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Executives

Paula Myson – Managing Director of Investor Relations

David V. Pathe – President and Chief Executive Officer

Dean R. Chambers – Chief Financial Officer, Executive Vice President

Analysts

Matt Murphy – UBS Securities Canada Inc.

Rajbir Gill – Cormark Securities Inc.

Terrence S. Ortslan – TSO & Associates

Anoop Prihar – GMP Securities L.P

John F. Hughes – Desjardins Securities Inc.

Sherritt International Corporation (OTCPK:SHERF) Q4 2012 Earnings Call February 27, 2013 2:00 PM ET

Operator

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Sherritt International Corporation Fourth Quarter 2012 Results Conference Call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session and instructions will be provided at that time. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Wednesday, February 27 at 2:00 pm Eastern Time.

I will now turn the conference over to Ms. Paula Myson, Managing Director of Investor Relations. Please go ahead.

Paula Myson

Thank you, Ron, and good afternoon, everyone. Our results were released this morning, a copy of the release along with the MD&A and the full financials are available on our website. Today’s call is being broadcast live on the internet. Anyone may listen to the call by accessing our website homepage and clicking the link. A replay of the webcast will be available later today.

Before we begin our comments, I would like to remind everyone that today’s press release and certain of our comments on this call will include forward-looking statements.

We would like to refer everyone to the cautionary language in our press release and to the risk factors in our SEDAR filings. Leading our call today is David Pathe, our President and CEO, who will review our recent performance and outlook, and then we’ll hear from Dean Chambers, our Executive VP and Chief Financial Officer, who will summarize the financial results. After our prepared remarks, we’ll open up the call for questions.

So with that, I’ll turn the call over to David.

David V. Pathe

Okay, thank you, Paula, and thank you to everyone on the line for taking sometime to join us this afternoon on a pretty messy winter’s afternoon in Toronto. There were Q4 release as in 2012, but this came out this morning, focus does appear to be on the earnings number. We had net earnings adjusted basis about $0.03 of share for the quarter and adjusted $0.28 of share for the year.

As Paula said, Dean will take us through some more of the detail behind that in a few moments. I actually want to just highlight a few of the more significant developments of the quarter and the fiscal year 2012 in the next few minutes myself here.

To my final way, the most significant develop to the year was the evolution of Ambatovy. Over the course of the year, Sherritt as a whole, our project is under management by Sherritt produced about £27 million of nickel in the quarter and £88 million of nickel for the year, the highest level we’ve ever achieved and what made the difference there was that being the first full quarter of production in Ambatovy, and Ambatovy coming into production is really the combination of five years of activity for Sherritt.

Sherritt acquired its interest in the project upon the acquisitions of Dynatec back in the middle of 2007. Construction began in early 2008 and finally finished up in by the end of 2011. Over the course of 2012, we went through pre-commissioning and commissioning finally got operation started in May, late May and had our first full month of operations in June and have been in the course of ramping up ever since.

Today, it’s no longer construction project. It’s an operating business, producing nickel and cobalt, selling nickel and cobalt and continuing its ramp up towards full capacity. What that means is we’ve now run the operation from one end of the system to the other that means the mine site as you already know, it’s been operating for number of quarter now and is operating well, the ore fed into the 220 kilometer pipelines. The pipeline has been operating for several quarters now and is operating as designed, but delivers the ore to the plant site in the form of a slurry.

At the plant site, we have all the various utilities, three power – coal-fired power stations and H2S plant, two asset plants, air separation unit, all the other utilities that we need to support the operation those of all been started and run at various stages as they’re needed.

The HPAL area itself, which is the guts of the technology of the production facility there and the guts of the high pressure asset lead metallurgy that processes that we use in Moa and now at Ambatovy have all open run. There are five separate parallel trains of autoclaves there that have all been run at various points in time and all have been effective.

From there that HPAL facility produces the mixed sulphides intermediary product that we produce in Cuba. From there, we take it to the refinery and we run the refinery to produce finished nickel, finished cobalt in the form of LME grade briquettes for both nickel and cobalt.

In terms of how we’re doing on ramp up, ramp-up curves when you plan them always look nice and smooth. The reality is they are a saw tooth in terms of – they bounce up and down as we’ve had our share of ups and downs to put the various mechanical problems that we’ve experienced with leaky pipes and pump that don’t work and things we’ve talked about in past quarters. But factoring all that in, we’ve seeing very good progress in our ramp up and continued to be pleased with the way the project is performing.

In terms of through put, we’ve reported in Q3 that we had about 30% average, and I think we had 39% in September. Q4, we continue to have the ups and downs you expect in ramping up the facility like this. But the trend was positive and you saw about a 40% average throughput. We did have a 30 day period in there where we ran as high as about 55%.

And coming again to 2013, January is our latest date and we had 46% throughput there, but we continue to see the natural variations that you would expect to see in ramping up of facility like this.

Looking ahead into 2013, that jagged pattern will continue and I am sure as we work through the various ramp up issues, but we are now confident enough that we can conclude a few things. One thing we’ve been able to conclude and definitively famous for the project works. The process is strong. The chemistry is robust. The chemical reactions were getting continues to be out or beyond our expectation, so to our mind we have installed the technology or operational figure around the project.

And secondly, the capital we spent. The possibility of significant capital cost overruns our new capital requirements now that we’re in year pass construction and well into the ramp up we think is now extinguished.

With that, now I think there is a couple of conclusions we can draw at this point that while the exact timing is difficult to predict because of the natural and certain nature of our ramp ups, at this point we are now highly confident and our ability to get the project to up to nameplate capacity and ultimately beyond nameplate capacity and that’s what our focus will be in 2013 and beyond.

And secondly, the range of potential outcomes from a capital perspective are now narrow up that we can see the project through the cash flow neutrality without further jeopardizing our balance sheet and it’s a great comfort and our ability to bring the budget gone to cash flow neutral and into profitability in our existing state.

That factor alone, those couple of conclusions really will drove our announcement last night in terms of increasing the dividend. I think that about 13% increase in the dividend, 2% a share and we declared a dividend of $4.3 that will get paid out early in April to shareholders at the end of March.

A quick word on write downs just because they have been to typical in our industry for this past quarter, I think the industry is seeing somewhere around $50 billion worth of write downs, some of them very high profile, we did add a couple of minor write down in some coal projects that I think Dean will get into a bit more detail, but more importantly we did not take a write down on the Ambatovy project.

Today as the work has been done and reviewed by auditors and audit committees and alike and we’re confident where stand on the position today. Obviously without making those kind of determinations requires making assumptions going forward most importantly for us.

Our nickel prices, we used a concessive kind of nickel price assumption if that continues to play over a conflict where we stand, but obviously that we continue to monitor that and that’s what will drive the carrying value going forward that will be, what it will be and it’s subject to the external market factors at this point so it’s now something we spent a lot of time focusing on, our focus continues to be on continuous successful ramp up in the project and we’re now confident with that is in hand and their management team in Madagascar led by Marc Lalonde, well prepared and equipped deal with that.

Couple of developments in coal that are worthy of mention, one is the suspension of our mining activity in the Obed mine. We did talk over the course of the quarterly discussions last year, but scaling back production levels at Obed based on the commodity price environment and the challenges we are seeing from a market prospective.

Obed is our smaller, higher cost and lower quality of our two export coal mines in the market price environment that we’re in today. The decision made was to suspend operations there. Most of the employees were transferred to our Coal Valley operation, some remain at Obed, preforming care maintenance functions and alike. The production at Obed was scaled down over the course of last year and so it’s not a significant contributor to the change in outlook for our mountain export business in 2013. But that is probably the single biggest difference there.

The other event that’s probably worth, I’ve mentioned today is actually a subsequent event that occurred in January. But it’s the change in operatorship at our Highvale mine. In our Prairie operations, we own and operate all but one mine and that was our Highvale mine. It’s actually owned by the operator of the electricity utility there. In January, the owner of the mine assumed control of the mining function. The financial impact to us is pretty limited. We only earned about $8 million fee for managing that mine rather than making a margin on the coal mine as we do with all of our other operations. So the impact on shares of 2012 adjusted EBITDA are going forward. It was only about the $8 million fee.

In 2013, we’ll continue to provide some transition services for the first half of the year. So we’ll see about half of that management be coming in 2013. The production impact is much larger. Highvale probably produced 10 million tonnes of coal last year and so we won’t see that reflected in our production numbers in 2013. There are a number of other adjustments that will flow through the statements in Q1 and Dino will touch on those a bit his update.

Marketwise, in terms of nickel, the volatility that we experienced over the course of 2012 certainly continued in Q4. Generally it was a lower price, commodity price year for nickel in 2012 and 2011. I think reference price for nickel briquettes was down over $2 from something just over $10 in 2011 to I think $8 or little less in 2011.

I think going forward; we will see continued volatility and perhaps more dramatic moves in the nickel price just depending on the level of macroeconomic activity in the world, as well as the contributions to the supply side. I think anticipated contributions to the supply side in 2012 didn’t materialize to the extent probably anticipated. We’ll continue to watch and see how that comes on in 2013, and we expect to be the largest single contributor to increases in supply in 2012 at our operation in Madagascar.

But my own view is that the bigger driver of nickel prices in 2013 will continue to be the level of macroeconomic activity in the globe and that’s where you’ve given the high degree of uncertainty there is at that level, you’ll continue to see a lot of volatility there.

On the call, we’ve seen downward pressure on new castle over the course of 2012, our export business about 3.5 to 4 million tonnes a year is linked to that new castle price. We did have some cover in 2012 of contracts that we’re priced earlier in the year, which gave us some protection and gave us some realized prices above spots in some cases.

Some of that is now rolled off and then going forward in 2013, we’ll have a higher percentage of our call that’s exposed to pricing against the new castle stock price and that market continues to be under pressure compared to pricing over the course of 2011 and in the earlier part of 2012, I think new castle at the moments in the $95 range.

It was part of that market move that was driving the decision that we took in all that. Operationally, obviously there’s the most dramatic changes were at Ambatovy, we talked about across our other businesses, we saw really pretty consistent production and we’re able to match our guidance for the most part, I’ll highlight a couple of things. The Moa Joint Venture as it has for many years now perform well. Our production levels both in Cuba and Canada consistent with guidance and consistent with 2011. Continued volatility on the pricing side driven by two factors; one is the size of the input credit from the cobalt sales. Cobalt has obviously come off in 2012 as well. I think cobalt now is changing the trading in the $11 to $12 range in the lower cobalt prices we received, that translates to a higher net cost per pound of nickel as a result of a smaller input credit.

We’ve also seen volatility in the input commodities and persistently – persistent strength in some of the input commodities given the weakness in the nickel price, primarily in sulfur and fuel costs, which between them account for about 30% of our nickel cash cost in 2012.

In coal, production – pretty consistent, Prairie Operations is always varies a little bit depending on customer demand and it was off a little bit in 2012 compared to 2011, but not in any material way. The mountain operations were off a bit for the reasons we talked about earlier in the last couple of quarters in terms of market pricing and the actions we were taking over the course of the year at Obed; and oil, very stable production, continues to be a very strong business for us.

Once again in 2012, our largest single contributor to EBITDA amongst our businesses continues to be the business with the production, strong pricing, and a good cost profile, so for instance, we continue to be pleased with. On the power side, smaller business of our four business units, but performed quite well as well. Production, up a little bit beyond what we were expecting. Guidance did a little better gas availability in the latter part of the year and go again to 2013; we’re expecting that to continue.

We also have in today’s press release our first publication of guidance in terms of production for 2013. 2012 was largely in line, just a couple of changes really to highlight in – we’re changing in 2013. Most significant is always the anticipated significant increase in production out of our Ambatovy operation, now looking to see Ambatovy potentially be our largest single operation on 100% basis in terms of nickel production.

Other change is obviously in coal. The biggest drivers of that, we’ve already discussed the 10 millions tonnes a year at Highvale that will no longer be concluded in our production. It’s the single biggest driver there, a slight change in Mountain production as a result of the suspension of operations at Obed. That 10 million though at Highvale is offset by about 1.5 million tonne increase in anticipated production across our other Prairie mine, so there is some positive news coming out of other mines in terms of foreseeing a little increased demand or anticipating a bit of increased demand above the 2012 levels.

That is generally what I wanted to convey to you this afternoon. Dean is going to take you through a bit more detail in the financial statements and the results and then as ever we will be happy to take your questions. Dean?

Dean R. Chambers

Okay, thanks, David, and good afternoon to all of you on the call today. It’s a pleasure to be back in the CFO chair and have this opportunity to speak to you again.

As Paula mentioned, we released our results this morning and filed our MD&A and financial statements. For the fourth quarter, we experienced a loss of $17 billion, or $0.06 a share and for full year 2012, net earnings of $33 million, or $0.11 a share.

And what I want to do today is talk about some of the key aspects of our results in disclosure and provides some color behind those numbers. The results reflect generally a lower pricing environment in a higher operating cost environment in many of our businesses and in particular, our metals business.

If you look at the nickel price, average nickel price in 2012 versus 2011, it was down 23% and likewise in cobalt, it was down 18%. As Dave mentioned, we’ve seen some softening in export thermal coal pricing. But if you look at the average for 2012 versus 2011, it was roughly flat and that really reflects the fact that we recover from contracts that we had entered into earlier in the year.

One other thing that had an impact on our financial results was higher financing expense and one of the key aspects of that is the redemption of our 2014 debentures, which resulted in the impact of about $20.5 million, or $0.07 a share after-tax on earning, really related to the redemption, premium, and other costs associated with that financing.

But as you know, that was an important step in extending on maturity profile and maintaining our strong liquidity position as that was tied to our $500 million 2020 debenture offering. So despite the general economic environment, business environment, we were in operating cash flow was actually pretty strong for 2012, with $270 million of cash flow.

Our adjusted EBITDA was $516 million for full year versus $643 million for 2011. And as Dave said, the largest contributor to EBITDA was oil and gas. It has been for the last several years. if you look at the last two years in total, oil and gas has contributed over 40% of our EBITDA in that period; and in fact, in oil and gas, it’s the one business where we saw some increase in our reference price in 2012 over 2011.

Now, both our fourth quarter earnings and our full-year earnings have been significantly impacted from non-cash adjustments. These are summarized in the table and referenced on the first page of our press release. So I’ll touch on a few of those. For the full year in call, we had adjustments of $35 million, or $0.12 per share. And in the fourth quarter, we took impairments on two of our development projects, the Dodds Roundhill project and the Bow City project for a total of about $16.5 million.

Under current market conditions, both of those projects are unlikely to proceed at this time and we’ve taken the impairment on those, also a relatively minor adjustment to the environmental rehabilitation obligation in call. For full year, we’ve had an adjustment of $14 million on the Ambatovy call option. This is the option that Sherritt and some of the terminal have to acquire SNC-Lavalin 5% in. In Ambatovy project, we basically revalue that option ever reporting period, but having that impact of almost $14 million for full year. We have some minor adjustments in the fourth quarter in oil and gas related to the relinquishment of some licenses in the UK in the North Sea, foreign exchange loss of $9.5 million as well for the entire year unrealized.

Now, these were offset by a couple of gains. One is the gain on the sale of Canada Talc earlier in the year, which had an impact of $4.7 million and some recognition of non-capital losses related to tax during the year. If you adjust our earnings for all of these non-cash items, for the fourth quarter, our earnings is $6.2 million, about $0.03 a share or for full year 2012, about $83 million, or $0.28 a share.

As David mentioned, our production for the full year has pretty much met the guidance and our sales have mirrored our production rates. The most exciting thing is the ramp up of Ambatovy, where we produced 9,000 tonnes of nickel plus cobalt and mixed sulphide and have our first sale of the find, nickel and cobalt.

And our partners, Sumitomo and Korea are very instrumental in assisting Ambatovy in marketing this product worldwide. And just a reminder that our sales revenue from Ambatovy sales still capitalize until we achieve commercial production. One thing to note is our effective tax rate for 2012 was 51% versus 31% in 2011, pretty significant change.

We’ll try to walk you through the mathematics a little bit, so effective tax rate is the ratio of total taxes to a total accounting and net earnings. And what the biggest impact here is, we are experiencing lower earnings in high tax jurisdiction and higher losses in lower tax rate jurisdictions. So, for example, as you can see, we have lower earnings in our metals business, in a relatively high tax jurisdiction.

We do have things like interest expense in lower tax jurisdictions and that has been going up. And when you do the math whenever that happened, you will end up with a higher effective tax rate. As I look forward, not an unreasonable assumption to make that 2013 effective tax rate would be similar to 2012.

Turning to cash and liquidity; our cash balance on our balance sheet is $527 million at the end of the year, significantly lower than over $900 million we had on our balance sheet at the end of the third quarter. But we had anticipated this decline, because a lot of the funds were used on the redemption of the 2014 debentures I mentioned and continuing to fund the Ambatovy ramp-up.

One thing to note that, cash at Ambatovy is recorded in the investment in associate lines, because the equity account for Ambatovy and now that we hit the operational phase, there is a requirement under the large mining law in Madagascar that we maintain significant cash balances to cover local operating expenses. And so there will be higher cash balances in the investment and associates line on our balance sheet.

Total liquidity is $1.1 billion and long-term debt-to-total assets is about 32%, so we still have a very, very strong balance sheet and a very strong liquidity position. As I look to 2013, a few things to mention, obviously the big one is that you can see in our outlook is the impact on Ambatovy on our nickel and cobalt production.

On other thing to mention is, there was a less shot incident in our Metal and Coal business, we’re at the Westshore Terminal they have damaged to one of our births and they’ve done a remarkable job of bringing that back on line, it has come back online in February. But this quarter will have some impact on sales in the first quarter, don’t know exactly how much, but we do expect that in backlog we’ll get recovered during the course of the year.

As Dave mentioned, the transfer of operations at Highvale will be accounted for as a subsequent event, because that occurred in January. And so, all of the accounting impacts of that transaction will flow through the first quarter statement. It will include $12 million of cash and related to the transfer of our mobile equipment. The – an impairment of about $17 million of intangibles and we will have a gain as a result of the transfer of the fine benefit pension obligation to the owner of the mine, based on year end estimate is that we would be about $40 million of gain that we will recognize during the first quarter.

I did want to quickly mention Sulawesi. We have received all of the permits required to begin our expenses drilling program at Sulawesi. And so that activity will pickup significantly, probably stand in the order of magnitude of $15 million to $20 million this year, and just a reminder that those costs at this stage of the project flow through to earning.

And finally, I did want to mention a significant accounting change we will be implementing IFRS 11 starting in the first quarter. This is the accounting guideline related to joint arrangements. The net result of this is that we will now equity account for our Moa JV. And so it will show up on our balance sheet as an investment in the joint venture and we will have earnings from a joint venture on our earnings statement.

So this will result in both our ventures in our Metals business and Ambatovy as an investment in associate and our investment in Moa is showing up as an investment in joint venture and equity accounting for both of those major investments that we have in our company.

With that exciting accounting news, I will turn the call back to you Ron, and we can open the line for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now conduct a question-and-answer session (Operator Instructions) One moment please for your first question. Your first question comes from Matt Murphy from UBS Securities. Please go ahead.

Matt Murphy – UBS Securities Canada Inc.

Hi. Question on Ambatovy; just the 2013 commercial production goal. I noticed if there’s no word on early 2013 anymore. Do you have any other color around your 2013 goal?

David V. Pathe

Sure, Matt. Predicting when we’re going to hit that commercial production number exactly is difficult to predict, because it is that, just set in the 30-day, 70% throughput that we’ve talked about in past quarters. The degree of variability in output as you experienced at this stage of a ramp up makes it difficult for us to put a specific timeline on that.

I mean all I can really tell you is that, we will hit that in the coming months, but I don’t have a target date for you on that. I mean, there is – I know from having talked to various shareholders and others have an appetite for a high degree of specificity on when we’re going to hit commercial production, when we’re going to hit cash flow neutral and other milestones and just the nature of these ramp ups is such that we can’t give you that with the degree of precision that you would like.

But the message I would like people to come away from that is the direction that the ramp up is going in is where we would like we like and wanted to be and that commercial production milestone will come in the coming months. Just to remind everybody that there isn’t any operation or financial significance to the commercial production. It is purely an accounting milestone where we’ll clinch from capital cost accounting to a more conventional revenue recognition and expense accounting.

Matt Murphy – UBS Securities Canada Inc.

Okay. And just on the saw tooth pattern you’re describing, can you give anymore granularity on what causes the saw tooth in general? Is that stuff that you can generally see coming few weeks ahead where you’ve got a shutdown on certain components and make some changes, or is it kind of adapting to the circumstances on the fly?

David V. Pathe

For the most part it’s adapting the circumstances on the fly. The nature of ramping these up, when we talked a bit in the past quarters, I think just in terms of the level of complexity, in terms of the size of the operation numbers of pipes, miles and miles of pipe, lots of pumps, the various pumps that we’ve had in the course of ramp up and the kind of things you would expect, they are tomorrow mine encouraging and they are all mechanical type problems that you get to the end of sooner or later, while difficult to predict when and where they’re going to occur.

It is the kind of stuff you’re seeing likely to get to the end of, if you had issues in chemistry and in the forestry; you’ve got a much bigger problem. In terms of where problems occur, we are working on getting the various parts of the plant up and running and trying to keep them running, because these operations run best when they’re kept running consistently, and so depending on where our focus is on the plant, you can get variabilities well and it will take advantage of opportunities if we have a problem in one area to take something else down and perform some repairs that are potentially going to – we know we are coming up.

So it is – while there is a plan and budgets in the curve in terms of what the ramp up is going to look like, there is a fair amount of adaptation that goes on in accordance with the circumstances we find ourselves in any give week, which is what leads to the variability.

Matt Murphy – UBS Securities Canada Inc.

Okay, thanks. And just a question on the cash calls for Ambatovy, were you surprised at all by the size of the input required in the fourth quarter and any guidance on how much we might see that continue into 2013?

David V. Pathe

Now, the fourth quarter contribution was anticipated and that was a large, almost balloon type contribution, where we had to make the partners all need to contribute, there is a requirement to maintain a minimum working capital balance in country to meet on going obligations. So that the large caps call in the fourth quarter was to fund that requirement given the states that we has in the project now. I think in 2013 we’re budgeting around $150 million in contributions to the project that will obviously vary depending on how the ramp up proceeds, as well as other external factors like the nickel price we get for nickel as we see our nickel sales increase over the course of the year.

Matt Murphy – UBS Securities Canada Inc.

Sure. Okay, I’ll step off for the next person. Thanks.

David V. Pathe

Thanks, Matt.

Operator

Your next question comes from Raj Gill from Cormark Securities. Please go ahead.

Rajbir Gill – Cormark Securities Inc.

Hi, can you guys hear me.

David V. Pathe

Yeah, you are there.

Rajbir Gill – Cormark Securities Inc.

Yeah, I just wanted to know in your coal update talk about the $8.1 million contribution from the Highvale Mine in 2012. I was just wondering could you confirm Highvale was a relatively low margin mine. And number two, could you give us an idea on a per tonne for the division what impact that will be going forward?

David V. Pathe

Yeah, Highvale was completely different from the rest of our mines and the Prairie business and there wasn’t a per tonne margin there. All of our other mines where we own the coal and produce the coal and for we have a price, we can reduce it for and then sell. We actually make a margin of the three bucks a tonne or whatever it varies from mine to mine. Highvale was never a revenue generator for us, based on production, because we didn’t down the coal. We were a contract miner there, we are really providing a service for a fee and that fee was the $8 million a year give or take depending on whether or not, regardless of what level of production wise.

So it won’t have any impact on margins. In fact, the size of the operation during the past has tended to skew our margin per unit numbers in past quarters, because of the size of it. The margin in 2013 will still be in that $2.5, $3 a tonne range as we’ve historically seen across the various Prairie mine.

Rajbir Gill – Cormark Securities Inc.

Okay.

Operator

Your next question comes from Terrence Ortslan from TSO & Associates. Please go ahead.

Terrence S. Ortslan – TSO & Associates

Thank you. The more of the operations go into 2012, what’s the range of the expectation for production and then in that context, the third-party purchase of nickel becoming increasingly difficult to get. What are the prospects for that for2013 and maybe you’ll be able to fill up the Boca de Jaruco plant?

David V. Pathe

Yeah, in terms of output we’re looking for in from the Moa Joint Venture in 2013, it’s pretty consistent with production as we experienced in 2012 and 2011, in fact, I think we’re guiding for pretty much exactly the same thing.

And in terms of placing nickel, there are markets that are volatile, but we haven’t had any issues, I mean great significance in placing nickel, we’ve got a lot of long-term customer relationships in that business. And so, placing the nickel isn’t a concern, if that’s what you’re asking.

Terrence S. Ortslan – TSO & Associates

No, I was asking about the third-party purchasers?

David V. Pathe

Well, the third-party feed, we will look in for opportunities, if there is anything to add – but what we’ve traditionally done is the mining and mixed sulphide operation in Moa and the refinery at the Fort are reasonably well matched. We have added third-party feed from time to time based on variations in the nickel to cobalt ratio. And the product coming out of Q1, we will try and blend some third-party feed and from time to time to try and keep both the nickel line and the cobalt line full.

At the Fort, there is some potential that we’ll continue to do that this year, but overall third-party feed is not going to be a significant contributor to the production of the Fort.

Terrence S. Ortslan – TSO & Associates

Okay. And on the Ambatovy, the $5.3 billion versus $5.5 million is that because of the timing of the cut-off, in other words what we do the first year of expenditures once you go into commercial production, will that number change or what is that number?

Dean R. Chambers

The 5-3 numbers are pretty good numbers now. That might vary a little bit between now and when we close out the capital books. But that 5-3 or in the 5-5 budgeted number excludes interest expense and foreign and working capital in the like and effect of what’s happening now as we are just capitalizing operating expenses on the ground there until such time as we switch accounting methodology.

But the 5-5 budget was really intended to be the capital to take the build and complete the operation and while there is occasion, we had a bit of modification work that ultimately goes to the capital budget and that is essentially done. So I don’t think you’ll any significant move in that 5-3 number from now until whenever we close out the capital accounting on the project.

Terrence S. Ortslan – TSO & Associates

And then last question on the dividends; is there a bit more of a smart formulation on dividend policy now that things are getting a bit more stable, if I may say so. So, on the asset front and what you’re going to be producing, where would you base the dividend policy on going forward?

David V. Pathe

Any discussion on dividend policy obviously starts with the caveat that it’s within the preview of the Board of Directors. But I can offer you a bit of color or commentary on that. We paid a dividend now at Sherritt for the last seven or eight years and there have been a number of increases over that history from time-to-time in hat dividend payment. And I think the intention will be to continue to monitor that going forward and if there are opportunities in future at some point to see further increases in the dividend that is possible.

But it shouldn’t be assumed at this point, it will be a function of our cash flow levels and our confidence in those cash flow levels going forward, which will be driven in large product by commodity prices and will also be a function of what else the corporation is doing in terms of it’s other growth opportunities and at the directions that the growth opportunities may take us. So we’ve increased the dividend this quarter. We were confident in our ability to do that given the stage that we’re at in the Ambatovy project and going forward we will see what happens.

Terrence S. Ortslan – TSO & Associates

Okay, fair enough. Thank you very much.

Operator

Your next question comes from Anoop Prihar, from GMP Securities. Please go ahead.

Anoop Prihar – GMP Securities L.P

Good afternoon, just a couple of questions. Starting with the mountain – the expert thermal operations, now that you’ve closed down Obed, I’m assuming that has a positive impact on your unit cost. I mean you were $86 approximately on a full year basis. What kind of change can we expect now as a consequence of all that being shutdown?

Dean R. Chambers

I think you can see it come down a little bit. It won’t be huge because production was scaling down at Obed over the course of the year. And I think if we go back and look quarter-to-quarter, we tracked cost down in the mountain operations in aggregate from, I think close to $90 to about $84 in the fourth quarter.

A big part of the driver of that was the scaling back of production at Obed over the course of the year. So you’ll see some marginal increase or marginal improvement in our cost profile, on mountain operations which is now the Coal Valley mine for the moment. But you’re not going to see $60 a tonne or anything like that.

Anoop Prihar – GMP Securities L.P

Okay. And then in the outlook session, you talked about Ambatovy and I think the wording you used there is that you expect that to be at full capacity as you exit the year. I mean, given where we are right now and given – it’s sounds as though you’re looking for a mid-year commercial start, it strikes me as being relatively aggressive stance as you want to exit your full capacity and I’m curious to know what gives you that level of comfort?

David V. Pathe

Well based on competitive – giving guidance on our existing operation like the Moa Joint Venture, where we’ve been operating consistently for years that the guidance is always a bit more based on plans rather than actual result.

Ramp-ups are not linear and we had a 10% improvement from Q3 to Q4. But that is a function of sort of arbitrate timing measurements and there is a lot of variation in that period, so it doesn’t – I don’t think you can just draw a straight line through those two data points and use that to predict when you’re going to get to a 100%.

The guidance that we’ve given in terms of production is what we’re confident as we stand today in terms of our ability to deliver and that’s what we’ll be working towards. Achieving that will mean that we’re pushing up towards the full capacity and towards the end of the year. But we’ll continue to update you as we go along through the each quarter of 2013 in terms of how we’re doing against that.

In terms of what give us confidence today is it’s based on now sort of six months of operating performance being and very encouraged with the way that’s the ramp-up is going but more fundamentally with a way the fundamental as it gets to the technology and the chemistry and the autoclaves is working for us.

Anoop Prihar – GMP Securities L.P

Okay. How concerned are you about the consequences of the potential breach of the financial completion guarantee?

David V. Pathe

That is I mean in a nutshell, I’m not particularly worried about that. It is a factor and it’s a factor that we and our partners and the lenders are all a little aware off. The lenders have been very good partners to us throughout this project and are well informed of how the project is proceeding. Their independent engineer visits to plant site every quarter and reports back to the lenders and how the plant is proceeding and we have regular discussions with the lenders including all the financial completion issue. So those discussions will, course of this year and while there is all this – that date is out there and people should be aware of it. It is not something that keeps me awake at night.

Anoop Prihar – GMP Securities L.P

Okay. And just last question, you make reference to a marketing business at Ambatovy and it looks like the revenue number is roughly equal to the cost. Am I reading that correctly and can you give me some color to what that is?

David V. Pathe

Sorry, what was that again, Anoop?

Anoop Prihar – GMP Securities L.P

I think in the summary, I read in the disclosure that there’s a marketing business that you established or purchased with respect to Ambatovy and the way I was reading the narrative, I though you were basically working $17 million of revenues and commensurate number and expenses. Am I correct on that or am I misreading it?

David V. Pathe

Yeah, I think that’s just a subsidiary that’s doing the marketing and some of that is flowing through us. But from a shared perspective, it’s a flat business order. It’s just a marketing vehicle for the nickel out of Ambatovy. There is no profit or loss to be had there and there’s no separate business there, that’s just a vehicle through, which some of the nickel output from Ambatovy is being sold.

Anoop Prihar – GMP Securities L.P

Thank you.

Operator

Your next question comes from John Hughes from Desjardins Securities. Please go ahead.

John F. Hughes – Desjardins Securities Inc.

Thanks operator. Just two quick ones; one, on the oil side, just knowing your guidance for 2013 versus 2012 where we’re looking for 18,000, sort of barrels a day on a working – gross working interest barrel basis. So 18,000 versus round numbers 20,000 for 2012.

I’m just wondering if we have to try it I guess at 2014, given the directional guidance. Are there any flex steps being taken to sort of mitigating any further decline into 2014, any like negotiations for access to different blocks or electro seismic or development work?

David V. Pathe

Yeah, I’ll give you two comments on that. One is that, we anticipated a bit of a decline there in the level of raw, but I don’t think you should interpret that necessarily as a – as you taking those, the 2012 and 2013 numbers as two data points and drawing a line through those either. I don’t think that necessarily implies a linear decline down from there.

We’ll see where we are production wise at the end of 2013 and that will be the rate going into 2014. But it is not a – but I think, we’re still fairly confident in our ability to – through ongoing until drilling seem to maintain that level of production fairly well. The boarder questions is the more important one in terms of where are we going from here in terms of longer life in the oil business.

We have had – well into discussions now with the Cubans and I obviously don’t have anything to announce there until I have something to announce. But we are in discussions with our Cuban partners down there for both new blocks and potentially some additional opportunities in the some of the existing areas that we’re in that will give us the ability to maintain or enhance production over time as we take on more drilling in seismic activities and that would give those longer life in the potential to pump up the size of the business that we are in.

Given the history of the oil and gas business and particularly its performance in the last few years, it’s important to us and we think it’s important to the Cubans as well, because we’re still in great need of the energy supply. So those discussions continue and I don’t really have anything more definitive to tell you than that today, but it is a priority for us.

John F. Hughes – Desjardins Securities Inc.

Okay, thank you. And one last question, you’ve noted the change in accounting at Moa to equity accounting. So if I was going to adjust today your 2012 financials, your income statement, would I remove all of the revenue from your Metals division and related costs, in other words like the supports of Saskatoon plant site, so they all included in the equity accounting or for this change that you noted?

David V. Pathe

What will happen is, as all the assets and liabilities related to the Moa Joint Venture will no longer be fully consolidated under our balance, but into the investment in the joint venture line. And going forward, our share earnings in the joint venture will show off as earnings from the joint venture are not.

John F. Hughes – Desjardins Securities Inc.

Right. So when I adjust your $1.84 billion in revenue by – reduced that by I think about $480 million from you metals division, if I want to adjust 2012?

David V. Pathe

Yes, that’s sounds right.

John F. Hughes – Desjardins Securities Inc.

Okay. Thank you very much Dave.

David V. Pathe

Thanks John.

Operator

(Operator Instructions) Ms. Myson, there are `no further questions at this time, please continue.

Paula Myson

Thank you, Ron. Please feel free to contact us with any follow-up questions you may have and thank you to everyone for participating in the call. We look forward to talking to you again in a couple of months with Q1 2013. Have a great day and enjoy the rest of the afternoon.

Operator

Ladies and gentlemen, this does conclude the conference call for today. Thanks for participating. You may now disconnect your lines.

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