Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Sherritt International Corporation Fourth Quarter 2024 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 6th of 2025, 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 2024 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 Cedar Plus. 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 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 Binedell, President and Chief Executive Officer; Yasmin Gabriel, Chief Financial Officer; and Elvin Saruk, Chief Operating Officer. Following a review of our results, we'll open the call to 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. Our fourth quarter performance was exceptionally strong despite the significant market headwinds that continued to keep nickel and cobalt prices at their lowest levels in years. This capped off a year where we bolstered our sales, decreased our cost, and made tough decisions around managing cash to maintain our available liquidity position in Canada. In metals, full year 2024 nickel sales increased 22%. This is a testament to the dedication of our sales team. We do not often highlight their contribution enough, but their ability to make an impactful difference is demonstrated by our performance this year. Our marketing strategy has proved very successful, seizing spot sales, attracting new customers, and developing new sales avenues. This success, along with the strategic cost reductions implemented in 2024, enables us to effectively weather the current market conditions.
We recorded strong operating results in 2024. Our production of both cobalt and fertilizers was significantly higher, and our net direct cash cost, or NDCC, decreased 18% from the previous year as a result of our focused cost management initiatives, despite much lower cobalt byproduct credit. Our Moa Joint Venture is in the final stages of phase II of its expansion, with a processing plant scheduled for commissioning and ramp-up this year. This follows the success we delivered on phase I of the project by ramping up the Slurry Prep Plant in early 2024, in line with our plans. In power, we recorded a six-year high in electricity production, driven by operational improvements and increased gas supply from new wells. Additionally, in the fourth quarter, another new gas well was brought into production.
As planned, we incurred higher maintenance costs in Energas during 2024 to bring online an additional turbine and improve equipment availability to process gas from these new wells. As you can see from our 2025 guidance, which was released last night, with the completion of the work in 2024, we expect maintenance costs to be significantly decreased in 2025. As a direct result of our multi-year strategy to optimize our power division, we started to receive significantly larger dividends in Canada. We received $13 million in 2024 and expect this dividend to double in 2025 and remain at elevated levels going forward. We maintained our available liquidity in Canada, ending the year at approximately the same level we started, despite the average reference price for both nickel and cobalt each declining 22% further to reach multi-year lows.
In the fourth quarter, we did, however, receive $30 million distribution under the cobalt swap, despite these lower market prices. I will discuss what we're seeing in the nickel market in more detail shortly, but first, I'd like to conclude on the highlights of the year by acknowledging our team and our partners in Cuba for their exceptional performance in both metals production and power production and net direct cash costs, all falling within the guidance range for the year. Our results for the year on their own were commendable, but they are remarkable in the context of the operating environment which we faced. This was especially notable in the fourth quarter, where we navigated the nationwide power outages and several natural disasters in Cuba while managing through port strikes that disrupted logistics in Canada. Again, I congratulate the team on their outstanding performance.
Turning to slide five, aside from a strengthening US dollar, there were a number of notable market developments during the fourth quarter, as outlined. The most significant was Indonesia weighing cuts to their nickel mining quotas. The news, however, did not offer much support for nickel prices, reaching new lows for the year in December. The average nickel price for the fourth quarter was a four-year low, and for cobalt, we reached the lowest price levels in almost a decade. We also see Western governments continuing to evaluate various initiatives which would support critical minerals development. In January of this year, reports circulated that Canada would be advocating discussions on critical mineral pricing floors during the upcoming G7 summit in June. While this and other supportive government initiatives are promising, the current supply-driven pricing environment is likely to persist in the near term.
We must continue to find ways to improve our operations within this pricing environment, as we did in 2024. Through our continued efforts to deliver on operational efficiencies, cost reduction initiatives, and disciplined allocation of limited cash resources, we continue to proactively set ourselves up to navigate these volatile markets and ultimately drive towards sustained growth. Elvin will now provide more details on our 2024 performance and our operational outlook for 2025.
Thank you, Leon. Turning to slide seven for our metals results, mixed sulfide production during the quarter benefited from improved feed to the processing plant with the new Slurry Preparation Plant. As Leon mentioned, however, our operating team faced a number of external challenges in Cuba during the quarter, including an earthquake, two hurricanes, nationwide power outages, and heavy rains that required us to process lower-grade stockpiles.
Finished nickel and cobalt production in the quarter both increased year- over- year from higher mixed sulfide feed availability at the refinery. As you may recall, earlier this year, we strategically built up feed inventory at the refinery to ensure operational continuity. Now, moving on to sales, finished nickel and cobalt sales were both strong, with nickel sales exceeding production due to strong spot sales, sales into strategically targeted segments, as well as realizing sales that were deferred in the third quarter as a result of the Canadian rail lockup. Fertilizer production and sales were also notably higher as a result of operational improvements and equipment availability. Particularly, ammonia was higher as a result of lower maintenance in 2024. Additionally, we saw higher sales of other byproducts, specifically sulfuric acid, as we took advantage of higher pricing.
As Leon mentioned, for the year, nickel production, cobalt production, and NDCC all met our 2024 guidance range. Now to slide eight for a little more detail on our NDCC. In the fourth quarter, NDCC was $5.44 per pound, representing a decrease of over 30% year- over- year. This reduction was mainly attributable to 14% lower mining, processing, and refining costs, or MPR, per pound of nickel sold. The lower MPR per pound was largely due to operational improvements, reduced maintenance costs, lower input commodity prices, and the impact of higher fertilizer and nickel sales volumes. The lower NDCC was achieved despite reduced cobalt byproduct credits resulting from lower average realized prices. Now to slide seven for an update on the expansion project at Moa. phase II of the Moa Joint Venture expansion, the processing plant, is in its final stages of completion.
With lower nickel and cobalt prices and keeping with our objectives to preserve our liquidity, certain expenditures were pushed to the first quarter this year when construction will be completed. Overall, the project remains on budget, and timing of the ramp-up remains on schedule. During the fourth quarter, progress continued on piping installation and brick lining of vessels. Some pre-commissioning activities are also now underway and concurrent with the ramp-up. In addition, the Moa Joint Venture is undertaking a series of measures to improve some minor process bottlenecks to support the increased MSP production. We look forward to getting underway and advancing to the ramp-up over the coming months. Now to slide 10 for our guidance for 2025 for metals. Included in our guidance is the impact of our biannual Fort Saskatchewan ammonia plant turnaround and purchases of sulfuric acid required during the acid plant turnaround at Moa.
In 2025, we expect an increase in production of nickel and cobalt. We see production to be weighted towards the back half of the year, in part because MSP inventory at the refinery is currently low as a result of the external challenges in Cuba last quarter. In the second half of the year, particularly in the fourth quarter, higher MSP production is expected to be delivered to the refinery following the ramp-up of phase two of the expansion. This is expected to lead to further increases in finished nickel and cobalt production in 2026. Now, NDCC. NDCC is expected to be relatively consistent with 2024, benefiting from higher production and sales in addition to cost optimization initiatives. Offsetting this is our forecast assumptions for commodity prices, which we expect to result in lower cobalt byproduct credits and higher input costs, mainly from higher sulfur prices.
As in the past, we expect NDCC to be higher in the first quarter before benefiting from higher fertilizer byproduct credits in Q2 and Q4, in addition to the higher metal sales expected late in the year following the ramp-up of the expansion. Sustaining capital is expected to be CAD 35 million. In addition to this, CAD 40 million is expected to be spent on the Moa tailings project in each of 2025 and 2026. The new tailings facility expected to be commissioned in 2026 will provide a tailings solution for the Moa mine over the entirety of its mine life of approximately 25 years. The Moa Joint Venture has secured a $60 million equivalent loan in Cuban pesos from a Cuban financial institution with a five-year maturity that will be used to support the capital expenditure on tailings.
Growth spending on capital of $5 million is related to deferred spending from 2024, which is to be used for the completion of construction of phase II of the expansion project. Now turning to slide 11 for our power results in Q4. In Q4, due to the challenges involving the national power grid in Cuba, the government power agency required Energas to run the Varadero facility in frequency control, reducing power generation to help support the stability of the national grid. Energas expects that the Varadero facility will operate in frequency control throughout 2025 and will continue to be fully compensated for this reduction. During the fourth quarter, we saw lower power generation and higher unit operating costs as a result of the national-wide power outages and the Varadero facility operating in frequency control.
Even with this impact for the full year, power production was within its guidance range, and unit operating costs were just 1% above the top end of the range. In early October, another new gas well was brought into production. This new well was the third well to go into production since the second quarter of 2023 and will continue to improve utilization rates and significantly higher levels of power generation as part of our multi-year strategy to maximize the use of our invested capital in Energas that we expect will drive higher dividends. Now to slide 12 for our guidance for power. With the new gas well now producing, power production in 2025 will continue to be strong despite the Varadero facility operating in frequency control this year, which is estimated to have an impact of approximately 150 GWh in power generation.
As mentioned, Energas will be fully compensated for this reduction, and as such, we expect there will be no negative impact on power's adjusted EBITDA, earnings from operation, or dividends from Energas to Sherritt. Unit operating costs are expected to be significantly lower, with the midpoint of our 2025 guidance showing an improvement of 30%. Last year, major maintenance work at Puerto Escondido on three gas turbines during the second and third quarter, which brought an additional gas turbine online to increase operating efficiencies and to process gas being received from the new wells. Lastly, on spending, we're expecting $2 million for this year. I will now turn the call over to Yasmin for the financial results.
Thanks, Elvin. I'll begin with our financial performance on slide 14. Our financial performance continues to be impacted by the challenging price environment for nickel and cobalt. During the fourth quarter, average realized prices for nickel and cobalt were lower year- over- year by 8% and 29%, respectively, partially mitigated by our nickel put options, with $4.7 million received during the quarter. Conversely, we delivered considerable operational success, effectively managing the aspects that were within our control, which contributed positively to our financial performance. Specifically, in the quarter, nickel sales volumes were 23% higher, which was an impressive achievement considering the port strikes in Canada. In addition, mining, processing, and refining costs per pound of nickel sold were 14% lower in the quarter.
Combined revenue, which includes revenue from the Moa Joint Venture on a 50% basis and which more holistically reflects our performance, was higher at CAD 160.3 million compared to CAD 140.5 million in Q4 2023. This resulted from higher nickel revenue at the Moa Joint Venture, as higher sales volumes offset lower average realized prices, and with improved Fort Saskatchewan fertilizer revenue from both higher average realized prices and sales volume. Adjusted EBITDA in the fourth quarter of CAD 15.4 million was significantly higher year over year, primarily driven by the reduction in mining, processing, and refining costs, and a stronger contribution from nickel and fertilizer sales, as I just mentioned. Net loss from continuing operations was CAD 22.5 million.
Adjusted net loss from continuing operations was CAD 10.2 million and excludes an CAD 8.4 million non-cash impairment of intangible assets in oil and gas and a CAD 6.9 million non-cash loss on rehabilitation provisions as a result of updates to valuation assumptions for rehabilitation and closure costs on legacy oil and gas assets in Spain. Turning now to slide 15. We ended the year with CAD 62.4 million of available liquidity in Canada. We maintained approximately the same level from prior year, despite the impact of significantly lower metal prices and the array of external challenges in the fourth quarter, which demonstrates the effectiveness of our approach to managing our liquidity. During the fourth quarter, key changes in liquidity included CAD 23.7 million of cash received from the cobalt swap. This was in addition to the CAD 6.1 million received in cobalt.
CAD 7 million of dividends from Energas, bringing the total dividend received during the year to CAD 13 million. CAD 4.7 million of cash received from in-the-money nickel put options, with a total of almost CAD 6 million received for the full year. CAD 9.4 million in interest paid on second-line notes. CAD 3.6 million in payments on contractually obligated rehabilitation and closure costs related to legacy oil and gas assets in Spain, and changes related to the timing of working capital receipts and payments. Looking ahead, a few reminders for 2025. As Elvin mentioned, we expect nickel and cobalt production to be weighted towards the back half of the year. In line with that, and assuming current metals prices persist, we expect distributions under the cobalt swap to occur in the second half of the year in that it will not meet the annual minimum amount this year, similar to 2024.
We are anticipating much higher dividends in Canada from Energas, with higher levels of production and with the completion of the 2024 maintenance program. We expect to receive between CAD 25 million-CAD 30 million, which is a step change increase from the CAD 13 million we received last year. Finally, we expect to receive a full year of savings following the cost optimizations we implemented last year. That concludes my comments, and I will turn the call back over to Leon.
Thank you, Yasmin. Before we conclude, I will review our ESG highlights from the year on slide 17, starting with safety, which remains a key focus for us. During 2024, we completed comprehensive safety strategy sessions with each operation, developing concrete action plans, and we hired additional health and safety personnel to continue to improve our safety performance. We maintained and verified conformity with the LMES Track B responsible sourcing requirements. We completed a greenhouse gas emissions baseline assessment at both Moa mine site and the Fort Saskatchewan site and identified potential decarbonization opportunities. Lastly, we completed a climate risk assessment and opportunity assessment at Energas. Strong ESG credentials are critical for Sherritt. Beyond our social license to operate, current and evolving metals market customers increasingly prioritize responsibly sourced inputs.
Our strong ESG profile allows for new market opportunities and partnerships with key stakeholders and aligns with our longer-term marketing strategies to mitigate the risk from Chinese-driven oversupply in the market, as well as positioning us to take advantage of new customer growth segments where higher ESG criteria are being demanded and continue to evolve. Concluding on slide 18, although conditions were challenging, our operating teams delivered a strong quarter and year. Looking to 2025, we anticipate continued market pressures. However, we look forward to a year with strong operating performance, receipt of additional distributions under the cobalt swap, and significantly higher dividends from power. The ramp-up of the Moa Joint Venture expansion will be a key catalyst this year, increasing our MSP production from Moa for the remainder of its long mine life and will also benefit from a high-quality long-term tailings facility built to international safety standards.
Beyond this growth, we are continuing to make progress on our strategic initiatives, such as our MHP project focused on refining capability in the EV value chain, and we expect to provide more developments on this project in the year ahead. With that, operator, I'd like to open the call to questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask the question, and we'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Tony Robson from Global Mining Research. Your line is open.
Thank you, operator, and thank you for taking my question. Lots of headlines, even in the U.K. where I sit, regarding Trump initiatives against Cuba, going back on, I think, the list of sponsored tourism by countries. Your continued expansion in Moa suggests that, at least at the operating level, despite the emigration from the country, despite the power blackouts, the hindrances would be that Moa is still operating in a fairly consistent manner that you're comfortable with. Could you tell us a little bit more extent, please, on operating conditions in-country, availability of skilled personnel, and any other issues that you think are relevant? Thank you. I have a follow-up to that. Thanks.
Sure, Tony. Thanks for your call question. Operating conditions in Cuba have been much more challenging following COVID with a reduction of tourism revenue into the country. Following the initial Trump stance to go hard against Cuba and sort of maximum pressure, we have been able to navigate those conditions successfully over the last number of years and continue to expect that we will be able to navigate those this year and the years ahead. The conditions are not dissimilar to what we experienced in 2024, in 2025, from access to skilled resources. We have made a number of changes in recent times in collaboration with our Cuban partners to incentivize and to retain talent in Cuba, which we believe will drive success there. That should see fewer people exit the Moa region.
It is not unknown to people that Cuba has had a significant exit of talent out of the country, but some of the actions that we've taken, we believe, will have a positive impact on those and the ability to retain talent. We are confident that the actions that we have taken and continue to take will create the operating environment, albeit extremely challenging, in similar situations where we found ourselves this year and have similar outcomes.
Okay. Thank you for that. Further on the Trump administration, and I take it the answer will be no given the source of the materials, but I'll assume that if there's any potential sanctions against Canada, nothing in terms of refined nickel cobalt or fertilizer from Fort Saskatchewan goes to the U.S., would that be correct? Tariffs would not impact you?
That is correct. We do not currently sell any product into the U.S. nor have any dealings with the U.S. Any particular actions against Canada, we believe, will have minimal impact to our operations and our business. We are refraining from speculating what the Trump administration might do or any specific actions they may target.
Okay. Thank you. I'll hop on off the line and let an analyst ask a question, but I'll be back if I may, please. Thanks.
Thanks, Tony.
Our next question comes from the line of Gordon Lawson from Paradigm Capital. Your line is open.
Hey, good morning, everyone, and congratulations on a great quarter. On the swap agreement, I just wanted to confirm that you expect to receive the 2024 payments in the first half of this year, but there is a possible another deferment of the 2025 payments in the 2026. Is that correct?
Gord, just to remind everyone how the cobalt swap functions, there's a targeted minimum level per year. To the extent that that minimum threshold has not been met, it gets added to the following year. The target for 2025 is substantially higher than the minimum for a single year. We do not anticipate that to be fully fulfilled under current market conditions. However, we continue to expect that the cobalt swap will be fulfilled in the expected timeframe by the end of 2027, given the significant impact of retracted interest if it's not fully repaid in the expected timeframe. Our partners are highly incentivized to ensure that the cobalt swap is fully satisfied by the end of the term.
Okay. Okay. Yeah, that makes sense. Thank you. On the ramp-up, is it fair to assume or to model completion of the ramp-up by the end of the first half of this year?
We are only commencing the ramp-up in the first half of this year. I would suggest that we will start getting the volumes from the ramp-up really in Q3 and sort of reach full capacity by Q4.
Okay. It is even possible we could see another annual increase in guidance for 2026 then. That is another piece of great news coming out of this. Thank you very much. That is it for me.
Our next question comes from the line of Ethan Garber from Imperial Capital. Your line is open.
Yeah. Hi. Thanks for taking my call. Can you explain a little bit more detail on how you expect the revenue increase, the dividend increase from Energas? Is that related to increased output because it's quite a dramatic improvement?
Sure thing. Thank you. In 2024, we made some significant investments in Energas, or Energas made significant investments in restoring power production capabilities to utilize the additional gas from the new wells. That has driven increased production and sales and will continue to see the increased levels of production and sales, which is ultimately driving increased availability of cash flow and the ability to pay dividends. You would have seen year over year, the expected maintenance is materially lower and production year over year is higher. We expect, essentially, as Yasmin indicated, more than doubling of the dividend in 2025 over 2024.
Thank you for explaining that. Our unit production costs or unit operating costs, rather, are those correlated with fuel prices in any way, or are they really more an amortization of your operating cost, of your actual operating cost?
Just to remind everyone that the fuel is supplied to Energas free of charge by QPET. The cost of operating is purely the transformation cost of converting gas, treating the gas, and generating power. There is no cost to fuel or exposure to fuel, the cost of natural gas.
Thank you.
Our next question comes from the line of Tony Robson from Global Mining Research. Your line is open.
Thank you, operator, and thank you again for taking my second set of questions. Actually, partly answered by the previous analyst and your answer to him. One very small matter. Sorry, legacy oil and gas in Spain, you lost about $18.8 million to the year for strip-out depreciation amortization. There is about a cash spend of about $8 million-$9 million, assuming that penal loss represents cash. How do you see that going forward into 2025 and 2026? Will it stay at about that same level? For how long does it go? Does it sort of taper off over the years? Thank you.
Sure, Tony. A number of the adjustments that you would see that go through the rehab obligations are just normal quarterly adjustments to underpinning assumptions, whether those be discount rates, interest rates, or foreign currency movements. The table in the financial statements, the commitments table, indicate the expected maturity of when we expect the cash flows to occur. I can't remember the exact note in the financial statements, but you'll see that in the commitment table that outlines the expected timeframe. There is some spend in 2025, but most of the spend is back-ended sort of in that five-plus-year window.
Okay. Great. Sounds like I have to do some more digging through the accounts, which I haven't done yet. Thank you for that. No further questions.
There are no questions at this time. Please continue.
Thank you, operator. If anyone has any further questions, please feel free to reach out. We thank you all for joining us today.
Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.