VANCOUVER (miningweekly.com) – Canadian diversified miner Sherritt International has reported a narrower first-quarter headline loss of C$14.7-million, or C$0.04 a share, compared with a loss of C$82.7-million, or C$0.28 a share, for the same period of 2017, mainly as higher metals prices made up for lower output.
Sherritt incurred a net loss from operations of C$600 000, or nil a share, compared with a net loss of C$72.6-million, or C$0.25 a share, in the comparable period of 2017.
Nickel prices continued to rally in the three-month period ended March 31, sustaining the momentum established in the second half of 2017. The average reference price in the period was $6.03/lb, up 29% from $4.66/lb in the first quarter of 2017. The average reference price for the period marked the highest since the first quarter of 2015 when it was $6.50/lb.
The year-on-year price improvement was driven by a number of developments, the main one being the growing understanding of the important role that Class I nickel will play in the growing electric vehicle (EV) market. Class I nickel, along with cobalt, are key metals needed to manufacture EV batteries. Demand for Class I nickel and cobalt are expected to grow significantly beginning in 2019, when China expects to begin production quotas requiring that 10% of all vehicles manufactured be electric.
Similarly, cobalt prices rose 97% year-on-year to $39.01/lb, up from $19.80/lb for the comparable period of 2017.
Sherritt said the near-doubling of cobalt prices over the past year is mainly linked to the growing strong demand emanating from the EV battery market. Higher cobalt prices were also driven by geopolitical and supply risk concerns given that the Democratic Republic of Congo is currently the world’s largest source of cobalt.
As cobalt prices have a limited impact on overall battery pack costs, high prices are not expected to cause supply-chain disruptions or delay EV market growth. As a result, the risk of cobalt substitution in EV battery production in the near term is relatively low given cobalt’s unique energy transference properties.
Sherritt reported that its Moa Joint Venture (JV), in Cuba, produced 2 854 t of finished nickel in the quarter, down 26% from the 3 840 t produced a year earlier. Finished cobalt output was 336 t, down 23% from 436 t a year ago. Sherritt attributed this to the reduced availability of mixed sulphides caused by the highest level of rainfall at Moa’s operations in more than 20 years, which limited access to planned mining areas, as well as transportation delays to the refinery by the rail service provider.
Along with its partners, Sherritt completed the restructuring of the Ambatovy JV, in Madagascar, on December 11, 2017. The restructuring led to Sherritt’s ownership interest being reduced to 12% in exchange for the elimination of C$1.4-billion of debt. Sherritt will continue to serve as operator of Ambatovy at least through to 2024; however, as a result of the reduction in its ownership interest, Sherritt’s ability to direct local decision-making at Ambatovy has diminished.
On January 6, the operations of the Ambatovy JV were significantly impacted by Tropical Cyclone Ava, a Category 2 hurricane-equivalent storm. The cyclone necessitated a plant shutdown and caused extensive damage to facilities and equipment. Production resumed at the end of January after critical repairs were made, and repairs are still ongoing.
Metal production in the first quarter suffered as a result of the cyclone and the situation was not helped by limited production of sulphuric acid as a result of a failed economiser in the acid plant.
Sherritt expects metal production at Ambatovy to remain constrained in the current quarter because of lower acid production, with the plant only operating at half of its capacity. The company expects the plant to ramp-up to full production by May.
Ambatovy’s finished nickel output amounted to 668 t, down from 1 145 t on the same basis, a year earlier. Finished attributable cobalt output came to 49 t, down from 97 t a year earlier.
The company lowered the Ambatovy cobalt production outlook on account of lower grades to a range of 3 500 t to 3 800 t, from 3 900 t to 4 200 t.
Meanwhile, Sherritt’s gross working-interest oil production in the period, in Cuba, was 5 572 bbl/d, down 63% year-on-year from 15 213 bbl/d for the comparable period of 2017. The decrease was primarily owing to the expiration of the Varadero West production sharing contract (PSC) in November, natural reservoir declines and the absence of new development drilling.
Subsequent to quarter end, Sherritt finalised the evaluation of available and proven technology to complete drilling of the second well on Block 10 targeting the Lower Veloz reservoir. Drilling is slated to resume in early July, with preliminary drilling results expected in the third quarter. The company has budgeted $13-million for the Block 10 drill campaign.
Sherritt’s power business produced 202 GWh of electricity, down 7% from 217 GWh for the comparable period of 2017. The decline was mainly owing to reduced gas supply, the company advised.
Sherritt’s TSX-listed equity closed down 4.88% on Wednesday at C$1.17 a share.