Sherritt International’s Earnings Call: Mixed Sentiment and Future Outlook

Sherritt International ((TSE:S)) has held its Q1 earnings call. Read on for the main highlights of the call.

Sherritt International’s recent earnings call presented a mixed sentiment, reflecting both achievements and challenges. The company reported significant progress in debt reduction and strong performance in its fertilizer segment, alongside advancements in the Moa JV expansion. However, these positives were tempered by lower production figures, operational difficulties in Cuba, and power supply issues. Despite these challenges, there is optimism for improved production and financial performance in the latter half of the year.

Cobalt Price Increase

Cobalt prices have surged by over 35%, climbing from US$12.84 per pound in the first quarter to US$17.50 per pound in the second quarter. This increase has been primarily driven by the Democratic Republic of Congo’s suspension of cobalt exports, which has tightened supply and boosted prices.

Debt Reduction and Maturity Extension

Sherritt has successfully reduced its debt obligations by $43 million and eliminated a $25 million premium, extending its debt maturity by six years to November 2031. This strategic move has resulted in a more than 20% reduction in debt and a $3 million reduction in annual interest expenses, strengthening the company’s financial position.

Strong Fertilizer Performance

The company reported a 39% increase in fertilizer sales volumes, with a 16% rise in average realized prices. This growth was driven by strong demand ahead of the spring planting season, highlighting the robust performance of Sherritt’s fertilizer segment.

Successful Commissioning of Moa JV Expansion

Phase 2 of the Moa Joint Venture expansion has commenced commissioning, with expectations for a ramp-up in the second half of the year. The expansion is on budget and is anticipated to boost mixed sulfide production, contributing to Sherritt’s growth strategy.

Lower Nickel and Cobalt Production

Sherritt faced lower production levels due to supply chain delays, maintenance issues, and reduced mining equipment availability. However, the company expects an improvement in finished nickel and cobalt production in the second half of the year.

Challenges in Cuba

Operating conditions in Cuba have become increasingly difficult due to escalating U.S. restrictions, which have impacted foreign currency access and led to lower production of mixed sulfides. These challenges have posed significant operational hurdles for Sherritt.

Power Supply Issues

Energas, Sherritt’s power generation unit, experienced lower electricity production due to operating in frequency control and reduced gas availability. Despite these setbacks, the company expects to compensate for these impacts moving forward.

Net Loss from Continuing Operations

Sherritt reported a net loss of $40.6 million from continuing operations, with an adjusted net loss of $22.8 million when excluding noncash losses related to rehabilitation provisions. This reflects the financial challenges faced by the company amid operational difficulties.

Forward-Looking Guidance

Looking ahead, Sherritt anticipates higher production in the second half of 2025, driven by the Moa JV expansion and a strengthened capital structure following significant debt reduction. The company is managing costs closely, achieving an 18% year-over-year reduction in net direct cash costs to US$5.95 per pound. Additionally, Sherritt expects increased dividends from Energas, projecting receipts of $25 million to $30 million for the year, up from $13 million last year. These forward-looking statements indicate a cautiously optimistic outlook for the company’s future performance.

In summary, Sherritt International’s earnings call highlighted a blend of achievements and challenges. While the company has made strides in debt reduction and fertilizer performance, it continues to face operational difficulties in Cuba and power supply issues. The anticipation of improved production and financial performance in the latter half of the year provides a hopeful outlook for investors and stakeholders.