Sherritt International (TSX:S) Q3 2025 Earnings Call

0:00 Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Shared International Corporation Q3 2025 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. I would like to remind everyone that this conference call is being recorded today, Thursday, November 6, 2025, at 10 a.m. Eastern Time. I will now turn the presentation over to Tom Halton, Director, Investor Relations. Please go ahead.

0:32 Thank you, operator, and welcome everyone to share its third quarter 2025 conference call. We released our third quarter results last night. Our press release, MD&A, and financial statements are available on our website and on CDR Plus. During today's call, we'll be referring to our presentation that's available on our website and on today's webcast. As we will be making forward-looking statements and references to certain non-GAAP financial measures, please refer to the cautionary notes on slide two of our presentation, as well as the material assumptions and risks associated with certain forward-looking statements and reconciliations of non-GAAP measures to the most directly comparable IFRS measures included in the appendix of the presentation. On the call today is Leon Binadel, Executive Chairman, President, and CEO, Yasmin Gabriel, Chief Financial Officer, and Alvin Sirup, Chief Operating Officer and Head of Cuban Operations.

1:25 Following the review of our results, we will open the call to questions. It is now my pleasure to pass the call over to Leon.

1:32 Thank you, Tom, and good morning, everyone. Before I discuss our results, I'd like to acknowledge our team in Moher for their outstanding recovery efforts and their exceptional work swiftly restarting operations after Hurricane Melissa brought significant wind and rainfall to the Moher region last week. We are relieved to confirm that all personnel in MOA are safe and there are no reported injuries or material damage to our facilities. We are grateful for our team's commitment to safety and resilience during the storm. Turning to the third quarter. This was an important period for Sherrod as we made progress on several strategic fronts despite the challenging operating environment in Cuba negatively impacting near-term operations coupled with the continued pressure on nickel price.

2:18 We have now completed phase two of the MOA JV expansion with the six leach train commissioned and in ramp up. This concludes a program first announced four years ago as part of our growth strategy. The overall expansion program was delivered on budget and alongside the previously confirmed long life of mine and the current robust progress on our new tailings facility, we are well positioned to benefit from a recovery in nickel prices and deliver significant value from our growth plans. In the near term, we advanced our recovery plan, including mobilizing additional technical expertise on site to address the challenges of the continued lower mixed sulfide production. On cost, we took further steps to streamline our organization, including implementing additional workforce reductions across our Canadian operations.

3:10 These initiatives are expected to deliver approximately $20 million in annual savings on top of the $17 million achieved last year further strengthening our resilience in a volatile market. In our power division, we brought a replacement well online, highlighting our ability to mitigate any legacy gas well issues by adding additional wells as needed. We are essentially at capacity on natural gas supply, so we expect in our gas facilities to run at or near full capacity for the foreseeable future. This represents a remarkable achievement for our power division which has evolved into a mature utility operation able to deliver stable and significant levels of dividends similar to what we are now realizing.

3:56 Overall, this quarter demonstrates our ability to deliver key strategic project milestones, manage costs, and adapt to challenging market and geopolitical conditions. Turning to slide five for the developments in the nickel and cobalt markets. Nickel prices remain range-bound at multi-year lows during the third quarter. We continue to monitor developments in Indonesia closely. Their government intentions to establish a nickel market balance through intervention remains a positive development. The ongoing crackdown on illegal mining and stricter enforcement of annual ore mining quotas could potentially curtail the pace of supply growth and increase the cost of Indonesian supply. We should start to get a sense of the 2026 volumes from Indonesia later this year when the RKAB or mining quota approvals are announced.

4:48 We'll be looking for signs of tighter market conditions. The nickel market oversupply condition is exclusively driven by Indonesian supply growth far exceeding corresponding demand growth, which is driven by Chinese ambitions to capture market share in downstream products containing nickel. Moving on to cobalt. Prices have surged since February, driven by the DRC's export ban. During the quarter, we received clarity that cobalt prices are unlikely to return to depressed levels for the next two years. As the DRC has now announced, the export ban would be replaced with a quota system starting in mid-October. In 2026 and 2027, annual quotas will be capped at 96,600 tons, which is about half of the export levels seen in 2024.

5:38 This is the potential to lead to cobalt market deficits over the next few years, with quota adjustments thereafter based on market conditions, which are expected to result in a tightly balanced market. I will now send a call over to Alvin for more details on our operational performance.

5:59 Thank you, Leon. Turning to slide seven for our results from metals. At MOA, our focus remained on advancing our recovery plan to mitigate the challenging operating environment in Cuba. We navigated through another national-wide power outage in September. We resolved unplanned maintenance events at MOA's processing facilities, and because of the challenging operating conditions, we saw a lowered and expected production of mixed sulfides. While we continue to mitigate near-term challenges in the operating environment, We are still anticipating increased mixed sulfide production from the ramp-up of our expansion, which I'll discuss shortly. At our refinery, we expected a lower quarter of finished production with our planned annual maintenance shutdown. However, we also had some setbacks with delays in restarting operations following the shutdown, a disruption in hydrogen supply from a third party, and as mentioned, lower availability of mixed sulfides.

7:01 Lastly, fertilizer production was also lower, reflecting lower metals production and planned turnaround of the ammonia plant. Turning to slide 8 to review our next direct cash cost, or NDCC. Third quarter NDCC was US $6.67 per pound of nickel sold, which was higher due in part to the annual planned maintenance shutdown which, as you will recall, occurred during the second quarter in 2024, as well as the impact of higher commodity input costs, specifically sulfur. Comparing year-to-date performance, which captures a shutdown in both periods, we see that NBC is tracking lower this year thanks to our cost discipline, which is offsetting higher input commodity pricing and the benefits from higher cobalt and fertilizer byproduct credits.

7:58 Importantly, even with the lower production and sales this year, we have maintained our NDCC guidance of U.S. $5.75 to $6.25 per pound. Now an update to our MOA joint venture expansion on slide 9. We are pleased to report that the sixth leach train has been commissioned, marking successful and on-budget completion of our MOA joint venture expansion program. This brings us one step closer to our goal of operating the refinery at nameplate capacity to maximize profitability from the joint venture's own mine feed and increase overall finished nickel and cobalt production.

8:44 The ramp-up, while slower than we initially anticipated as a result of the operating conditions in Cuba, is still expected to drive increasing mix sulfide production, which will accelerate as our recovery plans gain more traction. An update on our power business on slide 10. Power production benefited from the replacement gas well brought on line during the quarter, helping offset the loss of production from the legacy cupette well. Power production during the quarter also reflects the Varadero facility returning to normal operations without frequency control during July and August. The national-wide power outage that occurred in Cuba in September did not have a material impact on electricity production, and Intergas was again instrumental in contributing to efforts to quickly restore power to the national grid.

9:43 Unit operating costs during the quarter was $12.23 per megawatt hour, compared to $44.95 per megawatt hour in Q3 2024. primarily as a result of lower maintenance as there were no major turbine inspections during the quarter and none are scheduled for the rest of the year. On a year-to-date basis, operating costs is also lower due to less maintenance this year compared to 2024, where significant maintenance was occurred on associated power generating equipment due to additional gas supplied from newly drilled gas wells. On slide 11, to discuss the 2025 guidance.

10:29 During the quarter, we saw a continuation of the significant challenges in the general operating environment in Cuba, resulting in lower than expected production of mixed sulfides and impacting feed availability at the refinery. Our recovery plan prioritizes increasing expat personnel to support mining, reduce maintenance downtime, and optimize the operation. We are making great progress, but more recently the focus has been on safety and ramping up our processing facility at MOA back to full capacity following Hurricane Melissa. As a result, four-quarter production of mixed sulfides would be lower than we initially anticipated. We still expect the recovery plan and expansion to increase feed from the mine site and contribute to 2026 finished production.

11:25 We are revising full year 2025 production guidance for finished nickel from the previous guidance of 27,000 to 29,000 tons to 25,000 to 26,000 tons of nickel and finished cobalt from 3,000 to 3,200 tons to 2,700 to 2,800 tons. We are also refining our guidance on our spending on capital, which overall is only slightly lower, mainly due to timing of expenditures on the tailings facility. We estimate about $5 million in spending that was originally planned for this year will now be made in early 2026.

12:12 The deferral of 2025 spending on the new tailings facility does not change the overall budget or completion timeline. The decrease in tailings spending is likely offset by a modest $2 million increase in growth spending, largely due to delays in procurement of additional parts and supplies that affected the timeline for commissioning. Even though spending was moderately higher this year, the total expansion program was completed on budget. As discussed, guidance for NBCC remains unchanged due to our effective cost management and benefits from higher cobalt and fertilizer byproduct credits.

12:57 And that power, production, unit costs, and capital spending all remain unchanged. I would now turn to call over to Yasmin to present our financial results.

13:08 Thanks, Elvin. I'll start on slide 13 with a summary of our financial performance. As Elvin noted, our planned annual maintenance shutdown at the refinery occurred during the third quarter of this year compared to Q2 last year. Consequently, our production, sales, and financial performance for the third quarter is lower compared to the third quarter last year. Combined revenue of $108.4 million, which includes revenue from the MOA joint venture on a 50% basis and which more holistically reflects our performance, was lower year over year, primarily driven by lower nickel revenue. Nickel revenue, was lower year over year due to a 7% decrease in average realized price and a 23% decrease in sales volumes driven by lower production.

14:04 Cobalt revenue benefited from a 49% improvement in the average realized price, which almost offset the lower sales volumes. Fertilizer revenue increased from a 19% improvement in the average realized price which more than offset the lower sales volume. With nickel prices remaining range-bound at multi-year lows, we implemented significant cost reduction measures expected to deliver approximately $20 million in annualized savings, which is in addition to the $17 million in annualized savings from the cost reduction initiatives implemented last year. As we start to see production recover, we will begin realizing improved financial performance with increasing EBITDA and net income, benefiting from our increasing production and sales, higher cobalt and fertilizer prices, and lower costs from our optimization measures.

15:06 Turning now to liquidity on slide 14. Despite the annual maintenance shutdown and lower production and sales, we ended the third quarter with $45.2 million of available liquidity in Canada, effectively maintaining our liquidity levels from the end of the previous quarter. Key changes in liquidity during the third quarter included $8.3 million of dividends received in Canada from Energas, $17.7 million of fertilizer free-buys, $3 million for remaining costs related to the debt and equity transactions, and $2.5 million in property, plant, and equipment expenditures.

15:54 Subsequent to the quarter, at the end of October, we paid $12.3 million of interest on the amended senior secured notes. Looking ahead for the balance of 2025, at Power, we are maintaining our expectation that total dividends from Energas in Canada will be at the lower end of the previously disclosed range of $25 million and $30 million. Based on current nickel prices and revised 2025 guidance, we no longer expect distributions under the Cobalt Swap Agreement in Q4. The expected shortfall in the annual minimum amount in 2025 will be added to the annual minimum payment in 2026.

16:44 We expect to provide an update regarding anticipated distributions under the Cobalt Swap Agreement when we publish our 2026 guidance in early 2026. As previously mentioned, the agreement anticipated volatility in commodity prices and includes mechanisms to catch up on payments during periods of higher pricing and liquidity. Lastly, based on results we have seen in October, We expect the fourth quarter to have strong year-over-year fertilizer receipts from sales and pre-buys. I will now turn the call back to Leon for closing comments.

17:23 Thank you, Yasmin. Ending on slide 16, despite persistent near-term challenges in the nickel market and the operating environment in Cuba, we have continued to advance key strategic milestones that strengthen our foundation for long-term value creation. With the MOA JVA expansion now complete and ramping up, and our recovery plan progressing, we are well positioned to achieve improved performance going forward. In our power division, new wells have supported stable electricity production and reliable and significantly increased dividends. Our focus remains on increasing production at MOA, driving efficiencies and maintaining strong financial discipline. With these actions, Charity is well positioned to capture value as markets recover.

18:11 Operator, I'd like now to open the call for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please. It looks like there are no questions. I will now turn the call over to Tom Hollison for closing remarks. Please continue.

18:56 Thank you, operator. Thank you all for joining us today. Should you have any questions, please feel free to contact us. Operator, over to you. We will now end the call. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you.