Toronto-based Sherritt International on Friday announced that it had reached an agreement with its Cuban partners to settle C$361.9-million of outstanding receivables over the next five years.

Under the agreements, the Moa joint venture (Moa JV) would prioritise payment of dividends in the form of finished cobalt to each partner, up to a yearly maximum volume of cobalt, with any additional dividends in a given year to be distributed in cash.

All the Cuban partner’s share of these cobalt dividends, and potentially additional cash dividends, would be redirected to Sherritt as payment to settle the receivables until an annual dollar limit, including the collection of any prior year shortfalls, has been reached.

“This agreement represents a testament to the strong working relationship we have with our Cuban partners. We have been able to negotiate agreements that establish an effective schedule for the full repayment of the outstanding receivables by our Cuban partners within five years, and we believe this brings an end to the historical repayment uncertainty.

"Combined with Sherritt’s portion of the dividends, this is expected to provide significant cash flow to deliver on our strategic priorities to reduce debt and aggressively expand our business,” said president and CEO Leon Binedell.

“The strong fundamentals for both the nickel and cobalt markets, primarily driven by the strength of the electric vehicle battery market, make this an opportune time for completing these agreements and ensuring that each of the partners benefit from it.”

Under the terms of the agreements (the cobalt swap), General Nickel Company (GNC), Sherritt’s Moa JV partner, has agreed to assume certain liabilities of amounts owed to Sherritt by Union Cubapetroleo (CUPET) and Energas (Energas) in order to fully repay outstanding amounts over a five-year period.

The irrevocable cobalt swap supports Sherritt’s strategic objective of strengthening its balance sheet by reducing reliance on its Cuban partners’ ability to access foreign currency to repay amounts owed to Sherritt. For our Cuban partners, no interest will accrue on the Energas conditional sales agreement to ensure repayment within the five-year period, and as a result of the suspension of interest, Sherritt expects to recognize a non-cash loss on revaluation of allowances for expected credit losses on the Cuban receivables during the third quarter of 2022.

In the event that the total outstanding receivables are not fully repaid by December 31, 2027, interest will accrue retroactively at 8% from January 1, 2023 on the unpaid principal amount, and the unpaid principal and interest amounts will become due and payable by GNC to Sherritt.

On January 1, 2023, the outstanding receivable amounts owing to Sherritt from Energas and CUPET – estimated to total C$361.9-million – will be assumed by GNC, who in turn will enter into payment agreements of an equivalent amount, denominated in local Cuban currency with Energas and CUPET. This amount includes the Energas conditional sales agreement (Energas CSA) receivable of C$332.4-million and trade accounts receivable from CUPET of C$29.5-million.