Sherritt International Corporation (OTCPK:SHERF) Q1 2013 Earnings Call April 24, 2013 2:00 PM ET
Paula Myson - Managing Director, Investor Relations
David Pathe - President & CEO
Dean Chambers - EVP & CFO
Cliff Hale-Sanders - Cormark Securities
Anoop Prihar - GMP Securities
Alec Kodatsky - CIBC
Steve Parsons - National Bank Financial
Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Sherritt International Corporation’s First Quarter 2013 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 with instructions provided. (Operator Instructions) I would like to remind everyone that this conference call is being recorded.
I will now turn the presentation over to Paula Myson. Please go ahead.
Thank you, John, and good afternoon, everyone. Our first quarter results were released this morning, a copy of the release along with the MD&A and the full financial statements are available on our website. Today’s call is being webcast, so in addition to those on the line, anyone may listen to the call by accessing our website and clicking on the webcast link. A replay will be available on our website later today.
Before we begin our comments, I would like to remind everyone that today’s press release and certain of our comments on the 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 the SEDAR filings.
With us today is, David Pathe, our President and CEO, who will begin the call by reviewing recent performance and outlook. We’ll then hear from Dean Chambers, our EVP and Chief Financial Officer, who will summarize our financial results. After the prepared remarks, we’ll open up the call for questions.
And with that, I will turn the call over to David.
Alright, thank you, Paula, and thank you everyone for taking the time to join us this afternoon. You will by now had a chance to see our press release and related financial statements and MD&A, that all came out this morning and as Paula said just a quick run through some of the drivers of the quarter here and there are some insight in some of the numbers in detail and then take your questions.
Not much and we have unusual items for the quarter, net earnings of $0.08 a share and operating cash flow of about $48 million. The only unusual items really were we talked about briefly, we spoke a couple of months ago in relation to Q4, events in relation to the termination of the management contract at Highvale led to a number of adjustments both upward and downward, the net impact of that was about $20 million in our favor and Dean will take you through the detail of that a little bit more.
The other change or event from an accounting perspective this quarter is the implementation of what I believe is IFRS 11. This changed the presentation of our Moa Joint Venture from a proportional consolidation on our balance sheet into more of a line item accounting similar to the way we account for, not only joint venture, but Dean will give you some insights into that as well.
I want to just take a few minutes and share a few observations and thoughts on the operations, starting with Ambatovy; we continue our ramp up in Ambatovy and continue to see good results coming out of that; another strong quarter with increasing production. We ran I think at 43% for the quarter, the quarter was drawn down a bit by some mechanical problems and over the course of February that we got sorted out, we had a good month in February where we ran at 53% and as we've talked in the past the ramp up curve was when you plucked them out all looked nice and smooth but the reality is you get a series of peaks and troughs and you look for a good progression of upward in production line through that and we are continuing to see that.
In the quarter we had all five autoclaves going in various points in time. The issues we had continue to be the mechanical type issues that we get on top of pretty quickly and then continue to make progress in getting production ramped up. We produced about 7800 tons of mixed sulphide in the quarter which was a record at Ambatovy and overall we continue to be pleased and encouraged in the direction things are going and continue to have great confidence that we are going to get to where we want to get to on that project. As always it’s a question of timing now rather than what the end result would be and we've talked in the past about the variances on timing just in terms of the unpredictability of ramp up curves and the impact of the variances and the commodity prices. That all remains through today, but in general, our level of comfort of the project overall continues to increase and we're highly confident in our ability to deliver that project up to its name plate capacity and beyond.
The other brief comment I wanted to touch on just because we had a few questions on over the course of the quarter, is the status of our operating permit in Madagascar. Those who had followed us the last few quarters will recall that last September we obtained somewhat unusual six month temporary operating permit that converted automatically to a life of mine permit on the six month anniversary of the granting of that permit, but at the time there was no further action required to be taken for that to convert to a life of mine permit from our perspective beyond the action of six months. That six months did elapsed in the first quarter and so mid-March our operating permits rolled over the six month anniversary and we continue to operate that under that same permit and we believe that to not be a life of mine permit. We have had no objection to that from the Madagascar Government and in fact we had a letter from the Ministry of Mines confirming our authority to operate under our existing permit and that is what we continue to do.
Looking at the metals more broadly, it was a record quarter for us in terms of finished metal production both in nickel and cobalt. That is due largely to the oncoming production at Ambatovy; expect to be able to make that statement every quarter this year as production continues to ramp up at Ambatovy and we see our aggregate nickel and cobalt production increase, whether it's on a 100% basis or a proportionate 40% and 50% shares, we're expecting that trend to continue over the course of the year.
And on the Moa Joint Venture side, we had some production challenges in the quarter driven largely by haul truck availability and some delays in getting the replacement haul trucks in country in time to get fast into service. That affected us to the tune of about 500 times in mixed sulphide production in the quarter on a 50% basis, we did receive some haul trucks in the quarter and they are more on route now.
Today, we are producing at pretty much the budgeted capacity consistent with our guidance and we are expecting more trucks to arrive in this quarter and so don't have any change to our guidance there as we are expecting as more trucks arrive this quarter to be to make up the Q1 shortfall over the balance of the year. The shortfall in production did result in an uptick in our net direct cash cost, which we have no doubt you’ve seen in our press release, there was couple of the drivers of that as well Dean will breakdown some of the drivers of that when he gets to his comments in a moment.
And in coal, as expected production volumes were lower than the same quarter last year driven and fairly largely by the transfer of the mining contract of the Highvale mine in the lower mountain as well as the result of the shuttering of the Obed mine that we announced in Q4 as well.
We did have a slight decrease in production, a little bit couple of other Prairie mines, but nothing particularly material and mining costs were up a little bit again largely because on the unit basis largely because of the reduced production at Highvale, but also because of some maintenance activities and dragged some significant drag on maintenance at the Poplar River and Genesee sites.
Mountain costs are a bit more difficult to delve into; they were certainly up when you compare them to the same quarter last year. At Coal Valley, which is now our single operating mine in the mountain this is where we actually had a reduction in the quarter over unit operating costs. The operating costs are being driven higher by our strategy to drawdown on relatively high cost inventories that were accumulated before we shut things down there a little bit and that will continue to be over the course will diminish as we can work through the inventory that were accumulated at Obed and the Coal Valley in part due to the back up from the Westshore incidence late last year.
Oil and gas continues to be a strong performer for us; production was down largely quarter-over-quarter, but its well above that we were expecting this year and our guidance I think we guided for about 18,000 barrels a day and we are producing right now around 19,500 on a gross basis; some success is there on the workover activity as well as the well that we drilled and we have to bring online that is producing beyond our expectations. At the moment we haven't revised our guidance upward for the year, but at the moment we are cautiously optimistic about our ability to announce sustained production above our initial guidance.
Cost wise, we actually managed to realize a slight reduction in operating costs; I think we are at 6% to 7% good in oil on a per barrel basis and the basis is largely due to some improvement in our maintenance costs and labor costs. Pricing in oil was off a little bit, but still remains strong and we’re still seeing very healthy margins in oil business and it continues to be a strong producer for us.
Just to touch briefly on power, while we’re at it, we did see slight improvements in production in power as well driven largely by the slightly better gas availability and marginally higher costs there, but not anything materially different on the power side driven largely by some schedule and some maintenance workovers at the Boca site as well as some activity we took into and a little more additional gas availability that is quite resulting in giving us a production improvements there.
In terms of markets, there's not a lot to say that hasn't already been said. It’s obviously a difficult time for commodity producers and the reality is I think that's going to continue at least for this year we've talked in past quarters about the prospect for increased volatility in commodity prices and the nickel price and cobalt price in particular we have certainly seen that and expect that to play out for at least the balance of 2013. We think we are well positioned to manage that based on where we stand today. We are working to get our costs down and we've got some activities on that that we think we will be able to show better costs over the course of the year and a couple of our businesses and what we've seen in the first quarter, and beyond that we will be focusing on maintaining our liquidity positions and being getting a production up to where we told you it would be over for the year.
Outlook; no significant changes from our guidance in February. We expect to be able to achieve where we said we would be in our Moa Joint Venture despite the shortfall in Q1 as we get our truck availability up to where it should be and Ambatovy production continues to ramp up as expected and we are consistent in our guidance there. Oil and gas I touched on we are producing above what our expectation was at the beginning of the year and we have made revision there yet as, we will see how the year unfolds, but cautiously optimistic about our ability to continue that. That is the general overview of what I want to just tell you about in terms of what's going on in businesses. Dean is now going to give you a little insight into some of the numbers and some of the accounting changes and we will come back and take your questions. Dean?
Thanks Dave and good afternoon everyone on the call. I guess before I get into discussion about the results themselves I do want to spend a few minutes talking about the accounting changes that we've implemented in this quarter. It is a significant change in presentation and especially since it includes the Moa Joint Venture which is obviously a substantial portion of our overall business. So as of January 1, 2013, we have adopted IFRS 11 which governs joint arrangements, and as a result of that our accounting for the Moa Joint Venture has moved from proportionate accounting to equity accounting. So what this really means if you look at the income statement in our prior reporting periods revenue and expense items on a line by line basis would include 50% of results in the Moa Joint Venture. That has now been replaced by a single line titled earnings or loss of joint venture. Likewise on the balance sheet, we would in the past reflected 50% of the Moa JV’s assets and liabilities on our balance sheet that has now been replaced by a single line called with net assets called investment in the joint venture.
So if you look at our statements, our prior statements compared to the first quarter of this year and on a line by line basis in many cases the numbers will appear smaller, but the net result is somewhat unchanged. So revenue, expenses, assets and liabilities on a line by line basis will look smaller, but net assets and net earnings are essentially unchanged. So that's really a presentation change. To accommodate this we've added a new note to our financial statement of note eight and that note really gives you an income statement and balance sheet for the Moa Joint Venture; essentially changes those one line items on the overall income statement and balance sheet and blows it up and allows you to look at the joint venture in isolation. It’s somewhat analogous to note 7 which is a comparable note for Ambatovy because in fact we now have similar accounting treatment for both of our ventures in the metals business and equity account for Ambatovy as well.
We have adjusted all the comparative information. So we've gone back and adjusted all the comparables to reflect this change. So for example, in this quarter we’ve announced revenue for the first quarter of 286 million versus 359 million for the first quarter 2012. If we had included (inaudible) we would have reported 372 million of revenue versus 464 million in the first quarter of 2012. So we have adjusted and that 464 million is essentially what we reported a year ago. So we have adjusted that 454 million to 359 million in order to create the right comparable for you when you look at our data.
So I would turn your attention to transition. Now we also added to the financial statements this is note 28 and that provides you a reconciliation for the balance sheet, the income statement, shareholders equity and the cash flow statement, all the way back to January 1, 2012, and a lot of the quarters since then and walk you through the adjustments that we have made from what was reported on those dates to the adjusted numbers that we're using as of today. I will also mention in that note 28, it does also show you the impact of adopting some amendments of IAF 19 governing employee benefits as there are some changes and how we report actuarial gains and losses on pension, pension liabilities. But that is the much less material than the impact on JV of IFRS 11.
Let us talk about the results; as Dave mentioned, we released our earnings today of $23 million and $0.08 a share. Operating cash flow for the period of $48 million which is about half of the first quarter of 2012 and adjusted EBITDA of $99 million versus 146 million for a comparable period in 2012. I would also mention that we have changed our definition of EBITDA to include the earnings losses of Moa JV essentially so that our EBITDA that we are reporting is comparable to prior period. So there are a number of things that had an impact on our results for this quarter. Dave has mentioned some of them, really relate to commodity prices and cost and volumes. So through a lot of our businesses, we are seeing a lower commodity prices for example and especially in the metals’ business, the nickel and cobalt reference prices are down 12% and 18% respectively compared to a year ago.
Realized price at Mountain is about 9% lower and realized price for oil in Cuba is about 9% lower. In some areas we are seeing higher cost and I want to talk specifically about the net direct cash cost at Moa. We reported a cost US $5.99 per pound in this quarter versus $5.13 for the first quarter of 2012 and $5.20 for the last quarter and fourth quarter of 2012. Number of things account for that, comparing this quarter to a year ago is about $0.30 a pound as a result of a lower byproduct credit, essentially resulting from the lower cobalt price.
There is also $0.50 a pound in mining process and refining cost and $0.40 of that $0.50 is related to the reduced volume in the first quarter due to the availability of trucks that Dave mentioned. There is also about $0.15 a pound related to some accelerated maintenance cost. We took advantage of the fact that production in the quarter was not at its maximum and took the opportunity to submit accelerate some maintenance and do some additional maintenance. So if you look at all that and we’ve addressed the truck availability issues, then as volumes return to normal than I would also expect our net direct cash cost to normalize in future quarters. I have mentioned the Moa volumes, we’ve had and Dave mentioned the fact that we are seeing lower volumes in Mountain as result of the closure a little bit. Volumes are slightly up in oil, really reflecting the reservoir declines, but significantly offset by a new well in optimization of some of our existing wells.
As usual sales of generally forward production, however in Mountain our sales volumes have been affected by rail availability and port capacity. You may remember that Russia has an incident with one of their [bus] and was operating at about 46% of capacity in to February. We have done a great job of getting that terminal back online. It is now fully operational. This is the primary terminal for our exports and the whole business and obviously it had some impact on sales in the first quarter.
As you know, we have transferred the Highvale mining contract to the owner in the first quarter and I'm going to walk through some of the impacts that have resulted from that transaction. What you will see is a significant reduction in both production and sales volume. For example in this quarter compared to a year ago, there's a 30% reduction in February sales and that's largely attributed to the change in the Highvale contract.
However, financial contribution is largely unchanged because our management fee continues from the first six months of 2013. Also as a result of the transfer of operations to the owner, we received $13 million of cash in the quarter. This is attributed to the transfer of mobile equipment. We also have a non-cash gain of $22 million or $16 million after-tax of $0.05 a share. And this really results from two things. It’s a net of the impairment of an intangible asset associated with that contract, offset by gain on the transfer of defined benefit pension obligation. So the net result of that, of those two things is a $22 million pre-tax gain or $16 million after-tax.
I just want to mention royalties, royalties in the quarter was $11 million. It’s about $3 million less than the prior year. What we are seeing, what we have seen in this quarter is core royalties down compared to prior periods, it’s really just attributed to the areas on which we have been doing and with the mining has been occurring, but it has been increased by, it has been offset I should say by increased potash volumes.
With respect to taxes, our effective tax rate for the quarter was 29% and I know this is always a difficult number to predict. As you know, it does relate to the mix of our earnings and losses in various jurisdictions. One of the ways I look at this is that our effective tax rate is typically between 25% and 30%. In the major jurisdictions in which we operate, this can be affected by other things and affected by if we have for example losses in a low tax jurisdiction or something like that.
The other thing to keep in mind now with the new accounting under IFRS 11 is that the earnings for Moa which now appear in one as a line item are that's an after-tax number. And so this is actually changed the way you may want to, you can look at the effective tax rate and generally speaking you know high earnings in our Metals operations Moa and down the road in Ambatovy will have an impact of actually lowering effective tax rate and the reverse would occur if we had lower earnings in those particular businesses. So something to keep in mind as you look at tax rate [from the February].
With respect to cash and liquidity, we have about $442 million of cash and short-term investments. On our balance sheet at the end of the quarter, it is the decline about 12% from year end as the operating cash flow was not sufficient to cover our capital spending and spending elsewhere, but we do have significant liquidity. We have $600 million of available credit and a $1 billion of total liquidity available. For those of you who followed our company you know that liquidity and the balance sheet is always the focus for us and we will continue to monitor our liquidity as quarters unfold.
Quick mention on [Somalezi], I think this continues to be some exciting development there. We have begun our additional definition drilling in Somalezi and that’s proceeding nicely. And I will mention again that in cost [Absolalezi] are expensed in the period of which they're incurred.
As I look at 2013 going forward, one thing I would like to mention is a little evolution in the way our experts from the coal is priced in mountain. Historically about two-thirds of our experts from the coal have been priced under some of the annual one-year contracts of the Japanese, Australian settlement, typically April 1st to April 1st of the following year at a fixed price and that is changing the way some of coal is priced in that particular market.
Now there is only about a quarter of our projected sales price that way at a settlement price of around $95 a ton, but this really means that we now will have more exposure to quarterly and index pricing in our thermal coal pricing which does expose us to the commodity price on a short-term basis bit more could create some more volatility in our reference pricing on thermal coal.
With that formal comment, I will turn the call back to John for questions.
(Operator Instructions) Your first question today comes from Cliff Hale-Sanders with Cormark Securities. Please go ahead.
Cliff Hale-Sanders - Cormark Securities
Hi, good afternoon everyone. Just two quick questions if I may. The first one is on Ambatovy and the debt as of June 30th, June this year you have to serve repayment the debt and obviously you are hoping to pass completing test by that point in time. I am just wondering what the status of that is in terms of the ability to meet that and what happens if you don't meet the completion test or do you just not hold it prior to June of this year and just do it later in the cycle? Now I have another follow-up question after that.
Hi, Cliff. Yes, the Ambatovy financing, you are right I think there is -- we begin with principal repayments on that in June. The completion deadline because of the series of events over the last few years has been stretched, I think our official completion deadline is now sometime in October.
Cliff Hale-Sanders - Cormark Securities
We have been in discussions with the lenders doe some months now as to how we will go about extending that and if need be we’re optimistic our ability to do that. The theoretical remedy of the lenders under in the event of the completion test trying to satisfy by the deadline is the right to call the loans, but we are confident that they are not looking to do that. They have an independent engineer that goes down and this is beside every quarter and gives update to lenders as to how we are progressing as we have done. The lenders have been fully aware for since the loans for first advance in terms how well things are progressing there and we had good relationships with them.
So we will continue to work towards satisfying all the completion tests. As you are aware there are number of different operational financial tests and some of which have already been satisfied, but there are number of others which remain to be achieved. We continue to work towards those and I am not at this point exploring in any great deal about any limiting completions deadlines given our ability to work with the lenders on this.
Cliff Hale-Sanders - Cormark Securities
Do you have internal target or when do you expect to do that or you just what -- you are not really pushing for certain day or month to do the test?
There is a (inaudible) in them more probably that all comprised test and aggregate. The results are going to be more significant ones that operating at that 90% capacity for a period of time and we are looking to do that obviously as soon as we can. That all is a function of the -- of how well we are progressing the ramp up period, but we would like to be able to do that this year. We have made the request to the bank for the extension and we are waiting to hear back the number of indications we are getting back from them at this point are positive.
I don't have a specific date for you decide that 2 o'clock in the afternoon on Tuesday the October 23rd we will achieve all the completion tests because the ramp up just doesn't with that degree of specificity, but we are confident our ability to get there and confident in our ability to work with the lenders to manage it.
Cliff Hale-Sanders - Cormark Securities
All right, just to follow up on that because they are kind of related in my mind is more the shared big picture strategy, does the timing of the completion test dovetail into whatever corporate strategy that you guys have been talked to for the better part of the last years. Could you try to unlock some of the value that we all believe is inherent within the company. I know you got the highest yielding metals company on the TSX right now the base metal producer is at about 4% so you know every thinks that's fairly stable. But does completing Ambatovy in terms of the completion test and really showing the back and stand on its own legs increase your flexibility to other value enhancing transactions or to move to unlock that value.
I think the short answer to that certainly it does but I don't think we need to wait that long to be able to start doing some things. What was important to us is that we had confidence that we could deliver the project up to full capacity and then we are there now. I think as we get more guys like you convinced of our capacity to do that, we will get a little more elbow room to be able to maneuver and then do some words and things as well. We've known and believed this as some others have I think of our opportunities to do things that would better demonstrate the value of our assets. It was also the no shortage of uncertainty and the world makes doing things more complicated, but it’s that same uncertainty that ultimately creates opportunity for companies that are well positioned to take advantage of it and that is where I'm spending my time these days. I'm not spending my time worrying on how Ambatovy is ramping up, we've got a great team of people down there led by Mark Plamondon and that can deliver on that and we are now confident that the range of possible outcomes in terms of how well the ramp up goes in Ambatovy is now enough that it’s going to be something that we can manage and that to us is a fundamental mindset that we are keen to progress based on the last five years of effort down there. We are now there and the more we can convince the market that we are there I think the more opportunities to rest of us to go and do new things and start some new direction here.
(Operator Instructions) Your next question on the line comes from Anoop Prihar, from GMP Securities.
Anoop Prihar - GMP Securities
With respect to the oil and gas business, I'm just curious to seek your opinion on whether or not you’ve noticed any change in terms of urgency on the part of the Cubans to find more oil domestically given the changes we are seeing happening in Venezuela.
In short no we haven't seen any dramatic change in mindset down there. We do continue the discussions with our partners both on some potential new exploration blocks and some substantial opportunities to extend the life of some of our existing opportunities or new opportunities within some of the existing areas. They are always concerned regardless of political status in Venezuela or elsewhere in terms of maintaining their energy mix, whether its oil or power or other sources that they need to continue to try and grow their economy. So that focus has always been there and I'd say hasn't really changed in any substantive way given the events in Venezuela last quarter.
Anoop Prihar - GMP Securities
You guys as a company is willing to invest in oil and gas business today as you were a few years ago and my question is really in the context of everything that happened with Pebercan?
Yeah I'm still confident in our ability to operate successfully in Cuba, and I think there is going to be opportunity for us to do more things there. I think if you look back over the last few years, it has been our best performing business; it’s been a strong cash flow business. We've had a good relationship with our partners there in the last few years, earning significant margins and getting on balance pretty timely collection of the receivables. So it's a business that has opportunities there to extent that and I am more than keen to do that. I don't think you are going to see the potential for us to double the size of that business overnight I think, but I am pretty confident in our ability to may be increase the margins and certainly perpetuate it and assuming those opportunities are there, I am happy to do that.
Your next question comes from Alec Kodatsky with CIBC. Please go ahead
Alec Kodatsky - CIBC
Thanks. Good afternoon. Just quickly on Ambatovy, curious if you are at a point where you are bit more comfortable with the cost line or perhaps offering some guidance as to what we may expect over the balance of the year once you are in approaching commercial production?
Yeah, the challenge is there and Ambatovy are the same in terms of the costs when you are producing at some fraction of the nameplate capacity, you are obviously higher because you are carrying a lot of the fixed cost across the smaller number of units and we demonstrate the impact of that can have in this past quarter. And obviously as you are ramping up, the maintenance activities are beyond what they would normally be in an operation that is operating more steady state.
I suspect once we get over the commercial production hurdle, we will start giving some reporting on some cost numbers, of course the two operations give you a sense of how one is stacking up against the other. I don’t have a number that I can give you today that’s going to say this is what our cost will be because as always it will go up and down with the suite of input commodity prices and the size of the cobalt byproduct credits and you can see the impact of those drivers can have on NDCC and then the Moa operations and the same will be there.
Ultimately though the chemistry is good in Ambatovy and it's the same kind of process that we run in Moa and over a period of time as we get that operation up to nameplate capacity and get debottleneck and running steady state, we still don’t see any reason why we can’t have an operation that's comparable to our Moa joint venture.
Alec Kodatsky - CIBC
Okay, great. Thank you.
(Operator Instructions) Your next question comes from [Steve Bateman] with BMO Capital Markets. Please go ahead.
Yeah, good afternoon and thanks. Three smaller questions if I may. One and it may be language, but you had mentioned earlier that five order claims have been operating at Ambatovy, does that imply that five are still operating for all units on-stream?
All five are capable of operating to be honest, Steve, I don't know whether they are, I don't -- probably all five are running today if you are deemed showing me that we have three or five running today if this is what gives you jagged performance in the ramp up. If it's depends on what fails on the course of running it and where we are at maintenance activities of that but certainly all five order phase have operated and operated well and are capable of operating and we are striving to have all five online as much as we can obviously.
Yeah, fair enough, okay. And two smaller issues if I may, you have got trucks coming into Moa in the second half, how are you going to take those commissioned, what we actually see a boost in production Q2 or will that probably be pushed out to Q3?
You will certainly see a step up in production in Q2. I think with some of the trucks that have already arrived in Q1, I think we are now producing at a rate pretty well consistent with our guidance. The other trucks will come in and I don't know how many days it takes to commission a truck, but it days or week or two, it's not month. So we should see certainly a significant step up in production in Q2 is my expectation and if we don't get all the way there, it will be there in Q3.
Fair enough. And last on a really small scale. The maintenance and tie-in costs, the boosted costs in the power business this quarter, are those complete?
I believe so as I think which is there was a kind of a scheduled inspection and maintenance and that I believe is done and the tie-ins are done. The oil and gas we historically I think I am expecting here but I think we should be back to a normal cost profile in power next quarter as well.
Your next question comes from Steve Parsons with National Bank Financial. Please go ahead.
Steve Parsons - National Bank Financial
Good afternoon, thanks. Couple of questions for you, first one on Ambatovy, just on the mechanical issues you’re referring to in end and really it's related to getting an opportunity, the percentage of nameplate. Is there one part of the plant, one unit operation particularly that is giving you particularly hard timing in terms of availability or mechanical availability or is it just the ramp up process?
No, there is nothing here that's unusually ramp up process, there is mark to mind is guys down there deal with any number of issues in a given week, but the encouraging thing overall is that problems that they are dealing with today are different than the problems they were dealing with three weeks ago and so which were different again from the problems they were dealing the three months ago.
And the process itself from one end to the other is robust, it’s just a matter of getting everything growing and running and getting keeping things running consistently. We’ve had problems with. The problems we’ve had, in February we had some issues with some factory failures and some of the flash tanks around HPAL unit that took some of the production down and that caused us after bit of a trough in production in February which run quarter a bit, but there hasn't been anyone sort of area of the plants or of the operations a whole where we have had recurring problems. It is just the size and scale of the plant overall. We are not at that the means to take these things a period of time measured in months to ramp up rather than days or weeks.
Steve Parsons - National Bank Financial
And on Moa just even circling back on just the need for more trucks, I know the need for more trucks impacted production, but it exists (inaudible) and talk about why there was a need for more trucks, are you -- the mining areas that are further west in the plant, recycled tons are longer and you need more trucks or what's going on there?
The single biggest driver is just the limited lifespan of the truck in the ongoing renewal and turnover of mining equipment. There is certainly an (inaudible). We are running more trucks than we were a couple of years ago as I told this since they stretch out a little bit and so that will be part of it as well, but the most of the trucks that have arrived and are coming in are part of just an ongoing equipment renewal program which is part of running our business and part of the ongoing maintenance CapEx that takes to keep these operations going over the longer term.
Steve Parsons - National Bank Financial
And we have no further questions at this time I will turn the call back over to Paula Myson for closing comments.
Thank you, John. And thank you to everyone for participating in the call. And please feel free to contact us with any follow-up questions. We look forward to speaking with you again in July with our second quarter results. Thank you and enjoy the rest of the afternoon.
Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation. You may now disconnect your lines.
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