on a path to not only preserve but also improve our business moving
forward. With the proactive changes we have implemented and our continued focus to deliver on our strategic objectives, we
look forward to delivering improved performance in the quarters and years ahead.
Over the course of 2023, despite increasing overall demand, both nickel and cobalt markets became over supplied. The electric
vehicle battery supply chain has become a new arena for geopolitical competition. Last year saw a significant increase in supply
influenced by Chinese interests, growing their market share throughout the supply chain they already dominate. With the
conversion of Class II nickel increasing the supply of intermediates suitable for electric vehicle markets and Class I London Metal
Exchange inventories, nickel prices declined rapidly in the second half of the year.
Despite these dark clouds, there remain reasons to be optimistic. In the near-term, forecasts for 2024 and 2025 point towards a
supply to demand recovery driven by the stainless steel and battery sectors’ growth, coupled with near-term supply reduction.
Over the long-term, significant demand growth is still expected from the energy transition as governments and auto
manufacturers implement their climate change and fleet electrification strategies. Supply chains in the electric vehicle value
chain are continuing to form and new regulations are being introduced and clarified. Legislation such as the U.S. Inflation
Reduction Act, which provides incentives for electric vehicles that meet sourcing requirements for critical materials, could lead
to stronger regionalization and bifurcated markets based on geography and usage. These developments, and similar incentives
by Canadian and European governments, could have a positive impact on pricing in certain markets, including those that Sherritt
serves. We continue to monitor this closely. In the short-term, with recent announcements of nickel supply reductions from higher
cost operations moving to care and maintenance, strategic reviews and the uptake of new sales agreements by auto
manufacturers, pricing support may have been found at current levels and is expected to increase in support of continued strong
long term demand growth from the energy transition markets.
Against the backdrop of lower nickel, cobalt and fertilizer prices, 2023 was an unacceptable year for our Metals business. Our
priority is always the safety and wellbeing of our employees but sadly, there were tragic safety incidents at our Moa JV site
during the year, two resulting in the loss of Victor Ramirez Figueredo and Disnier Mariño López. With our partner in Cuba, we
conducted a rigorous root cause analysis and review of the site’s fatality prevention measures. This led to the initiation of
additional Safety Strategy sessions aimed at strengthening safety protocols across all operations, along with the implementation
of additional actions and measures to bolster safety. We also faced several operational setbacks. At the Moa JV, we were unable
to achieve the ore quality targets to meet our new mine planning parameters and needed to substitute to lower grade ore feed
until we could access new mining areas, resulting in feed constraints to the refinery and ultimately negatively impacting finished
production. At Sherritt’s fertilizer business, unplanned maintenance at the ammonia plant impacted operating margins and sales
volumes. With our partner in Cuba, we resolved the challenges throughout the year, but with the significant maintenance
spending that was required, our costs were much higher than we initially expected and our production fell short. Needless to
say, 2023 was a disappointing year in our Metals business.
What gets overshadowed by the performance of last year is that we were successful in accomplishing a number of significant
milestones. The successful completion of the first year of the Cobalt Swap agreement marked a breakthrough in the efforts to
recover our outstanding Cuban receivables. Additionally, our Power business experienced remarkable growth, surpassing our
guidance for electricity production that we had already increased during the year and delivered much needed additional electricity
to Cuba during a critical time in electricity shortage while growing its profitability. Moreover, we made substantial progress at our
Moa JV. We completed the technical report doubling the mine life and extending it beyond 2040. We completed phase one of
the Moa JV’s expansion program under budget and ahead of schedule. We advanced phase two of the expansion which remains
on track for commissioning and ramp up in 2025, while finding opportunities to defer some of the spending beyond 2024. We
are looking forward to the full expansion being complete and realizing an increase in MSP production.
An enhanced ESG profile and continued progression towards our climate change goals is a key strategic priority for Sherritt as
current and evolving metals market customers prioritize responsibly sourced inputs. During the year, we advanced several
important ESG initiatives. We maintained our conformity with London Metal Exchange’s Track B Responsible Sourcing
Requirements. We achieved ISO 45001 and ISO 14001 certification and continued to improve our Towards Sustainable Mining
score at our Fort Site. We completed a Greenhouse Gas Emissions Baseline Assessment at Energas and initiated assessments
at the Moa mine site and Fort Site and our team completed a Task Force on Climate-related Disclosures-aligned risk and
opportunity assessment for the Fort Site.
Sherritt International Corporation
1
Looking ahead, we are continuing to seek opportunities to optimize our performance and manage near-term market conditions,
ensuring our strategic goals remain a top priority. We made progress on this already, deferring capital, containing costs, reducing
headcount and, with the support of our partner, optimizing our operating plans. We made improvements to our business,
restructuring our Technologies group, streamlining our Metals division and changing leadership to drive operational
improvements. Our 2024 guidance reflects the impact of our actions with expected notable decreases to our costs and improved
production from our Metals division while maintaining our growth projects on schedule and budget. We see a strong year ahead
from our Power business which is also expected to generate increased dividends to Sherritt.
In closing, I extend my gratitude to our partner in Cuba for their efforts working with us to overcome the adversity we faced
together last year, our investors for their ongoing support and patience in re-building Sherritt, and the communities we do
business in for our social license to operate. Lastly, a heartfelt thank you is extended to our dedicated employees whose passion,
exceptional skills, relentless commitment and confidence in the future of Sherritt have been pivotal in turning a corner and setting
us firmly on a path to emerge stronger and more resilient. Sherritt is a world leader in the mining and refining of nickel and cobalt,
and we are poised to shape a brighter future for both our company and the world we live in.
Leon Binedell
Chief Executive Officer
FOURTH QUARTER AND FULL YEAR 2023 RESULTS AND SELECTED DEVELOPMENTS
•
•
•
•
•
•
•
•
•
•
Sherritt’s share(1) of finished nickel and cobalt production in Q4 2023 at the Moa Joint Venture (“Moa JV”) was
3,744 tonnes and 330 tonnes, respectively. During the quarter, Moa mixed sulphides production was impacted by
heavy rainfall which required processing lower grade and quality stockpiled material. Full year 2023 finished nickel and
cobalt production on a 100% basis was 28,672 tonnes and 2,876 tonnes, respectively, slightly below their annual
guidance(2) ranges.
Net direct cash cost (“NDCC”)(3) was US$7.87/lb in Q4 2023. Full year 2023 NDCC(3) of US$7.22/lb was within
guidance(2).
Electricity production in Q4 2023 was 225 GWh. Full year 2023 production of 745 GWh exceeded guidance(2) due to
additional gas from the two gas wells that went into production during Q2 2023 and improved equipment availability.
Electricity unit operating cost(3) in Q4 2023 was $29.16/MWh. Full year 2023 unit operating costs(3) of $27.70/MWh was
within guidance(2).
Net loss from continuing operations of $53.4 million, or $(0.13) per share in Q4 2023 and $64.3 million, or $(0.16) per
share for the full year 2023, was primarily impacted by delayed nickel sales, lower fertilizer sales volumes, lower
average-realized prices(3), higher maintenance costs, inventory write-downs and an increase in rehabilitation and
closure costs related to legacy Oil and Gas assets.
Adjusted net loss from continuing operations(3), was $27.9 million or $(0.07) per share in Q4 2023 and $28.1 million or
$(0.07) per share for the full year 2023.
Adjusted EBITDA(3) in Q4 2023 was $(7.0) million and $46.2 million for full year 2023 and included $2.3 million and
$14.6 million in inventory write-downs in Q4 and the full year 2023, respectively.
Available liquidity in Canada as at December 31, 2023 was $63.0 million.
Completed the first year of the Cobalt Swap(4) which included receipt of 2,082 tonnes of cobalt from the Moa JV which
was sold by Sherritt realizing cash receipts of $80.3 million, a cash dividend of $64.0 million, and a corresponding
reduction in the GNC receivable of $76.0 million.
Slurry Preparation Plant (“SPP”) construction was completed; commissioning and capacity testing is ongoing, and in
January 2024, the SPP began processing ore at design capacity. The overall timing and budget of phase two to reach
target levels of production remains unchanged and is on schedule for an expected end of year 2024 completion with
commissioning and ramp up in 2025.
(1) References to “Sherritt’s Share” is consistent with the Corporation’s definition of reportable segments for financial statement purposes. Sherritt’s Share of “Metals”
includes the Corporation’s 50% interest in the Moa JV, its 100% interest in the utility and fertilizer operations in Fort Saskatchewan (“Fort Site”) and its 100%
interests in subsidiaries established to buy, market and sell certain of Moa JV’s nickel and cobalt production and the Corporation’s cobalt inventory received under
the Cobalt Swap agreement (“Metals Marketing”). Sherritt’s Share of Power includes the Corporation’s 33⅓% interest in Energas S.A. (“Energas”). References to
Technologies and Oil and Gas includes the Corporation’s 100% interest in these businesses. References to Fort Site directly is to the Corporation’s interest in its
100% interest in the utility and fertilizer operations.
“Guidance” refers to 2023 guidance as updated during the year and disclosed in the Corporation’s Management Discussion and Analysis for the three months and
year ended December 31, 2023 (“MD&A”); for additional information see the Outlook section starting on page 28.
(2)
(3) Non-GAAP and other financial measures. In Q4 2023, Sherritt revised its definitions of Combined revenue, Adjusted net (loss) earnings from continuing operations
and Adjusted EBITDA to exclude the financial results of its Oil and Gas segment as the segment is not currently exploring for or producing oil and gas and its
financial results relate to ancillary drilling services, provided to a customer and CUPET, and environmental rehabilitation costs for legacy assets, which are not
reflective of the Corporation’s core operating activities or revenue/cash generation potential. Prior period measures have been restated for comparative purposes.
For additional information, see the Non-GAAP and other financial measures section of the MD&A starting on page 57.
For additional information on the Cobalt Swap, see Note 12 – Advances, loans receivable and other financial assets of the consolidated financial statements for the
year ended December 31, 2023 starting on page 112.
(4)
2024 ANNUAL GUIDANCE
Nickel and cobalt production are both expected to increase in 2024 compared to 2023 due to increased feed of mixed sulphides
from the Moa mine site to the refinery as a result of access to additional ore sources to improve the blend of feed as well as
increased quality and feed rates following the ramp-up of the SPP, and reduced downtime from maintenance. NDCC(1) is
expected to be lower in 2024 compared to 2023 due to lower expected maintenance activity, cost optimization, and higher
expected production and sales, including increased fertilizer by-product sales.
Electricity production is expected to be higher in 2024 compared to 2023 primarily due to the full year receipt of additional gas
from the two wells that went into production in Q2 2023. Unit operating cost(1) for electricity in 2024 reflects higher planned
maintenance activities related to gas turbines, partly offset by the impact of higher electricity production and sales.
Sherritt International Corporation
3
Production and costs:
•
•
•
•
•
finished nickel production of 30,000 to 32,000 tonnes (100% basis);
finished cobalt production of 3,100 to 3,400 tonnes (100% basis);
NDCC(1) of US$5.50 to US$6.00 per pound of nickel sold;
electricity production of 775 to 825 GWh (33⅓
electricity unit operating cost(1) of $32.50 to $34.00 per MWh.
Spending on capital(1):
•
•
•
sustaining: Metals (Moa JV 50% basis, Fort Site 100% basis) of $40.0 million;
sustaining: Power (33⅓
growth: Metals (Moa JV 50% basis) of $15.0 million.
(1)
Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of the MD&A starting on page 57.
DEVELOPMENTS SUBSEQUENT TO THE QUARTER
Subsequent to the quarter end:
•
•
As announced January 15, 2024, Sherritt implemented an organization-wide restructuring and cost-cutting program
following a robust internal review conducted during the second half of 2023 to improve operational performance and
respond to current market conditions. The changes include:
o
o
o
o
consolidated executive oversight over operations into a single role and appointed Elvin Saruk as Chief
Operating Officer;
streamlined the Metals division to deliver value in the near-term while ensuring safe and effective operations;
restructured Technologies to a reduced scale in line with a narrower focus to deliver essential support and
enhancements to internal operations and business development opportunities to expand midstream
processing capacity of critical minerals for the electric vehicle supply chain; and
reduced the Corporation’s Canadian operations headcount by approximately 10%, with annualized employee
cost savings of $13.0 million expected to be realized.
Subsequent to the filing of the attached MD&A, the Moa JV received a $20 million prepayment on a sales
agreement for nickel deliveries in 2024.
Q4 2023 FINANCIAL HIGHLIGHTS
$ millions, except per share amount
For the three months ended
2022
December 31
2023
December 31
2023
Change December 31
For the year ended
2022
December 31
$
Revenue
Combined revenue(1)
(Loss) earnings from operations and joint venture
Net (loss) earnings from continuing operations
Net (loss) earnings for the period
Adjusted EBITDA(1)
Adjusted net (loss) earnings from continuing operations
Net (loss) earnings from continuing operations ($ per share)
Adjusted net (loss) earnings from continuing operations
($ per share)
Cash (used) provided by continuing operations for operating
activities
Combined free cash flow(1)
Average exchange rate (CAD/US$)
$
34.8
140.5
(43.4)
(53.4)
(53.4)
(7.0)
(27.9)
(0.13)
48.6
234.6
(0.1)
(7.3)
(7.0)
35.5
8.4
(0.02)
(28%) $
(40%)
nm(2)
(632%)
(663%)
(120%)
(432%)
(550%)
$
223.3
652.9
(43.4)
(64.3)
(64.6)
46.2
(28.1)
(0.16)
178.8
834.7
118.7
63.7
63.5
233.1
112.7
0.16
Change
25%
(22%)
(137%)
(201%)
(202%)
(80%)
(125%)
(200%)
(0.07)
0.02
(450%)
(0.07)
0.28
(125%)
(18.1)
(39.1)
1.362
40.3
43.2
1.358
(145%)
(191%)
-
28.2
(15.9)
1.350
90.3
65.1
1.301
(69%)
(124%)
4%
(1) Non-GAAP financial measures. For additional information see the Non-GAAP and other financial measures section of the MD&A starting on page 57.
(2)
nm = not meaningful
$ millions, as at
Cash and cash equivalents
Canada
Cuba(1)
Other
Loans and borrowings
2023
2022
December 31
December 31
Change
$
21.5 $
96.3
1.3
119.1
355.6
20.3
101.7
1.9
123.9
350.9
6%
(5%)
(32%)
(4%)
1%
The Corporation's share of cash and cash equivalents in the Moa Joint Venture,
not included in the above balances:
$
5.9 $
21.8
(73%)
(1)
As at December 31, 2023, $93.9 million of the Corporation’s cash and cash equivalents was held by Energas (December 31, 2022 - $96.7 million).
Sherritt International Corporation
5
Management’s discussion and analysis
MANAGEMENT'S DISCUSSION
AND ANALYSIS
For the year ended December 31, 2023
This Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand Sherritt International
Corporation’s operations, financial performance and the present and future business environment. This MD&A, which
has been prepared as of February 7, 2024, should be read in conjunction with Sherritt’s audited consolidated financial
statements for the year ended December 31, 2023. Additional information related to the Corporation, including the
Corporation’s Annual Information Form, is available on SEDAR at www.sedarplus.ca or on the Corporation’s website
at www.sherritt.com.
References to “Sherritt” or the “Corporation” refer to Sherritt International Corporation and its share of consolidated
subsidiaries, joint operations, joint ventures and associate, unless the context indicates otherwise. All amounts are in
Canadian dollars unless otherwise indicated. References to “US$” are to United States (“U.S.”) dollars and to “€” are
to euro.
Securities regulators allow 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
Metals
Power
Technologies
Corporate
Environmental, social and governance (“ESG”)
Outlook
Liquidity
Sources and uses of cash
Reconciliation of Adjusted EBITDA to change in
cash and cash equivalents
Capital resources
Capital risk management
Contractual obligations and commitments
Second Lien Notes
PIK Notes
Credit Facility
Guarantees
Capital structure
Common shares
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
7
10
11
13
16
17
19
19
25
26
27
27
28
30
31
32
33
33
33
34
34
35
36
36
37
37
47
49
51
52
52
53
54
54
54
55
57
69
Overview of the business
Sherritt is a world leader in using hydrometallurgical processes to mine and refine nickel and cobalt – metals deemed critical for
the energy transition. Sherritt’s Moa Joint Venture has a current estimated mine life of 25 years and has embarked on an expansion
program focused on increasing annual mixed sulphide precipitate production by 20% or 6,500 tonnes of contained nickel and
cobalt (100% basis). The Corporation’s Power division, through its ownership in Energas S.A., is the largest independent energy
producer in Cuba with installed electrical generating capacity of 506 MW, representing approximately 10% of the national electrical
generating capacity in Cuba. The Energas facilities are comprised of two combined cycle plants that produce low-cost electricity
from one of the lowest carbon emitting sources of power in Cuba. Sherritt’s common shares are listed on the Toronto Stock
Exchange under the symbol “S”.
Sherritt International
Metals
Power
Technologies
Oil and Gas
Corporate
(Head Office)
METALS
Moa Joint Venture
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”).
The Moa JV is a vertically integrated joint venture that mines, processes and refines nickel and cobalt for sale worldwide (except
in the United States). The joint venture has an open pit lateritic ore mine and processing facility in Moa, Cuba where ore is
processed into mixed sulphide precipitate (“MSP”) containing nickel and cobalt. The MSP is transported to its refining facilities in
Fort Saskatchewan, Alberta, Canada. The resulting nickel and cobalt products are sold to various markets, primarily in Europe
and Asia. The Moa JV filed an updated National Instrument 43-101 Technical Report on March 31, 2023.
The refinery facilities in Fort Saskatchewan have an annual combined production capacity of approximately 38,200 tonnes (100%
basis) of nickel and cobalt.
The Moa JV has a current estimated mine life of 25 years and has 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). This 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 29-year successful track record of the Moa Joint Venture.
Fort Site
Sherritt has a wholly-owned fertilizer business in Fort Saskatchewan (“Fort Site”) that provides inputs (ammonia, sulphuric acid
and utilities) for the Moa Joint Venture’s metals refinery, produces agriculture fertilizer for sale in Western Canada and provides
fertilizer storage and administrative facilities.
Sherritt International Corporation
7
Management’s discussion and analysis
Metals Marketing
The Corporation’s Metals Marketing division includes its 100% interest in subsidiaries established to buy, market and sell certain
of Moa JV’s nickel and cobalt production and the Corporation’s cobalt inventory received under the Cobalt Swap(1) agreement.
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 venture 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 partners entered the Cobalt Swap agreements in 2022 whereby GNC
assumed the liabilities of Energas to repay the construction financing by way of cash and cobalt dividends generated by the Moa
JV 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 from 2023 through 2027.
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 2023.
TECHNOLOGIES
Sherritt’s wholly-owned Technologies group (“Technologies”) is a recognized world leader and pioneer in the development and
application of pressure hydrometallurgy for the mining industry, a respected provider of technical services and incubator of industry
solutions that increase profitability, improve sustainability, and lessen energy intensity. Technologies provides essential 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. Technologies is also a key differentiator and enabler of Sherritt’s business
development efforts primarily focused on near-term partnerships and development opportunities to expand midstream processing
capacity of critical minerals for the electric vehicle supply chain. Similarly, it provides technical services and innovative process
solutions to third-party metals producers for consulting fees or for economic interest in projects aligned with Sherritt’s strategies.
OIL AND GAS
Oil and Gas is not currently producing or exploring for oil and gas in Cuba and its financial results relate to ancillary drilling services,
provided to a customer and CUPET, and environmental rehabilitation costs for legacy assets in Spain, which are non-core
operating activities of the Corporation. The wells drilled for CUPET provide gas to Energas for power generation.
Sherritt currently has an interest in two production-sharing contracts (“PSCs”), each in the exploration phase, and has continued
its efforts to seek an earn-in partner to develop the exploration blocks or to otherwise extract value from Sherritt’s interests and
expertise in oil and gas in Cuba.
CORPORATE
Corporate provides overall management of the Corporation’s joint operations and subsidiaries and general corporate activities
related to public companies, including business and market development, management of cash, publicly-traded debt and
government relations.
(1)
For additional information on the Cobalt Swap, see Note 12 – Advances, loans receivable and other financial assets of the consolidated financial statements for the
year ended December 31, 2023.
ACCOUNTING PRESENTATION
Sherritt manages its metals, power, technologies and oil and gas 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:
Relationship for
accounting purposes
Interest
Basis of
accounting
Metals - Moa Joint Venture (Moa JV)
Metals - Metals Marketing
Power
Oil and Gas
Joint venture
Subsidiaries
Joint operation
50%
100%
33⅓%
Equity method
Consolidation
Share of assets, liabilities
revenues and expenses
Subsidiaries
100%
Consolidation
For financial statement purposes, the Fort Site, Technologies and Corporate operations (defined below) are a part of Sherritt
International Corporation, the parent company, and are not separate legal entities. The Moa JV is accounted for using the equity
method of accounting which recognizes the Corporation’s share of earnings (loss) of 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 present
amounts by reportable segment, based on the Corporation’s economic interest.
The Corporation’s reportable segments are as follows:
Metals: Includes the Corporation’s:
Moa JV:
Fort Site:
50% interest in the Moa JV;
100% interest in the utility and fertilizer operations in Fort Saskatchewan;
Metals Marketing:
100% interests in subsidiaries established to buy, market and sell Moa JV’s nickel and cobalt
production and the Corporation’s cobalt inventory received under the Cobalt Swap agreement.
Power: Includes the Corporation’s 33⅓% interest in Energas S.A. (Energas).
Technologies: Includes the Corporation’s 100% interest in its Technologies business.
Oil and Gas: Includes the Corporation’s 100% interest in its Oil and Gas business.
Corporate: Head office, joint-venture management, business and market development.
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, 2023.
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 net earnings/loss from
continuing operations per share, combined spending on capital, combined cash provided (used) by continuing operations for
operating activities 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 57.
Sherritt International Corporation
9
Management’s discussion and analysis
Strategic priorities
The table below lists Sherritt’s Strategic Priorities for 2023 and summarizes how the Corporation has performed against those
priorities.
Strategic Priorities
Selected Actions
Status to end of 2023
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.
The Slurry Preparation Plant (“SPP”) has commenced ramp up with
ore feed to the plant commencing in January 2024. The overall timing
and budget of phase two to reach target levels of production remains
unchanged and is on schedule for an expected end of year 2024
completion with commissioning and ramp up in 2025.
Complete and file NI 43-101 Technical
Report.
Filed Technical Report for the Moa JV in Q1 which indicates that
current reserves estimates are sufficient to extend the life of mine 14
years to 2048, including a 110% increase in Proven and Probable
reserves for nickel.
Rank in lowest quartile of HPAL nickel
producers for NDCC(1).
Full year 2023 NDCC(1) of US$7.22/lb ranked Sherritt in the third cost
quartile for HPAL nickel producers and all nickel producers.(2)
LEVERAGE TECHNOLOGIES
FOR TRANSFORMATIONAL
GROWTH
Support Moa JV expansion, operational
improvements, ECOG(3) implementation
and life of mine extension, and marketing
initiatives.
Advance Technologies solutions toward
commercialization with external
partnerships and funding.
ACHIEVE BALANCE SHEET
STRENGTH
Effectively leverage collections on the
Cobalt Swap agreement.
Maximize available liquidity to support
growth strategy.
Improved metals and fertilizer production, reduced maintenance and
improved commodity prices will positively impact NDCC(1).
Continued to support the implementation of revised mine plan based
on ECOG methodology, improve mining practices and capabilities
test work and provide support
for on-going process plant
improvements and debottlenecking work at Moa and the Fort Site
locations.
Completed the continuous pilot test of the on-going mixed hydroxide
precipitate (“MHP”) test program, which is supported by a funding
commitment from Natural Resources Canada (“NRCan”), as part of
Sherritt’s strategic objective for expanding midstream processing
capacity.
Advanced venture analysis, flowsheet enhancements and batch test
work on next-generation laterite (“NGL”) processing technology to
support discussions with external parties.
Received the total maximum cobalt amount of 2,082 tonnes of cobalt
with an in-kind value of US$65.5 million ($88.1 million) and a cash
top-up payment of US$48.5 million ($64 million) for a total of US$114
million ($152.1 million) under the Cobalt Swap agreement to complete
GNC’s first year obligations.
Amended the syndicated revolving-term credit facility to extend its
maturity to April 30, 2025 and added provisions to allow for an
increase in the credit limit.
Signed a new parent company guarantee valid until December 31,
2027 as security for environmental rehabilitation obligations held by
the Corporation’s Spanish Oil and Gas operations, thereby not
impacting available liquidity.
BE RECOGNIZED AS A
SUSTAINABLE
ORGANIZATION
Deliver on actions identified in the
Sustainability Report.
Released 2022 Sustainability Reports. Monitoring progress towards
targets and key activities.
Achieve year-over-year ESG
improvements including reduction of
carbon intensity.
Completed a baseline GHG and climate-change data collection and
risk and opportunity assessment at Energas and advanced
assessments at the Moa JV and Fort Site. Studies are expected to be
completed in early 2024.
MAXIMIZE VALUE FROM
CUBAN ENERGY
BUSINESSES
Access additional gas supply to increase
electrical power generation.
Power began receiving gas from two new wells in Q2 2023 and
Energas is using the additional gas for increased electricity
production.
(2) Non-GAAP and other financial measures. For additional information, see the Non-GAAP and other financial measures section.
(3) Wood Mackenzie, Nickel Industry Costs Operation 2024.
(4)
ECOG = Economic cut off grade.
Highlights
FOURTH QUARTER AND FULL YEAR 2023 RESULTS AND SELECTED DEVELOPMENTS
• Sherritt’s share(1) of finished nickel and cobalt production in Q4 2023 at the Moa Joint Venture (“Moa JV”) was
3,744 tonnes and 330 tonnes, respectively. During the quarter, Moa mixed sulphides production was impacted by
heavy rainfall which required processing lower grade and quality stockpiled material. Full year 2023 finished nickel and
cobalt production on a 100% basis was 28,672 tonnes and 2,876 tonnes, respectively, slightly below their annual
guidance(2) ranges.
• Net direct cash cost (“NDCC”)(3) was US$7.87/lb in Q4 2023. Full year 2023 NDCC(3) of US$7.22/lb was within
guidance(2).
• Electricity production in Q4 2023 was 225 GWh. Full year 2023 production of 745 GWh exceeded guidance(2) due to
additional gas from the two gas wells that went into production during Q2 2023 and improved equipment availability.
• Electricity unit operating cost(3) in Q4 2023 was $29.16/MWh. Full year 2023 unit operating costs(3) of $27.70/MWh was
within guidance(2).
• Net loss from continuing operations of $53.4 million, or $(0.13) per share in Q4 2023 and $64.3 million, or $(0.16) per
share for the full year 2023, was primarily impacted by delayed nickel sales, lower fertilizer sales volumes, lower
average-realized prices(3), higher maintenance costs, inventory write-downs and an increase in rehabilitation and
closure costs related to legacy Oil and Gas assets.
• Adjusted net loss from continuing operations(3), was $27.9 million or $(0.07) per share in Q4 2023 and $28.1 million or
$(0.07) per share for the full year 2023.
• Adjusted EBITDA(3) in Q4 2023 was $(7.0) million and $46.2 million for full year 2023 and included $2.3 million and
$14.6 million in inventory write-downs in Q4 and the full year 2023, respectively.
• Available liquidity in Canada as at December 31, 2023 was $63.0 million.
• Completed the first year of the Cobalt Swap(4) which included receipt of 2,082 tonnes of cobalt from the Moa JV which
was sold by Sherritt realizing cash receipts of $80.3 million, a cash dividend of $64.0 million, and a corresponding
reduction in the GNC receivable of $76.0 million.
• Slurry Preparation Plant (“SPP”) construction was completed; commissioning and capacity testing is ongoing, and in
January 2024, the SPP began processing ore at design capacity. The overall timing and budget of phase two to reach
target levels of production remains unchanged and is on schedule for an expected end of year 2024 completion with
commissioning and ramp up in 2025.
(1) References to “Sherritt’s Share” is consistent with the Corporation’s definition of reportable segments for financial statement purposes. Sherritt’s Share of “Metals”
includes the Corporation’s 50% interest in the Moa JV, its 100% interest in the utility and fertilizer operations in Fort Saskatchewan (“Fort Site”) and its 100% interests
in subsidiaries established to buy, market and sell certain of Moa JV’s nickel and cobalt production and the Corporation’s cobalt inventory received under the Cobalt
Swap agreement (“Metals Marketing”). Sherritt’s Share of Power includes the Corporation’s 33⅓% interest in Energas S.A. (“Energas”). References to Technologies
and Oil and Gas includes the Corporation’s 100% interest in these businesses. References to Fort Site directly is to the Corporation’s interest in its 100% interest in
the utility and fertilizer operations.
“Guidance” refers to 2023 guidance as most recently disclosed in the Corporation’s Management Discussion and Analysis for the three and nine months ended
September 30, 2023; for additional information see the Outlook section.
(2)
(3) Non-GAAP and other financial measures. In Q4 2023, Sherritt revised its definitions of Combined revenue, Adjusted net (loss) earnings from continuing operations
and Adjusted EBITDA to exclude the financial results of its Oil and Gas segment as the segment is not currently exploring for or producing oil and gas and its financial
results relate to ancillary drilling services, provided to a customer and CUPET, and environmental rehabilitation costs for legacy assets, which are not reflective of the
Corporation’s core operating activities or revenue/cash generation potential. Prior period measures have been restated for comparative purposes. For additional
information, see the Non-GAAP and other financial measures section.
For additional information on the Cobalt Swap, see Note 12 – Advances, loans receivable and other financial assets of the consolidated financial statements for the
year ended December 31, 2023.
(4)
Sherritt International Corporation
11
Management’s discussion and analysis
2024 ANNUAL GUIDANCE
Nickel and cobalt production are both expected to increase in 2024 compared to 2023 due to increased feed of mixed sulphides
from the Moa mine site to the refinery as a result of access to additional ore sources to improve the blend of feed as well as
increased quality and feed rates following the ramp-up of the SPP, and reduced downtime from maintenance. NDCC(1) is
expected to be lower in 2024 compared to 2023 due to lower expected maintenance activity, cost optimization, and higher
expected production and sales, including increased fertilizer by-product sales.
Electricity production is expected to be higher in 2024 compared to 2023 primarily due to the full year receipt of additional gas
from the two wells that went into production in Q2 2023. Unit operating cost(1) for electricity in 2024 reflects higher planned
maintenance activities related to gas turbines, partly offset by the impact of higher electricity production and sales.
Production and costs:
•
•
•
•
•
finished nickel production of 30,000 to 32,000 tonnes (100% basis);
finished cobalt production of 3,100 to 3,400 tonnes (100% basis);
NDCC(1) of US$5.50 to US$6.00 per pound of nickel sold;
electricity production of 775 to 825 GWh (33⅓
electricity unit operating cost(1) of $32.50 to $34.00 per MWh.
Spending on capital(1):
•
•
•
sustaining: Metals (Moa JV 50% basis, Fort Site 100% basis) of $40.0 million;
sustaining: Power (33⅓
growth: Metals (Moa JV 50% basis) of $15.0 million.
(1) Non-GAAP and other financial measures. For additional information, see the Non-GAAP and other financial measures section.
DEVELOPMENTS SUBSEQUENT TO THE QUARTER
Subsequent to the quarter end:
•
•
•
As announced January 15, 2024, Sherritt implemented an organization-wide restructuring and cost-cutting program
following a robust internal review conducted during the second half of 2023 to improve operational performance and
respond to current market conditions. The changes include:
o
o
o
o
consolidated executive oversight over operations into a single role and appointed Elvin Saruk as Chief
Operating Officer;
streamlined the Metals division to deliver value in the near-term while ensuring safe and effective operations;
restructured Technologies to a reduced scale in line with a narrower focus to deliver essential support and
enhancements to internal operations and business development opportunities to expand midstream
processing capacity of critical minerals for the electric vehicle supply chain; and
reduced the Corporation’s Canadian operations headcount by approximately 10%, with annualized employee
cost savings of $13.0 million expected to be realized.
The Moa JV signed a sales agreement for nickel deliveries in 2024 with a $20 million prepayment expected to be
received in early February, improving available liquidity.
As a result of lower realized commodity prices and lower nickel sales volumes over the second half of 2023, coupled
with an expected lower pricing environment in the near term, Sherritt continued its prudent approach to managing its
liquidity and elected not to pay cash interest due in January 2024 of $3.4 million and added the payment-in-kind interest
to the principal amount owed to noteholders on its 10.75% unsecured PIK option notes (“PIK notes”).
Financial results
$ millions, except as otherwise noted
FINANCIAL HIGHLIGHTS
Revenue
Combined revenue(1)
(Loss) 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 (loss) earnings ($ per share)
(basic and diluted)
Adjusted net (loss) earnings from continuing operations(1)
($ per share)
CASH
Cash and cash equivalents
Cash (used) provided by continuing operations for
operating activities
Combined free cash flow(1)
Distributions received from Moa Joint Venture
Proceeds from Cobalt Swap - Sherritt share
Proceeds from Cobalt Swap - GNC redirected share
Cash distributions - Cobalt Swap
Cash distributions - normal course
OPERATIONAL DATA
For the three months ended
2022
December 31
2023
December 31
2023
Change December 31
For the year ended
2022
December 31
$
$
34.8
140.5
(43.4)
(53.4)
-
(53.4)
(27.9)
(7.0)
48.6
234.6
(0.1)
(7.3)
0.3
(7.0)
8.4
35.5
(28%) $
(40%)
nm(2)
(632%)
(100%)
(663%)
(432%)
(120%)
$
223.3
652.9
(43.4)
(64.3)
(0.3)
(64.6)
(28.1)
46.2
178.8
834.7
118.7
63.7
(0.2)
63.5
112.7
233.1
Change
25%
(22%)
(137%)
(201%)
(50%)
(202%)
(125%)
(80%)
$
(0.13) $
(0.02)
(550%) $
(0.16) $
0.16
(200%)
(0.13)
(0.07)
(0.02)
(550%)
0.02
(450%)
(0.16)
(0.07)
0.16
(200%)
0.28
(125%)
$
119.1
$
123.9
(4%) $
119.1
$
123.9
(4%)
(18.1)
(39.1)
1.3
1.3
-
-
40.3
43.2
-
-
-
57.2
(145%)
(191%)
-
-
-
(100%)
28.2
(15.9)
40.2
40.2
64.0
-
90.3
65.1
(69%)
(124%)
-
-
-
100.6
-
-
-
(100%)
COMBINED SPENDING ON CAPITAL(1)
22.5
$
28.9
(22%) $
66.5
$
80.5
(17%)
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)
3,744
330
61,092
225
1.362
10.87
17.23
414.80
57.96
$
4,112
423
62,254
159
1.358
15.55
25.72
647.03
58.54
(9%)
(22%)
(2%)
42%
14,336
1,438
219,707
745
16,134
1,684
250,147
568
(11%)
(15%)
(12%)
31%
-
1.350
1.301
4%
(30%) $
(33%)
(36%)
(1%)
$
13.36
17.47
548.16
57.45
14.93
34.26
759.91
56.47
(11%)
(49%)
(28%)
2%
7.87
29.16
$
7.00
21.41
12% $
36%
7.22
27.70
$
5.14
19.39
40%
43%
$
$
(1) Non-GAAP and other financial measures. For additional information, see the Non-GAAP and other financial measures section.
(2) Not meaningful (nm).
Sherritt International Corporation
13
Management’s discussion and analysis
The change in net (loss) earnings from continuing operations is detailed below:
(1) Mining, processing and refining costs (“MPR”) and cobalt by-product credits include the cost and cobalt revenue, respectively, on cobalt sold from Sherritt’s 50% share
of cobalt received under the Cobalt Swap.
(2) Other primarily relates to changes in Moa Joint Venture royalties, net costs and revenue on sold cobalt from GNC under the Cobalt Swap agreement, foreign exchange
gains/losses, depletion, depreciation, amortization, electricity revenue and costs, oil and gas revenue and costs, non-fertilizer inventory write-downs, impairment of
property, plant and equipment and administrative expenses excluding share-based compensation expense/recovery.
Consolidated revenue, which excludes revenue from the Moa Joint Venture as it is accounted for under the equity method, for
the three months ended December 31, 2023 of $34.8 million compared to $48.6 million in the same period in the prior year
primarily due to lower fertilizer average-realized prices(1) and lower fertilizer sales volume, partly offset by higher electricity sales.
In the fourth quarter, Sherritt sold 49 tonnes of the total 399 tonnes of cobalt sold during the period.
Consolidated revenue for the year ended December 31, 2023 of $223.3 million compared to $178.8 million in the prior year
primarily as a result of the additional sales under the Cobalt Swap agreement and higher electricity sales, partly offset by lower
Sherritt fertilizer revenue. In the prior year, prior to the commencement of the Cobalt Swap, Sherritt’s 50% share of cobalt
revenue was recognized by the Moa JV and included in Sherritt’s share of earnings of a joint venture rather than consolidated
revenue.
For the three months and year ended December 31, 2023 cobalt revenue under the Cobalt Swap was $2.0 million and
$80.1 million, respectively. Sherritt fertilizer revenues of $14.4 million and $64.1 million, respectively, down from $28.7 million
and $93.2 million the prior year periods primarily as a result of lower average-realized prices(1) and lower ammonia sales volumes
in each current year periods. Revenue in Power for the three months and year ended December 31, 2023 of $14.0 million and
$47.1 million, respectively, was higher compared to the prior year periods primarily as a result of additional gas from new gas
wells that went into production in the second quarter of 2023 and higher equipment availability during the current year.
Combined revenue(1), which includes the impact of 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. In addition
to the above, combined revenue was primarily impacted by lower nickel revenue as a result of lower sales volumes and lower
average-realized prices(1) compared to the prior year periods.
The loss from continuing operations for the three months and year ended December 31, 2023 of $53.4 million and $64.3 million,
respectively, was primarily impacted by lower nickel, cobalt and fertilizer average-realized prices(1) compared to the prior year
periods. Nickel sales volume was 22% and 19% lower in the three months and year ended December 31, 2023, respectively
compared to the prior year periods. Fertilizer sales volumes for the three months ended December 31, 2023 were 10% lower than
the prior year period reflecting unplanned maintenance earlier in the year which resulted in lower ammonia production and lower
fertilizer availability during the fall shipping season. Sales volumes for the full year ended December 31, 2023 were relatively
unchanged compared to the prior year.
Total MPR costs including Sherritt’s share of cost of the Cobalt Swap and Moa JV cobalt sold for the three months ended
December 31, 2023 were lower than the prior year period primarily as a result of lower nickel sales volume and input commodity
prices. In addition, in the fourth quarter of 2023, a larger portion of production was related to the processing of third-party feed
compared to the prior year periods. For the year ended December 31, 2023 total MPR including Sherritt’s share of cost of the
Cobalt Swap and Moa JV cobalt sold was higher than the prior year period as higher maintenance costs and the impact of higher
opening inventory costs on nickel and cobalt sold in the period offset the impact of lower nickel sales volume and lower input
commodity prices. In both current year periods, costs were negatively impacted by a stronger U.S. dollar relative to the Canadian
dollar.
The impact of the redirected share of cobalt under the Cobalt Swap was not significant on the Corporation’s net loss in the current
year periods.
As a result of updated cost estimates provided by the operator of Sherritt’s legacy Oil and Gas Spain assets, loss from continuing
operations includes an increase in rehabilitation and closure costs of $20.0 million and $25.8 million, on a discounted basis, in Q4
and full year 2023, respectively,
Administrative expenses for the three months and year ended December 31, 2023 were lower primarily as result of the decrease
in share-based compensation expense. The current year periods reflect recoveries compared to expenses in the prior year period
resulting from a reduction in the Corporation’s share price compared to an increase in price in the prior year periods. The higher
expense in the prior year period was also impacted by the vesting of a higher number of units prior to cash payment in the first
quarter of 2023.
(1) Non-GAAP and other financial measure. For additional information, see the Non-GAAP and other financial measures section.
Sherritt International Corporation
15
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
2023
2022
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.
(2)
The current ratio is calculated as the Corporation’s current assets divided by its current liabilities.
$
$
399.0
$
287.3
111.7
1.39:1
119.1
$
646.7
170.2
159.2
429.3
367.6
61.7
1.17:1
123.9
756.0
207.1
148.6
(7%)
(22%)
81%
19%
(4%)
(14%)
(18%)
7%
1,390.6
1,555.6
(11%)
355.6
128.0
777.0
(2,899.6)
613.6
350.9
106.2
860.7
(2,835.0)
694.9
1%
21%
(10%)
(2%)
(12%)
Cash and cash equivalents as at December 31, 2023 were $119.1 million, down from $120.4 million as at September 30, 2023.
During Q4 2023, Sherritt drew an additional $40.0 million on its revolving credit facility of which $15.0 million was advanced to
the Moa JV for short-term working capital purposes and received $4.0 million proceeds from operating activities from Fort Site
including the impact of receipts from fertilizer pre-sales and timing of working capital payments. These amounts were offset
primarily by payments of $5.5 million for property, plant and equipment, $9.4 million for interest on the 8.5% second lien secured
notes (“Second Lien Notes”), and $4.2 million on rehabilitation and closure costs related to legacy Oil and Gas Spain assets.
On a full year basis, cash and cash equivalents as at December 31, 2023 were down slightly from $123.9 million as at December
31, 2022. During 2023, Sherritt received $80.3 million from the sale of cobalt to third parties and $64.0 million as a top-up cash
dividend under the Cobalt Swap. In addition, Sherritt drew a net $13.0 million on its revolving credit facility, repaying $17.0 million
related to repurchasing notes in the prior year and advancing $30.0 million to the Moa JV for short-term working capital purposes.
Significant cash payments during the year included $24.9 million for share-based compensation; $18.8 million for interest on the
Second Lien Notes, $20.1 million for property, plant and equipment, $7.8 million for the repurchase of PIK notes at a discount,
and $5.9 million on rehabilitation and closure costs related to legacy Oil and Gas Spain assets. In addition, Energas paid
$14.8 million (33⅓ basis) to GNC in the year, in Cuban pesos, in accordance with the Cobalt Swap.
As at December 31, 2023, total available liquidity in Canada, which is composed of cash and cash equivalents in Canada and
available credit facilities of $41.5 million was $63.0 million compared to $104.2 million as at September 30, 2023 and $74.8 million
as at December 31, 2022.
Subsequent to quarter end, the Moa JV signed a sales agreement for nickel deliveries in 2024 with a $20 million prepayment
expected to be received in early February, improving available liquidity.
Advances to the Moa JV are interest bearing, at the Corporation’s borrowing rates, and are expected to be repaid during the first
half of 2024. Sherritt does not expect to advance further amounts to the Moa JV in 2024. Upon repayment of the amounts
outstanding by the Moa JV, and subject to the Moa JV’s available liquidity to support operations and expected liquidity
requirements, the joint venture will be eligible to commence payment of cobalt dividends pursuant to the Cobalt Swap. At current
spot nickel prices, and given the prioritization of the joint venture to repay its outstanding advances, the Corporation expects
that under the Cobalt Swap the cobalt dividends anticipated to commence in the second half the year will not meet the annual
maximum amount in 2024. As previously disclosed and as defined by the agreement, any short fall in the annual minimum
payment amount will be added to the following year.
At the Second Lien Note interest payment date in October 2023, the Corporation was not required to make a mandatory
redemption of Second Lien Notes for the two-quarter period ended June 30, 2023 as it did not meet the minimum liquidity threshold
as defined in the indenture agreement. For the two-quarter period ended December 31, 2023, the Corporation did not have Excess
Cash Flow as defined in the Second Lien Notes indenture agreement and, therefore, will not be required to make a mandatory
redemption with its April 2024 interest payment.
Significant factors influencing operations
As a commodity-based business, Sherritt’s operating results are primarily influenced by the prices of nickel and cobalt and its
fertilizers.
NICKEL
In Q4 2023, nickel prices declined a further 12%, ending the quarter at US$7.39/lb from an opening price of US$8.40/lb. Global
macroeconomic factors, including energy-related issues in Europe, China not meeting growth expectations, and U.S. interest rate
policies impacting the dollar, influenced these market movements. As well, a significant increase in production by Chinese
producers in Indonesia, contributed to a near to mid-term supply surplus putting continued pressure on prices.
In 2023, global nickel demand is expected to have surpassed three million tonnes, driven primarily by China's double-digit growth,
accounting for 62% of total global consumption. China's steel and battery sectors are projected to improve significantly in 2024
(+12%) and 2025 (+10%)(1). Forecasts for 2024-2025 point towards a demand recovery driven by the stainless steel and battery
sectors, especially in Europe as well as China and Indonesia regions. Battery sector growth is assisted by government incentives,
subsidies leading to greater adoption and demand for Electric Vehicles (EVs). EV penetration is expected to rise to 16%, up from
13% in 2022, reaching 25% by 2025(2). Overall, global primary nickel demand is expected to experience increases of 13% in 2024
and 9% in 2025.
Increased production of nickel-matte, intermediate products, and chemicals by Chinese producers operating in Indonesia led
global supply to reach approximately 3.4 million tonnes, ~10% increase from 2022(1). The conversion of this supply into Class I
nickel, and the fast-track approval granted by the London Metal Exchange (“LME”) to Chinese brands, has also resulted in
increasing Class I inventories, with an addition of 22 thousand tonnes to LME and 7 thousand tonnes to Shanghai Futures
Exchange (“SHFE”) inventories in Q4 2023.
In the short term, the supply surplus of both Class I and Class II nickel is expected to continue to hold prices down, although this
surplus will be partly offset by supply side reductions from higher cost operations, while factors like the continued demand growth
from stainless steel and lithium-ion battery consumption and the need to incentivize new projects with improved environmental
performance for future supply may provide upside potential. Additionally, regionalization of supply chains, as well as government
incentives and restrictions could play a significant factor in impacting future pricing in certain regions and for certain products.
COBALT
In Q4 2023, the Argus Chemical Grade cobalt price declined 7%, ending the quarter at US$14.25/lb from an opening price of
US$15.28/lb as the market continued in over supply. During 2023, cobalt prices declined 32% from the opening price of
US$20.90/lb. Despite intermittent price supportive actions from major producers like Glencore and opportunistic buying
interventions by the China state-owned Strategic Reserve Bureau (“SRB”), the release of held-up cobalt-hydroxide inventory from
recently-approved exports from the Democratic Republic of the Congo (“DRC”), resolution of some of the logistics issues in South
Africa and easing of labour strike action in the latter part of the year contributed to the current supply surplus.
China's economic performance in 2023 reflected weak consumer confidence which particularly impacted the primary end-market
for batteries. The portable electronics sector, contracted 1% in 2023, following a 5% decline in 2022(2). The sector's recovery,
crucial for cobalt demand, is projected to return to 2019 levels by around 2026. The surge in EV adoption is poised to significantly
impact lithium-ion battery demand which in turn will increase cobalt demand.
The DRC continues to be the world's largest cobalt producer, contributing 76% of global mined supply in 2023, although this is
expected to lessen to 66% by 2030 as Indonesia continues to expand as the second-largest cobalt producer, with forecast growth
from 7% in 2023 to 19% by 2030, driven by increased production of cobalt containing MHP(2).
The dynamic battery landscape, influenced by emerging cobalt-free chemistries, is impacting near-term demand, but attractive
profits are motivating copper and nickel miners to maintain production, resulting in additional cobalt by-product production. The
cobalt market is projected to remain oversupplied until 2028, potentially limiting significant price increases in the short to medium
term.
Sherritt International Corporation
17
Management’s discussion and analysis
FERTILIZER
Fertilizer prices have stayed low due to ample supply of nitrogen fertilizers, and stability in North America's winter demand has
kept natural gas prices, a key input, steady. Prices for 2024 are expected to remain relatively unchanged from 2023.
(1) Wood Mackenzie, Global Nickel Investment Horizon Outlook Q4 2023
(2) CRU, Cobalt Market Outlook November 2023 Report
Review of operations
METALS
$ millions (Sherritt's share), except as otherwise noted
FINANCIAL HIGHLIGHTS
Revenue(1)
Cost of sales(1)
(Loss) earnings from operations
Adjusted EBITDA(2)
For the three months ended
2022
2023
December 31
2023
December 31 Change December 31
For the year ended
2022
$
$
125.9
146.6
(22.0)
(8.7)
223.5
189.5
30.5
45.1
(44%) $
(23%)
(172%)
(119%)
603.7
601.4
(2.1)
53.6
December 31 Change
$
$
795.1
587.8
197.9
251.8
(24%)
2%
(101%)
(79%)
171.6
107.4
(32%)
(45%)
CASH FLOW
Cash provided by continuing operations for operating activities(2) $
Free cash flow(2)
$
3.4
(14.2)
81.6
57.7
(96%) $
(125%)
115.9
58.9
PRODUCTION VOLUME (tonnes)
Mixed Sulphides
Finished Nickel
Finished Cobalt
Fertilizer
NICKEL RECOVERY(3) (%)
SALES VOLUME (tonnes)
Finished Nickel
Finished Cobalt
Fertilizer
AVERAGE REFERENCE PRICE (US$ per pound)
Nickel(4)
Cobalt(5)
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
3,514
3,744
330
61,092
4,000
4,112
423
62,254
(12%)
(9%)
(22%)
(2%)
15,084
14,336
1,438
219,707
16,248
16,134
1,684
250,147
(7%)
(11%)
(15%)
(12%)
89%
85%
5%
88%
87%
1%
3,511
399
55,509
7.82
15.69
10.87
17.23
414.80
$
$
4,486
386
61,664
(22%)
3%
(10%)
12,888
2,720
170,161
15,879
1,379
170,427
(19%)
97%
-
11.47
23.00
(32%) $
(32%)
9.74
16.30
15.55
25.72
647.03
(30%) $
(33%)
(36%)
13.36
17.47
548.16
$
$
11.61
30.75
(16%)
(47%)
14.93
34.26
759.91
(11%)
(49%)
(28%)
7.87
$
7.00
12% $
7.22
$
5.14
40%
19.0
2.3
21.3
$
$
22.3
4.4
26.7
(15%) $
(48%)
(20%) $
51.3
11.4
62.7
$
$
66.7
7.4
74.1
(23%)
54%
(15%)
$
$
$
$
$
(1)
The Financial Highlights, and cash flow amounts for Metals combine the operations of the Moa JV, Fort Site and Metals Marketing. Breakdowns of revenue, Adjusted
EBITDA, and the components of free cash flow (cash provided (used) by continuing operations for operating activities and Property, plant and equipment expenditures)
for each of these operations are included in the Combined Revenue, Adjusted EBITDA and Free cash flow reconciliations, respectively, in the Non-GAAP and other
financial measures section of this MD&A.
(2) Non-GAAP and other financial measures. For additional information, see the Non-GAAP and other financial measures section.
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.
(3)
(4) Reference source: LME. 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.
(5) Reference source: Average standard-grade cobalt price published by Argus.
Sherritt International Corporation
19
Management’s discussion and analysis
(1) Non-GAAP and other financial measure. For additional information, see the Non-GAAP and other financial measures section.
Metals revenue, cost of sales and NDCC(1) 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
2023
2022
For the year ended
2023
2022
REVENUE
Nickel
Cobalt
Fertilizers
Other
COST OF SALES(2)
Mining, processing and refining (MPR)(3)
Third-party feed costs
Finished cobalt cost(4)
Fertilizers
Selling costs
Other
NET DIRECT CASH COST(1) (US$ per pound of nickel)
Mining, processing and refining costs(5)
Third-party feed costs
Cobalt by-product credits(5)
Net fertilizer by-product credit
Net impact of redirected cobalt(6)
Other(7)
$
$
$
$
$
$
84.1
15.2
23.1
3.5
125.9
76.4
11.9
1.8
26.3
8.2
8.7
133.3
7.35
1.14
(1.34)
0.31
(0.01)
0.42
7.87
$
$
$
$
$
$
153.8
22.0
39.9
7.8
223.5
118.4
7.3
-
28.2
6.3
14.7
174.9
8.73
0.53
(1.63)
(1.19)
-
0.56
7.00
(45%) $
(31%)
(42%)
(55%)
(44%) $
(35%) $
63%
-
(7%)
30%
(41%)
(24%) $
(16%) $
115%
18%
126%
-
(25%)
12% $
379.6
104.8
93.3
26.0
603.7
275.0
26.1
86.1
81.9
29.0
50.6
548.7
8.08
0.68
(1.69)
(0.30)
0.09
0.36
7.22
$
$
$
$
$
$
522.8
104.2
129.5
38.6
795.1
349.7
24.8
-
78.6
20.5
60.3
533.9
7.76
0.54
(2.30)
(1.52)
-
0.66
5.14
(27%)
1%
(28%)
(33%)
(24%)
(21%)
5%
-
4%
41%
(16%)
3%
4%
26%
27%
80%
-
(45%)
40%
(1) Non-GAAP and other financial measure. For additional information, see the Non-GAAP and other financial measures section.
(2)
(3)
(4)
Excludes depletion, depreciation and amortization and impairment of property, plant and equipment
Effective January 1, 2023, MPR costs exclude the cost of cobalt volumes sold in accordance with the Cobalt Swap.
Finished cobalt cost is based on the settlement value of the cobalt sold. The settlement value is based on an in-kind value of cobalt, calculated at the time of distribution
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.
(5) MPR and cobalt by-product credits include the cost and cobalt revenue, respectively, on cobalt sold from Sherritt’s 50% share of cobalt received under the Cobalt
Swap.
(6) Net impact of redirected cobalt includes the finished cobalt cost less cobalt by-product credits per pound of nickel sold on the cobalt sold from GNC’s redirected cobalt
received by Sherritt under the Cobalt Swap.
Includes the marketing costs, discounts, and other by-product credits.
(7)
The following table summarizes average prices for key input commodities for the Moa Joint Venture and Fort Site(1):
Sulphur (US$ per tonne)
Diesel (US$ per litre)
Fuel oil (US$ per tonne)
Natural gas cost ($ per gigajoule)
For the three months ended
2023
2022
For the year ended
2023
2022
December 31
December 31
Change
December 31
December 31
Change
$
$
181.79
1.16
483.33
2.93
417.64
1.33
517.71
5.29
(56%) $
(13%)
(7%)
(45%)
$
230.30
1.12
466.07
2.90
454.57
1.15
539.35
5.37
(49%)
(3%)
(14%)
(46%)
(1)
The above input commodity prices are the average prices incurred during the periods reflected in cost of sales or inventory.
The following graphs summarize the change in (loss) earnings from operations for Metals:
(1) MPR and cobalt by-product credits include the costs and cobalt revenue, respectively, on cobalt sold from Sherritt’s 50% share of cobalt received under the Cobalt
Swap.
(2) Other is primarily composed of sulphuric acid revenue and costs, non-fertilizer inventory write-downs, impairment of property, plant and equipment, selling costs,
administrative costs, net costs and revenue on sold cobalt redirected from GNC to Sherritt under the Cobalt Swap agreement, depletion, depreciation and amortization.
Sherritt International Corporation
21
Management’s discussion and analysis
Challenging market conditions accelerated in the fourth quarter 2023 through lower demand and reference prices for nickel.
Despite management actions taken to reduce costs and protect margins, unplanned maintenance challenges and lower production
due to lower ore grades and poor quality ore sources available negated these efforts, negatively impacting operating cost and
margins that ultimately contributed to an adjusted EBITDA(1) of $(8.7) million which also included the impacts of $2.3 million in
inventory write-downs. During 2023, in addition to the unplanned maintenance to the ammonia plant in the third and fourth
quarters, the Fort Site experienced higher than normal maintenance costs, in part due to the planned biannual acid plant shutdown,
which identified a larger than anticipated remedial scope of work. This maintenance work has since been completed and
production has returned to levels in line with historical performance.
In further response to expected lower pricing commodity market conditions, subsequent to the year end the Corporation
streamlined its Metals business unit to improve operating margins in the near-term while ensuring safe and effective operations
by reducing senior management costs, operating headcount and non-essential expenditures. Additional operational improvements
are expected to further enhance the performance of Metals going forward. Phase one of the Moa expansion is complete and
following its ramp-up, is expected to reduce ore haulage distances, lower carbon intensity from mining and increase annual mixed
sulphide precipitate (“MSP”) production of contained nickel and cobalt. As outlined in its 2024 guidance for NDCC(1) of US$5.50
– US$6.00 per pound of nickel sold, the Corporation expects through the implemented changes, a meaningful improvement to be
realized in costs and operating margins going forward.
Finished nickel revenue for the three months and year ended December 31, 2023 was $84.1 million and $379.6 million down from
$153.8 million and $522.8 million, respectively, in the prior year periods primarily as result of lower average-realized prices(1) and
lower sales volumes for nickel in each of the current year periods. Average-realized nickel prices(1) were 30% and 11% lower,
respectively, in the current year periods.
Finished nickel sales volumes for the three months and year ended December 31, 2023 were 3,511 tonnes and 12,888 tonnes
down from 4,486 tonnes and 15,879 tonnes, respectively, in the prior year periods. During Q4 2023, finished nickel sales volumes
were in line with finished nickel production volumes with sales volumes improving from Q3 2023. Finished nickel sales volumes
during the full year 2023 were lower than finished nickel production volumes due to lower demand for nickel from steel mills after
mid-year shutdowns, lower finished metal purchasing in Asia as mixed hydroxide precipitate (“MHP”) and matte intermediate
availability increased and customers delayed purchases to reduce inventories and their holding and financing costs and sought
better prices in a falling price environment. All of this resulted in higher than anticipated inventory build-up at the end of 2023. This
inventory is expected to be reduced over the course of 2024.
Finished cobalt revenue, including cobalt sold by Sherritt under the Cobalt Swap and Sherritt’s 50% share of cobalt sold by the
Moa JV, for the three months and year ended December 31, 2023 was $15.2 million and $104.8 million compared to $22.0 million
and $104.2 million, respectively, in the prior year periods. While sales volumes of 399 tonnes and 2,720 tonnes in the current year
periods were 3% and 97% higher, respectively, revenue was impacted by 33% and 49% lower average-realized prices(1) in the
current year periods, respectively.
Cobalt sales volumes based on Sherritt’s 50% share were 375 tonnes in Q4 2023 compared to 386 tonnes in Q4 2022 and
1,692 tonnes for the year ended December 31, 2023 compared to 1,379 tonnes for the prior year. Lower sales in Q4 2023 reflected
the impact of lower production. For the full year period, a general improvement in demand in the second and third quarters reflected
increased purchases as consumers took the opportunity to restock inventories as prices stabilized at relative lows in the recent
price cycle. During this period, Sherritt was able to increase its customer base and reduce its inventory to more typical levels.
Fertilizer revenue for the three months and year ended December 31, 2023 was $23.1 million and $93.3 million compared to $39.9
million and $129.5 million, respectively, in the prior year periods. Sales volumes for the three months ended December 31, 2023
were 10% lower than the prior year period due to the unplanned maintenance earlier in the year which resulted in lower ammonia
production and lower fertilizer availability during the fall shipping season. Sales volumes for the full year ended December 31,
2023 were relatively unchanged compared to the prior year. Average-realized prices(1) in the current year periods were 36% and
28% lower compared to the prior year periods, respectively.
Mixed sulphides production at the Moa JV for the three months and year ended December 31, 2023 was 3,514 tonnes and 15,084
tonnes, down 12% and 7%, respectively, from the prior year periods. In Q4 2023, mixed sulphides production was impacted by
heavy rainfall which required processing lower grade and quality stockpiled materials. Logistical delays in the delivery of purchased
sulphuric acid required during planned sulphuric acid plant maintenance resulted in ore processing reductions at the end of the
third quarter and into the early part of the fourth quarter. As well, for the full year 2023, production was impacted by maintenance
on the ore thickener and hydrogen plant, lower ore grades and ore blending challenges in the first half of the year, all of which
have since been resolved.
Finished nickel production for the three months and year ended December 31, 2023 was 3,744 tonnes and 14,336 tonnes, down
from 4,112 tonnes and 16,134 tonnes, respectively, in the prior year periods primarily as a result of lower mixed sulphides feed
availability at the refinery. This feed shortfall was partly offset by the higher third-party feed processed in the fourth quarter.
Finished cobalt production for the three months and year ended December 31, 2023 was 330 tonnes and 1,438 tonnes down from
423 tonnes and 1,684 tonnes, respectively, in the prior year periods as a result of lower mixed sulphides feed availability at the
refinery.
Full year 2023 finished nickel and finished cobalt production were slightly below their respective guidance(2) ranges for the year.
Fertilizer production for the three months and year ended December 31, 2023 of 61,092 tonnes and 219,707 tonnes was 2% lower
and 12% lower, respectively, compared to prior year periods in line with lower metals production and the impact of reduced
ammonia plant availability resulting from unplanned maintenance during the current year. Ammonia production returned to normal
in Q4.
Mining, processing and refining (“MPR”) costs per pound of nickel sold (“MPR/lb”), which includes Sherritt’s share of cost of Cobalt
Swap and Moa JV cobalt sold, for the three months ended December 31, 2023 was down 16% compared to Q4 2022 as a result
of lower input commodity prices, including a 56% decrease in global sulphur prices, a 45% decrease natural gas prices, a 13%
decrease in diesel prices, and a 7% decrease in fuel oil prices and the increased ratio of third-party feed to Moa mine feed, partly
offset by higher maintenance costs and lower nickel production and sales volumes in the current year period. For the year ended
December 31, 2023, MPR/lb was 4% higher than in the prior year as a result of lower nickel production and sales volumes in the
current year, higher maintenance costs, and the cost associated with the higher cobalt sales volume, partly offset by lower input
commodity prices. For the year ended December 31, 2023, global sulphur, natural gas, diesel and fuel oil prices decreased 49%,
46% and 3% and 14% respectively.
NDCC(1) per pound of nickel sold for the three months ended December 31, 2023 increased to US$7.87/lb from US$7.00/lb in the
prior year as lower MPR/lb were offset by higher third-party feed costs and lower fertilizer and cobalt by-product credits(3). Higher
MPR/lb for the year ended December 31, 2023, as discussed above, coupled with lower fertilizer and cobalt by-product credits
resulted in a higher NDCC(1) of US$7.22/lb compared to US$5.14/lb for the prior year. Lower net fertilizer by-product credits in
both current year periods reflected lower production and sales, lower realized prices, as well as higher maintenance costs. In both
current year periods, NDCC(1) reflected the impact of lower nickel sales volumes. Annual NDCC per pound of nickel sold was
within the guidance(2) range for the year.
Sustaining spending on capital(1) for the three months and year ended December 31, 2023 was $19.0 million and $51.3 million,
compared to $22.3 million and $66.7 million, respectively, in the prior year periods primarily due to timing of planned spending at
both the Moa JV and Fort Site. Sherritt took a prudent approach and reduced its sustaining spending on capital(1) guidance(2) in
Q3 2023 to conserve liquidity in response to the current market conditions. Annual sustaining spending(1) on capital was in line
with guidance(2) for the year.
Growth spending on capital(1) for the three months and year ended December 31, 2023 was $2.3 million and $11.4 million,
compared to $4.4 million and $7.4 million, respectively, in the prior year periods, most of which was related to spending on the
SPP and Sixth Leach Train as part of the Moa JV expansion program in each of the current year periods. Annual growth spending
on capital was below guidance(2) for the year and related to the timing of spending for non-critical path items. The project timing
and overall budget remains unchanged.
In Q1 2023, the Moa JV released its National Instrument 43-101 Technical Report which indicates that the current reserves
estimates, without the current expansion impact, are sufficient to extend the life of mine 14 years to 2048.
(1) Non-GAAP and other financial measures. For additional information see the Non-GAAP and other financial measures section.
(2) Cobalt by-product credits include Sherritt’s share of cobalt revenue per pound of nickel sold only.
Moa JV expansion program update
The Moa JV expansion program was specifically designed to minimize the risks of capital overruns and project delays which were
anticipated following the COVID-19 pandemic. This low cost and low capital intensity two-phase expansion program remains on
budget and on schedule. Phase one of the expansion, the SPP, is expected to reduce ore haulage distances, lower carbon
intensity from mining and increase annual MSP production of contained nickel and cobalt through increased throughput over the
mine’s long life. With completion of phase two of the expansion, the Processing Plant, annual MSP production is targeted to
increase by 6,500 tonnes of contained nickel and cobalt (100% basis) and is expected to fill the refinery to nameplate capacity to
maximize profitability from the joint venture’s own mine feed, displacing lower margin third party feeds and increasing overall
finished nickel and cobalt production.
Sherritt International Corporation
23
Management’s discussion and analysis
The Moa JV continued to advance the expansion program at the mine site. Progress included:
SPP:
• Construction of the SPP was completed under budget; commissioning and capacity testing is ongoing, and in January
2024 the SPP began processing ore at design capacity.
Processing Plant:
• Civil construction and structural erection is ongoing on those areas not completed in the prior expansion.
• Some of the long-lead items will be delivered in Q1 2024 for the Sixth Leah Train which will allow mechanical construction
to commence in Q2 2024; and
•
•
engineering for the Fifth Sulphide Precipitation Train has been completed and ordering of equipment and materials will
commence in 2024.
In response to the current lower nickel price environment, the joint venture optimized the timing of certain capital spending
items shifting some phase two spending to beyond 2024. This deferral is not expected to impact the timing of the ramp
up of MSP production from the expansion.
The overall timing and budget to reach target production remains unchanged and is on schedule for an expected end of year 2024
completion with commissioning and ramp up in 2025.
POWER
$ millions (Sherritt's share, 33⅓% basis), except as otherwise noted
FINANCIAL HIGHLIGHTS
Revenue
Cost of sales
Earnings from operations
Adjusted EBITDA(1)
For the three months ended
2022
2023
December 31
2023
December 31 Change December 31
For the year ended
2022
December 31 Change
$
$
14.0
7.1
5.9
6.6
10.5
4.9
4.5
6.1
33% $
45%
31%
8%
$
47.1
22.7
20.7
23.2
37.1
24.2
8.7
22.3
27%
(6%)
138%
4%
CASH FLOW
Cash provided by continuing operations for operating activities(1) $
Free cash flow(1)
$
7.4
6.1
13.5
12.0
(45%)
(49%)
$
$
16.9
13.7
37.4
32.3
(55%)
(58%)
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
225
159
42%
745
568
31%
$
57.96
$
58.54
(1%)
$
57.45
$
56.47
2%
29.16
21.41
36%
27.70
19.39
43%
$
1.3
$
1.6
(19%)
$
3.2
$
5.1
(37%)
(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).
(1) Non-GAAP and other financial measures. For additional information see the Non-GAAP and other financial measures section.
Sherritt International Corporation
25
Management’s discussion and analysis
Power revenue is composed of the following:
$ millions (Sherritt's share, 33⅓% basis)
Electricity sales
By-products and other
For the three months ended
2022
2023
December 31
2023
December 31 Change December 31
For the year ended
2022
December 31 Change
$
$
13.0
1.0
14.0
$
$
9.4
1.1
10.5
38% $
(9%)
33% $
42.8
4.3
47.1
$
$
32.1
5.0
37.1
33%
(14%)
27%
Revenue for the three months and year ended December 31, 2023 was $14.0 million and $47.1 million, respectively, increasing
33% and 27% compared to the prior year periods primarily due to higher production from increased available gas.
Electricity production for the three months and year ended December 31, 2023 was 225 GWh and 745 GWh compared to
159 GWh and 568 GWh, respectively, in the prior year periods. Production increased sequentially throughout the year with
electricity production during the fourth quarter reaching the highest level of quarterly production since 2016 resulting in overall
annual production exceeding guidance(2) for the year. The increase in electricity production in the current year periods is a result
of additional gas from two gas wells that went into production in the second quarter of 2023 and increased equipment availability
following planned maintenance to facilitate increased utilisation of the facilities. The gas is provided to Energas free of charge by
Union Cubapetroleo (“CUPET”) for use in power generation. Opportunities to further increase gas supply for additional power
production in 2024 continue to be pursued.
Unit operating costs(1) for the three months and year ended December 31, 2023 were $29.16/MWh, and $27.70/MWh, compared
to $21.41/MWh, and $19.39/MWh, respectively, for the prior year periods an increase primarily driven by the timing of planned
maintenance activities, partly offset by higher sales volumes. Unit operating costs(1) for 2023 were within guidance(2).
Sustaining spending on capital(1) for the three months and year ended December 31, 2023 was $1.3 million and $3.2 million,
respectively, primarily driven by maintenance activities. Spending on capital(1) for 2023 was below guidance(2).
During 2023, Sherritt received $1.4 million of dividends from Energas in Canada and expects dividends to increase in 2024.
(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
2022
2023
December 31
2023
December 31 Change December 31
For the year ended
2022
December 31 Change
$
$
$
0.3
(3.8)
(3.5) $
0.5
(4.9)
(4.4)
(40%) $
22%
20% $
$
1.3
(16.7)
(15.4) $
1.8
(16.6)
(14.8)
(28%)
1%
4%
During the three months ended December 31, 2023, Technologies:
•
•
•
•
•
continued to advance development of strategic growth opportunities for Sherritt, provide technical support, process
optimization and technology development services to the Moa JV and the Fort Site and support the Moa JV’s expansion
program;
continued to progress near-term partnerships and development opportunities to expand midstream processing capacity
of critical minerals for the electric vehicle supply chain;
completed the continuous pilot test of the on-going MHP test program, which is supported by a funding commitment from
Natural Resources Canada (NRCan), as part of Sherritt’s strategic objective for expanding midstream processing
capacity;
advanced its venture analysis, flowsheet enhancements, and batch test work related to its next-generation laterite
(“NGL”) processing technology to support discussions with external parties; and
continued to progress on commercialization activities around proprietary technologies and innovative industry solutions.
Subsequent to the quarter-end, Technologies was restructured to reduce headcount, including management, and decrease costs
in line with a narrower focus to deliver essential support and enhancements to internal operations and business development.
Business development will primarily focus on near-term partnerships and development opportunities to expand midstream
processing capacity of critical minerals for the electric vehicle supply chain which Sherritt has been working to advance given its
differentiated and specialized technical expertise in hydrometallurgical processing.
CORPORATE
$ millions
EXPENSES
Administrative expenses
For the three months ended
2022
2023
December 31
2023
December 31 Change December 31
For the year ended
2022
December 31 Change
$
1.9
$
11.7
(84%) $
17.0
$
28.1
(40%)
Corporate’s administrative expenses are primarily composed of employee costs, share-based compensation expenses
(recoveries), legal fees and third-party consulting and audit fees.
Administrative expenses at Corporate for the three months ended December 31, 2023 were $9.8 million lower compared to the
prior period primarily due to an $8.5 million decrease in share-based compensation expense. The current period recovery of $1.5
million was primarily due to a $0.12 decrease in the Corporation’s share price, while the expense of $7.0 million in the prior period
was primarily due to a $0.13 increase in the Corporation’s share price on a significantly higher number of vested units prior to
cash payment in the first quarter of 2023.
Administrative expenses at Corporate for the year ended December 31, 2023 were $11.1 million lower compared to the prior year
primarily due to a $12.2 million decrease in share-based compensation expense. The current period recovery of $1.8 million was
primarily due to a $0.21 decrease in the Corporation’s share price, while the expense of $10.4 million in the prior year was primarily
due to a $0.12 increase in the Corporation’s share price on a significantly higher number of vested units prior to cash payment in
the first quarter of 2023.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”)
In Q2 2023, Sherritt issued its 2022 sustainability, climate and tailings management reports as well as its sustainability scorecard
outlining the Corporation’s performance on ESG matters. Highlights included:
• Completed a Task Force on Climate-related Disclosures (“TFCD”)-aligned Risk and Opportunity Assessment for the Fort
Site.
•
Initiated a Greenhouse Gas (“GHG”) Emissions Baseline Assessment at Energas.
• Spent approximately $1 million on local community investment projects in 2022.
• Continued support of long-term community development project partnerships with UNICEF and Cowater in Cuba, and
the Northern Alberta Institute of Technology at the Fort Site.
• Achieved 100% alignment with the Organisation for Economic Co-operation and Development’s (“OECD”) 5-Step
Framework confirming that the minerals produced by the Moa JV do not originate from or transit through conflict-affected
or high-risk areas (“CAHRAs”).
• 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, or risks such as human rights abuses, forced
labour, or corruption.
During 2023, Sherritt:
• Completed GHG Emissions Baseline Assessment at Energas and initiated assessments at the Moa mine site and Fort
Site. At Energas, Sherritt identified several potential decarbonization opportunities that would reduce GHG emissions
per MWh of power generated in Cuba. Moa mine site and Fort Site assessments are expected to be completed by mid-
2024.
• Commenced a TFCD-aligned Risk and Opportunity Assessment for Energas, with results expected in Q1 2024.
• Maintained conformity with LME’s Track B Responsible Sourcing Requirements.
Sherritt International Corporation
27
Management’s discussion and analysis
• Achieved ISO 45001 and ISO 14001 certification and continued to improve its Towards Sustainable Mining score at the
Fort Site.
• Continued to advance Sherritt’s community partner programs and progressed on development of its Indigenous
Relations and Reconciliation Road Map program.
• With great regret, reported two fatalities at the Moa JV mine site. In response to these incidents, root cause analyses
and a Fatality Prevention Gap Analysis was undertaken. Sherritt also initiated a series of Safety Strategy sessions with
each of its operations to identify and implement improved safety protocols.
Outlook
2023 PRODUCTION VOLUMES, UNIT OPERATING COSTS AND SPENDING ON CAPITAL GUIDANCE
Production volumes, unit operating costs(3) and spending on capital(3)
Year-to-date
actual to
Guidance December 31, 2023
2023
2024
Guidance
Production volumes
Moa Joint Venture (tonnes, 100% basis)
Nickel, finished(1)
Cobalt, finished(1)
Electricity (GWh, 33⅓% basis)(2)
Unit operating costs(3)
Metals - NDCC (US$ per pound)
Electricity - unit operating cost ($ per MWh)
Spending on capital(3)($ millions)
Sustaining
Moa Joint Venture (50% basis), Fort Site (100% basis)(1)
Power (33⅓% basis)
Growth
Moa Joint Venture (50% basis)(1)
Spending on capital(4)
29,000 - 30,000
2,900 - 3,100
650 - 700
28,672
2,876
745
30,000 - 32,000
3,100 - 3,400
775 - 825
$6.75 - $7.25
$27.25 - $28.75
$7.22
$27.70
$5.50 - $6.00
$32.50 - $34.00
$50.0
$4.4
$15.0
$69.4
$51.3
$3.2
$11.4
$65.9
$40.0
$5.5
$15.0
$60.5
(1)
2023 guidance updated November 1, 2023.
2023 guidance was updated July 26, 2023.
(2)
(3) Non-GAAP financial measures. For additional information, see the Non-GAAP and other financial measures section.
(4)
Excludes spending on capital of the Metals Marketing, Technologies, Oil and Gas and Corporate segments.
Metals
Nickel and cobalt production are both expected to increase in 2024 compared to 2023 due to increased feed of mixed sulphides
from the Moa mine site to the refinery as a result of access to additional ore sources to improve the blend of feed as well as
increased quality and feed rates following the ramp-up of the SPP, and reduced downtime from maintenance.
NDCC(1) is expected to be lower in 2024 compared to 2023 due to lower expected maintenance activity, cost optimization, and
higher expected production and sales, including increased fertilizer by-product sales. NDCC(1) includes by-product credits and
input commodities that are subject to considerable change given the volatility of cobalt, fertilizers, sulphur, diesel and fuel prices.
NDCC(1) guidance for 2024 is based on a forecast cobalt reference price of US$15.50 per pound and forecast sulphur price of
US$170.00 per tonne including freight and handling.
Sustaining spending on capital(1) of $40.0 million is primarily for tailings management, infrastructure, and the replacement of
equipment at the Moa JV. A portion of these costs are expected to be financed by the Moa JV or Sherritt in the case of Fort Site
costs.
Growth spending on capital(1) of $15.0 million is primarily for the continued construction of phase two of the expansion program at
the Moa JV.
Power
Electricity production is expected to be higher in 2024 compared to 2023 primarily due to the full year receipt of additional gas
from the two wells that went into production in Q2 2023. Sherritt continues to look for opportunities with its Cuban partner to
increase the amount of gas available for electricity production.
Unit operating cost(2) for electricity in 2024 reflects higher planned maintenance activities related to gas turbines, partly offset by
the impact of higher electricity production and sales.
Sustaining spending on capital(1) of $5.5 million at Power is primarily for maintenance and equipment purchases.
Sherritt International Corporation
29
Management’s discussion and analysis
Liquidity
As at December 31, 2023, total available liquidity was $160.6 million, which is composed of cash and cash equivalents of $119.1
million and $41.5 million of available credit facilities and excludes restricted cash of $1.4 million.
The main factors that affect liquidity include realized sales prices, timing of collection of receivables, production levels, cash
production costs, working capital requirements, capital and environmental rehabilitation expenditure requirements, the timing of
distributions (including pursuant to the Cobalt Swap) and advances from/to the Moa JV, the timing of cobalt sales and receipts,
repayments of non-current loans and borrowings, credit capacity and debt and equity capital market conditions.
Advances to the Moa JV are interest bearing, at the Corporation’s borrowing rates, and are expected to be repaid during the first
half of 2024. Sherritt does not expect to advance further amounts to the Moa JV in 2024. Upon repayment of the amounts
outstanding by the Moa JV, and subject to the Moa JV’s available liquidity to support operations and expected liquidity
requirements, the joint venture will be eligible to commence payment of cobalt dividends pursuant to the Cobalt Swap. At current
spot nickel prices, and given the prioritization of the joint venture to repay its outstanding advances, the Corporation expects
that the cobalt dividends anticipated to commence in the second half of the year, will not meet the annual maximum amount in
2024. As previously disclosed and as defined by the agreement, any short fall in the annual minimum payment will be added to
the following year.
During 2023, Sherritt received $1.4 million of dividends from Energas in Canada and expects dividends to increase in 2024.
The Corporation’s liquidity requirements are met through a variety of sources, including cash and cash equivalents, cash
generated from operations, existing credit facilities, leases and debt and equity capital markets. Refer to the Capital resources
section for further details on the 8.50% second lien secured notes due 2026 (“Second Lien Notes”), the PIK Notes and the
syndicated revolving-term credit facility (“Credit Facility”), including repurchases of the PIK Notes during the year ended
December 31, 2023.
Subsequent to period end, the Corporation completed a restructuring which resulted in a reduction of its workforce by
approximately 10% across the Canadian operations, with annual employee cost savings of $13.0 million expected to be realized,
and the Moa JV signed a sales agreement for nickel deliveries in 2024 with a $20 million prepayment expected to be received
in early February, improving available liquidity.
Cash and cash equivalents as at December 31, 2023 decreased by $4.8 million from December 31, 2022. The components of
this change are shown below:
(1)
Excludes proceeds from Cobalt Swap, distributions from the Moa JV, share-based compensation payments and interest paid on notes presented separately above.
The repayment of the Energas payable was made in Cuban pesos and did not impact cash in Canada.
(2)
(3) Other is composed of the effect of exchange rate changes on cash and cash equivalents, repayment of other financial liabilities, other finance charges, 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, 2023
Canada
Cuba(1)
Other
Cash
21.4 $
96.3
1.3
119.0 $
$
$
Cash
equivalents
0.1 $
-
-
0.1 $
Total
21.5
96.3
1.3
119.1
The Corporation's share of cash and cash equivalents in the Moa JV, not included in the above balances:
$
5.9
(1)
As at December 31, 2023, $93.9 million of the Corporation’s cash and cash equivalents was held by Energas (December 31, 2022 - $96.7 million).
SOURCES AND USES OF CASH
The Corporation’s cash provided (used) by operating, investing and financing activities is 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(1)
Metals - Fort Site
Metals - Metals Marketing(2)
Power
Technologies
Oil and Gas
Corporate(3)
Distributions from Moa JV
Proceeds from Cobalt Swap - Sherritt share
Proceeds from Cobalt Swap - GNC redirected share
Cash distributions - Cobalt Swap
Cash distributions - normal course
Interest paid on notes
Share-based compensation payments
Other cash (used) provided by operating activities
Cash (used) provided by continuing operations
Cash used by discontinued operations
Cash (used) provided by operating activities
Cash used by investing activities
Cash provided (used) by financing activities
Effect of exchange rate changes on cash and cash
equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents:
Beginning of the period
End of the period
For the three months ended
2022
2023
December 31
December 31 Change
2023
December 31
For the year ended
2022
December 31 Change
$
$
$
$
$
$
$
4.0
(1.1)
7.4
(3.5)
(14.9)
(2.3)
1.3
1.3
-
-
(9.4)
(0.4)
(0.5)
(18.1)
(0.3)
(18.4) $
(20.3) $
39.5
(0.1)
(4.1)
13.5
(4.5)
(1.7)
(6.0)
-
-
-
57.2
(13.9)
-
(0.1)
40.3
(0.3)
40.0
nm(4) $
73%
(45%)
22%
(776%)
62%
-
-
-
(100%)
32%
-
(400%)
(145%)
-
(146%) $
(10.0) $
(0.4)
19.3
(15.4)
(9.3)
(21.0)
40.2
40.2
32.0
-
(22.3)
(24.9)
(0.2)
28.2
(0.9)
27.3
$
(6.7)
(45.8)
(203%) $
186%
(18.4) $
(11.7)
31.9
(5.5)
38.0
(14.9)
(3.5)
(21.5)
-
-
-
100.6
(29.1)
(5.8)
0.1
90.3
(1.6)
88.7
(23.4)
(93.3)
(131%)
93%
(49%)
(3%)
(166%)
2%
-
-
-
(100%)
23%
(329%)
(300%)
(69%)
44%
(69%)
21%
87%
(2.1)
(1.3) $
(1.2)
(13.7)
(75%)
91% $
(2.0)
(4.8) $
6.3
(21.7)
(132%)
78%
120.4
119.1
$
$
137.6
123.9
(13%) $
(4%) $
123.9
119.1
$
$
145.6
123.9
(15%)
(4%)
(1) Non-GAAP financial measure. For additional information, see the Non-GAAP and other financial measures section.
(2)
Excluding proceeds from the Cobalt Swap, presented separately above.
Excluding distributions received from Moa JV and interest paid on notes, presented separately above.
(3)
(4) Not meaningful (nm).
The following significant items affected the sources and uses of cash:
Cash provided by operating activities was lower for the three months and year ended December 31, 2023 compared to the same
period in the prior year, primarily as a result of the following:
• Higher cash provided by operating activities at Fort Site for the three months ended December 31, 2023 primarily due to
timing of working capital payments. Lower cash provided by operating activities for the year ended December 31, 2023
primarily due to significantly lower average-realized prices for fertilizer and higher maintenance costs, compared to the
prior year period;
•
Lower cash used by operating activities at Metals Marketing primarily due to timing of customer receipts for the three
months and year ended December 31, 2023, compared to the prior year periods;
Sherritt International Corporation
31
Management’s discussion and analysis
•
•
•
•
Lower cash provided by operating activities at Power primarily due to higher production costs as a result of higher
maintenance, partially offset by higher production in the current year periods;
Higher cash used by operating activities at Oil and Gas primarily due to lower receipts on oil and gas service revenue,
additional maintenance activities and higher cash expenditures for liabilities settled on environmental rehabilitation
provisions for legacy Spanish Oil and Gas assets for the three months and year ended December 31, 2023, compared
to the prior year periods;
Lower cash used by operating activities at Corporate primarily due to the timing of working capital payments for the three
months ended December 31, 2023;
In the current year, distributions from the Moa JV were in the form of cobalt pursuant to the Cobalt Swap, for which the
Corporation received $2.7 and $80.3 million in cash from the sale of cobalt (Sherritt and GNC’s redirected share), for the
three months and year ended December 31, 2023, respectively. In addition, $32.0 million of cash was distributed during
the year ended December 31, 2023 from the Moa JV to GNC and re-directed to the Corporation pursuant to the Cobalt
Swap in order for the total value of cobalt and cash distributions to meet the dollar minimum of US$114.0 million.
Included in investing and financing activities for the three months and year ended December 31, 2023 are expenditures on
property, plant and equipment and intangible assets, advances to the Moa JV and increases in the Credit Facility. In addition,
investing and financing activities for the year ended December 31, 2023 includes receipts on the GNC receivable and repayments
of the Energas payable under the Cobalt Swap of $32.0 million and $14.8 million, respectively, and a $7.8 million repurchase of
PIK Notes.
RECONCILIATION OF ADJUSTED EBITDA TO CHANGE IN CASH AND CASH EQUIVALENTS
The Corporation’s Adjusted EBITDA(1) reconciles to the change in cash and cash equivalents as follows for the three months and
year ended December 31, 2023:
$ millions
Adjusted EBITDA(1)
Add (deduct):
Moa JV Adjusted EBITDA(1)
Distributions from the Moa JV
Proceeds from Cobalt Swap - Sherritt share
Proceeds from Cobalt Swap - GNC redirected share
Cash distributions - Cobalt Swap
Interest received
Interest paid
Net change in non-cash working capital
Finished cobalt cost of sales
Share-based compensation recovery
Share-based compensation payments
Loss on environmental rehabilitation provisions
Inventory write-down/obsolescence
Liabilities settled for environmental rehabilitation provisions
Oil and Gas loss from operations, net of
depletion, depreciation and amortization
Other(2)
Cash (used) provided by continuing operations for operating activities per
financial statements
Add (deduct):
Cash used by discontinued operations
Repurchase of notes
Increase in loans and borrowings
Increase in advances, loans receivable and other financial assets
Repayment of other financial liabilities
Property, plant, equipment and intangible asset expenditures
Receipts of advances, loans receivable and other financial assets
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, 2023
For the year ended
December 31, 2023
$
(7.0)
$
46.2
5.0
1.3
1.3
-
0.7
(11.6)
(0.2)
1.8
(1.9)
(0.4)
20.0
0.8
(4.2)
(23.3)
(0.4)
(18.1)
(0.3)
-
40.0
(15.0)
(0.5)
(5.5)
0.2
(2.1)
-
(1.3)
$
(67.2)
40.2
40.2
32.0
2.8
(28.3)
(93.6)
86.1
(1.5)
(24.9)
22.9
9.8
(5.9)
(30.0)
(0.6)
28.2
(0.9)
(7.8)
13.0
(30.0)
(16.8)
(21.3)
32.9
(2.0)
(0.1)
(4.8)
$
(1) Non-GAAP and other financial measure. For additional information see the Non-GAAP and other financial measures section.
(2) Other is composed of fees paid on repurchases of notes and other finance charges.
The Moa JV’s Adjusted EBTIDA is based on revenue, cost of sales and other expenses recognized by the Moa JV based on the
accrual method. Moa JV’s cash and cobalt distributions to the Corporation are determined based on available cash in excess of
liquidity requirements. Determinants of liquidity include anticipated nickel and cobalt prices, planned spending on capital at the
Moa JV 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,
2023.
Canadian $ millions, as at December 31, 2023
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
Second Lien Notes
(includes principal, interest and premium)
PIK Notes
(includes principal and interest)
Credit Facility
Other non-current financial liabilities
Provisions
Energas payable(2)
Lease liabilities
Capital commitments
Total
$
$
169.2 $
2.2
169.2 $
2.2
- $
-
- $
-
304.4
18.8
18.8
266.8
112.6
65.3
1.3
214.4
97.3
13.3
7.7
987.7 $
-
5.5
-
24.4
17.7
2.6
7.7
248.1 $
-
59.8
-
0.4
15.5
2.4
-
96.9 $
8.4
-
0.1
2.1
18.2
1.3
-
296.9 $
- $
-
-
8.4
-
-
13.9
45.9
1.3
-
69.5 $
- $
-
-
8.4
-
-
9.4
-
1.2
-
19.0 $
-
-
-
87.4
-
1.2
164.2
-
4.5
-
257.3
(1)
Excludes the contractual obligations and commitments of the Moa JV, which are disclosed separately in the Supplementary Information section below and non-
recourse to the Corporation.
(2) Repayment of the Energas payable is from Energas to GNC in Cuban pesos in Cuba and does not impact cash in Canada.
Sherritt International Corporation
33
Management’s discussion and analysis
SECOND LIEN NOTES
As at December 31, 2023, the outstanding principal amount of the Second Lien Notes is $221.3 million (December 31, 2022 –
$221.3 million) and the notes mature on November 30, 2026. Interest is payable semi-annually in cash in April and October.
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 (used) by 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.
For the two-quarter period ended December 31, 2023, Excess Cash Flow, as defined in the Second Lien Notes Indenture was
negative. As a result, no mandatory redemptions will be required on the interest payment date in April 2024.
The minimum liquidity amount is defined in the Second Lien Notes 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 Notes and 10.75% unsecured PIK option notes due 2029 during the relevant two-fiscal
quarter period. There were no repurchases of notes during the two-quarter period ended December 31, 2023.
The Second Lien Notes 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 Second Lien Notes 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. As at December 31, 2023, the Corporation met the required financial ratio and has the capacity to make restricted
payments up to $85.9 million.
During the year ended December 31, 2023, the Corporation repurchased nil principal of the Second Lien Notes. During the year
ended December 31, 2022, the Corporation repurchased $129.2 million of principal of the Second Lien Notes 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).
PIK NOTES
As at December 31, 2023, the outstanding principal amount of the PIK Notes is $63.4 million (December 31, 2022 - $70.8 million)
and the notes mature on August 31, 2029. Interest is payable semi-annually in cash or in-kind, at Sherritt’s election, in January
and July. 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, 2023, the Corporation repurchased $11.2 million of principal of the PIK Notes at a cost of
$7.8 million, plus $0.1 million of accrued interest, resulting in a gain on repurchase of notes of $3.5 million (note 8). During the
year ended December 31, 2022, the Corporation repurchased $19.9 million of principal of the PIK Notes at a cost of $10.9 million,
plus $0.7 million of accrued interest, resulting in a gain on repurchase of notes of $9.7 million (note 8).
During the year ended December 31, 2023, in accordance with the terms of the PIK Notes Indenture, the Corporation elected not
to pay cash interest due in January 2023 of $3.8 million and added the payment-in-kind interest to the principal amount owed to
noteholders and the Corporation paid the July 2023 interest payment on the PIK Notes of $3.4 million in cash. During the year
ended December 31, 2022, in accordance with the terms of the PIK Notes Indenture, the Corporation elected not to pay cash
interest of $8.1 million on the PIK Notes and added the payment in-kind interest to the principal amount owed to noteholders.
Subsequent to period end, in accordance with the terms of the PIK Notes Indenture, the Corporation elected not to pay cash
interest due in January 2024 of $3.4 million and added the payment-in-kind interest to the principal amount owed to noteholders.
CREDIT FACILITY
As at December 31, 2023, the outstanding principal amount of the Credit Facility is $58.0 million (December 31, 2022 - $45.0
million) and the Credit Facility matures on April 30, 2025.
The maximum credit available is $100.0 million and the interest rates are bankers’ acceptance plus 4.00%. Borrowings on the
Credit Facility are available to fund working capital and capital expenditures. Borrowings under the Credit Facility for 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 trailing 12-month 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 trailing 12-month basis with Energas included on a cash
basis. Interest expense excludes the payment-in-kind (PIK) interest on the Corporation’s PIK Notes; 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 Second Lien Notes, less the principal amount of the PIK Notes, less any derivative liability
and less any additional secured financing ranked equal to first-lien debt.
As at December 31, 2023, the Corporation was in compliance with all Credit Facility covenants.
As at December 31, 2023, the Corporation has $0.5 million of letters of credit outstanding pursuant to this facility (December 31,
2022 - $0.5 million).
During the year ended December 31, 2023, the Credit Facility was amended to (i) add an accordion feature, which allows
additional lenders to join the Credit Facility and increase the maximum credit available by up to $25.0 million, subject to certain
conditions, (ii) increase the permitted debt outside of the Credit Facility from $25.0 million to $35.0 million and (iii) extend its
maturity for one year from April 30, 2024 to April 30, 2025, with no other significant changes to the terms, financial covenants or
restrictions.
In May 2022, Sherritt received consent from its lenders to expand the allowable use of proceeds to include repurchases of its
notes.
Sherritt International Corporation
35
Management’s discussion and analysis
GUARANTEES
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. During the year ended December 31, 2023, a
new parent company guarantee was signed with a four-year term valid until December 31, 2027 and a guaranteed amount of
€35.8 million. The parent company guarantee has no impact on the Corporation’s available liquidity.
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
2023
December 31
2022
December 31
Change
$
$
355.6 $
97.1
452.7 $
613.6
42%
350.9
170.2
521.1
694.9
43%
397,288,680
6,612,673
397,288,680
2,701,741
1%
(43%)
(13%)
(12%)
(2%)
-
145%
(1) Other financial liabilities include 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 SHARES
As at February 7, 2024, the Corporation had 397,288,680 common shares outstanding. An additional 6,582,573 common shares
are issuable upon exercise of outstanding stock options granted to employees pursuant to the Corporation’s stock option plan.
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 2022 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
• 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
• Restrictions in Debt Instruments, Debt Covenants and Mandatory Repayments
• Environmental Risks and Liabilities
• Risks in relation to Information Technologies Systems and Cybersecurity
•
• Depletion of Reserves
• Reliance on Partners
• Mining, Processing and Refining Risks
• Operating Risks
• Project Operations – Generally and Capital and Operating Cost Estimates
• Equipment Failure and Other Unexpected Failures
Identification and Management of Growth Opportunities
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, 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
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
37
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 and Mandatory Repayments” for more information on Sherritt’s loans and borrowings and on the effect of
non-compliance with certain debt covenants.
RISKS RELATED TO SHERRITT’S OPERATIONS IN CUBA
The Corporation directly or indirectly holds significant interests in mining, metals processing 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 currency, and high rates of inflation. In addition, in 2021 and
thereafter, Cuba has 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, fuel, 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.
All electricity sales made by Energas in Cuba would be made to an agency of the Government of Cuba. 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.
Sherritt International Corporation
39
Management’s discussion and analysis
In 2022, Sherritt finalized the Cobalt Swap with its Cuban Partners to recover $368 million of total outstanding receivables. In
2023, the Moa Joint Venture distributed 100% of the annual maximum cobalt volume pursuant to the Cobalt Swap and paid cash
distributions in order for the total value of cobalt and cash distributions to meet the annual dollar minimum of US$114.0 million
(100% basis) pursuant to the Cobalt Swap. While the Cobalt Swap agreement contains default and retroactive interest
provisions in the event that the total outstanding principal amount is not repaid by December 31, 2027, there can be no assurance
that it will be repaid by maturity, as cobalt and cash distributions are at the discretion of the Board of Directors of the Moa Joint
Venture and subject to its available liquidity and finished cobalt production to make such distributions to the Corporation.
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, and may in certain circumstances restrict
the ability of persons subject to the jurisdiction of the U.S. from engaging in transactions with Sherritt more generally.
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. Persons subject to the jurisdiction of the United States are
advised to consult their independent advisors before acquiring common shares of Sherritt.
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.
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”.
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. 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
41
Management’s discussion and analysis
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 indentures). 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 indentures, 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.
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.
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.
Sherritt International Corporation
43
Management’s discussion and analysis
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.
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.
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 2022 AIF for additional information.
PROJECT OPERATIONS
Generally
Sherritt’s business includes the operation of large mining, metals refining projects and electrical generation projects. Unforeseen
conditions or developments could arise during the course of these projects that could affect the current and projected level of
production, the sustaining capital requirements or operating cost estimates relating to the projects. Such conditions or
developments may include, without limitation, shortages of equipment, materials or labour; delays in delivery of equipment or
materials; customs issues; labour disruptions; poor labour productivity; community protests; difficulties in obtaining necessary
services; delays in obtaining regulatory permits; local government issues; political events; regulatory changes; investigations
involving various authorities; adverse weather conditions; unanticipated increases in equipment, material and labour costs;
unfavourable currency fluctuations; access to financing; natural or man-made disasters or accidents; and unforeseen
engineering, technical and technological design, geotechnical, environmental, infrastructure or geological problems. Any such
event could affect production, timely execution and cost estimates.
These risks and uncertainties could have a material adverse effect on the Corporation’s business, results of operations and
financial performance.
Capital and operating cost estimates
Capital and operating cost estimates made in respect of the Corporation’s operations and projects may not prove accurate.
Capital and operating costs are estimated based on the interpretation of geological data, feasibility studies, anticipated climatic
conditions and other factors. Any of the following, among the other events and uncertainties described herein, could affect the
ultimate accuracy of such estimates: unanticipated changes in grade and tonnage to be mined and processed; incorrect data on
which engineering assumptions are made; unanticipated transportation costs; the accuracy of major equipment and construction
cost estimates; expenditures in connection with a failure to meet such scheduled dates; unsatisfactory construction quality
resulting in failure to meet such scheduled dates; labour negotiations; unanticipated costs related to sustaining production;
changes in government regulation (including regulations regarding prices, cost of consumables, royalties, duties, taxes,
permitting and restrictions on production quotas or exportation of the Corporation’s products); and unanticipated changes in
commodity input costs and quantities.
As part of the Life of Mine (“LOM”) optimization planning, Moa Nickel has set out a proposed sequence for the development,
operation, and closure of its Tailings Management Facilities (“TMFs”), including with respect to the Acid Leach Tailings Facility,
the North Extension, phased construction of Area 22 and a long term storage facility thereafter. There can be no assurance that
the construction of tailings facilities can be completed within original budget or on a timely basis. Delays to construction can
occur as a result of many factors, many of which are outside management’s control. Any material delay could require the
consideration of alternative or interim solutions and could increase cost, or in the worst case, result in a disruption to operations,
all of which could have a material adverse effect on the Corporation’s business, financial condition and results of operations.
Sherritt International Corporation
45
Management’s discussion and analysis
EQUIPMENT FAILURE AND OTHER UNEXPECTED FAILURES
Interruptions in Sherritt’s production capabilities would be expected to increase its production costs and reduce its profitability.
The Corporation may experience material shutdowns or periods of reduced production because of equipment failures and this
risk may be increased by the age of certain of the Corporation’s facilities or facilities of third parties in which the Corporation’s
products are processed. In addition to equipment failures, the Corporation’s facilities are also subject to the risk of loss due to
unanticipated events such as fires, explosions or adverse weather conditions. The foregoing risks may be heightened in
circumstances in which capital expenditure is constrained. Shutdowns or reductions in operations could have a material adverse
effect on the Corporation’s business, results of operations and financial performance. Remediation of an interruption in
production capability could require the Corporation to make large expenditures. Further, longer-term business disruptions could
result in a loss of customers. All of these factors could have a material adverse effect on the Corporation’s business, results of
operations and financial performance.
OTHER RISKS
Below is a list of the other significant business risks as presented in the Corporation’s 2022 AIF. Further detail of these and
other risks and the strategies designed to manage them can be found in the Corporation’s 2022 AIF to the extent not included
herein.
• Political, economic, and other risks of foreign
operations
• Environment, health, and safety
• Climate change/greenhouse gas emissions
• Community relations and social license to grow
and operate
• Sourcing and Supply
• Uncertainty of gas supply to Energas
• Reliance on key personnel and skilled workers
• Uncertainty of
reserves
estimates
resources and
• Risks related to Sherritt’s corporate structure
•
Foreign exchange and pricing risks
• 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
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, 2023 consolidated financial statements.
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 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 model, which includes the use of in-kind forecast cobalt prices and discount rates, which
are significant unobservable inputs in the case of the GNC receivable, 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 Corporation’s environmental rehabilitation provisions are assessed quarterly and measured by discounting the expected cash
flows. The applicable discount rates are pre-tax rates that reflect the current market assessment of the time value of money which
is determined based on government bond interest rates and inflation rates. The actual rates depend 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
47
Management’s discussion and analysis
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
JV 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 JV
The Corporation accounts for its investment in the Moa JV using the equity method. The Corporation assesses the carrying
amount of the Moa JV 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).
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.
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 model, which includes the use of in-kind forecast cobalt
prices and discount rates, which are significant unobservable inputs in the case of the GNC receivable 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
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. Effective January 1, 2023, the Corporation
adopted these requirements. The application of this amendment did not have a material impact on the Corporation’s consolidated
financial statements.
International Tax Reform—Pillar Two Model Rules (Amendments to IAS 12)
In December 2021, the Organisation for Economic Co-operation and Development (“OECD”) issued model rules for a new global
minimum tax framework (“Pillar Two”) and in August 2023, the Government of Canada released draft legislation to implement a
global minimum tax, which has not yet been enacted or substantively enacted.
Amendments to this standard apply to income taxes arising from tax law enacted or substantively enacted to implement the Pillar
Two model rules published by the OECD including tax law that implements qualified domestic minimum top-up taxes described
in those rules.
The amendments apply for annual periods beginning on or after January 1, 2023. Effective January 1, 2023, the Corporation
adopted these requirements.
Sherritt International Corporation
49
Management’s discussion and analysis
Following the amendments to IAS 12, the Corporation has applied the exception available under the amendments to IAS 12
published by the IASB in May 2023 and is not recognizing or disclosing information about deferred tax assets and liabilities related
to Pillar Two income taxes given that relevant information is not known or reasonably estimable at this time.
Based on the currently applicable revenue thresholds, the Corporation would not be in scope of the Pillar Two rules. As the
legislation has not yet been enacted or substantively enacted in Canada, the Corporation continues to evaluate the impact of the
legislation on its 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 amendments replace 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”. The definition of a change in accounting estimates was deleted.
The amendments apply for annual periods beginning on or after January 1, 2023. Effective January 1, 2023, the Corporation
adopted these requirements. The application of this amendment did not have a material impact on the Corporation’s consolidated
financial statements.
Presentation of Financial Statements and Making Materiality Judgments (Amendments to IAS 1 and IFRS Practice
Statement 2)
Amendments to IAS 1 Presentation of Financial Statements change the requirements with regard to disclosure of accounting
policies. The amendments replace all instances of the term ‘significant accounting policies’ with ‘material accounting policy
information’. Accounting policy information is material if, when considered together with other information included in an entity’s
financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements.
The amendments apply for annual periods beginning on or after January 1, 2023. Effective January 1, 2023, the Corporation
adopted these requirements. The application of these amendments did not have a material 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.
Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants (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.
In October 2022, the IASB finalised issuance of Non-current Liabilities with Covenants, which made amendments to IAS 1
Presentation of Financial Statements. The amendments specify that only covenants that an entity is required to comply with on or
before the end of the reporting period affect the entity’s right to defer settlement of a liability for at least twelve months after the
reporting date (and therefore must be considered in assessing the classification of the liability as current or non-current). Such
covenants affect whether the right exists at the end of the reporting period, even if compliance with the covenant is assessed only
after the reporting date.
The amendments are effective for annual periods beginning on or after January 1, 2024. Earlier application is permitted. The
application of this amendment is not expected to have a material impact on the Corporation’s consolidated financial statements.
Summary of quarterly results
The following table presents selected amounts derived from the Corporation’s consolidated financial statements:
$ millions, except per share amounts,
for the three months ended
2023
Dec 31
2023
Sept 30
2023
Jun 30
2023
Mar 31
2022
Dec 31
2022
Sept 30
2022
Jun 30
2022
Mar 31
Revenue
$
34.8 $
36.4 $
93.5 $
58.6 $
48.6 $
30.2 $
65.9 $
34.1
Share of (loss) earnings of Moa Joint
Venture, net of tax
Net (loss) earnings from continuing
operations
(Loss) earnings from discontinued
operations, net of tax(1)
Net (loss) earnings for the period
(14.5)
(53.4)
(5.0)
(24.8)
11.5
0.3
29.9
23.5
22.0
47.4
47.9
13.6
(7.3)
(26.9)
81.5
16.4
-
(53.4) $
-
(24.8) $
$
-
0.3 $
(0.3)
13.3 $
0.3
(7.0) $
0.6
(26.3) $
(0.4)
81.1 $
(0.7)
15.7
Net (loss) earnings per share, basic ($ per share)
Net (loss) earnings from continuing
operations
Net (loss) earnings
$
(0.13) $
(0.13)
(0.06) $
(0.06)
0.00 $
0.00
0.03 $
(0.02) $
(0.07) $
0.21 $
0.03
(0.02)
(0.07)
0.20
0.04
0.04
(1)
(Loss) earnings from discontinued operations, net of tax, relates to expenses 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 $1.2662 (Q1 2022) to $1.3624 (Q4 2023) and period-end rates ranged between $1.2496 (Q1 2022)
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 2023: $20.0 million loss on environmental rehabilitation provisions. The net impact of the Cobalt Swap on the
Corporation’s net loss was not material.
• Q3 2023: $7.3 million write-down of inventory, $6.8 million loss on environmental rehabilitation provisions and $0.9 million
unrealized foreign exchange gains in continuing operations. The net impact of the Cobalt Swap on the Corporation’s net
loss was not material;
• Q2 2023: $2.2 million gain on repurchase of notes. The net impact of the Cobalt Swap on the Corporation’s net earnings
was not material;
• Q1 2023: $1.3 million gain on repurchase of notes, $1.9 million of share-based compensation expense within cost of
sales and administrative expenses and $0.9 million of unrealized foreign exchange losses in continuing operations. The
net impact of the Cobalt Swap on the Corporation’s net earnings was not material;
• 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; and
• 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.
Sherritt International Corporation
51
Management’s discussion and analysis
Three-year trend analysis
The following table presents select financial and operational results for the last three years:
$ millions, except per share amounts for the years ended December 31
Revenue
(Loss) earnings from operations and joint venture
Net (loss) earnings from continuing operations
Loss from discontinued operations, net of tax
Net (loss) earnings for the year
Adjusted EBITDA(1)
(Loss) earnings per common share (basic and diluted) ($ per share):
Net (loss) earnings from continuing operations
Net (loss) earnings 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)
$
$
2023
223.3
(43.4)
(64.3)
(0.3)
(64.6)
46.2
(0.16)
(0.16)
$
2022
178.8
118.7
63.7
(0.2)
63.5
233.1
0.16
0.16
2021
110.2
8.5
(13.4)
(5.0)
(18.4)
112.2
(0.03)
(0.05)
1,390.6
489.7
1,555.6
493.1
1,398.0
591.1
14,336
1,438
745
16,134
1,684
568
15,592
1,763
450
(1) 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 and fertilizer; 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, gains/losses on sale of assets and changes in estimates on environmental rehabilitation provisions, 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 2023, net loss from continuing operations was negatively impacted by a loss on environmental rehabilitation provisions of $22.9
million, inventory write-down of $9.8 million and a loss on the revaluation of Energas payable of $7.6 million. The aforementioned
losses were partially offset by a gain on the revaluation of the GNC receivable of $14.7 million and a gain on the repurchase of
notes of $3.5 million.
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 were 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.
Off-balance sheet arrangements
As at December 31, 2023, the Corporation had no options, futures or forward contracts.
Transactions with related parties
The Corporation and its 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 and purchased from certain jointly controlled entities. For further detail, refer to notes 7 and 22
of the Corporation’s consolidated financial statements for the year ended December 31, 2023.
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 Energas
Provided to Moa Joint Venture
Purchased from Moa Joint Venture
Net financing income from Energas
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 Moa Joint Venture
2023
2022
$
46.6 $
372.8
844.0
-
0.8
22.9
302.6
1,216.0
14.4
0.4
2023
2022
$
44.7 $
72.2
30.3
27.4
127.8
-
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 former Chief Operating
Officer in 2022 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)
Share-based payments
2023
2022
5.0 $
0.3
4.6
9.9 $
6.7
0.3
4.5
11.5
$
$
(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, 2023 (nil for the year ended December 31, 2022). The total pension expense that is attributable to key management
personnel was nil for the year ended December 31, 2023 (nil for the year ended December 31, 2022).
Sherritt International Corporation
53
Management’s discussion and analysis
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, 2023,
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 2023 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, 2023, 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, 2023.
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, 2023 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 (loss) earnings basic (loss) earnings
(CAD$ millions)
per share (EPS)
Increase
Increase/
(decrease)
Increase/
(decrease)
US$
US$
$
1.00 $
5.00
50.00
27 $
20
8
$
0.05
$
US$
US$
1.00
50.00
25.00
(7)
(3)
(3)
(4)
0.07
0.05
0.02
(0.02)
(0.01)
(0.01)
(0.01)
(1) Changes are applied at the operating level with the approximate change in net (loss) earnings and basic EPS representing the Corporation’s 50% interest in the Moa
JV.
INVESTMENT IN MOA JOINT VENTURE
Explanations for the significant changes in the statements of financial position and statements of comprehensive income line items
to their respective comparative periods for the Moa JV are included below.
Statements of financial position
Canadian $ millions, 100% basis, as at
December 31
December 31
Variance
2023
2022
Assets
Cash and cash equivalents
$
11.8 $
43.6
(31.8) Decrease is primarily due to cash distributions
made under the Cobalt Swap and spending on
capital, partially offset by cash provided by
operating activities and draws on the credit facility
with the Corporation.
Income taxes receivable
6.4
-
6.4
Other current assets
20.9
90.1
(69.2)
Decrease is primarily due to cash distributions to
shareholders in the prior year that were declared as
dividends during 2023, reducing the receivable from
shareholders.
Trade accounts receivable, net
82.6
178.0
(95.4) Decrease is primarily due to lower nickel and cobalt
realized prices coupled with lower nickel and cobalt
sales volumes.
Inventories
424.7
399.1
25.6
Other non-current assets
23.3
16.8
6.5
Property, plant and equipment
1,089.1
1,102.8
(13.7)
Total assets
1,658.8
1,830.4
(171.6)
Increase is primarily due to higher volumes of
finished nickel inventories, partially offset by lower
volumes of finished cobalt inventories.
Decrease is primarily due to depletion, depreciation
and amortization, partially offset by capital
additions.
Liabilities
Trade accounts payable and accrued
liabilities
Income taxes payable
Other current financial liabilities
Loans and borrowings
Environmental rehabilitation provisions
Other non-current financial liabilities
Deferred income taxes
117.4
87.9
29.5
Increase is primarily due to timing of payments to
suppliers.
2.8
30.4
23.5
84.9
3.7
18.3
4.1
0.2
26.0
84.0
4.6
23.7
(1.3)
30.2
Increase is primarily due to draws on the revolving-
term credit facility with the Corporation.
(2.5)
0.9
(0.9)
(5.4)
50.5
(222.1)
Total liabilities
Net assets of Moa Joint Venture
Proportion of Sherritt's ownership interest
Total
Intercompany capitalized interest elimination
Investment in Moa Joint Venture
$
$
281.0
1,377.8 $
50%
688.9
(42.2)
646.7 $
230.5
1,599.9
50%
800.0
(44.0)
756.0
Foreign currency translation differences are included in the financial information of the Moa JV presented in the financial
statements and MD&A, as the Corporation’s presentation currency is the Canadian dollar, while the Moa JV’s functional currency
is the U.S. dollar. As at December 31, 2023, the U.S. dollar decreased in value relative to the Canadian dollar, resulting in lower
assets and liabilities reported in Canadian dollars as compared to December 31, 2022.
Sherritt International Corporation
55
Management’s discussion and analysis
Statements of comprehensive income
For the year ended
2023
2022
Canadian $ millions, 100% basis
Revenue
December 31
$
884.3 $
December 31
1,344.2
Variance
(459.9) Decrease is primarily due to lower nickel revenue due
Cost of sales
(832.7)
(989.4)
Cobalt gain
Impairment of property, plant and equipment
Administrative expenses
Earnings from operations
Financing income
Financing expense
Net finance expense
Earnings before income tax
5.5
(3.0)
(9.9)
44.2
2.3
(11.5)
(9.2)
35.0
-
-
(14.7)
340.1
0.8
(19.0)
(18.2)
321.9
to lower nickel sales volumes and realized price as
well as a decrease in cobalt revenue primarily due to
cobalt distributions pursuant to the Cobalt Swap,
which are not recognized as revenue by the Moa JV.
156.7 Decrease is primarily due to a decrease in cobalt cost
of sales primarily due to cobalt distributions pursuant
to the Cobalt Swap, which are not recognized as cost
of sales by the Moa JV coupled with lower sulphur
input commodity prices and lower royalties, primarily
due to lower mixed sulphide revenue. These amounts
are partially offset by an increase in maintenance
costs.
5.5 Cobalt gain represents the difference between the
Moa JV's cost to produce finished cobalt internally and
the in-kind value of cobalt distributed under the Cobalt
Swap, which commenced in 2023.
(3.0)
4.8
(295.9)
1.5
7.5
9.0
(286.9)
Income tax expense
(1.4)
(48.6)
47.2
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
$
33.6 $
273.3
(239.7)
50%
16.8
5.1
50%
136.7
4.1
-
(119.9)
1.0
21.9 $
140.8
(118.9)
Decrease is primarily due to lower taxable earnings in
2023 as compared to 2022 at one of the operating
companies of the Moa JV.
For the year ended December 31, 2023, Moa JV’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 JV commitments
The Moa JV’s significant undiscounted commitments, which are non-recourse to the Corporation, are presented below on a 50%
basis:
•
•
•
•
Environmental rehabilitation commitments of $136.1 million, with no significant payments due in the next five years;
Trade accounts payable and accrued liabilities of $58.7 million;
Loans and borrowings of $11.8 million; and
Property, plant and equipment commitments of $32.1 million (50% basis), which includes $6.8 million of commitments
for growth capital for the ordering of long-lead materials and equipment, and civil and mechanical construction.
Property, plant and equipment commitments also include normal course expenditures and those associated with tailings
management facilities.
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 core operations. Combined revenue includes the Corporation’s consolidated revenue, less Oil and Gas revenue, and
includes the revenue of the Moa JV within the Metals reportable segment on a 50% basis. Revenue of the Moa JV is included in
share of earnings of Moa Joint Venture, net of tax, as a result of the equity method of accounting and excluded from the
Corporation’s consolidated revenue.
Revenue at Oil and Gas is excluded from Combined revenue as the segment is not currently exploring for or producing oil and
gas and its financial results relate to ancillary drilling services provided to a customer and CUPET and environmental rehabilitation
costs for legacy assets, which are not reflective of the Corporation’s core operating activities or revenue generation potential. The
exclusion of revenue at Oil and Gas from Combined revenue represents a change in the composition of Combined revenue during
the year ended December 31, 2023 to better reflect the Corporation’s core operating activities and revenue generation potential
and the prior year measure has been restated for comparative 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
Revenue by reportable segment
Metals(1)
Power
Technologies
Corporate
Combined revenue
Adjustment for Moa Joint Venture
Adjustment for Oil and Gas
Financial statement revenue
For the three months ended
2023
December 31
2022
December 31
For the year ended
Change
2023
December 31
2022
December 31
Change
$
$
$
125.9
14.0
0.3
0.3
140.5
(107.7)
2.0
34.8
$
$
$
223.5
10.5
0.5
0.1
234.6
(188.5)
2.5
48.6
(44%)
33%
(40%)
200%
(40%)
$
$
(28%)
$
603.7
47.1
1.3
0.8
652.9
(442.2)
12.6
223.3
$
$
$
795.1
37.1
1.8
0.7
834.7
(672.1)
16.2
178.8
(24%)
27%
(28%)
14%
(22%)
25%
(1) Revenue of Metals for the three months ended December 31, 2023 is composed of revenue recognized by the Moa JV of $107.7 million (50% basis), which is equity-
accounted and included in share of earnings of Moa JV, net of tax, coupled with revenue recognized by Fort Site of $15.3 million and Metals Marketing of $2.9 million,
both of which are included in consolidated revenue (for the three months ended December 31, 2022 - $188.5 million, $34.2 million and $0.8 million, respectively).
Revenue of Metals for the year ended December 31, 2023 is composed of revenue recognized by the Moa JV of $442.2 million (50% basis), coupled with revenue
recognized by Fort Site of $77.9 million and Metals Marketing of $83.6 million (for the year ended December 31, 2022 - $672.1 million, $120.1 million and $2.9 million,
respectively).
Sherritt International Corporation
57
Management’s discussion and analysis
Adjusted EBITDA
The Corporation defines Adjusted EBITDA as (loss) earnings from operations and joint venture, which excludes net finance
expense, income tax 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 JV. The exclusion
of impairment losses eliminates the non-cash impact of the losses.
Earnings/loss from operations at Oil and Gas (net of depletion, depreciation and amortization, if applicable) is deducted
from/added back to Adjusted EBITDA as the segment is not currently exploring for or producing oil and gas and its financial results
relate to ancillary drilling services provided to a customer and CUPET and environmental rehabilitation costs for legacy assets,
which are not reflective of the Corporation’s core operating activities or cash generation potential. The adjustment for earnings/loss
from operations at Oil and Gas (net of depletion, depreciation and amortization, if applicable) represents a change in the
composition of Adjusted EBITDA during the year ended December 31, 2023 to better reflect the Corporation’s core operating
activities and cash generation potential and the prior year measure has been restated for comparative purposes.
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 (loss) earnings from operations and joint venture per the financial statements to Adjusted EBITDA:
$ millions, for the three months ended December 31
(Loss) earnings from operations and joint venture
per financial statements
Add:
Depletion, depreciation and amortization
Oil and Gas loss from operations
Adjustments for share of earnings of Moa Joint Venture:
Depletion, depreciation and amortization
Net finance expense
Income tax recoveries
Metals(1)
Power
Techno-
logies
Oil and
Gas
Corporate
Adjustment
for Moa
Joint
Venture
2023
Total
$
(22.0) $
5.9 $
(3.5) $
(23.3) $
(1.6) $
1.1 $
(43.4)
2.8
-
10.5
-
-
0.7
-
-
-
-
-
-
-
-
-
-
23.3
-
-
-
0.2
-
-
-
-
-
-
-
1.9
(3.0)
Adjusted EBITDA
$
(8.7) $
6.6 $
(3.5) $
- $
(1.4) $
- $
$ millions, for the three months ended December 31
Metals(1)
Power
Techno-
logies
Oil and
Gas
Corporate
Adjustment
for Moa
Joint
Venture
Earnings (loss) from operations and joint venture
per financial statements
Add:
Depletion, depreciation and amortization
Oil and Gas loss from operations
Adjustments for share of earnings of Moa Joint Venture:
Depletion, depreciation and amortization
Net finance income
Income tax expense
Adjusted EBITDA
$
30.5 $
4.5 $
(4.4) $
(17.1) $
(11.6) $
(2.0) $
(0.1)
2.8
-
11.8
-
-
45.1 $
$
1.6
-
-
-
-
6.1 $
-
-
-
17.1
0.3
-
-
-
-
(4.4) $
-
-
-
- $
-
-
-
(11.3) $
-
-
-
(1.6)
3.6
- $
4.7
17.1
11.8
(1.6)
3.6
35.5
3.7
23.3
10.5
1.9
(3.0)
(7.0)
2022
Total
Adjusted EBITDA
$
53.6 $
23.2 $
(15.3) $
- $
(15.3) $
- $
$ millions, for the year ended December 31
(Loss) earnings from operations and joint venture
per financial statements
Add:
Depletion, depreciation and amortization
Oil and Gas loss from operations, net of
depletion, depreciation and amortization
Adjustments for share of earnings of Moa Joint Venture:
Depletion, depreciation and amortization
Impairment of property, plant and equipment
Net finance income
Income tax expense
$ millions, for the year ended December 31
Earnings (loss) from operations and joint venture
per financial statements
Add (deduct):
Depletion, depreciation and amortization
Oil and Gas loss from operations, net of
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
Metals(2)
Power
Techno-
logies
Oil and
Gas
Corporate
Adjustment
for Moa
Joint
Venture
2023
Total
$
(2.1) $
20.7 $
(15.4) $
(30.2) $
(16.2) $
(0.2) $
(43.4)
10.6
2.5
0.1
0.2
0.9
-
43.6
1.5
-
-
-
-
-
-
-
-
-
-
-
-
30.0
-
-
-
-
-
-
-
-
-
-
-
-
-
(0.5)
0.7
Metals(2)
Power
Techno-
logies
Oil and
Gas
Corporate
Adjustment
for Moa
Joint
Venture
$
197.9 $
8.7 $
(14.8) $
(16.3) $
(27.4) $
(29.4) $
118.7
10.4
13.6
0.1
0.8
-
-
-
15.5
1.1
-
-
-
43.5
-
-
251.8 $
$
-
-
-
22.3 $
-
-
-
(14.7) $
-
-
-
- $
-
-
-
(26.3) $
-
5.1
24.3
- $
26.0
15.5
43.5
5.1
24.3
233.1
14.3
30.0
43.6
1.5
(0.5)
0.7
46.2
2022
Total
(1)
(2)
Adjusted EBITDA of Metals for the three months ended December 31, 2023 is composed of Adjusted EBITDA at Moa JV of $(5.0) million (50% basis), Adjusted
EBITDA at Fort Site of $(2.9) million and Adjusted EBITDA at Metals Marketing of $(0.8) million (for the three months ended December 31, 2022 - $37.3 million, $8.3
million and $(0.5) million, respectively).
Adjusted EBITDA of Metals for the year ended December 31, 2023 is composed of Adjusted EBITDA at Moa JV of $67.2 million (50% basis), Adjusted EBITDA at
Fort Site of $(2.6) million and Adjusted EBITDA at Metals Marketing of $(11.0) million (for the year ended December 31, 2022 - $213.7 million, $40.3 million and $(2.2)
million, respectively).
Sherritt International Corporation
59
Management’s discussion and analysis
Average-realized price
Average-realized price is generally calculated by dividing revenue by sales volume for the given product in a given segment. The
average-realized price for power excludes by-product revenue, as this revenue is not earned directly for power generation.
Transactions by a Moa JV 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
Metals
Nickel
Cobalt
Fertilizer
Power
Other(1)
Adjustment
for Moa Joint
Venture
2023
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)
$
84.1 $
15.2 $
23.1 $
14.0 $
4.1 $
(107.7) $
32.8
-
84.1
-
15.2
-
23.1
(1.0)
13.0
7.7
Millions of
pounds
10.87 $
0.9
Millions of
pounds
17.23 $
55.5
Thousands
of tonnes
414.80 $
$
225
Gigawatt
hours
57.96
$ millions, except average-realized price and sales volume, for the three months ended December 31
Metals
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 $
7.9 $
(188.5) $
46.1
-
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 year ended December 31
Metals
Nickel
Cobalt
Fertilizer
Power
Other(1)
Adjustment
for Moa Joint
Venture
2023
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)
$
379.6 $
104.8 $
93.3 $
47.1 $
28.1 $
(442.2) $
210.7
-
379.6
-
104.8
-
93.3
(4.3)
42.8
28.4
Millions of
pounds
13.36 $
6.0
Millions of
pounds
17.47 $
170.2
Thousands
of tonnes
548.16 $
$
745
Gigawatt
hours
57.45
$ millions, except average-realized price and sales volume, for the year ended December 31
Metals
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 $
41.1 $
(672.1) $
162.6
-
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
(1) Other revenue includes revenue from the 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.
Sherritt International Corporation
61
Management’s discussion and analysis
Unit operating cost/NDCC
With the exception of Metals, 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.
Metals’ 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; cobalt
gain/loss; 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.
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
Cobalt gain
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
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)
Metals
Power
Other(1)
Adjustment
for Moa
Joint Venture
2023
Total
$
146.6 $
7.1 $
28.6 $
(122.2) $
60.1
(13.3)
133.3
(41.8)
-
(7.8)
83.7
(0.5)
6.6
-
-
-
6.6
7.7
Millions of
pounds
$
$
10.81 $
7.87
225
Gigawatt
hours
29.16
Metals
Power
Other(1)
Adjustment
for Moa
Joint Venture
2022
Total
$
189.5 $
4.9 $
22.0 $
(159.7) $
56.7
(14.6)
174.9
(69.7)
(11.4)
93.8
(1.5)
3.4
-
-
3.4
9.9
Millions of
pounds
$
$
9.48 $
7.00
159
Gigawatt
hours
21.41
$ 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
Cobalt gain
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
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)
Metals
Power
Other(1)
Adjustment
for Moa
Joint Venture
2023
Total
$
601.4 $
22.7 $
57.8 $
(416.4) $
265.5
(54.2)
547.2
(224.1)
(2.7)
(43.5)
276.9
(2.0)
20.7
-
-
-
20.7
28.4
Millions of
pounds
$
$
9.75 $
7.22
745
Gigawatt
hours
27.70
Metals
Power
Other(1)
Adjustment
for Moa
Joint Venture
2022
Total
$
587.8 $
24.2 $
45.3 $
(494.6) $
162.7
(53.9)
533.9
(272.3)
(27.7)
233.9
(13.2)
11.0
-
-
11.0
35.0
Millions of
pounds
$
$
6.68 $
5.14
568
Gigawatt
hours
19.39
(1) Other is composed of the cost of sales of the 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.
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 the Corporation’s current or future operational performance. These adjusting items include, but are not
limited to, inventory write-downs/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
that have not occurred in the past two years and are not expected to recur in the next two years. 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 current or future operational performance.
Net earnings/loss from continuing operations at Oil and Gas is deducted from/added back to adjusted earnings/loss from
continuing operations as the segment is not currently exploring for or producing oil and gas and its financial results relate to
ancillary drilling services provided to a customer and CUPET and environmental rehabilitation costs for legacy assets, which are
not reflective of the Corporation’s core operating activities or future operational performance. The adjustment for net earnings/loss
from continuing operations at Oil and Gas represents a change in the composition of adjusted net earnings/loss from continuing
operations during the year ended December 31, 2023 to better reflect the Corporation’s core operating activities and future
operational performance and the prior year measure has been restated for comparative purposes.
Sherritt International Corporation
63
Management’s discussion and analysis
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 current or future operational performance by adjusting for items or transactions that are not reflective of
its current or future operational performance.
The table below reconcile net (loss) earnings from continuing operations and net (loss) earnings from continuing operations per
share, both per the financial statements, to adjusted net (loss) earnings from continuing operations and adjusted net (loss)
earnings from continuing operations per share, respectively:
For the three months ended December 31
$ millions
$/share
$ millions
2023
2022
$/share
Net loss from continuing operations
$
(53.4) $
(0.13) $
(7.3) $
(0.02)
Adjusting items:
Sherritt - Unrealized foreign exchange loss - continuing operations
Corporate - Gain on repurchase of notes
Corporate - Transaction finance charges on repurchase of notes
Metals - Moa JV - Inventory write-down/obsolescence
Metals - Fort Site - Inventory write-down/obsolescence
Power - Gain on modification of Cuban receivables
Power - Loss (gain) on revaluation of GNC receivable
Power - (Gain) loss on revaluation of Energas payable
Oil and Gas - Net loss from continuing operations
Total adjustments, before tax
Tax adjustments
Adjusted net (loss) earnings from continuing operations
$
$
0.9
-
-
1.6
0.7
-
3.5
(1.3)
20.1
25.5 $
-
(27.9) $
-
-
-
-
-
-
0.01
-
0.05
0.06 $
-
(0.07) $
2023
4.1
(7.1)
1.1
1.6
0.6
(2.0)
(2.4)
4.0
15.0
14.9 $
0.8
8.4 $
For the year ended December 31
$ millions
$/share
$ millions
0.01
(0.02)
-
-
-
(0.01)
(0.01)
0.01
0.04
0.02
-
0.02
2022
$/share
Net (loss) earnings from continuing operations
$
(64.3) $
(0.16) $
63.7 $
0.16
Adjusting items:
Sherritt - Unrealized foreign exchange loss (gain) - continuing operations
Corporate - Gain on repurchase of notes
Corporate - Transaction finance charges on repurchase of notes
Metals - Moa JV - Impairment of property, plant and equipment
Metals - Moa JV - Inventory write-down/obsolescence
Metals - Fort Site - Inventory write-down/obsolescence
Metals - Metals Marketing - Inventory write-down/obsolescence
Metals - Metals Marketing - Cobalt gain
Power - Trade accounts receivable, net ACL revaluation
Power - Gain on modification of Cuban receivables
Power - Energas conditional sales agreement ACL revaluation(1)
Power - Gain on revaluation of GNC receivable
Power - Loss on revaluation of Energas payable
Oil and Gas - Net loss from continuing operations
Total adjustments, before tax
Tax adjustments
Adjusted net (loss) earnings from continuing operations
$
$
1.1
(3.5)
-
1.5
4.6
8.9
1.1
2.7
-
-
-
(14.7)
7.6
26.6
35.9 $
0.3
(28.1) $
-
(0.01)
-
-
0.01
0.03
-
0.01
-
-
-
(0.04)
0.02
0.07
0.09 $
-
(0.07) $
(5.4)
(20.9)
2.3
-
2.1
0.6
-
-
1.4
(2.0)
49.0
(2.4)
4.0
19.5
48.2 $
0.8
112.7 $
(0.01)
(0.05)
0.01
-
0.01
-
-
-
-
(0.01)
0.12
(0.01)
0.01
0.05
0.12
-
0.28
(1)
In the comparative period, Power recognized a non-cash loss of $49.0 million for the year ended December 31, 2022 on the revaluation of the ACL on the Energas
CSA as a result of the Cobalt Swap signed by the Corporation subsequent to the comparative period end and, in part, due to the suspension of interest over the five-
year period of the agreement.
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 JV prior to payment and includes adjustments to accruals. The Metals segment’s spending on capital includes the Fort Site’s
expenditures, plus the Corporation’s 50% share of the Moa JV’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 JV 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 JV’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
Property, plant and equipment expenditures(2)
Intangible asset expenditures(2)
Adjustments:
Accrual adjustment
Spending on capital
Metals
Power
Other(1)
Combined
total
Adjustment
for Moa
Joint Venture
2023
Total
derived from
financial
statements
17.6 $
-
17.6
1.3 $
-
1.3
- $
-
-
18.9 $
-
18.9 $
(13.4) $
-
(13.4) $
5.5
-
5.5
3.7
21.3 $
-
1.3 $
(0.1)
(0.1) $
3.6
22.5
Metals
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
Metals
Power
Other(1)
Combined
total
Adjustment
for Moa
Joint Venture
2023
Total
derived from
financial
statements
57.0 $
-
57.0
3.2 $
-
3.2
0.2 $
1.2
1.4
60.4 $
1.2
61.6 $
(40.3) $
-
(40.3) $
20.1
1.2
21.3
5.7
62.7 $
-
3.2 $
(0.8)
0.6 $
4.9
66.5
$
$
$
$
$
$
Sherritt International Corporation
65
Management’s discussion and analysis
$ millions, for the year ended December 31
Property, plant and equipment expenditures(2)
Intangible asset expenditures(2)
Adjustments:
Accrual adjustment
Spending on capital
$
$
Metals
Power
Other(1)
Combined
total
Adjustment
for Moa
Joint Venture
2022
Total
derived from
financial
statements
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
(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.
Combined cash provided (used) by continuing operations for operating activities and combined free cash flow
The Corporation defines cash provided (used) by continuing operations for operating activities by segment as cash provided
(used) by continuing operations for operating activities for each segment calculated in accordance with IFRS and adjusted to
remove the impact of cash provided (used) by wholly-owned subsidiaries. Combined cash provided (used) by continuing
operations for operating activities is the aggregate of each segment’s cash provided (used) by continuing operations for operating
activities including the Corporation’s 50% share of the Moa JV’s cash provided (used) by continuing operations for operating
activities, which is accounted for using the equity method of accounting and excluded from consolidated cash provided (used) by
continuing operations for operating activities.
The Corporation defines free cash flow for each segment as cash provided (used) by continuing operations for operating activities
by segment, less cash expenditures on property, plant and equipment and intangible assets, including exploration and evaluation
assets. 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 JV, plus cash
provided (used) by continuing operations for operating activities for the Corporation’s 50% share of the Moa JV, less cash
expenditures on property, plant and equipment and intangible assets for the Corporation’s 50% share of the Moa JV.
The Corporate segment’s cash used by continuing operations for operating activities is adjusted to exclude distributions received
from Moa JV. Distributions from the Moa JV 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.
The Metals segment’s free cash flow includes the Fort Site and Metals Marketing’s free cash flow, plus the Corporation’s 50%
share of the Moa JV’s free cash flow, which is accounted for using the equity method for accounting purposes.
Combined cash provided (used) by continuing operations for operating activities and combined free cash flow are 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, and in the case of combined free cash flow, after funding cash
capital requirements, to service current and future working capital needs and service debt.
The tables below reconcile combined cash provided (used) by continuing operations for operating activities to cash provided
(used) by continuing operations per the financial statements to combined free cash flow:
$ millions, for the three months ended December 31
Metals(1)(2)
Power
Technol-
ogies
Oil and
Gas
Corporate
Combined
total
2023
Adjustment
for Moa
Joint
Total
derived
from
financial
Venture statements
Cash provided (used) by continuing operations
for operating activities
Less:
Property, plant and equipment expenditures
Intangible expenditures
$
3.4 $
7.4 $
(3.5) $
(14.9) $
(12.6) $
(20.2) $
2.1 $
(18.1)
(17.6)
-
(1.3)
-
-
-
-
-
-
-
(18.9)
-
13.4
-
(5.5)
-
Free cash flow
$
(14.2) $
6.1 $
(3.5) $
(14.9) $
(12.6) $
(39.1) $
15.5 $
(23.6)
$ millions, for the three months ended December 31
Cash provided (used) by continuing operations
for operating activities
Less:
Property, plant and equipment expenditures
Intangible expenditures
Free cash flow
$ millions, for the year ended December 31
Cash provided (used) by continuing operations
for operating activities
Less:
Property, plant and equipment expenditures
Intangible expenditures
Metals(1)(2)
Power
Technol-
ogies
Oil and
Gas
Corporate
Combined
total
2022
Adjustment
for Moa
Joint
Total
derived
from
financial
Venture statements
$
81.6 $
13.5 $
(4.5) $
(1.7) $
(19.9) $
69.0 $
(28.7) $
40.3
(23.9)
-
(1.5)
-
-
-
-
(0.2)
(0.2)
-
(25.6)
(0.2)
15.9
-
$
57.7 $
12.0 $
(4.5) $
(1.9) $
(20.1) $
43.2 $
(12.8) $
(9.7)
(0.2)
30.4
2023
Metals(3)(4)
Power
Technol-
ogies
Oil and
Gas
Corporate
Combined
total
Adjustment
for Moa
Joint
Total
derived
from
financial
Venture statements
$
115.9 $
16.9 $
(16.5) $
(11.1) $
(59.5) $
45.7 $
(17.5) $
28.2
Free cash flow
$
58.9 $
13.7 $
(16.5) $
(12.5) $
(59.5) $
(15.9) $
22.8 $
(57.0)
-
(3.2)
-
-
-
(0.2)
(1.2)
-
-
(60.4)
(1.2)
40.3
-
(20.1)
(1.2)
6.9
Sherritt International Corporation
67
Management’s discussion and analysis
$ millions, for the year ended December 31
Metals(3)(4)
Power
Technol-
ogies
Oil and
Gas Corporate
Combined
total
2022
Adjustment
for Moa
Joint
Total
derived
from
financial
Venture statements
Cash provided (used) by continuing operations
for operating activities
Less:
Property, plant and equipment expenditures
Intangible expenditures
Free cash flow
$
171.6 $
37.4 $
(15.1) $
(3.9) $
(54.6) $
135.4 $
(45.1) $
90.3
(64.2)
-
(5.1)
-
-
-
(0.1)
(0.8)
(0.1)
-
(69.5)
(0.8)
41.8
-
$
107.4 $
32.3 $
(15.1) $
(4.8) $
(54.7) $
65.1 $
(3.3) $
(27.7)
(0.8)
61.8
(1) Cash (used) provided by continuing operations for operating activities for the Moa JV, Fort Site and Metals Marketing was $(2.2) million, $4.0 million and $1.6 million,
(2)
respectively, for the three months ended December 31, 2023 (December 31, 2022 - $85.8 million, $(0.1) million and $(4.1) million, respectively).
Property, plant and equipment expenditures and intangible expenditures for the Moa JV, Fort Site and Metals Marketing was $13.5 million, $4.1 million and nil,
respectively, for the three months ended December 31, 2023 (December 31, 2022 - $15.9 million, $8.0 million and nil, respectively).
(3) Cash provided (used) by continuing operations for operating activities for the Moa JV, Fort Site and Metals Marketing was $49.4 million, $(13.4) million and $79.9
(4)
million, respectively, for the year ended December 31, 2023 (December 31, 2022 - $145.8 million, $31.3 million and $(5.5) million, respectively).
Property, plant and equipment expenditures and intangible expenditures for the Moa JV, Fort Site and Metals Marketing was $40.3 million, $16.7 million and nil,
respectively, for the year ended December 31, 2023 (December 31, 2022 - $41.8 million, $22.4 million and nil, respectively).
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; the Moa Joint Venture expansion program update as it relates to the Slurry Preparation Plant and the Processing
Plant; 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; the
availability of additional gas supplies to be used for power generation; the effect of maintenance challenges at the Moa mine,
refinery and fertilizer operations; the timing of repayments of the revolving line of credit by the Moa JV, the amount and timing
of dividend distributions from the Moa JV, including in the form of finished cobalt or cash under the Cobalt Swap, sales of finished
cobalt and associated receipts related to the cobalt received pursuant to the Cobalt Swap; timing and development of strategic
growth and commercial opportunities and partnerships in Technologies projects; growing shareholder value; expected
annualized employee cost savings on the corporate restructuring in January 2024; 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 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 2024. 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 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; risk of future non-
compliance with debt restrictions and covenant; risks related to environmental liabilities including liability for reclamation costs,
tailings facility failures and toxic gas releases; 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; 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; 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; risks associated with the operation of large projects generally; risks related to the accuracy of
capital and operating cost estimates; the possibility of equipment and other failures; potential interruptions in transportation;
uncertainty of gas supply for electrical generation; reliance on key personnel and skilled workers; growth opportunity risks;
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; 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
Sherritt International Corporation
69
Management’s discussion and analysis
applicable local anti-corruption law; the ability to accomplish corporate objectives, goals and plans for 2024; and the ability to
meet other factors listed from time to time in the Corporation’s continuous disclosure documents.
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 31, 2023 for the period ending December 31,
2022, which is available on SEDAR at www.sedarplus.ca.
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.
CONSOLIDATED FINANCIAL
STATEMENTS
As at and for the years ended December 31, 2023 and 2022
CONSOLIDATED FINANCIAL STATEMENTS
Management’s report
Independent auditor’s report
Consolidated statements of comprehensive (loss) income
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 material 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 – (Loss) earnings 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, guarantees 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
72
73
78
79
80
81
82
82
95
98
100
103
104
106
107
108
109
112
113
114
116
119
121
124
125
125
126
129
130
Sherritt International Corporation 71
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 2023
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 7, 2024
/s/ Yasmin Gabriel
Yasmin Gabriel
Chief Financial Officer
72 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,
2023 and December 31, 2022, and the consolidated statements of comprehensive (loss) income,
changes in shareholders’ equity and cash flow for the years then ended, and notes to the consolidated
financial statements, including material accounting policy information (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, 2023, and December 31, 2022, 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, 2023. 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 ofofofof whether
Assessment
the
notes 2,2,2,2, 3333 andandandand 14141414 ofofofof the
Refer totototo notes
Exist –––– Refer
Impairment Exist
Indicators ofofofof Impairment
whether Indicators
the
the
notes
notes
Refer
Refer
Exist
Exist
Impairment
Impairment
Indicators
Indicators
whether
whether
Assessment
Assessment
Statements
Financial Statements
Financial
Statements
Statements
Financial
Financial
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), 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.
• 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
the Financial
notes 2,2,2,2, 8,8,8,8, 11,11,11,11, 12121212 andandandand 15151515 ofofofof the Financial
Refer totototo notes
Financial Instruments –––– Refer
of Level 3333 Financial Instruments
Valuation of Level
the Financial
the Financial
notes
notes
Refer
Refer
Financial Instruments
Financial Instruments
of Level
of Level
Valuation
Valuation
Statements
Statements
Statements
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 our valuation
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.
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.
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//s//s//s/ Deloitte
Deloitte LLPLLPLLPLLP
Deloitte
Deloitte
Chartered Professional Accountants
Licensed Public Accountants
February 7, 2024
Consolidated financial statements
Consolidated statements of comprehensive (loss)
income
Canadian $ millions, except per share amounts, for the years ended December 31
Note
2023
2022
Revenue
Cost of sales
Administrative expenses
Impairment of intangible assets
Share of earnings of Moa Joint Venture, net of tax
(Loss) 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
(Loss) earnings before income tax
Income tax (expense) recoveries
Net (loss) earnings from continuing operations
Loss from discontinued operations, net of tax
Net (loss) earnings for the year
Other comprehensive (loss) income
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 (losses) gains on pension plans, net of tax (nil and nil,
respectively)
Other comprehensive (loss) income
Total comprehensive (loss) income
Net (loss) earnings from continuing operations per common share:
Basic and diluted
Net (loss) earnings 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
$
$
223.3 $
(265.5)
(23.1)
-
21.9
(43.4)
0.8
-
17.0
(36.5)
(18.7)
(62.1)
(2.2)
(64.3)
(0.3)
(64.6) $
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
(17.2)
45.8
(0.2)
(17.4)
(82.0) $
0.6
46.4
109.9
10 $
(0.16) $
0.16
10 $
(0.16) $
0.16
78 Sherritt International Corporation
Consolidated statements of financial position
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
Deferred income taxes
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)
Note
December 31
December 31
2023
2022
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
11 $
12
11
13
7
12
14
14
9
$
119.1 $
1.4
79.8
151.1
39.8
7.8
399.0
646.7
170.2
159.2
14.5
0.6
0.4
991.6
1,390.6 $
15 $
56.8 $
169.2
22.5
12.2
24.4
2.2
287.3
298.8
74.6
12.1
103.6
0.6
489.7
777.0
15
16
15
15
16
9
20
20
20
2,894.9
(2,899.6)
234.1
384.2
613.6
1,390.6 $
2,894.9
(2,835.0)
233.4
401.6
694.9
1,555.6
$
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors on February 7, 2024,
/s/ John Warwick
John Warwick
Director
/s/ Sir Richard Lapthorne
Sir Richard Lapthorne
Director
Sherritt International Corporation 79
Consolidated financial statements
Consolidated statements of cash flow
Canadian $ millions, for the years ended December 31
Operating activities
Net (loss) earnings from continuing operations
Add (deduct):
Finished cobalt cost of sales
Depletion, depreciation and amortization
Share-based compensation (recovery) expense
Share of earnings of Moa Joint Venture, net of tax
Impairment of intangible assets
Inventory write-down/obsolescence
Net finance expense
Income tax expense (recoveries)
Loss on environmental rehabilitation provisions
Net change in non-cash working capital
Interest received
Interest paid
Income taxes paid
Proceeds from Cobalt Swap
Distributions received from Moa Joint Venture - Cobalt Swap
Distributions received from Moa Joint Venture - normal course
Share-based compensation payments
Liabilities settled for environmental rehabilitation provisions
Other operating items
Cash provided by continuing operations
Cash used by discontinued operations
Cash provided by operating activities
Investing activities
Property, plant and equipment expenditures
Intangible asset expenditures
Increase in advances, loans receivable and other financial assets
Receipts of advances, loans receivable and other financial assets
Net proceeds from sale of property, plant and equipment
Cash used by continuing operations
Cash used by investing activities
Financing activities
Repurchase of notes
Increase in loans and borrowings
Repayment of other financial liabilities
Fees paid on repurchase of notes
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.
80 Sherritt International Corporation
Note
2023
2022
$
(64.3) $
63.7
6
5, 6
17, 6
7
14
6
8
9
6
19
19
5
7, 19
7
16
5
5
12
12
15
15
8
86.1
14.3
(1.5)
(21.9)
-
9.8
18.7
2.2
22.9
(93.6)
2.8
(28.3)
(1.1)
80.3
32.0
-
(24.9)
(5.9)
0.6
28.2
(0.9)
27.3
(20.1)
(1.2)
(30.0)
32.9
-
(18.4)
(18.4)
(7.8)
13.0
(16.8)
(0.1)
(11.7)
(11.7)
(2.0)
(4.8)
123.9
119.1 $
11 $
-
26.0
17.5
(140.8)
1.3
0.7
55.4
(0.4)
15.0
(10.6)
2.8
(32.0)
(0.6)
-
-
100.6
(5.8)
(0.5)
(2.0)
90.3
(1.6)
88.7
(27.7)
(0.8)
-
3.8
1.3
(23.4)
(23.4)
(125.2)
37.0
(2.9)
(2.2)
(93.3)
(93.3)
6.3
(21.7)
145.6
123.9
Consolidated statements of changes in
shareholders’ equity
Canadian $ millions
Note
Capital
stock
Accumulated
other
comprehensive
Deficit
Reserves
income
Total
Balance as at December 31, 2021
$ 2,894.9 $
(2,898.5) $
233.4 $
355.2 $
585.0
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
Balance as at December 31, 2022
Total comprehensive loss:
Net loss for the year
Foreign currency translation differences on foreign operations,
net of tax
Actuarial losses on pension plans, net of tax
Stock option plan expense
Balance as at December 31, 2023
20
20
20
20
20
-
-
-
-
63.5
-
-
63.5
-
-
-
-
-
45.8
0.6
46.4
63.5
45.8
0.6
109.9
2,894.9
(2,835.0)
233.4
401.6
694.9
-
-
-
-
-
(64.6)
-
-
(64.6)
-
$ 2,894.9 $
(2,899.6) $
-
-
-
-
-
(17.2)
(0.2)
(17.4)
(64.6)
(17.2)
(0.2)
(82.0)
0.7
234.1 $
-
384.2 $
0.7
613.6
The accompanying notes are an integral part of these consolidated financial statements.
Sherritt International Corporation 81
Notes to the consolidated financial statements
Notes to the consolidated financial statements
(All dollar amounts presented in tables are expressed in millions of Canadian dollars except share and per share amounts)
1. NATURE OF OPERATIONS AND CORPORATE INFORMATION
Sherritt International Corporation (“Sherritt” or “the Corporation”) is a world leader in using hydrometallurgical processes to mine
and refine nickel and cobalt – metals deemed critical for the energy transition. Sherritt’s Moa Joint Venture has a current
estimated mine life of 25 years and has embarked on an expansion program focused on increasing annual mixed sulphide
precipitate production by 20% or 6,500 tonnes of contained nickel and cobalt (100% basis). The Corporation’s Power division,
through its ownership in Energas S.A., is the largest independent energy producer in Cuba with installed electrical generating
capacity of 506 MW, representing approximately 10% of the national electrical generating capacity in Cuba. The Energas
facilities are comprised of two combined cycle plants that produce low-cost electricity from one of the lowest carbon emitting
sources of power 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 7, 2024. The Corporation is listed on the Toronto Stock Exchange under the symbol “S”.
2. BASIS OF PRESENTATION AND MATERIAL 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
millions of Canadian dollars rounded to the nearest hundred thousand, except as otherwise noted. References to “US$” are to
United States (U.S.) dollars 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 a joint operation have been eliminated on consolidation.
82 Sherritt International Corporation
The Corporation’s significant subsidiaries and joint arrangements are as follows:
Moa Joint Venture ("Moa JV")
Composed of the following operating companies:
International Cobalt Company Inc.
Moa Nickel S.A.
The Cobalt Refinery Company Inc.
Power
Energas S.A. ("Energas")
Oil and Gas
Composed of the following operating companies:
Sherritt International (Cuba) Oil and Gas Ltd.
Sherritt International Oil and Gas Ltd.
Relationship
Economic
interest
Basis of
accounting
Joint venture
50%
Equity method
Joint operation
33⅓%
Share of assets, liabilities,
revenues and expenses
Subsidiary
Subsidiary
100%
100%
Consolidation
Consolidation
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);
Sherritt International Corporation 83
Notes to the consolidated financial statements
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 section below:
•
•
•
•
•
The Metals segment is composed of mining, processing and refining activities of nickel and cobalt for the Corporation’s
50% interest in the Moa JV 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 of the Fort
Site in Fort Saskatchewan and the Corporation’s wholly-owned subsidiaries established to buy, market and sell certain
of the Moa JV’s nickel and cobalt production and the Corporation’s cobalt inventories received under the Cobalt Swap
agreement;
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 group which delivers essential technical support,
process optimization and technology development services to improve operations and support growth initiatives at the
Moa JV and the Fort Site operations; is a key differentiator and enabler of Sherritt’s business development efforts
primarily focused on near-term partnerships and development opportunities to expand midstream processing capacity
of critical minerals for the electric vehicle supply chain; and provides technical services and innovative process solutions
to external parties;
The Oil and Gas segment is not currently producing or exploring for oil and gas in Cuba and its financial results relate
to ancillary drilling services, provided to a customer and Union Cuba Petroleo (CUPET), and environmental
rehabilitation costs for legacy assets in Spain, which are non-core operating activities of the Corporation. The wells
drilled for CUPET provide gas to Energas for power generation; and
The Corporate segment represents overall management of the Corporation’s joint operations and subsidiaries and
general corporate activities related to public companies, including business and market development, management of
cash, publicly-traded debt and government relations.
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.
84 Sherritt International Corporation
Metals
Consolidated revenue excludes the revenue of the equity-accounted investment in the Moa JV. The Corporation recognizes its
share of revenue of the Moa JV within the share of earnings (loss) of Moa Joint Venture, net of tax in the consolidated statements
of comprehensive (loss) income.
Certain nickel and cobalt sales in the Metals reportable segment 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.
Power
Substantially all of Power’s revenue is from agencies of the Government of Cuba.
The power generation 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.
Oil and Gas
Oil and Gas service revenue is recognized at the time that drilling services and equipment are provided to the customer and the
payment terms are 30 days from the date of invoice.
2.7 Joint arrangements
Investment in Moa JV
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 JV 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 amount 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.
Sherritt International Corporation 85
Notes to the consolidated financial statements
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. Energas is
recognized as a joint operation and is accounted for by recognizing the Corporation’s share of its 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 2.11.
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.
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.
86 Sherritt International Corporation
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 (loss) income.
2.9 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 SPPI 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 SPPI will be measured at fair value through profit or loss (“FVTPL”).
The Corporation’s financial liabilities are measured at amortized cost, except for financial liabilities subsequently measured or
designated at FVTPL.
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 FVTPL:
• GNC receivable
Financial liabilities designated at FVTPL:
• 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 (loss) income
Financial assets included in this category are initially recognized at fair value and transaction costs are recognized in net (loss)
earnings. Subsequent to initial recognition, unrealized gains and losses on these instruments are recognized in other
comprehensive (loss) income. Upon derecognition, realized gains and losses are reclassified from other comprehensive (loss)
income and recognized in net (loss) earnings. Interest income and dividends from these instruments are recognized in net (loss)
earnings.
Sherritt International Corporation 87
Notes to the consolidated financial statements
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
(loss) earnings, along with gains and losses arising from changes in fair value.
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 (loss) earnings within net finance expense.
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 (loss) earnings, 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 (loss) earnings within net finance expense.
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 (loss) earnings within net finance expense.
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 (loss) earnings.
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.
88 Sherritt International Corporation
• 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.
• 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 in net (loss) earnings.
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.
The Corporation recognizes lifetime expected credit losses for trade receivables using a provision matrix based on historical
credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of
the current and future economic conditions as at the reporting date, including time value of money where appropriate.
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.
2.10 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 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.
Sherritt International Corporation 89
Notes to the consolidated financial statements
2.11 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.
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 (loss) earnings.
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 2.14.
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 (loss) earnings 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.
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.
90 Sherritt International Corporation
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 (loss) earnings. Once operational, the carrying amount of the new service concession
intangible asset, including capitalized interest, is amortized on a straight-line basis over the remaining contract term.
Repair, maintenance and replacement costs incurred in relation to service concession intangible assets are expensed as
incurred.
Amortization
The following intangible assets are amortized on a straight-line basis over the following estimated useful lives:
Service concession arrangements
Exploration and evaluation
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 which was approved by 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.
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 91
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 (loss) income.
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.
2.12 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.
92 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 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 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.
2.13 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 Corporation’s shares, or issues shares 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”) and
Deferred Share Units (“DSUs”) 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
conditions 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. If the Corporation’s share price changes between
reporting dates, then the fair value of the DSU 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 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.
2.14 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.
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.
Sherritt International Corporation 93
Notes to the consolidated financial statements
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 (loss) income 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 (loss) income.
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 (loss) income 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 (loss) income.
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 (loss) income over the lease term to reflect a constant periodic rate of return on
the Corporation’s net investment in the lease.
94 Sherritt International Corporation
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 model, which includes the use of in-kind forecast cobalt prices and discount rates, which
are significant unobservable inputs in the case of the GNC receivable, 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 Corporation’s environmental rehabilitation provisions are assessed quarterly and measured by discounting the expected cash
flows. The applicable discount rates are pre-tax rates that reflect the current market assessment of the time value of money which
is determined based on government bond interest rates and inflation rates. The actual rates depend 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 95
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
JV 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 JV
The Corporation accounts for its investment in the Moa JV using the equity method. The Corporation assesses the carrying
amount of the Moa JV 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, (loss)
earnings or assets are greater than 10% of the total consolidated revenue, net (loss) earnings, 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 FVTPL.
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.
96 Sherritt International Corporation
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.
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 model, which includes the use of in-kind forecast cobalt
prices and discount rates, which are significant unobservable inputs in the case of the GNC receivable 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 97
Notes to the consolidated financial statements
4. ACCOUNTING PRONOUNCEMENTS
Adoption of new and amended accounting pronouncements
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. Effective January 1, 2023, the Corporation
adopted these requirements. The application of this amendment did not have a material impact on the Corporation’s consolidated
financial statements.
International Tax Reform—Pillar Two Model Rules (Amendments to IAS 12)
In December 2021, the Organisation for Economic Co-operation and Development (“OECD”) issued model rules for a new global
minimum tax framework (“Pillar Two”) and in August 2023, the Government of Canada released draft legislation to implement a
global minimum tax, which has not yet been enacted or substantively enacted.
Amendments to this standard apply to income taxes arising from tax law enacted or substantively enacted to implement the Pillar
Two model rules published by the OECD including tax law that implements qualified domestic minimum top-up taxes described
in those rules.
The amendments apply for annual periods beginning on or after January 1, 2023. Effective January 1, 2023, the Corporation
adopted these requirements.
Following the amendments to IAS 12, the Corporation has applied the exception available under the amendments to IAS 12
published by the IASB in May 2023 and is not recognizing or disclosing information about deferred tax assets and liabilities related
to Pillar Two income taxes given that relevant information is not known or reasonably estimable at this time.
Based on the currently applicable revenue thresholds, the Corporation would not be in scope of the Pillar Two rules. As the
legislation has not yet been enacted or substantively enacted in Canada, the Corporation continues to evaluate the impact of the
legislation on its 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 amendments replace 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”. The definition of a change in accounting estimates was deleted.
The amendments apply for annual periods beginning on or after January 1, 2023. Effective January 1, 2023, the Corporation
adopted these requirements. The application of this amendment did not have a material impact on the Corporation’s consolidated
financial statements.
Presentation of Financial Statements and Making Materiality Judgments (Amendments to IAS 1 and IFRS Practice
Statement 2)
Amendments to IAS 1 Presentation of Financial Statements change the requirements with regard to disclosure of accounting
policies. The amendments replace all instances of the term ‘significant accounting policies’ with ‘material accounting policy
information’. Accounting policy information is material if, when considered together with other information included in an entity’s
financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements.
The amendments apply for annual periods beginning on or after January 1, 2023. Effective January 1, 2023, the Corporation
adopted these requirements. The application of these amendments did not have a material impact on the Corporation’s
consolidated financial statements.
98 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.
Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants (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.
In October 2022, the IASB finalised issuance of Non-current Liabilities with Covenants, which made amendments to IAS 1
Presentation of Financial Statements. The amendments specify that only covenants that an entity is required to comply with on or
before the end of the reporting period affect the entity’s right to defer settlement of a liability for at least twelve months after the
reporting date (and therefore must be considered in assessing the classification of the liability as current or non-current). Such
covenants affect whether the right exists at the end of the reporting period, even if compliance with the covenant is assessed only
after the reporting date.
The amendments are effective for annual periods beginning on or after January 1, 2024. Earlier application is permitted. The
application of this amendment is not expected to have a material impact on the Corporation’s consolidated financial statements.
Sherritt International Corporation 99
Notes to the consolidated financial statements
5. SEGMENTED INFORMATION
The Corporation revised the presentation of its segmented information commencing with the three months ended March 31, 2023
as a result of a change in the information reviewed by the chief operating decision maker (“CODM”) due to the Corporation’s
agreement with its Cuban partners to recover its total outstanding Cuban receivables over five years (the “Cobalt Swap”). Refer
to note 12 for further details on the Cobalt Swap. Following the signing of the Cobalt Swap, the former Moa JV and Fort Site
reportable segment and Metals Other reportable segment were combined into a single Metals reportable segment reviewed by
the CODM, which includes all of the Corporation’s mining, refining and sales of nickel and cobalt, including sales of the
Corporation’s cobalt inventories received under the Cobalt Swap. Segmented information for the prior year was restated in the
current year for comparative purposes to reflect the new Metals reportable segment.
Canadian $ millions, for the year ended December 31
Revenue
Cost of sales
Cobalt gain
Impairment of property, plant and equipment
Administrative expenses
Share of earnings of Moa Joint Venture, net
of tax
(Loss) earnings from operations and joint
venture
Interest income on financial assets measured at
amortized cost
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
Supplementary information
Depletion, depreciation and amortization
Property, plant and equipment expenditures
Intangible asset expenditures
Canadian $ millions, as at December 31
Non-current assets(2)
Total assets
Metals(1)
Power
Tech-
nologies
Oil and
Gas
Corporate
Adjustments
for Moa JV
$
603.7 $
(601.4)
2.7
(1.5)
(5.6)
47.1 $
(22.7)
-
-
(3.7)
-
-
1.3 $
(16.7)
-
-
-
-
12.6 $
(41.1)
-
-
(1.7)
0.8 $
-
-
-
(17.0)
-
-
(2.1)
20.7
(15.4)
(30.2)
(16.2)
(442.2) $
416.4
(2.7)
1.5
4.9
21.9
(0.2)
$
$
$
54.2 $
57.0
-
2.5 $
3.2
-
0.1 $
-
-
0.2 $
0.2
1.2
0.9 $
-
-
(43.6) $
(40.3)
-
644.6 $
949.2
17.3 $
362.3
0.6 $
0.8
8.2 $
22.0
5.4 $
196.6
(502.4) $
(140.3)
2023
Total
223.3
(265.5)
-
-
(23.1)
21.9
(43.4)
0.8
17.0
(36.5)
(18.7)
(62.1)
(2.2)
(64.3)
(0.3)
(64.6)
14.3
20.1
1.2
2023
173.7
1,390.6
100 Sherritt International Corporation
Canadian $ millions, for the year ended December 31
Metals(1)
Power
Tech-
nologies
Oil and
Gas
Corporate
Adjustments for
Moa JV
Revenue
Cost of sales
Administrative expenses
Impairment of intangible 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 recoveries
Net earnings from continuing operations
Loss from discontinued operations,
net of tax
Net earnings
Supplementary information
Depletion, depreciation and amortization
Property, plant and equipment expenditures
Intangible asset expenditures
Canadian $ millions, as at December 31
Non-current assets(2)
Total assets
$
795.1 $
(587.8)
(9.4)
-
-
197.9
37.1 $
(24.2)
(4.2)
-
-
8.7
2022
Total
178.8
(162.7)
(36.9)
(1.3)
140.8
1.8 $
(16.6)
-
-
16.2 $
(28.7)
(2.5)
(1.3)
0.7 $
-
(28.1)
-
(672.1) $
494.6
7.3
-
-
-
-
140.8
(14.8)
(16.3)
(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
$
$
53.9 $
64.2
-
13.6 $
5.1
-
0.1 $
-
-
0.8 $
0.1
0.8
1.1 $
0.1
-
(43.5) $
(41.8)
-
26.0
27.7
0.8
$
639.5 $
15.4 $
1,199.6
415.3
0.8 $
1.8
8.1 $
6.0 $
25.9
28.0
(507.4) $
(115.0)
2022
162.4
1,555.6
(1)
Included in the Metals reportable segment is the financial performance on a line-by-line item basis of the Corporation’s 50% interest in the Moa JV, its 100% interest in the
utility and fertilizer operations in Fort Saskatchewan and its 100% interest in subsidiaries which buy, market and sell certain of the Moa JV’s nickel and cobalt production
and the Corporation’s cobalt inventories received under the Cobalt Swap. The Adjustments for Moa JV reflect the adjustments required in order to reconcile to the
Corporation’s consolidated statements of comprehensive (loss) income, wherein the financial performance of the Moa JV is included in one line item in the share of earnings
of Moa Joint Venture, net of tax due to the equity method of accounting.
(2) Non-current assets are composed of property, plant and equipment and intangible assets.
Geographic information
Canadian $ millions, as at
North America
Cuba
Europe
Asia
Other
2023
December 31
Non-current
assets(1)
Total
assets(2)
Non-current
assets(1)
2022
December 31
Total
assets(2)
$
$
151.3 $
22.3
0.1
-
-
173.7 $
363.3 $
923.1
50.2
31.0
23.0
1,390.6 $
142.5 $
19.8
0.1
-
-
162.4 $
373.6
970.4
72.9
58.1
80.6
1,555.6
(1) Non-current assets are composed of property, plant and equipment and intangible assets and exclude the non-current assets of the Moa JV, an equity-accounted
investment.
For its geographic information, the Corporation has allocated assets based on their physical location or location of the customer/payer.
(2)
Canadian $ millions, for the years ended December 31
North America
Cuba
Europe
Asia
Australia
Other
2023
Total
revenue(1)
2022
Total
revenue(1)
$
$
83.6 $
49.2
17.8
60.9
10.5
1.3
223.3 $
125.5
37.1
-
-
16.2
-
178.8
(1)
For its geographic information, the Corporation has allocated revenue based on the location of the customer. Revenue excludes the revenue of the Moa JV, an equity-
accounted investment.
Sherritt International Corporation 101
Notes to the consolidated financial statements
Disaggregation of revenue by product and service type
Revenue in the below table excludes revenue recognized by the Moa JV, which is excluded from consolidated revenue and
included within the Corporation’s share of earnings of the Moa Joint Venture, net of tax, at the Corporation’s 50% interest due to
the equity method of accounting. Refer to the Moa JV’s statements of comprehensive income in note 7 for revenue recognized
by the Moa JV on a 100% basis.
Canadian $ millions, for the years ended December 31
Fertilizer
Cobalt
Power generation(1)
Oil and gas service revenue
Other
2023
Total
2022
Total
revenue
revenue
$
$
64.1 $
80.1
42.8
12.6
23.7
223.3 $
93.2
-
32.1
16.2
37.3
178.8
(1)
Included in power generation revenue for the year ended December 31, 2023 is $31.5 million of revenue from service concession arrangements ($25.2 million for the year
ended December 31, 2022).
Deferred revenue primarily relates to payments for fertilizer sales received before shipment by the Fort Site in the Metals reportable
segment. All of the deferred revenue as at December 31, 2022 was recognized during the year ended December 31, 2023.
Significant customers
Fort Site in the Metals reportable segment derived $29.0 million of its revenue for the year ended December 31, 2023 ($29.1
million for the year ended December 31, 2022) from a customer that purchases and sells agriculture products.
The Power reportable segment derived $47.1 million of its revenue for the year ended December 31, 2023 ($37.1 million for the
year ended December 31, 2022) directly and indirectly from agencies of the Government of Cuba.
No other single customer contributed 10% or more to the Corporation’s revenue in 2023 or 2022.
Cobalt revenue
Cobalt revenue relates to cobalt sold by the Corporation to third parties from the cobalt volumes received through distributions
under the Cobalt Swap during the year ended December 31, 2023. Refer to note 12 for further details on the Cobalt Swap. The
Corporation received $80.3 million of cash from cobalt sales during the year ended December 31, 2023 (December 31, 2022 –
nil), with a negligible balance recorded in trade accounts receivable, net (note 11).
102 Sherritt International Corporation
6. EXPENSES
Cost of sales includes the following:
Canadian $ millions, for the years ended December 31
2023
2022
Employee costs
Severance
Depletion, depreciation and amortization of property,
plant and equipment and intangible assets
Raw materials and consumables
Finished cobalt(1)
Repairs and maintenance
Shipping and treatment costs
Inventory write-down/obsolescence
Loss on environmental rehabilitation provisions
Share-based compensation expense
Changes in inventories and other
$
$
67.6 $
1.6
12.9
56.0
86.1
81.5
4.0
9.8
22.9
-
(76.9)
265.5 $
65.1
2.8
24.3
99.2
-
43.8
2.2
0.7
15.0
3.7
(94.1)
162.7
(1)
Finished cobalt relates to the cost of finished cobalt distributed to the Corporation pursuant to the Cobalt Swap and sold to external customers during the year ended
December 31, 2023. Refer to note 12 for further details on the Cobalt Swap. The value 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.
Administrative expenses include the following:
Canadian $ millions, for the years ended December 31
Employee costs
Severance
Depreciation
Share-based compensation (recovery) expense
Consulting services and audit fees
Other
2023
18.4 $
-
1.4
(1.5)
4.4
0.4
23.1 $
2022
18.9
0.2
1.7
13.8
3.2
(0.9)
36.9
$
$
Sherritt International Corporation 103
Notes to the consolidated financial statements
7. JOINT ARRANGEMENTS
Investment in Moa Joint Venture
The Corporation indirectly holds a 50% interest in the Moa JV. The operations of the Moa JV 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, 2023, the Moa JV distributed 2,082 tonnes of finished cobalt (100% basis) to the Corporation
with an in-kind value of $88.1 million (US$65.5 million) (100% basis) pursuant to the Cobalt Swap. The total volume of cobalt
distributions during the year ended December 31, 2023 represented 100% of the annual maximum cobalt volume to be distributed
to the Corporation pursuant to the Cobalt Swap. Refer to note 12 for further details on the Cobalt Swap.
During the year ended December 31, 2023, the Moa JV paid cash distributions of $64.0 million (US$48.5 million) (100% basis) of
which $32.0 million was paid to the Corporation representing its 50% ownership interest and of which $32.0 million was redirected
by GNC to the Corporation to settle the GNC receivable pursuant to the Cobalt Swap, in order for the total value of cobalt and
cash distributions to meet the annual dollar minimum of US$114.0 million (100% basis) pursuant to the Cobalt Swap. All
comparative figures are nil as the Cobalt Swap commenced on January 1, 2023. During the year ended December 31, 2022, the
Moa JV paid cash distributions of $201.2 million, of which $100.6 million were paid to the Corporation representing its 50%
ownership interest.
All finished cobalt and cash distributions received in 2023 were declared as dividends during the year ended December 31, 2023.
In addition, $74.5 million (US$55.0 million) of cash distributions received in 2022 were declared as dividends during the year
ended December 31, 2023.
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
Income taxes receivable
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(1)
Loans and borrowings(2)
Environmental rehabilitation provisions
Other non-current financial liabilities
Deferred income taxes
Total liabilities
Net assets of Moa JV
Proportion of Sherritt’s ownership interest
Total
Intercompany capitalized interest elimination
Investment in Moa Joint Venture
2023
December 31
2022
December 31
$
$
$
11.8 $
6.4
20.9
82.6
424.7
23.3
1,089.1
1,658.8
117.4
2.8
30.4
23.5
84.9
3.7
18.3
281.0
1,377.8 $
50%
688.9
(42.2)
646.7 $
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
(1)
(2)
Included in other current financial liabilities as at December 31, 2023 is a $30.3 million revolving-term credit facility with the Corporation (December 31, 2022 – nil), of which
$30.0 million is the principal balance (December 31, 2022 – nil) to fund working capital.
Included in loans and borrowings is $9.1 million of current financial liabilities (December 31, 2022 - $11.3 million) and $14.4 million of non-current financial liabilities
(December 31, 2022 – $14.7 million).
104 Sherritt International Corporation
Statements of comprehensive income
Canadian $ millions, 100% basis, for the years ended December 31
2023
2022
Revenue
Cost of sales(1)
Cobalt gain
Impairment of property, plant and equipment
Administrative expenses
Earnings from operations
Financing income
Financing expense
Net finance expense
Earnings before income tax
Income tax expense(2)
Net earnings and comprehensive income of Moa JV
Proportion of Sherritt's ownership interest
Total
Intercompany elimination
Share of earnings of Moa Joint Venture, net of tax
$
$
$
884.3 $
(832.7)
5.5
(3.0)
(9.9)
44.2
2.3
(11.5)
(9.2)
35.0
(1.4)
33.6 $
50%
16.8
5.1
21.9 $
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)
(2)
Included in cost of sales for the year ended December 31, 2023 is depreciation and amortization of $87.3 million ($87.0 million for the year ended December 31, 2022).
Income tax expense for the year ended December 31, 2023 decreased since the comparative period primarily due to a decrease in taxable earnings of the operating
companies in the Moa JV.
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 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:
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 $93.9 million of cash and cash equivalents (December 31, 2022 - $96.7 million).
Canadian $ millions, 33⅓% basis, for the years ended December 31
Revenue
(Expenses) income
Net earnings
2023
2022
December 31
December 31
120.6 $
13.5
8.9
60.8
64.4 $
118.0
11.4
8.3
68.5
52.6
2023
47.1 $
(32.4)
14.7 $
2022
37.1
7.7
44.8
$
$
$
$
Sherritt International Corporation 105
Notes to the consolidated financial statements
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
Gain on revaluation of GNC receivable
Loss on revaluation of Energas payable
Gain on repurchase of notes
Other interest income and gains (losses) on financial instruments
Other financing items
Interest expense and accretion on loans and borrowings
Unrealized foreign exchange (loss) gain
Realized foreign exchange gain (loss)
Other interest expense and finance charges
Accretion expense on environmental rehabilitation provisions
Financing expense
Net finance expense
Note
2023
$
- $
0.8
0.8
11
11
11
11
15
16
$
-
-
-
-
14.7
(7.6)
3.5
6.4
17.0
(35.1)
(1.1)
0.4
(0.4)
(0.3)
(36.5)
(18.7) $
2022
0.4
11.6
12.0
(0.4)
(49.0)
(49.4)
4.0
2.4
(4.0)
20.9
(2.7)
20.6
(39.9)
5.4
(0.2)
(3.6)
(0.3)
(38.6)
(55.4)
Revaluation of allowances for expected credit losses on Energas conditional sales agreement (CSA)
receivable and trade accounts receivable from CUPET
On October 13, 2022, the Corporation signed 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 during
the year ended December 31, 2022.
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 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
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 was a significant change in estimate during the year ended December 31, 2022.
Within this high-probability 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
model, which included the following significant unobservable inputs: forecast in-kind nominal 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.
106 Sherritt International Corporation
9. INCOME TAXES
Canadian $ millions, for the years ended December 31
Current income tax expense
Current period
Deferred income tax expense (recoveries)
Origination and reversal of temporary differences
Non-recognition of tax assets
Income tax expense (recoveries)
Barbados
2023
2022
2.4 $
2.4
0.8
0.8
(25.3)
25.1
(0.2)
2.2 $
(10.7)
9.5
(1.2)
(0.4)
$
$
On November 7, 2023, Barbados announced that effective January 1, 2024, the general corporate tax rate in Barbados will
increase to 9%. This change is not expected to have a material impact on the Corporation’s income tax liability during the year
ended December 31, 2024.
The following table reconciles income taxes calculated at a combined Canadian federal/provincial income tax rate with the income
tax expense (recoveries) in the consolidated statements of comprehensive (loss) income:
Canadian $ millions, for the years ended December 31
(Loss) earnings before income tax from continuing operations
Less: share of earnings of Moa Joint Venture
Parent companies and subsidiaries loss before income tax
Income tax recoveries at the combined basic rate of 23.4% (2022 - 23.5%)
Increase (decrease) in taxes resulting from:
Difference between Canadian and foreign tax rates
Non-recognition of tax assets
Other items
2023
2022
(62.1) $
(21.9)
(84.0)
63.3
(140.8)
(77.5)
(19.7)
(18.2)
(2.7)
25.2
(0.6)
2.2 $
7.2
9.7
0.9
(0.4)
$
$
Deferred tax assets (liabilities) relate to the following temporary differences and loss carry forwards:
Canadian $ millions, for the year ended December 31, 2023
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
Opening
Balance
Recognized
in net
loss
Recognized
in other
comp-
rehensive
loss
$
$
$
$
0.7 $
0.1
0.8
(0.8)
-
(0.3) $
(1.0)
0.1
(1.2)
0.8
(0.4) $
(0.4) $
-
(0.4)
- $
-
0.6
0.6
0.2 $
- $
-
-
$
- $
-
-
-
- $
Closing
Balance
0.3
0.1
0.4
-
0.4
(0.3)
(1.0)
0.7
(0.6)
-
(0.2)
Sherritt International Corporation 107
Notes to the consolidated financial statements
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
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 $
- $
-
-
$
- $
-
-
-
- $
Closing
Balance
0.7
0.1
0.8
(0.8)
-
(0.3)
(1.0)
0.1
(1.2)
0.8
(0.4)
As at December 31, 2023, the Corporation had taxable temporary differences of $409.9 million (December 31, 2022 - $532.1
million) associated with investments in subsidiaries and the Moa JV for which no deferred tax liabilities have been recognized, as
the Corporation is able to control the timing of the reversal of these temporary differences and it is not probable that these
temporary differences will reverse in the foreseeable future.
As at December 31, 2023, the Corporation had non-capital losses of $996.4 million (December 31, 2022 - $962.2 million) and
capital losses of $1,129.3 million (December 31, 2022 - $1,128.5 million) which may be used to reduce future taxable income.
The Corporation has not recognized a deferred tax asset on $996.4 million (December 31, 2022 - $962.2 million) of non-capital
losses, $1,129.3 million (December 31, 2022 - $1,128.5 million) of capital losses and $138.4 million (December 31, 2022 - $234.4
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, 2023
Canada
Other jurisdictions
10. (LOSS) EARNINGS PER SHARE
Canadian $ millions, except share amounts in millions and per share amounts in dollars, for the years ended December 31
Net (loss) earnings from continuing operations
Loss from discontinued operations, net of tax
Net (loss) earnings for the year - basic and diluted
Weighted-average number of common shares - basic and diluted(1)
Net (loss) earnings from continuing operations per common share:
Basic and diluted
Loss from discontinued operations, net of tax, per common share:
Basic and diluted
Net (loss) earnings per common share:
Basic and diluted
Expiry
Non-capital
losses
2026-2043 $
Various
820.8
175.6
2023
(64.3) $
(0.3)
(64.6) $
2022
63.7
(0.2)
63.5
397.3
397.3
(0.16) $
0.16
(0.00) $
(0.00)
(0.16) $
0.16
$
$
$
$
$
(1)
The determination of the weighted-average number of common shares - diluted excludes 6.6 million shares related to stock options that were anti-dilutive for the year
ended December 31, 2023 (2.7 million that were anti-dilutive for the year ended December 31, 2022).
108 Sherritt International Corporation
11. FINANCIAL INSTRUMENTS
Cash and cash equivalents
Cash and cash equivalents consist of:
Canadian $ millions, as at
Cash equivalents(1)
Cash held in banks
2023
December 31
2022
December 31
$
$
0.1 $
119.0
119.1 $
0.2
123.7
123.9
(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 $21.5 million as at December
31, 2023 (December 31, 2022 - $20.3 million).
The Corporation’s cash balances are deposited with major financial institutions rated investment grade by independent rating
agencies, except for institutions located in Cuba that are not rated. The total cash held in Cuban bank deposit accounts was
$96.3 million as at December 31, 2023 (December 31, 2022 - $101.6 million).
As at December 31, 2023, $93.9 million of the Corporation’s cash and cash equivalents was held by Energas in Cuban bank
deposit accounts (December 31, 2022 - $96.7 million). These funds are for use locally by the joint operation, including repayment
of Energas’ payable to GNC (note 15), and for payments under the Energas Payment Agreement (Moa Swap) to facilitate foreign
currency payments for the operating and maintenance costs of Energas, as well as to cover future payments owed to Sherritt,
including dividends.
Fair value measurement
As at December 31, 2023, 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)
2023
December 31
Hierarchy
level
Carrying
value
Fair
value
Carrying
value
2022
December 31
Fair
value
1 $
1
235.6 $
63.2
179.3 $
43.1
233.6 $
70.8
185.9
38.9
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
2023
December 31
2022
December 31
$
$
100.0 $
(18.9)
44.7
25.3
151.1 $
155.8
(19.5)
27.4
22.7
186.4
Sherritt International Corporation 109
Notes to the consolidated financial statements
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
Allowance for expected credit losses
2023
2022
December 31
December 31
$
$
118.3 $
24.7
1.5
6.6
151.1 $
169.9
4.4
3.3
8.8
186.4
Financial assets measured at amortized cost are presented net of their allowances for expected credit losses within the
consolidated statements of financial position.
Canadian $ millions
December 31
Revaluation(1)
As at
2022
Foreign exchange and other non-
cash items
As at
2023
December 31
Lifetime expected credit losses
Trade accounts receivable, net
$
(19.5) $
- $
0.6 $
(18.9)
For the year ended December 31, 2023
For the year ended December 31, 2022
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)
-
(1) Revaluation of allowances for expected credit losses 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 allowance for expected credit losses on the Energas CSA
recognized during the year ended December 31, 2022 as a result of the Cobalt Swap, as disclosed in note 8.
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.
110 Sherritt International Corporation
Fair value hierarchy
The GNC receivable (note 12) is a financial instrument subsequently measured at FVTPL and the Energas payable (note 15) is
a financial instrument designated at FVTPL at initial recognition, as it contains an embedded derivative. Their fair values are
determined using discounted cash flows in a Monte Carlo simulation model, which uses inputs, some of which 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 Monte Carlo simulation model includes the following inputs: forecast in-kind nominal
cobalt prices, forecast cobalt price volatility, forecast cobalt volumes, forecast foreign exchange rates, discount rates and available
amounts for cash payments. Forecast in-kind nominal cobalt prices and the discount rate are significant unobservable inputs for
the GNC receivable. 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,
2023:
•
Forecast in-kind nominal cobalt prices from US$12/lb to US$17/lb (December 31, 2022 - US$18/lb to US$24/lb). A $10
increase in forecast in-kind nominal cobalt prices would increase the fair value by $12.5 million (December 31, 2022 -
$10.1 million), while a $10 decrease in forecast in-kind nominal cobalt prices would decrease the fair value by $15.8
million (December 31, 2022 - $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 11% (December 31, 2022 – 12%). A 5 percentage point increase in the discount rate would decrease
the fair value by $24.8 million (December 31, 2022 - $27.7 million), while a 5 percentage point decrease in the discount
rate would increase the fair value by $29.1 million (December 31, 2022 - $32.1 million).
The following is a reconciliation of the fair value of the GNC receivable upon initial recognition to December 31, 2022 and from
December 31, 2022 to December 31, 2023:
Canadian $ millions, for the years ended
Balance, beginning of the year (prior year - balance upon initial recognition)
Gain on revaluation of GNC receivable in net finance expense
Settlements
Balance, end of the year
Note
December 31
December 31
2023
2022
$
8
12 $
279.1 $
14.7
(76.0)
217.8 $
280.2
2.4
(3.5)
279.1
The following is a reconciliation of the fair value of the Energas payable upon initial recognition to December 31, 2022 and from
December 31, 2022 to December 31, 2023:
Canadian $ millions, for the years ended
Balance, beginning of the year (prior year - balance upon initial recognition)
Loss on revaluation of Energas payable in net finance expense
Settlements
Balance, end of the year
Note
2023
December 31
2022
December 31
$
8
15 $
82.6 $
7.6
(14.8)
75.4 $
79.6
4.0
(1.0)
82.6
Sherritt International Corporation 111
Notes to the consolidated financial statements
12. ADVANCES, LOANS RECEIVABLE AND OTHER FINANCIAL ASSETS
Canadian $ millions, as at
Advances and loans receivable
GNC receivable(1)
Moa JV revolving-term credit facility
Other financial assets
Finance lease receivables
Current portion of advances, loans receivable and other financial assets(2)
Non-current portion of advances, loans receivable and other financial assets
2023
December 31
2022
December 31
Note
11 $
217.8
30.3
$
279.1
-
1.9
250.0
(79.8)
170.2
$
2.8
281.9
(74.8)
207.1
$
(1) As at December 31, 2023, the non-current portion of the GNC receivable agreement is $169.2 million (December 31, 2022 - $205.2 million).
(2)
Included in the current portion of advances, loans receivable and other financial assets as at December 31, 2023 is the current portion of the GNC receivable of $48.6
million (December 31, 2022 - $73.9 million) and the current portion of the Moa JV revolving-term credit facility of $30.3 million (December 31, 2022 – nil), of which $30.0
million is the principal balance (December 31, 2022 – nil) to fund working capital.
GNC receivable
The principal balance of the GNC receivable as at December 31, 2023 was $292.0 million (December 31, 2022 - $368.0 million),
reflecting finished cobalt and cash settlements of $76.0 million during the year ended December 31, 2023.
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 JV, 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 was $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 as at December 31, 2027, 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 JV, 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 JV. GNC will redirect its
50% share of the total Moa JV 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:
112 Sherritt International Corporation
•
•
•
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 JV 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.
Moa JV revolving-term credit facility
As at December 31, 2023, $30.0 million of principal amount was drawn by the Moa JV (December 31, 2022 – nil) to fund working
capital.
The Moa JV revolving-term credit facility is provided by the Corporation to the Moa JV to fund working capital and capital
expenditures. The maximum credit available is $75.0 million and the interest rates are bankers’ acceptance plus 4.00%.
Borrowings on the facility are available to fund working capital and capital expenditures of $45.0 million and $30.0 million,
respectively.
During the year ended December 31, 2023, the Moa JV 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
2023
2022
December 31
December 31
$
$
- $
1.2
9.7
10.9
28.9
39.8 $
0.1
0.3
14.6
15.0
22.7
37.7
For the year ended December 31, 2023, the cost of inventories included in cost of sales was $177.0 million, including $86.1 million
of finished cobalt inventories received pursuant to the Cobalt Swap and sold to customers ($82.1 million and nil for the year ended
December 31, 2022, respectively).
Sherritt International Corporation 113
Notes to the consolidated financial statements
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, 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
Canadian $ millions, for the year ended December 31
Cost
Balance, beginning of the year
Additions
Additions and changes in estimates to environmental rehabilitation provisions
Disposals and derecognition
Effect of movements in exchange rates
Balance, end of the year
Depletion, depreciation and impairment losses
Balance, beginning of the year
Depletion and depreciation
Impairments
Disposals and derecognition
Effect of movements in exchange rates
Balance, end of the year
Net book value
Extension of Energas’ power generation contract
Right-of-use
Plant,
assets - Plant,
2023
Oil and Gas
equipment
equipment
properties
and land
and land
Total
$
$
$
$
$
$
$
$
$
$
59.8 $
-
-
-
0.7
60.5 $
59.8 $
-
-
0.7
60.5 $
- $
608.2 $
20.1
4.3
(2.8)
(7.0)
622.8 $
468.4 $
12.7
(2.6)
(6.8)
471.7 $
151.1 $
13.9 $
0.5
-
-
-
14.4 $
5.1 $
1.2
-
-
6.3 $
8.1 $
681.9
20.6
4.3
(2.8)
(6.3)
697.7
533.3
13.9
(2.6)
(6.1)
538.5
159.2
2022
Right-of-use
Plant,
assets - Plant,
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
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.
114 Sherritt International Corporation
Canadian $ millions
Assets under construction, included in above
As at December 31, 2023
As at December 31, 2022
Intangible assets
Plant,
equipment
and land
$
30.6
24.1
Canadian $ millions, for the year ended December 31
2023
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 and impairment losses
Balance, beginning of the year
Amortization
Impairments
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
Other
Total
$
$
$
$
$
$
$
$
$
$
27.0 $
-
-
27.0 $
26.9 $
-
-
-
26.9 $
0.1 $
115.9 $
0.4
(0.2)
116.1 $
235.1 $
1.0
(5.4)
230.7 $
108.6 $
-
-
-
108.6 $
7.5 $
228.7 $
0.4
-
(5.3)
223.8 $
6.9 $
9.1 $
-
-
9.1 $
9.1 $
-
-
-
9.1 $
- $
387.1
1.4
(5.6)
382.9
373.3
0.4
-
(5.3)
368.4
14.5
2022
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 $
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
Exploration and evaluation assets include three oil production-sharing contracts (PSCs) with the Government of Cuba,
respectively referred to as Block 6A, Block 8A and Block 10, in the Oil and Gas segment. 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.
Sherritt International Corporation 115
Notes to the consolidated financial statements
Service concession arrangements
Service concession arrangements include the Puerto Escondido/Yumuri pipeline and the Energas Boca de Jaruco power
generation facility in the Power segment.
15. LOANS, BORROWINGS AND OTHER FINANCIAL LIABILITIES
Loans and borrowings
As at
2022
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
$
$
233.6 $
70.8
46.5
350.9 $
(46.5)
304.4
For the year ended December 31, 2023
Cash flows
Non-cash changes
Increase in other
loans and
borrowings
Repurchase of
notes
As at
2023
Other
December 31
- $
-
13.0
13.0 $
- $
(7.8)
-
(7.8) $
2.0 $
0.2
(2.7)
(0.5) $
$
For the year ended December 31, 2022
Cash flows
Non-cash changes
235.6
63.2
56.8
355.6
(56.8)
298.8
As at
2022
Canadian $ millions
As at
2021
December 31
Increase in
other loans and
borrowings
Repurchase
of notes
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
$
$
$
354.5 $
82.6
7.4
444.5 $
-
444.5
-
-
37.0
37.0 $
(114.2) $
(11.0)
-
(125.2) $
8.50% second lien secured notes due 2026 (“Second Lien Notes”)
Other
December 31
(6.7) $
(0.8)
2.1
(5.4) $
$
233.6
70.8
46.5
350.9
(46.5)
304.4
As at December 31, 2023, the outstanding principal amount of the Second Lien Notes is $221.3 million (December 31, 2022 –
$221.3 million) and the notes mature on November 30, 2026. Interest is payable semi-annually in cash in April and October.
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 (used) by 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.
For the two-quarter period ended December 31, 2023, Excess Cash Flow, as defined in the Second Lien Notes Indenture, was
negative. As a result, no mandatory redemptions will be required on the interest payment date in April 2024.
116 Sherritt International Corporation
The minimum liquidity amount is defined in the Second Lien Notes 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 Notes and 10.75% unsecured PIK option notes due 2029 during the relevant
two-fiscal quarter period. There were no repurchases of notes during the two-quarter period ended December 31, 2023.
The Second Lien Notes 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 Second Lien Notes 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. As at December 31, 2023, the Corporation met the required financial ratio and has the capacity to make restricted
payments up to $85.9 million.
During the year ended December 31, 2023, the Corporation repurchased nil principal of the Second Lien Notes. During the year
ended December 31, 2022, the Corporation repurchased $129.2 million of principal of the Second Lien Notes 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).
Other non-cash changes consists of gains/losses on revision of cash flows and interest and accretion of a 7% premium. This
premium is due upon the earlier of optional redemption and maturity of the notes and is accreted over the life of the instrument.
10.75% unsecured PIK option notes due 2029 (“PIK Notes”)
As at December 31, 2023, the outstanding principal amount of the PIK Notes is $63.4 million (December 31, 2022 - $70.8 million)
and the notes mature on August 31, 2029. Interest is payable semi-annually in cash or in-kind, at Sherritt’s election, in January
and July. 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, 2023, the Corporation repurchased $11.2 million of principal of the PIK Notes at a cost of
$7.8 million, plus $0.1 million of accrued interest, resulting in a gain on repurchase of notes of $3.5 million (note 8). During the
year ended December 31, 2022, the Corporation repurchased $19.9 million of principal of the PIK Notes at a cost of $10.9 million,
plus $0.7 million of accrued interest, resulting in a gain on repurchase of notes of $9.7 million (note 8).
During the year ended December 31, 2023, in accordance with the terms of the PIK Notes Indenture, the Corporation elected not
to pay cash interest due in January 2023 of $3.8 million and added the payment-in-kind interest to the principal amount owed to
noteholders and the Corporation paid the July 2023 interest payment on the PIK Notes of $3.4 million in cash. During the year
ended December 31, 2022, in accordance with the terms of the PIK Notes Indenture, the Corporation elected not to pay cash
interest of $8.1 million on the PIK Notes and added the payment in-kind interest to the principal amount owed to noteholders.
Subsequent to period end, in accordance with the terms of the PIK Notes Indenture, the Corporation elected not to pay cash
interest due in January 2024 of $3.4 million and added the payment-in-kind interest to the principal amount owed to noteholders.
Other non-cash changes consist of the gain on repurchase of notes, net of capitalized interest and accretion. Accrued and unpaid
interest on these notes is capitalized to the principal balance semi-annually in January and July at the election of the Corporation.
Sherritt International Corporation 117
Notes to the consolidated financial statements
Syndicated revolving-term credit facility (“Credit Facility”)
As at December 31, 2023, the outstanding principal amount of the Credit Facility is $58.0 million (December 31, 2022 - $45.0
million) and the Credit Facility matures on April 30, 2025.
The maximum credit available is $100.0 million and the interest rates are bankers’ acceptance plus 4.00%. Borrowings on the
Credit Facility are available to fund working capital and capital expenditures. Borrowings under the Credit Facility for 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 trailing 12-month 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 trailing 12-month basis with Energas included on a cash
basis. Interest expense excludes the payment-in-kind (PIK) interest on the Corporation’s PIK Notes; 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 Second Lien Notes, less the principal amount of the PIK Notes, less any
derivative liability and less any additional secured financing ranked equal to first-lien debt.
As at December 31, 2023, the Corporation has $0.5 million of letters of credit outstanding pursuant to this facility (December 31,
2022 - $0.5 million).
During the year ended December 31, 2023, the Credit Facility was amended to (i) add an accordion feature, which allows
additional lenders to join the Credit Facility and increase the maximum credit available by up to $25.0 million, subject to certain
conditions, (ii) increase the permitted debt outside of the Credit Facility from $25.0 million to $35.0 million and (iii) extend its
maturity for one year from April 30, 2024 to April 30, 2025, with no other significant changes to the terms, financial covenants or
restrictions.
In May 2022, Sherritt received consent from its lenders to expand the allowable use of proceeds to include repurchases of its
notes.
Other non-cash changes consist of accretion and a gain due to revisions of cash flows.
Other financial liabilities
Canadian $ millions, as at
Energas payable(1)
Lease liabilities
Share-based compensation liability
Other financial liabilities
Current portion of other financial liabilities(2)
Non-current portion of other financial liabilities
2023
2022
Note
December 31
December 31
11 $
6, 17
$
75.4 $
11.0
6.7
4.0
97.1
(22.5)
74.6 $
82.6
12.6
34.6
40.4
170.2
(81.8)
88.4
(1) As at December 31, 2023, the non-current portion of the Energas payable is $59.0 million (December 31, 2022 - $68.2 million).
(2) As at December 31, 2023, the current portion of other financial liabilities includes the current portions of the Energas payable of $16.4 million (December 31, 2022 - $14.4
million), a share-based compensation liability of $4.2 million (December 31, 2022 - $28.2 million) and nil other financial liability (December 31, 2022 - $37.2 million) to the
Moa JV for distributions received that had not yet been declared as dividends, which was extinguished upon declaration as dividends.
118 Sherritt International Corporation
Energas payable
During the year ended December 31, 2023, $14.8 million (US$11.0 million) (33⅓% basis) of cash was paid by Energas to GNC
in Cuban pesos. The outstanding principal balance of the Energas payable as at December 31, 2023 is $97.3 million (December
31, 2022 - $112.1 million) (33⅓% basis).
No interest accrues on Energas’ payable to GNC over the five-year period of the Cobalt Swap. In the event that the Energas
payable is not fully repaid to GNC by December 31, 2027, interest will accrue retroactively at 8.0% from January 1, 2023 on the
unpaid principal amount as at December 31, 2027, 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
For the year ended December 31, 2023
Cash flows
Non-cash changes
As at
2022
December 31
Principal
repayments
(note 23)
Interest paid
(notes 19 and
23)
Effect of
movement in
exchange
rates
As at
2023
Other
December 31
$
12.6 $
(2.0) $
(0.7) $
- $
1.1 $
11.0
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
16. PROVISIONS, GUARANTEES AND CONTINGENCIES
Canadian $ millions, as at
Environmental rehabilitation provisions
Other provisions
Current portion of provisions(1)
Non-current portion of provisions
2023
2022
December 31
December 31
$
$
125.7 $
2.3
128.0
(24.4)
103.6 $
103.6
2.6
106.2
(15.7)
90.5
(1) As at December 31, 2023, the current portion of provisions includes a current environmental rehabilitation provision of $23.4 million related to the Corporation’s legacy
Spanish Oil and Gas operations (December 31, 2022 – $14.7 million).
Sherritt International Corporation 119
Notes to the consolidated financial statements
Environmental rehabilitation provisions
Provisions for environmental rehabilitation obligations are recognized in respect of Fort Site, 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.
The following is a reconciliation of the environmental rehabilitation provisions:
Canadian $ millions, for the years ended December 31
Note
2023
2022
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
$
$
8
103.6 $
27.2
(0.2)
(5.9)
0.3
0.7
125.7 $
103.8
(0.4)
(0.1)
(0.5)
0.3
0.5
103.6
Change in estimates includes the impact of an increase in discount rates, which ranged from 3.1% to 7.8% as at December 31,
2023 (as at December 31, 2022 – discount rates from 3.3% to 7.2%), and were applied to expected future cash flows to determine
the carrying value of the environmental rehabilitation provisions, and an increase in the environmental rehabilitation provision
related to the Corporation’s legacy Spanish Oil and Gas operations of $25.8 million during the year ended December 31, 2023
($12.4 million for the year ended December 31, 2022) due to an increase in estimated rehabilitation costs for specialized
decommissioning work and additional decommissioning activities required by regulators which were finalized during the fourth
quarter of 2023.
The Corporation has estimated that it will require approximately $212.1 million in undiscounted cash flows to settle these
obligations. The payments are expected to be funded by cash provided by operating activities.
Guarantees
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. During the year ended December 31,
2023, a new parent company guarantee was signed with a four-year term valid until December 31, 2027 and a guaranteed
amount of €35.8 million. The parent company guarantee has no impact on the Corporation’s available liquidity.
Contingencies
A number of the Corporation’s subsidiaries have operations located in Cuba. The United States of America 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 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. 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. 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 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 (loss) earnings, cash flow or financial position.
120 Sherritt International Corporation
17. SHARE-BASED COMPENSATION PLANS
Equity-settled stock option plan
The Corporation maintains a stock option plan, pursuant to which shares of the Corporation may be issued as compensation.
Eligible participants are those persons designated from time to time by the Human Resources Committee (“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.
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 4,282,796 as at December 31, 2023. Under the stock option plan, the exercise price of each option equals
the volume-weighted average trading price of the Corporation’s shares 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 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.
In February 2023, the Corporation’s Board of Directors approved the grant of stock options to executive officers with an exercise
price of $0.53 and a maximum life of 7 years. The options vest and become exercisable in three equal amounts on the annual
anniversary date of the grant of the options. The number of these options granted during the year ended December 31, 2023 was
3,982,732 (nil during the year ended December 31, 2022).
Canadian $, except as noted, for the year ended December 31
Share price at grant date
Exercise price
Risk-free interest rate (based on 7-year Government of Canada bonds)
Expected volatility
Expected dividend yield
Expected life of options
Weighted-average fair value of options granted during the period
2023
0.53
0.53
3.42%
70%
0%
7 years
0.36
$
$
Expected volatility is estimated based on the average historical share price volatility for a period equal to the expected life of the
option. The expected life of the option is estimated to equal its legal life at the time of grant. The expected dividend yield is
determined by comparing the expected dividend payment to the share price at grant date.
The following is a summary of stock option activity:
Canadian $, except number of options, for the years ended December 31
Outstanding, beginning of the year
Granted
Expired
Outstanding, end of the year
Options exercisable, end of the year
2023
Weighted-
average
exercise
price
Number of
options
1.40
0.53
5.14
0.83
1.29
4,120,191 $
-
(1,418,450)
2,701,741 $
2,701,741 $
2022
Weighted-
average
exercise
price
1.78
-
2.50
1.40
1.40
Number of
options
2,701,741 $
3,982,732
(71,800)
6,612,673 $
2,629,941 $
Sherritt International Corporation 121
Notes to the consolidated financial statements
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
2023
Exercisable
weighted-
average
exercise
price
$0.53 - $1.20
$1.21 - $2.11
$2.12 - $3.00
$3.01 - $3.70
Total
5,653,208
645,467
283,899
30,099
6,612,673
5.1 $
2.8
0.6
0.0
4.6 $
0.62
1.63
2.99
3.70
0.83
1,670,476 $
645,467
283,899
30,099
2,629,941 $
0.83
1.63
2.99
3.70
1.29
As at December 31, 2023, 6,612,673 stock options (December 31, 2022 – 2,701,741) remained outstanding for which the
Corporation has recognized a share-based compensation expense of $0.7 million for the year ended December 31, 2023 (expense
of nil for the year ended December 31, 2022).
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) RSUs with no performance conditions, which vest at the end of three years and ii)
PSUs subject to performance conditions, which vest at the end of three years.
Cash payments for share-based units are primarily 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 performance conditions described below. The market value of the Corporation’s shares as at December 31,
2023 and December 31, 2022 was $0.29 and $0.50, respectively.
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 shares multiplied by the number of RSUs held by the participant. RSUs are
issued subject to vesting conditions, which are set by the Committee of the Board of Directors. 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 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, 2023 was 15,178,344
(December 31, 2022 – 31,424,431).
122 Sherritt International Corporation
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 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 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 Committee. The vesting of PSUs granted
prior to 2023 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 for grants made in 2021 or the Corporation’s total shareholder return relative to benchmark indices composed of
mining companies for grants made in 2022 (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) and a service condition. 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 as at December 31, 2023 was 11,192,177 (December
31, 2022 – 31,424,431).
During the year ended December 31, 2023, the Corporation’s Board of Directors approved the grant of PSUs to certain employees,
the vesting of which will be subject to the achievement of the Corporation’s total shareholder return relative to individual
constituents of a benchmark mining index (a market condition) (the “disaggregated RTSR performance condition”) and a service
condition. Performance will be based on the percentile return of the Corporation as compared to the constituents within the index.
The value of PSUs that vest will vary from 0% to 200% based on the achievement of the market performance condition. The
number of PSUs subject to this performance condition outstanding as at December 31, 2023 was 5,750,554 (December 31, 2022
– nil).
DSUs
Under the terms of the Non-Executive Directors’ DSU Plan, 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 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.
A total of 6,334,403 DSUs are outstanding and vested as at December 31, 2023, granted between 2013 and 2023.
A summary of the RSUs, PSUs and DSUs outstanding as at December 31, 2023 and 2022 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
2023
RSUs
PSUs
DSUs
31,424,431
4,172,489
(20,061,555)
(357,021)
15,178,344
n/a
31,424,431
5,936,876
(20,061,555)
(357,021)
16,942,731
n/a
5,695,560
1,478,906
(840,063)
-
6,334,403
6,334,403
Sherritt International Corporation 123
Notes to the consolidated financial statements
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
2022
RSUs
PSUs
DSUs
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
During the year ended December 31, 2023, the Corporation recognized a share-based compensation recovery of $2.2 million for
cash-settled share-based units, during which time the market value of the Corporation’s shares decreased by $0.21 and additional
units vested. During the year ended December 31, 2022, the Corporation recognized a share-based compensation expense of
$17.5 million for cash-settled share-based units, during which time the market value of the Corporation’s shares increased by
$0.12 and additional units vested.
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 (recovery) expense
Canadian $ millions
Share-based compensation (recovery) expense
Measurement of fair values at grant date
2023
2022
Note
December 31
December 31
15 $
$
6.7 $
(4.2)
2.5 $
34.6
(28.2)
6.4
For the year ended
2023
2022
Note
December 31
December 31
6 $
(1.5) $
17.5
The fair value of the RSUs, PSUs and DSUs are determined by reference to the market value and performance conditions, as
applicable, of the Corporation’s shares at the time of grant. The following summarizes the weighted-average grant date fair
values for the RSUs, PSUs and DSUs granted during the year:
Canadian $, for the years ended December 31
RSU
PSU
DSU
2023
2022
$
0.52 $
0.53
0.51
0.60
0.60
0.45
The intrinsic value of cash-settled share-based compensation awards vested and outstanding as at December 31, 2023 was
$6.7 million (December 31, 2022 - $34.6 million).
18. COMMITMENTS FOR EXPENDITURES
Canadian $ millions, as at December 31
Property, plant and equipment commitments
2023
7.7
$
124 Sherritt International Corporation
19. SUPPLEMENTAL CASH FLOW INFORMATION
Working capital is defined as the Corporation's current assets less current liabilities and was $111.7 million as at
December 31, 2023 ($61.7 million - December 31, 2022).
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 paid
Interest paid includes the following:
Canadian $ millions, for the years ended December 31
Interest paid on lease liabilities
Interest paid on Second Lien Notes
Interest paid on PIK Notes
Other interest paid
Non-cash transactions
2023
2022
$
$
(45.2) $
(10.5)
(2.8)
(37.0)
1.9
(93.6) $
(11.0)
(7.2)
(0.9)
7.4
1.1
(10.6)
Note
2023
2022
15, 23 $
$
(0.7) $
(18.8)
(3.5)
(5.3)
(28.3) $
(0.8)
(29.1)
-
(2.1)
(32.0)
Finished cobalt cost of sales expense is a non-cash expense added back to net (loss) earnings from continuing
operations in the Corporation’s consolidated statements of cash flow prepared using the indirect method as the
Corporation received finished cobalt inventories for no consideration pursuant to the Cobalt Swap and in satisfaction of
its GNC receivable.
During the year ended December 31, 2023, investing activities excluded $44.0 million of non-cash settlements of the
GNC receivable, which was partially settled through receipts of finished cobalt inventories pursuant to the Cobalt Swap.
During the year ended December 31, 2023, an additional $32.0 million of the GNC receivable was settled through
receipts of cash, presented within Receipts of advances, loans receivables and other financial assets in the consolidated
statements of cash flow. Refer to note 12 for further details on the Cobalt Swap. All comparative figures are nil as the Cobalt
Swap commenced on January 1, 2023.
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. There were no changes in the Corporation’s outstanding common shares during the years ended December
31, 2023 and 2022.
Sherritt International Corporation 125
Notes to the consolidated financial statements
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
2023
2022
222.2 $
222.2
222.2
222.2
11.2 $
0.7
11.9
234.1 $
11.2
-
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) gains on pension plans
Balance, beginning of the year
Actuarial (losses) gains on pension plans, net of tax
Balance, end of the year
Total accumulated other comprehensive income
2023
2022
$
$
406.2 $
(17.2)
389.0
(4.6)
(0.2)
(4.8)
384.2 $
360.4
45.8
406.2
(5.2)
0.6
(4.6)
401.6
21. FINANCIAL RISK AND CAPITAL RISK MANAGEMENT
Cuba risk
During the years ended December 31, 2023, and December 31, 2022, Cuba experienced continued U.S. sanctions, impacting
the country’s economy and hampering the country’s foreign currency liquidity. The foregoing may contribute to increased
economic risk to the Corporation.
As a result of the Cobalt Swap, the Corporation no longer has the responsibility for collection of receivable amounts solely from
Energas and CUPET, which are dependent upon Cuba’s economy, and instead will collect from GNC, the Corporation’s Moa JV
partner. GNC receives distributions from the Moa JV, which is less dependent upon Cuba’s economy as it earns foreign currency
from nickel and cobalt sales to customers outside of Cuba.
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, discussed
below in the commodity price risk section.
Credit risk
Sherritt’s sales of nickel, cobalt, fertilizers and electricity expose the Corporation to the risk of non-payment by customers. Sherritt
manages this risk by monitoring the creditworthiness of its customers, 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 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.
126 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
2023
2022
Note
December 31
December 31
$
$
96.4 $
10.0
217.8
324.2 $
101.7
7.2
279.2
388.1
(1) Advances and loans receivable excludes the Moa JV revolving-term credit facility with the Corporation as the counterparty is an operating company within the Moa JV that
is located in Bahamas. Advances and loans receivable includes the GNC receivable pursuant to the Cobalt Swap of $217.8 million (December 31, 2022 - $279.1 million)
(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 JV, whose nickel and cobalt sales are with customers outside of Cuba.
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, 2023. 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 $
170.0 $
(18.9) $
151.1
(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.
sales
The main factors that affect liquidity include realized sales prices, timing of collection of receivables, production
volumes, cash production costs, distributions from the Moa JV (including pursuant to the Cobalt Swap), working capital
requirements, capital expenditure requirements, repayments of non-current loans and borrowings obligations, credit capacity and
debt and equity capital market conditions.
and
The Corporation’s liquidity requirements are met through a variety of sources, including cash and cash equivalents, cash provided
by operating activities and distributions from the Moa JV (including pursuant to the Cobalt Swap), existing credit facilities, leases,
derivatives and debt and equity capital markets.
Based on management’s assessment of its financial position and liquidity profile as at December 31, 2023, 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 and interest rates.
Sherritt International Corporation 127
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 (loss) income.
Based on financial instrument balances as at December 31, 2023, 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 $2.3
million, respectively, on the Corporation’s net (loss) earnings.
Based on financial instrument balances as at December 31, 2023, 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 $4.3
million, respectively, on the Corporation’s other comprehensive (loss) income.
Commodity price risk
The Corporation is exposed to fluctuations in certain commodity prices. Realized prices for finished products and costs for input
commodities are the most significant factors affecting the Corporation’s revenue and earnings. Revenue, earnings and cash flows
from the sale of nickel, cobalt and fertilizers 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. The Corporation has not entered into such agreements during the years ended December 31, 2023 or 2022. 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 JV. 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 JV.
Interest rate risk
The Corporation is exposed to interest rate risk based on its outstanding loans and borrowings, and 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 as at December 31, 2023, a 1.0% decrease or increase in the market interest rate would not have a material
impact on the Corporation’s net (loss) earnings. The Corporation does not engage in hedging activities to mitigate its interest
rate risk.
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.
Canadian $ millions, as at
Capital stock
Deficit
Loans and borrowings
Other financial liabilities
Available credit facilities
2023
2022
December 31
December 31
$
2,894.9 $
(2,899.6)
355.6
97.1
41.5
2,894.9
(2,835.0)
350.9
170.2
54.5
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.
128 Sherritt International Corporation
Subject to the limitations within the Second Lien Notes Indenture and Credit Facility agreement, 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, income taxes payable and provisions are presented in the following table on an undiscounted basis. For amounts
payable that are not fixed, including mandatory redemptions of the Second Lien Notes (note 15), the amount disclosed is
determined by reference to the conditions existing as at December 31, 2023.
Canadian $ millions, as at December 31, 2023
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
Second Lien Notes
(includes principal, interest and premium)
PIK Notes
(includes principal and interest)
Credit Facility
Other non-current financial liabilities
Provisions
Energas payable
Lease liabilities
Total
$
$
169.2 $
2.2
169.2 $
2.2
- $
-
- $
-
304.4
18.8
18.8
266.8
112.6
65.3
1.3
214.4
97.3
13.3
980.0 $
-
5.5
-
24.4
17.7
2.6
240.4 $
-
59.8
-
0.4
15.5
2.4
96.9 $
8.4
-
0.1
2.1
18.2
1.3
296.9 $
- $
-
-
8.4
-
-
13.9
45.9
1.3
69.5 $
- $
-
-
8.4
-
-
9.4
-
1.2
19.0 $
-
-
-
87.4
-
1.2
164.2
-
4.5
257.3
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 $136.1 million, with no significant payments due in the next five years;
Trade accounts payable and accrued liabilities of $58.7 million;
Loans and borrowings of $11.8 million; and
Property, plant and equipment commitments of $32.1 million.
Property, plant and equipment commitments include normal course expenditures and those associated with tailings management
facilities.
22. RELATED PARTY TRANSACTIONS
The Corporation and its 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 and purchased from 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.
Sherritt International Corporation 129
Notes to the consolidated financial statements
Canadian $ millions, for the years ended December 31
2023
2022
Total value of goods and services:
Provided to Energas
Provided to Moa JV
Purchased from Moa JV
Net financing income from Energas
Net financing income from Moa JV
Canadian $ millions, as at
Accounts receivable from Moa JV
Accounts payable to Moa JV
Advances and loans receivable from Moa JV
$
46.6 $
372.8
844.0
-
0.8
22.9
302.6
1,216.0
14.4
0.4
2023
2022
Note
December 31
December 31
11 $
12
44.7 $
72.2
30.3
27.4
127.8
-
Transactions between related parties are generally based on standard commercial terms. All amounts outstanding are unsecured
and will be settled in cash. No guarantees have been given or received on the outstanding amounts. No expense has been
recognized in the current or prior periods for bad debts in respect of amounts owed by related parties.
Key management personnel
Key management personnel are composed of the Board of Directors, Chief Executive Officer, Chief Financial Officer, Chief
Commercial Officer, Chief Human Resources Officer, Senior Vice Presidents of the Corporation and the former Chief Operating
Officer in 2022 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)
Share-based payments
2023
2022
5.0 $
0.3
4.6
9.9 $
6.7
0.3
4.5
11.5
$
$
(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, 2023 (nil for the year ended December 31, 2022). The total pension expense that is attributable to key management
personnel was nil for the year ended December 31, 2023 (nil for the year ended December 31, 2022).
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 (loss) income:
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
$
2023
1.7 $
2.7
2022
1.6
2.1
130 Sherritt International Corporation
Amounts recognized in the consolidated statements of cash flow:
Canadian $ millions, for the years ended December 31
Note
2023
Interest paid on lease liabilities
Principal repayments on lease liabilities
Included in net (loss) earnings from continuing operations:
Variable lease payments not included in initial measurement of lease liabilities
Payments for short-term leases (for which no lease liability is recognized)
15, 19 $
15
$
0.7 $
2.0
1.7
2.7
7.1 $
2022
0.8
1.9
1.6
2.1
6.4
Corporation as a lessor
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, 2023
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 $
- $
- $
- $
- $
2.0 $
0.1 $
1.9
Sherritt International Corporation 131
INVESTOR INQUIRIES
Investor Relations
Sherritt International Corporation
22 Adelaide St. West
Suite 4220
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
Shareholder Information
TRANSFER AGENT AND REGISTRAR
TSX Trust Company
P.O Box 700 Station B
Montreal, Quebec, Canada
H3B 3K3
AUDITORS
Deloitte LLP, Toronto
STOCK EXCHANGE
LISTING
Toronto Stock Exchange – TSX:S
Common Shares - S
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
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