Sherritt Reports First-Quarter 2011 Results

TORONTO, ONTARIO--(Marketwire - April 27, 2011) -

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Sherritt International Corporation ("Sherritt" or the "Corporation") (TSX:S) today announced first-quarter 2011 results.

• Net earnings for first-quarter 2011 were up 116% to $63.6 million ($0.22 per share), compared to net earnings of $29.4 million ($0.10 per share) for first-quarter 2010.
  
  
• Net earnings for first-quarter 2011 include an unrealized foreign exchange loss, after tax, of $3.2 million ($0.01 per share), mainly due to the impact of the change over the quarter in the value of the Canadian dollar relative to the U.S. dollar on the Corporation's $0.7 billion of U.S. dollar denominated Ambatovy partner loans.
  
  
• Sales volumes for first-quarter 2011 (Sherritt's share) totaled 9.4 million pounds of nickel, 1.0 million pounds of cobalt, 9.5 million tonnes of thermal coal, 1.1 million barrels of oil and 148 GWh of electricity.
  
  
• Cash, cash equivalents and short-term investments were $732.0 million at March 31, 2011, including $35.7 million (50% basis) held by the Moa Joint Venture and $5.0 million (33 1/3% basis) held by Energas S.A. Cash held by the Ambatovy Project is included in "Investment in an Associate" and was $10.5 million (40% basis) as at March 31, 2011.
  
  
• Operating cash flow for first-quarter 2011 was $112.8 million, compared to $126.9 million in first-quarter 2010.
  
  
• Spending on capital and intangibles relating to existing operations totaled $29.1 million for first-quarter 2011, compared to $39.0 million in first-quarter 2010. Spending on capital in the Ambatovy Project was $290.6 million (100% basis) for first-quarter 2011, 8% lower than the prior-year period as construction activities on the Project are nearing completion.
  
  
• At the Ambatovy Project, commissioning activities at the port were completed during first-quarter 2011, allowing for the receipt of the first shipments of input commodities, including sulphuric acid and coal. Several key components began start up activities during the quarter, including the power generation and facilities at the mine site, as well as the water and sewage treatment plants, the demineralized water plant and the compressed air plant at the plant site. At March 31, 2011, 50% of the major process plant modules had been transferred to commissioning teams. The current approved capital spending estimate and schedule are US$4.76 billion with production of first metal in summer 2011. As the Project nears both the estimated schedule and associated capital budget, a review is being conducted to determine if either estimate requires alteration. Revised guidance will be issued if there is any material change to either estimate.
  
  
• At March 31, 2011, total available liquidity was approximately $1.2 billion, not including approximately $115 million (40% basis) available under the Ambatovy Joint Venture senior project financing. Total debt was $1.5 billion including approximately $0.7 billion related to non-recourse Ambatovy partner loans to Sherritt.

IFRS

This reporting period is Sherritt's first under International Financial Reporting Standards (IFRS). A comprehensive summary of all of the significant changes, including reconciliations of Canadian GAAP financial statements to those prepared under IFRS, is presented in Note 30 "Transition to IFRS" of the Corporation's unaudited March 31, 2011 Interim Financial Statements.

Adopting IFRS did not impact the cash the Corporation generated. However, the adoption of IFRS had a substantial impact on the Corporation's Statement of Financial Position (or balance sheet) and Statement of Comprehensive Income (or income statement). The most significant difference from Canadian GAAP is the change in the method of accounting for the Corporation's investment in the Ambatovy Project (Metals) and Energas S.A. (Power).

The following table outlines some of the more significant changes to these Financial Statements by Division. This summary is intended for use as a quick reference regarding the IFRS impact on the Corporation's Statements and should be used in conjunction with the transition disclosure in the Financial Statements and Management's Discussion and Analysis provided on the Corporation's website (www.sherritt.com) or SEDAR (www.sedar.com).

Consolidated net earnings were most significantly impacted by the following changes resulting from the transition to IFRS:

Summary Data

Review of Operations

Mixed sulphides production for first-quarter 2011 was 4% (370 tonnes, 100% basis) higher than first-quarter 2010 and established a quarterly production record of 9,688 tonnes (100% basis). Finished nickel production was 1% (76 tonnes, 100% basis) higher than first-quarter 2010, reflecting the increased availability of mixed sulphides. Finished cobalt production was comparable to first-quarter 2010, as third-party feeds with higher cobalt content were displaced by mixed sulphides.

First-quarter 2011 nickel sales volumes were consistent with production levels, while cobalt sales volumes were 12% (0.1 million pounds, 50% basis) higher than the prior-year period primarily reflecting the timing of shipments. Fertilizer sales volumes were 34% (9,000 tonnes) lower than the prior-year period as the snow cover in Western Canada has delayed spring fertilizer application.

The average nickel reference price in first-quarter 2011 was 34% (US$3.09/lb) higher than first-quarter 2010, due to stronger demand and a weaker U.S. dollar in the prior-year period. The average cobalt reference price was 9% (US$1.73/lb) lower than first-quarter 2010, reflecting weaker demand.

The net direct cash cost of nickel for first-quarter 2011 was 18% (US$0.62/lb) higher than first-quarter 2010, primarily due to the impact of higher input commodity prices on the mining and processing costs. These costs were partially offset by lower third-party feed costs resulting from the displacement of purchased feed with the increased production of mixed sulphides.

Spending on capital in first-quarter 2011 for the Moa Joint Venture was 15% ($0.8 million, 50% basis) higher than the prior-year period, consistent with higher planned spending for 2011.

Ambatovy

Ambatovy project expenditures for first-quarter 2011 were 8% (US$10.3 million, 100% basis) lower than the prior-year period reflecting the winding down of construction activity. Cumulative capital spending on the Project at March 31, 2011 was US$4.61 billion, on a pro forma basis after adjusting for foreign exchange rates, consistent with the original project cost estimates and capital spending guidance for 2011. During first-quarter 2011, a total of $231.9 million (100% basis) in funding was provided by the Ambatovy Joint Venture partners. Sherritt directly funded $47.1 million of its $92.8 million partner funding obligation, and the remainder was funded through additional loans from the other partners. There were no requirements for draws on the senior project finance facility during first-quarter 2011.

Commissioning activities at the port have been completed, allowing for receipt of a shipment of sulphuric acid, sufficient for start up of the sulphuric acid plants, as well as the first coal shipment during the quarter. In addition, the power generation and facilities at the mine site, as well as the water and sewage treatment plants, the demineralized water plant and the compressed air plant at the plant site began their start up during the quarter. At the end of first-quarter 2011, 28 of the 56 major process plant modules had been transferred to commissioning teams.

The Project is designed to produce 60,000 tonnes (100% basis) of nickel and 5,600 tonnes (100% basis) of cobalt annually at capacity. The current approved capital spending estimate and schedule are US$4.76 billion with production of first metal in summer 2011. As the Project nears both the estimated schedule and associated capital budget, a review is being conducted to determine if either estimate requires alteration. Revised guidance will be issued if there is any material change to either estimate.

COAL

First-quarter 2011 production volumes at Prairie Operations were 2% (0.2 million tonnes) lower than the prior-year period largely due to lower demand at the Highvale mine, where two coal-fired generating units were removed from service by the mine's customer. Production volumes at Mountain Operations were 164% (0.7 million tonnes) higher than the prior-year period reflecting the consolidation of all of Mountain Operations production from July 1, 2010 onward and improved dragline availability at the Obed Mountain mine.

Sales volumes for first-quarter 2011 were lower at Prairie Operations (9% or 0.8 million tonnes) relative to first-quarter 2010, primarily reflecting the lower demand from the Highvale mine previously discussed. First-quarter 2011 Mountain Operations sales volumes were 107% (0.5 million tonnes) higher than the prior-year period, mainly due to the consolidation of all Mountain Operations sales from July 1, 2010 onward.

Realized pricing (excluding royalties, activated carbon and char) for first-quarter 2011 in Prairie Operations was 12% ($1.67/tonne) higher than in the prior-year period mainly due to the similar contract revenue on lower sales volumes at the Highvale mine. Realized pricing in Mountain Operations in first-quarter 2011 was 32% ($21.99/tonne) higher than first-quarter 2010 due to further strengthening of international thermal coal pricing from 2010 price levels, partially offset by the foreign exchange impact of a stronger Canadian dollar relative to the U.S. dollar. Export thermal coal prices are based on provisional pricing until contracts are finalized. As a result of the earthquake and tsunami in Japan, the finalization of most international thermal coal contracts has been delayed.

Unit operating costs at Prairie Operations were 17% ($1.88/tonne) higher for first-quarter 2011 relative to the prior-year period largely due to the impact of lower production from the Highvale mine. Unit operating costs at Mountain Operations were 1% ($0.71/tonne) lower for first-quarter 2011 largely due to increased plant yields at both the Coal Valley and Obed Mountain mines, partially offset by lower equipment availability at the Coal Valley mine and higher demurrage costs due to rail transport delays.

Total royalties for first-quarter 2011 were 15% ($2.2 million) higher than the prior-year period due to the timing of mining in coal royalty assessable areas as well as higher potash market prices.

Spending on capital in Prairie Operations was 2% ($0.3 million) higher in first-quarter 2011 compared to the prior-year period mainly due to the timing of receipt of leased mining equipment. Spending on capital in Mountain Operations was 291% ($3.2 million) higher in first-quarter 2011 than in the prior-year period, primarily due to the consolidation of 100% of Mountain Operations spending beginning in third-quarter 2010 and the timing of equipment arrivals.

OIL AND GAS

First-quarter 2011 net working-interest production in Cuba was 2% (243 bpd) higher than first-quarter 2010, mainly due to higher cost recovery expenditures, partially offset by higher realized oil prices and lower gross working-interest production. Gross working-interest production decreased due to the expiry of the Varadero production-sharing contract in March 2010, a 50% decrease in Sherritt's share of production from a well in the Varadero West field in third-quarter 2010 and natural reservoir declines, partially offset by production from new wells drilled and optimization of production from existing wells. Production in Spain was 22% (121 bpd) lower, and production in Pakistan was 2% (8 boepd) lower, compared to the prior-year period due to natural reservoir declines at both operations.

Average realized prices in first-quarter 2011 were substantially higher than first-quarter 2010 in Cuba (17%, $8.92/bbl) and Spain (32%, $25.59/bbl), and moderately higher in Pakistan (8%, $0.59/boe), as the benefit of increased reference pricing more than offset the impact of a stronger Canadian dollar relative to the U.S. dollar.

First-quarter 2011 unit operating costs were 5% ($0.54/bbl) lower in Cuba than in the prior-year period, primarily due to the impact of a stronger Canadian dollar relative to the U.S. dollar. Compared to the prior-year period, the 16% ($4.65/bbl) unit operating cost increase in Spain for first-quarter 2011 reflected the impact of lower production levels, while the 209% ($2.55/boe) increase in unit operating costs in Pakistan was due to changes in the classification of royalties. In prior reporting, royalties in Pakistan were deducted from revenue. Commencing in 2011, royalties in Pakistan are included in operating costs.

Spending on capital in first-quarter 2011 was 11% ($1.5 million) higher than the prior-year period, with spending in Cuba directed mainly toward development drilling as well as equipment and inventory purchases. In first-quarter 2011 in Cuba, two development wells were initiated, and one well was completed and began production.

POWER

Electricity production for first-quarter 2011was 14% (24 GWh, 33 1/3% basis) lower and the net capacity factor was 7% lower than the prior-year period, due mainly to turbine and rotor failures at the Boca de Jaruco facility and intermittent gas supply shortages at Varadero. Equipment responsible for the failures was repaired during the quarter.

First-quarter 2011 unit cash operating costs were 147% ($11.11/MWh) higher than the prior-year period primarily due to the reclassification of costs from administrative to cost of sales as well as the inclusion of an insurance recovery in first-quarter 2010.

Spending on capital was 177% ($3.9 million, 33 1/3% basis) higher than the prior-year period due to increased activity on the 150 MW Boca de Jaruco Combined Cycle Project.

CASH, DEBT AND FINANCING

Cash, cash equivalents and short-term investments were $732.0 million at March 31, 2011. Of the cash balance, $35.7 million (50% basis) was held by the Moa Joint Venture and $5.0 million (33 1/3% basis) was held by Energas S.A. These amounts are for the exclusive use of the joint venture and Energas, respectively. Cash held by the Ambatovy Project is included in "Investment in an Associate" and was $10.5 million (40% basis) as at March 31, 2011.

At March 31, 2011, the amount of credit available under various facilities was $439 million, not including approximately $115 million (40% basis) available under the Ambatovy Joint Venture senior project financing.

Outlook

Projections for Sherritt's production volumes, royalties and spending on capital for the year 2011 are shown below.

• In Metals – Moa Joint Venture, guidance for full-year 2011 production of mixed sulphides increased 2% (700 tonnes, 100% basis), reflecting the strong performance at the Moa mine in first-quarter 2011. The anticipated increase in mixed sulphides production is expected to result in a 1% (300 tonne, 100% basis) increase in finished nickel production for the year and finished cobalt is expected to remain consistent with past guidance, as third-party feeds continue to be displaced. Capital spending guidance for the Moa Joint Venture remains unchanged. The Moa Joint Venture partners are reviewing options for the completion of the Phase 2 Expansion and the construction of the sulphuric acid plant at Moa. Capital spending guidance does not include any expansion-related expenditures, other than capitalized interest.
  
  
• In Metals – Ambatovy, as the Project nears both the estimated schedule and associated capital budget, a review is being conducted to determine if either estimate requires alteration. Revised guidance will be issued if there is any material change to either estimate. Sherritt will directly fund its partner funding obligations for the duration of the Project. The first slurry is expected to be transported down the pipeline from the mine site in Moramanga to the plant site in Toamasina during second-quarter 2011.
  
  
• In Metals – Sulawesi, estimates remain unchanged, as approximately $13 million is expected to be spent in 2011 to advance prefeasibility and feasibility work on the Project.
  
  
• In Coal – Prairie Operations, guidance for full-year 2011 production decreased 3% (1 million tonnes), as lower than anticipated production resulting from the closure of two units at a customer's power plant is expected to be partially offset by modest, demand-related production increases at other mines. Full-year 2011 production guidance of 13,000 tonnes (100% basis) for activated carbon remains unchanged from previous estimates. Spending on capital in Prairie Operations is expected to be marginally lower (4% or $4 million) than prior estimates, reflecting long lead times associated with ordering and procuring mining equipment.

• In Coal – Mountain Operations, production guidance remains unchanged from prior estimates. The devastating earthquake and tsunami that struck Japan in first-quarter 2011 have caused extensive damage to the country's power facilities and major disruptions in the generation and delivery of power. Consequently, the process of determining the benchmark Newcastle settlement pricing for export thermal coal, which is generally established for the standard April 1 to March 31 coal year, has been delayed. However, based on recent spot market prices and initial contract settlement pricing, the Newcastle benchmark for the 2011 contract year is expected to be higher than in 2010. Approximately 90% of Mountain Operations' 2011 coal production is expected to be sold in the export market. Spending on capital in Mountain Operations is expected to be approximately 10% ($5 million) lower than prior estimates, reflecting long lead times associated with ordering and procuring mining equipment.
  
  
• In Oil and Gas, guidance relating to 2011 gross working-interest oil production in Cuba remains unchanged from previous estimates. Total net working-interest production is expected to be 6% (800 bpd) lower than the previous estimate primarily due to higher oil prices. Spending on capital for 2011 in Cuba is expected to remain consistent with previous guidance. In total, seven development wells and one exploration well are planned for 2011.
  
  
• In Power, production and capital spending guidance remains unchanged from prior estimates, but is now being reported on a one-third basis, reflecting Sherritt's proportionate share of the production and spending on capital with respect to the Energas operations.

Non-IFRS Measure – EBITDA

The Corporation's definition of EBITDA is earnings (loss) from operations and associate as reported in the IFRS financial statements, excluding amounts included in net earnings or net loss for income taxes, financing income, financing expense, depletion, depreciation, and amortization in cost of sales and administrative expenses, impairment charges for property, plant and equipment, goodwill and investments, gain or loss on disposal of property, plant and equipment, and share of income or loss of associate.

About Sherritt

Sherritt is a world leader in the mining and refining of nickel from lateritic ores with projects and operations in Canada, Cuba, Indonesia and Madagascar. The Corporation is the largest coal producer in Canada and is the largest independent energy producer in Cuba, with extensive oil and power operations across the island. Sherritt licenses its proprietary technologies and provides metallurgical services to mining and refining operations worldwide. The Corporation's common shares are listed on the Toronto Stock Exchange under the symbol "S".

Forward-Looking Statements

This press release contains certain forward-looking statements. Forward-looking statements generally can be identified by the use of statements that include words such as "believe", "expect", "anticipate", "intend", "plan", "forecast", "likely", "may", "will", "could", "should", "suspect", "outlook", "projected", "continue" or other similar words or phrases. Specifically, forward-looking statements in this document include statements respecting certain future expectations about the Corporation's capital and project development spending; capital project commissioning and completion dates; production volumes; royalty revenues; oil and gas drilling activities; export thermal coal sales; and other corporate objectives, plans or goals for 2011. These forward- looking statements are not based on historic facts, but rather on current expectations, assumptions and projections about future events. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that those assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. Sherritt cautions readers of this press release not to place undue reliance on any forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. By their nature, forward-looking statements require Sherritt to make assumptions and are subject to inherent risks and uncertainties.

Key factors that may result in material differences between actual results and developments and those contemplated by this press release include global economic conditions, business, economic and political conditions in Canada, Cuba, Indonesia, Madagascar, and the principal markets for Sherritt's products. Other such factors include, but are not limited to, uncertainties in the development and construction of large mining projects; risks related to the availability of capital to undertake capital initiatives; changes in capital cost estimates in respect of the Corporation's capital initiatives; risks associated with Sherritt's joint venture partners; future non-compliance with financial covenants; potential interruptions in transportation; political, economic and other risks of foreign operations; Sherritt's reliance on key personnel and skilled workers; the possibility of equipment and other unexpected failures; the potential for shortages of equipment and supplies; risks associated with mining, processing and refining activities; uncertainties in oil and gas exploration; risks related to foreign exchange controls on Cuban government enterprises to transact in foreign currency; risks associated with the United States embargo on Cuba and the Helms-Burton legislation; risks related to the Cuban government's ability to make certain payments to the Corporation; development programs; uncertainties in reserve estimates; uncertainties in asset-retirement and reclamation cost estimates; Sherritt's reliance on significant customers; foreign exchange and pricing risks; uncertainties in commodity pricing; credit risks; competition in product markets; Sherritt's ability to access markets; risks in obtaining insurance; uncertainties in labour relations; uncertainties in pension liabilities; the ability of Sherritt to enforce legal rights in foreign jurisdictions; the ability of Sherritt to obtain government permits; risks associated with government regulations and environmental health and safety matters; differences between Canadian GAAP and IFRS; and other factors listed from time to time in Sherritt's continuous disclosure documents.

Further, any forward-looking statement speaks only as of the date on which such statement is made, and except as required by law, Sherritt undertakes no obligation to update any forward-looking statements.