Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sherritt International Fourth Quarter 2023 Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. I would like to remind everyone that this conference call is being recorded today, Thursday, February 8, 2024, at 10:00 A.M. Eastern Time. I will now turn the presentation over to Tom Halton, Director, Investor Relations. Please go ahead.
Thank you, operator, and welcome everyone to Sherritt's Fourth Quarter 2023 Conference Call. We released our fourth quarter results last night. Our press release, MD&A, and financial statements are available on our website and on SEDAR+. During today's call, we will be referring to our presentation that is 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 three of our presentation. As well, reconciliations of non-GAAP measures to the most directly comparable IFRS measures are included in the appendix of the presentation. On the call today is Leon Binedell, President and Chief Executive Officer, and Yasmin Gabriel, Chief Financial Officer. Going forward on our conference calls for our 2024 results, we will have Elvin Saruk, our Chief Operating Officer, join us as well.
Following a review of our results on today's call, we will open up the line for questions. It is now my pleasure to pass the call over to Leon.
Thank you, Tom, and good morning, everyone, and thank you for joining us today. I want to begin with a few comments about the past year and the actions we've taken to mitigate the impacts of low nickel prices from a market that we expect will remain in an oversupplied position in the near term. I'll review our 2024 outlook shortly that details an expected stronger operating performance with meaningfully lower costs as a result of the actions we've taken. As you all know, 2023 was a challenging year. We encountered a number of unanticipated operational setbacks in the metals business that hindered our performance. Working together with our partner, we successfully resolved each of the operational hurdles during the year, and we are continuing to work together to materially improve operational performance at both facilities. We suffered a significant outage in our ammonia plant.
Despite our established multi-year capital refurbishment program, which was implemented post a prolonged deferral of capital spend during the austerity years, the ammonia plant repair required the advancement of significant maintenance spend, which would otherwise be covered under a planned capital program and also led to reduced fertilizer sales, ultimately negatively impacting cash flow and our byproduct credits in 2023. We do not anticipate this to recur in future. Despite the challenges, we were successful in accomplishing a number of objectives during the year. We successfully completed the first year of the Cobalt Swap Agreement, a major milestone in a long-standing challenge in recovering Cuban receivables. We achieved significant growth in the power business through increased electricity production, exceeding our guidance, which we had already increased during the year.
We delivered our technical report for the Moa Joint Venture, doubling the mine life and extending it beyond 2040, and we completed phase I of the Moa Joint Venture expansion under budget and on schedule. These accomplishments better position us for future success. As the nickel market turned quickly during the third quarter of 2023, our established process of forecasting long-term cash flows enabled us to swiftly act, and I will walk through this on the next slide. Turning to slide five. At the start of 2023, and even around the mid-year point, the expectations were for a continued strong nickel price, with consistent price above $10 per pound for the full-year average of 2023.
In the second half of the year, the nickel price declined rapidly as a result of significant oversupplied market due to the conversion of Class 2 N ickel into intermediates suitable for electric vehicle markets and even into Class 1 LME inventories as Chinese brands received fast-tracked registration approvals, putting further downward pressure on pricing. The latter was an unexpected change to the market. In September, we challenged our teams to cut costs, and by the start of November, we established cost containment and spending reduction measures across the company while continuing to work towards further opportunities to reduce cost and capital. You'll recall in the third quarter results, as part of our efforts, we updated our guidance, deferring spending, lowering our CapEx guidance, and despite lowering our nickel and cobalt production guidance, we maintained our cost guidance at the time.
Nickel prices continued to fall, however, and in January of this year, we announced further cost-cutting measures and headcount reductions in response. Since our announcement, we continued to see others in the market announcing cost cutting, strategic reviews, and operations moving into care and maintenance, reflecting the near-term challenges facing the nickel market. As noted earlier, we have also announced our 2024 guidance last night, which factors in the results of our efforts in response to these market developments. Looking ahead to our market outlook on slide six. Despite strong demand growth, both nickel and cobalt markets moved into an oversupplied situation, and our forecast remains so in the near term until demand catches up with increased supply. This is mainly due to actions from Chinese-influenced supply continuing to grow substantially to increase their dominant market share, particularly around the EV value chain.
Despite these dark clouds over the nickel and cobalt markets, some notable events took place in 2023, which might lead to stronger regionalization of markets or bifurcating of markets between U.S. Inflation Reduction Act, or IRA, compliant materials destined for the EV supply chain or similar regulations in the E.U. and U.K. regarding Chinese-controlled materials. These include the deferral of the U.S. to enter into free trade talks with Indonesia, effectively rendering all Indonesian nickel supply outside of IRA compliance, and this on the basis that Indonesia does not comply with acceptable environmental and labor standards and is under Chinese influence. Secondly, the U.S. issuing Foreign Entity of Concern regulations for IRA compliance to exclude China, Russia, North Korea, and Iran from owning or controlling more than 25% of entities involved in the EV value supply chain.
Lastly, the EU issuing increased reporting obligations for suppliers to the EU EV supply chain and setting up cross-border carbon taxes and consideration of duties to mitigate Chinese so-called subsidized EVs and decarbonization products flooding their market. These are recent developments and are well-received by market participants outside of the Chinese-controlled supply chains for nickel and cobalt, and may have a positive impact on pricing into certain market segments. We are following these and other developments closely to inform our strategic and marketing plans, and seek to take advantage of market opportunities as they develop in a proactive fashion.
More short-term focused, broadly given the cost associated with the conversion of Class 1 Nickel into the EV value chain or into LME-deliverable metals, market observers suggest that at current spot pricing, we may have found stability, especially given the pullback in projects at these prices and various higher cost operations moving into care and maintenance. Early indicators suggest uptake of new sales are likely around these prices. The price gap between various forms of nickel have now narrowed, further suggesting pricing support can be found at these levels. Transitioning to our operating outlook on slide seven, outlining our guidance for 2024. In our metals division, we expect finished nickel production to be within 30,000-32,000 tons. For cobalt, we expect production to be between 3,100-3,400 tons.
Production is expected to recover on the back of increased feed of mixed sulfides from the Moa mine site to the refinery because of access to additional ore sources to improve the blend of feed, as well as increased quality and feed rates following the ramp-up of the new SPP and reduced downtime from maintenance. We expect nickel sales to exceed production over the year as we see opportunities to lower our finished nickel inventory levels over the course of 2024, with some early successes already identified. We see our costs decreasing, with NDCC expected to come in between $5.50-$6 per pound of nickel sold, with a midpoint of that range implying a 20% decrease from our 2023 results.
Our forecast for lower NDCC is attributable to lower expected maintenance activities, lower input commodity prices, our cost optimization activities, which include ongoing efforts, and higher expected production and sales, including higher fertilizer byproduct sales. We forecast NDCC to be above the annual guidance range in Q1, but below or within the range in subsequent quarters, with fertilizer byproduct credits expected to be highest in Q2 and in Q4. For spending on capital, we see $40 million for sustaining capital for Sherritt, the majority focused on constructing a new long-term tailings facility at Moa, and $15 million for growth, with growth spending primarily for the construction of phase II of the expansion program at the Moa Joint Venture. We continue to seek opportunities to defer, reduce, or finance capital spend.
At our power division, we expect electricity production of 775-825 GWh, with higher production from a full year of additional gas from the two wells that went into production during the second quarter of last year. Unit operating costs for 2024 reflects higher planned maintenance activities related to our gas turbines, partly offset by the impact of higher electricity production and sales. Sustaining spending on capital is expected to be CAD 5.5 million. With increased electricity production and sales and completion of our capital refurbishment program, we expect dividends from Energas to substantially increase over 2023. We expect to provide more guidance on the go-forward dividend expectations from Energas in the second half of this year. Moving on to review our fourth quarter results, starting on slide nine.
Moa mixed sulfide production during the quarter was impacted by heavy rainfall. Lower- grade and lower- quality stockpiled materials were processed as a result and led to production coming in below expectation. Gaining access to more mining areas in 2024 will give us greater flexibility to blend and stockpile materials to feed into the new SPP and mitigate impacts of high rainfall seasons. Our 50% share of production of finished nickel and finished cobalt was also slightly below our expectations, having been impacted by the lower feed available from Moa, partly offset by higher third-party feeds processed. Fertilizer production during the quarter returned to expected levels as we completed the ammonia plant maintenance following the shutdown in the third quarter. However, came too late and led to reduced fertilizer sales during the fall sales season.
Turning to slide 10, our costs are clearly a key focus given the challenges we faced last year. Our NDCC during the quarter was higher, largely due to higher third-party feed costs and lower fertilizer and cobalt byproduct credits, despite benefiting from lower input costs and cost avoidance actions taken in Q4. You can see on the graph the impact of materially higher maintenance costs during the quarter in the net fertilizer byproduct credit, which includes the impact of lost sales during the fall season and amounted to almost $1.50 per pound negative impact. We do not expect to see this again in future quarters. As mentioned earlier, we expect NDCC for 2024 to meaningfully improve from lower input commodity prices and our continuing efforts to cut costs and optimize operations.
In 2023, we did not see the benefits of our costs due to the maintenance and lost byproduct fertilizer sales we incurred during the quarters, but we expect to see the benefit of lower NDCC progressively throughout 2024. Moving to slide 11, an update on our low-cost and low capital intensity Moa JV expansion project. During the fourth quarter, we completed phase I of the expansion, the slurry preparation plant, or SPP, on time and under budget. As a reminder, phase I will reduce ore haulage distances, lower carbon intensity from mining, and increase annual MSP production of contained nickel and cobalt through higher plant throughput and improved quality of ore feed. Commissioning and capacity testing is continuing, and last month, the SPP began processing ore at design capacity.
With the completion of the second phase of the project, the processing plant expansion, we expect MSP production will increase by a cumulative 6,500 tons of contained nickel and cobalt on a 100% basis. Phase II will fill the refinery to nameplate capacity from the joint venture's own mine feed, displacing lower-margin third-party feeds and decreasing costs and maximize profitability. In the current lower price environment, we continued our prudent approach to capital spending and found opportunities to defer some of the spending for phase II beyond 2024, which is not expected to impact the timing of the ramp-up of MSP production from the expansion. Overall, phase II remains on schedule for an expected end of 2024 completion, with commissioning and ramp-up in 2025. Turning to slide 12 to review our power division.
Electricity production increased throughout 2023, exceeding our annual guidance, which we increased in the second quarter results. As mentioned, next year, we are looking forward to a full year of contribution from the 2 gas wells that went into production in the second quarter of 2023 and the increase in utilization of our facilities. We are also pursuing further opportunities to increase gas supply and enable additional power production. Importantly, with power turning a corner in 2023, Sherritt received CAD 1.4 million in dividends from Energas during the year, and with the operational strength expected to continue, we should see these dividends increase in 2024, as mentioned. On slide 13, to summarize a few of our ESG highlights for the year. Starting with safety, which remains a key focus for us.
During 2023, we implemented safety strategy refocus sessions with each of our operations to improve safety protocols. We also completed greenhouse gas emission baseline assessments at Energas and initiated assessments at the Moa Mine and Fort Site, expected to be completed by mid this year. We continue to identify potential decarbonization opportunities for consideration. Beyond this, our team continued to advance a number of ESG initiatives, including commencing TCFD-aligned risk and opportunity assessments, maintaining our conformity to the LME's Track B responsible sourcing requirements, and achieving ISO certifications, improving our TSM score at the Fort Site. An enhanced ESG profile and continued progression towards our climate change goals is a key strategic priority for Sherritt as current and evolving metal market customers prioritize responsible source inputs.
I'll now hand over the call to Yasmin to summarize our financial highlights before returning at the end for a few concluding remarks.
Thanks, Leon. I'll begin today with our financial performance on slide 15. Our financial performance this quarter was significantly impacted by lower average realized prices, unplanned maintenance Leon mentioned earlier, and lower nickel and fertilizer sales volume. Consolidated revenue for the fourth quarter, which does not include Sherritt's share of revenue from the Moa Joint Venture, was CAD 34.6 million. This represents a 28% decrease year-over-year, primarily due to lower average realized fertilizer prices and lower fertilizer sales volumes, as unplanned maintenance earlier in the year reduced fertilizer availability during the fall shipping season. This was partly offset by higher electricity sales with increased production from our power business.
Combined revenue, which includes the corporation's consolidated revenue and revenue from the Moa Joint Venture on a 50% basis, was $140.5 million and reflected lower average realized prices and lower nickel sales volume. Nickel sales in Q4 were in line with production and expected improvement from prior quarter, but were lower year-over-year. Sales continued to be impacted by lower demand from steel mills after summer shutdowns and higher intermediate availability, leading to lower metal purchasing in Asia. As well, the trend of declining nickel prices resulted in some customers delaying purchases in anticipation of further price reductions and to avoid increasing financing and other costs associated with holding inventory. This resulted in us having inventory at the end of 2023, which we expect will reduce over the course of 2024.
Adjusted EBITDA of -$7 million was impacted by the challenging market conditions that accelerated in Q4, contributing to lower demand in realized prices for nickel. Despite actions taken to reduce costs, lower production and unplanned maintenance increased costs, negatively impacting operating margins. Also included in adjusted EBITDA is the impact of $2.3 million in inventory write-downs. Our adjusted net loss from continuing, continuing operations was $27.9 million and excludes an increase in rehabilitation and closure costs related to legacy oil and gas assets. Looking ahead, we expect our operating margin and cash flow to improve significantly in 2024, based on our outlook with higher expected production and sales and lower operating costs. Turning now to our available liquidity on slide 16.
We ended the year with CAD 63 million of available liquidity, a decrease from prior quarter as a result of an additional CAD 15 million advance to the Moa Joint Venture for short-term working capital purposes, resulting from the challenging market conditions noted earlier that accelerated in Q4. CAD 9 million interest payment on our second lien notes, CAD 5 million for property, plant, and equipment, and CAD 4 million related to rehabilitation and closure costs related to legacy oil and gas assets. Looking ahead, we do not expect any further advances to the Moa Joint Venture and expect the CAD 30 million drawn in 2023 to be repaid during the first half of the year. This will be facilitated primarily through the sale of higher-than-normal opening inventory that I mentioned earlier. Current sales contracts and commitments support our expectation that sales will exceed production in 2024.
Progress towards this has already been made, with the Moa Joint Venture having received a $20 million prepayment for nickel deliveries in 2024, improving its available liquidity. As you may have seen in our disclosure, the Moa Joint Venture will be eligible to commence dividends under the Cobalt Swap Agreement upon repayment of the short-term advance from Sherritt. The amount of dividends to be distributed to each partner is decided by the Moa Joint Venture Board on a monthly basis, and there are a number of factors that go into that decision-making process. At current spot nickel prices, and given the prioritization of the JV to repay its outstanding advances from Sherritt, we expect dividends from the Cobalt Swap Agreement to commence in the second half of the year, and that they will fall below the annual maximum cobalt volume and the minimum payment for 2024.
The Cobalt Swap Agreement anticipated periods of volatility in market conditions and pricing over its five-year term and includes provisions for any shortfalls in the annual maximum volume and minimum payment amount to be added to the following year. Despite this potential short-term reduction, we continue to remain confident in our ability to collect the full balance over the remaining four years of the agreement. The expected improvements in production, sales, and operating costs will help ensure improved profitability and sufficient liquidity in 2024, and we will continue to proactively pursue opportunities to increase our financial capacity. That concludes my remarks. I'll pass it back to Leon for some final comments.
Thank you, Yasmin. Concluding on slide 18, although we find ourselves in a challenging market environment, and one we are taking very seriously, we have plans in place to mitigate the impacts of lower nickel and cobalt prices. We've commenced action on these plans already by deferring capital, containing costs, reducing headcount, and with the support of our partners, are optimizing operating plans. We have made improvements to our business, streamlining our metals division and changing leadership to drive operational improvements. We have announced our 2024 guidance that reflects the impact of our actions and expected improvements, with notable decreases in our costs, as well as strong year ahead from our power business, expected to generate increased dividends to Sherritt. Finally, our low- capital- intensity Moa Joint Venture expansion program remains on time and on budget.
With phase I now complete, we turn our attention to completing phase II and achieving higher levels of low-cost production that maximizes profitability. I'd like to thank everyone for your time today, and operator, I'd like to open the call to questions at this time.
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 number 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 star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please, for your first question. Your first question comes from the line of Gordon Lawson from Paradigm Capital. Your line is now open.
Hey, thanks for taking my question. You just answered a large part of it regarding the swap agreement, but in terms of the commencement in H2, is that a reflection of the current pricing environment and hopes of some recovery later this year, or are there other factors behind that?
Thanks, Gordon. You know, it would largely be related to the current pricing environment. You know, it's something that we're monitoring very closely, and it's also, you know, our expected sales recovery as well.
Okay, and is that at your discretion?
In terms of sales?
No, no. When you can collect, is that something that you can push for, or is that more in the hands of your partner?
So this is something that's decided by the Moa Joint Venture Board. We do have equal representation from the partners. And we do review that on a monthly basis. And it considers a lot of factors: available cash, falling prices, including input commodity prices, working capital, capital spending, financing. So there's a lot that goes into that decision-making, but it is something that both partners decide on.
Or maybe just to add to that, Yasmin mentioned earlier that there's some short-term accounts between the Moa Joint Venture and Sherritt that takes priority for repayment, as those are interest-bearing. So those will be repaid first before we commence with cobalt swap.
Okay. That kind of sets up well for my second question. I mean, the debt repayment program you guys have done so well on the past couple of years, is it safe to assume that that'll be on hold for now?
We obviously consider what the liquidity forecast looks like when we make decisions around debt repurchases. When we did the last repurchase at the conclusion of 2022, we were very confident that the cobalt swap was going to replenish cash flows early in 2023, and therefore, we were able to upsize that debt repurchase at the time. I'd say, given current market volatility and uncertainty, we wouldn't expect something in the very near term, but as the market stabilizes and our view firms up on expectations for cash flows going forward, we would certainly be looking at opportunities, as managing our debt balance remains a key concern and a priority for us.
Okay. Yeah, makes sense. Thanks very much.
Once again, if you have a question, please press star one. There are no further questions at this time. I will now hand over to Tom Halton. Please continue.
Thank you, operator, and thank you everyone for joining us. Please feel free to reach out if there are any further questions. We look forward to speaking with you again next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.