Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Sherritt International third quarter 2022 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, November 3rd, 2022 at 10:00 A.M. Eastern Standard Time. I will now turn the presentation over to Lucy Chitilian, Director, Investor Relations. Please go ahead.
Thanks operator, and good morning. Thanks everyone for joining us today. Before we begin, I just wanna make mention of a couple items. As you know, we released our Q3 results last night, and, as all our disclosure materials, including the presentation, MD&A, and financial statements are available on our website as well as on SEDAR. In addition, yesterday, we also announced to purchase our junior and second lien notes. As is customary during today's call and webcast, we will be using a presentation that is available on our website and on the investor relations section. We will be referencing page numbers so you may follow along. We will also be making forward-looking statements and references to certain Non-GAAP financial measures. Non-GAAP measures and their reconciliation to the most directly comparable IFRS measures are included in the appendix to the presentation.
Forward-looking statements and disclosures related to such items are found on slide three of our presentation. With me today are Sherritt's Chief Executive Officer, Leon Binedell, and Chief Financial Officer, Yasmin Gabriel, who will be reviewing our results in detail. Following Yasmin and Leon's discussion, we will open the call up to questions. I would also welcome any questions after the meeting. With that being said, it is my pleasure to pass the call along to Leon.
Thank you, Lucy. Good morning, everyone, and thank you for joining us today. In our third quarter, we made significant advances on our strategic priorities while maintaining strong operating results. We had strong adjusted net earnings and adjusted EBITDA, both up substantially over the prior year, driven by higher nickel and fertilizer sales volumes and realized prices. We finalized a transformative five-year payment agreement with our Cuban partners to settle CAD 362 million of outstanding receivables. Sherritt's board approved an additional $50 million on our expansion plans on a 100% basis. The Cuban authorities approved the extension to the Energas power generation contract by 20 years, and we issued our 2021 sustainability, climate, and tailings management reports, as well as our sustainability scorecard outlining our performance on ESG matters.
I will provide an overview of our operations and expansion plans, and Yasmin will provide commentary on our financial highlights, our recent cobalt swap arrangement to settle the Cuban receivables, and comment on our debt repurchase we announced last night with our Q3 results. I will conclude with an update on ESG matters and our near-term outlook before we address any questions. We will start the operations overview with the Moa JV Q3 production of fully finished nickel and cobalt versus the prior year, as outlined on slide six. Sherritt's share of finished nickel production for the quarter was 4,443 tons, which was 53% higher compared to the prior year quarter. While finished cobalt production of 419 tons was 25% higher compared to the prior year period.
These increases were primarily a result of the timing of our annual refinery plant maintenance shutdown, which occurred in the second quarter of this year, while it was delayed into the third quarter of last year due to the impact of the COVID pandemic. On a more comparable basis, excluding the impact of the timing of the shutdown year over year, nickel production was 6% higher on a year-to-date basis, covering the first three quarters of the year over the same period of the last. While cobalt production was marginally lower, primarily due to higher nickel to cobalt ratio in the feed mix into the refinery. The lower cobalt in the feed mix will continue to the fourth quarter, and we therefore anticipate cobalt production to come in around the bottom end of our guidance range, while nickel is anticipated to be well within the guidance provided.
As we discussed last quarter, logistics-related challenges in transporting finished production to customers experienced in the second quarter continued throughout the third quarter. Outlined on slide seven is the comparison of production versus sales. The temporary order deferrals for nickel generally reconciled through the third quarter, largely related to a more cautious restocking approach taken by consumers after the resumption of economic activity in China following the recent zero COVID lockdown policies being lifted. The positive consumer sentiment of increased economic activity in China was tempered by continued recessionary and global inflationary fears, as well as a reduction of steel manufacturing in Europe due to the significant increase in energy costs and energy uncertainty. Affected sales orders were partially offset by higher net back sales to other markets and sales to new customers. On a year-to-date basis, finished nickel sales were lower than production.
However, in the third quarter, we started to drive our inventory down to more typical levels and expect to reach target inventory levels by the end of the year for nickel. Finished cobalt sales volumes for both the third quarter and on a year-to-date basis continue lower than production, with a contraction in the consumer electronics sector compared to 2021 contributing to reduced lithium cobalt oxide demand. Given this is a near-term issue, we expect cobalt inventory to reduce to more typical levels by the end of Q1, 2023. The lower cobalt sales volumes related to nickel is having a negative impact on our near-term direct, net direct cash costs or NDCC, which I will cover on the next slide.
The net direct cash cost at the Moa Joint Venture increased by 49% to $6.76 per pound compared to $4.53 per pound in Q3 of 2021 as outlined on slide eight. The higher NDCC was primarily due to higher mining, processing, and refining or MPR costs year-over-year as outlined in the slide, and lower cobalt by-product credits as mentioned, due to the low cobalt sales volume in the quarter relative to the sales volume of nickel. We have seen a significant reduction in sulfur prices in the back half of the quarter, but we'll only see the benefit of this later in Q4 once higher cost inventories are wound down.
While cobalt revenue was only marginally lower in the current quarter over the prior year, the cobalt credit in NDCC was 38% lower as a result of lower cobalt sales relative to the high nickel sales volumes. We sold 13 pounds of nickel for every pound of cobalt in Q3, when a normal ratio is more 9: 1. We expect that the cobalt by-product credit should normalize as we sell our inventory down over the coming two quarters. With elevated nickel sales in the fourth quarter, we see this ratio revert back to normal levels in 2023, but we'll see a reversal in Q1 2023. The impact of higher MPR costs and lower cobalt by-product credit was partly offset by higher net fertilizer by-product credits.
On a year-to-date basis, NDCC was CAD 4.39 per pound compared to CAD 4.30 in 2021, despite the significant increases in input prices, mainly on the back of increased by-product credits year-over-year. As a result of the softening cobalt and fertilizer prices in the third quarter relative to the first half of the year, coupled with the logistics issues related to delivery of cobalt sales, we updated our NDCC guidance to a range of CAD 4.50-CAD 5.00 per pound, as we only see our cobalt inventories fully unwind in early 2023, while nickel inventories are expected to unwind in Q4, continuing the elevated nickel sales volumes relative to cobalt. Turning to our power division on slide nine.
Power production in Q3 was 139 GWh of electricity, up 26% from 110 GWh produced in the comparable period of 2021, primarily as a result of timing of maintenance activities year-over-year and access to increased gas volumes for power production for this year. Accordingly, the higher production resulted in a lower operating unit cost in the quarter. We are excited that we received approval for the extension of our power generation contract through 2043. The extension of this economically beneficial contract supports Sherritt's ongoing investment in Cuba with the extension of the Energas payment agreement, which Yasmin will elaborate on, and we expect to receive distributions from Energas on a timely basis over the coming five years. For 2023, we are continuing discussions about Cuban partners to develop even additional gas supply for our Boca facility.
This is a key strategic priority for this business going forward, and we hope to have approvals for this by early 2023. The additional supply could double the production from the Boca facility by 2024 and provide much needed additional source of electricity in Cuba, which has been suffering from a chronic shortage of electricity recently. That concludes my remarks on operations. This quarter, we are pleased to announce that our board has approved the next phase of our expansion plans at the Moa Joint Venture as outlined on Slide 11. As part of our disciplined approach to pursue only the most valuable brownfields growth objectives, we narrowed the scope of our expansion investment to the most critical components, resulting in an estimated cost of only $50 million on a 100% basis.
As a reminder, this amount is expected to be funded by the joint venture itself and not by Sherritt. We anticipate spending on growth capital to be spread evenly over a two-year period. The joint venture expects to fund this capital primarily from operating cash flows, but will seek external funding for select components of the expansion plan. With the previously approved slurry preparation plant project well underway, the estimated combined cost of the two phases of expansion is approximately $77 million on a 100% basis. With the market focus on EV batteries, we see an opportunity to focus our strategy on increasing production of intermediate products that will enable us to fully utilize the existing capacity at the refinery and consider direct sales of intermediate product into the EV battery supply chain.
This phase of the expansion will focus on increasing mixed sulfide intermediate production, or MSP, and consists of the completion of the leach plant's sixth train, the fifth precipitation train, and construction of additional acid storage capacity at Moa. The completion of the SPP, of course, slurry preparation plant, which is expected to be completed in early 2024, and the second expansion phase just announced will be completed by the end of 2024, as previously indicated. The total increase in MSP is estimated at 20% of current production, or an additional 6,500 tons of contained metal, resulting in a combined capital intensity of approximately $13,200 per annual ton of increased nickel content.
One thing that is new to Sherritt is that we estimate that two-thirds of this increased production will be processed into finished nickel and cobalt, while the remaining one-third could be sold as an intermediate product or MSP directly from Moa into the EV supply chain. In the next slide, we summarize this impact on production relative to 2021. As you can see in the schematic for illustrative purpose on Slide 12, 2021 finished nickel and cobalt production was 34,756 tons. With a full expansion at Moa by the end of 2024, we expect to increase MSP by approximately 20% of this amount. This equates to approximately 6,500 tons of contained nickel and cobalt. Current refinery capacity is approximately 38,200 tons of metal output.
In order to accommodate the increased MSP without additional investment in the refinery, we expect that two-thirds of the MSP will be processed into finished nickel and cobalt using the existing capacity, and we expect to sell one-third of the MSP as an intermediate product directly into the EV battery supply chain. In order to accommodate the refining of the additional MSP production from Moa, some lower margin third-party feed will likely be reduced. Therefore, Sherritt expects that its net finished nickel and cobalt production will increase by approximately 10%. Any balance will be sold as MSP intermediate product. We will continue to optimize refining operations to enhance capacity, however, do not anticipate any additional capital investment in this time. Moving to Slide 13. Starting with the SPP project underway.
Currently, we have completed 80% of the civil construction and 96% of the contracts for supply of materials and services have been awarded. The structural steel and prefabrication is ongoing, and erection will commence in November, along with field assembly of major equipment. To the end of Q3, $10.7 million on a 100% basis of growth capital has been committed and prioritized on long lead items, including equipment, construction supplies, and civil and mechanical construction. In regards to the Moa processing expansion work, in Q3, a detailed engineering review of the leach plant six train was completed to confirm the engineering work done in the initial expansion phase a decade ago. The first stage of the feasibility study for the leach plant was approved by Cuban authorities, allowing for the ordering of long lead items.
The final stage of the feasibility study, encompassing the full project scope, is near completion as is required for final Cuban authority approval for the project. We anticipate this approval in time to meet the plant project schedules. Bids are being solicited for long lead items with the leach plant sixth train, thus ordering can commence as part of the preliminary approval already in place. Basic engineering will commence in Q1 of next year for the fifth sulfide precipitation train and the additional acid storage capacity. As a reminder, the SPP remains on budget and schedule for completion in early 2024 and is expected to deliver a number of benefits, including reduced ore haulage distances, and as a result, lower carbon intensity from mining and increasing our annual MSP production by 1,700 tons.
I am pleased at the progress we are making and encouraged that we will meet our expansion timelines. The work to complete the economic cut-off grade and the new life of mine development continues at the Moa Mine. As outlined on Slide 14, in Q3, the resource model classification and pit optimization activities were completed. The final development of the life of mine is in progress, and we expect mine plan sequencing and reserve estimates to be completed in Q4. The economic cut-off grade and life of mine analysis using these latest methodologies show very good progress towards extending the current life of mine to beyond 2040. We continue to engage with Cuba's Natural Resource Agency and expect alignment on the mine execution plan using these new methodologies in Q4. Development of a National Instrument 43-101 and peer review will occur during Q4 and early Q1.
The final draft of the National Instrument 43-101 is expected to be released in Q1 of next year. That concludes my remarks on operational performance and our expansion plans. I'll now turn the call over to Yasmin to review our financial results.
Thanks, Leon. Turning now to our key financial metrics on Slide 16, adjusted EBITDA and net earnings. Our adjusted EBITDA in Q3 of CAD 37.4 million was 113% higher than last year. This was driven by higher nickel and fertilizer sales volume and realized prices and the timing of our annual maintenance shutdown, as Leon noted earlier. Despite the higher adjusted EBITDA, we did recognize a net loss from continuing operations in the quarter. This loss was primarily due to the impact of a CAD 48.5 million non-cash loss on revaluation of the ACL related to the NRF conditional sales agreement. This was primarily as a result of the suspension of interest over the five-year period of the cobalt swap agreement, which I'll expand on shortly.
On an adjusted basis, removing the impact of non-cash adjustments, we had adjusted net earnings from continuing operations of CAD 13.9 million, compared to an adjusted net loss of CAD 13.4 million, representing a 204% increase. On a year-to-date basis, primarily as a result of higher nickel, cobalt and fertilizer revenue, we had adjusted net earnings from continuing operations of CAD 95 million, compared to an adjusted net loss from continuing operations of CAD 28.7 million for the same period last year, representing an increase of 231%. Turning now to our liquidity position on Slide 17. At the end of Q3, our total liquidity was CAD 229 million, up from CAD 216 million at the start of the quarter.
Strong operating cash flow, mostly related to higher fertilizer receipts, more than offset the timing of the Moa Joint Venture distributions and capital spending of CAD 10.4 million. Through quarter end, we received a CAD 20.6 million Moa Joint Venture distribution and expect additional distributions in the balance of the year. We continue to expect our distributions in the second half to be higher than the first half, which was CAD 43.4 million. Subsequent to the quarter, at the end of October, we paid the semi-annual interest payment on our second lien note, CAD 13.2 million. We did not make a mandatory redemption of the second lien notes in October. Although we met that excess cash flow condition, we did not meet the minimum liquidity condition as defined in the indenture agreement, primarily as a result of the timing of dividends from the Moa Joint Venture.
Our current available liquidity and expected cash flow provides an opportunity for us to pursue growth, including our narrowed expansion strategy at the Moa Joint Venture, while also continuing efforts to reduce debt to achieve balance sheet strength. Now shifting to Slide 18. As we disclosed on October 13th, we finalized a transformative agreement with our Cuban partners to settle CAD 362 million of total outstanding Cuban receivables over a five-year period, putting an end to the long-standing repayment uncertainty related to these receivables. Under the agreement, which takes effect on January 1st, 2023, the Moa Joint Venture will prioritize payment of dividends in the form of finished cobalt to each partner, up to an annual maximum volume cobalt, with any additional dividends in a given year to be distributed in cash.
All of our Cuban partners' share of these cobalt dividends, and potentially additional cash dividends, will be redirected to Sherritt. Payment settles the receivables until the annual maximum cobalt volume and dollar amount limits have been reached. Once we receive the cobalt, we'll sell it into the open market. The primary benefits to the agreement are that we now have reasonable certainty that the full amount will be settled over the five-year term of the agreement, as it no longer depends on our Cuban partners' ability to access foreign currency. We're confident that cash flows of $114 million will be delivered annually through the sale of cobalt, half of which will be used to settle the amount receivable.
We expect to receive the majority of the payments prior to the maturity of the second lien notes in November 2026, as you can see on this slide. It provides an opportunity for accelerated collection of the receivable if the market value of the cobalt increases. Now, in exchange for these benefits, Sherritt agreed to forego interest over the repayment period of five years on condition that the full amount is received within this timeframe as an incentive. This results in the non-cash loss we recorded this quarter, which I mentioned earlier. For further detail on the mechanics of the cobalt swap agreement can be found in both our press release and MD&A. On Slide 19, you'll see that concurrently we finalized an extension to the Energas payment agreement, which we refer to as the Moa Swap.
This mechanism, which has now been in place for several years, allows for the monthly exchange of local currency at Energas for foreign currency at the Moa Joint Venture. The local currency is used by the Moa Joint Venture to fund local operating expenditures in Cuba. The foreign currency is paid directly to Sherritt by the Moa Joint Venture to facilitate foreign currency payments for Energas operating and maintenance costs, and to pay dividends to Sherritt. I'd like to highlight that this annual $50 million will be received in addition to the $114 million expected to be received under the cobalt swap agreement. Finally, as many of you would have seen yesterday, we announced another offer to repurchase our junior and second lien notes for an aggregate cash consideration of up to CAD 50 million.
Our strong 2022 results, along with our expected cash flow, creates a further opportunity to reduce our debt and achieve balance sheet strength, while also remaining committed to advancing our expansion plans, the scope of which has been narrowed to the most critical components. The transaction in June, along with this offer, provide our note holders with options to receive cash sooner. Under the terms of the offer, which are consistent with our previous offer this year, we'll purchase all tendered junior notes at a fixed price of $520 per $1,000 principal amount, plus a 3% premium for those tendered before the initial expiration date. If any funds remain after the purchase of junior notes, we have the option to purchase tendered second lien notes by way of a modified Dutch auction.
We encourage you to review the supporting documents available on our website and SEDAR for further details should you wish to participate. That concludes my remarks. I'll turn it back to Leon for an update on ESG, 2022 outlook, and for my closing remarks.
Thank you, Yasmin. As you would have seen, we released our 2021 sustainability report during the quarter. Highlights are outlined on Slide 22. Our sustainability framework is intrinsically embedded into our overall business strategy, which is focused on growing and optimizing our existing operations, maximizing value to our shareholders, employees, and communities, and building our brand as a preferred supplier of critical minerals. We continue to progress on our commitments to achieving net zero greenhouse gas emissions by 2015 by obtaining 15% of our energy from renewable sources by 2030, reducing nitrogen oxide emissions intensity by 10% by 2024 in the near term. We are also making good progress on increasing the number of women in the workforce to 36% by 2030.
As you can see from the slide, we continue to focus our attention and resources on ensuring the safety of our employees and communities, as well as building an organization that is focused on diversity, inclusion, and gender equality, while at the same time addressing our environmental responsibilities by advancing a roadmap to achieve a just energy transition by 2050. Looking ahead to the rest of the year, our guidance as outlined on Slide 24 for nickel and cobalt production remains unchanged. However, based on the expected nickel to cobalt ratio in the feed to the refinery, which we mentioned, finished cobalt production for the year is expected to be around 3,400 tons.
The recent softening of cobalt and fertilizer prices and logistics issues related to delivery of cobalt sales suggest that our NDCC guidance range will be between $4.50 and $5 per pound. This is slightly above our previous guidance. Our guidance for sustaining spending on capital remains unchanged. However, we have revised our guidance for growth spending on capital at the Moa JV to $10 million from $19 million previously as a result of the narrowed scope and the deferral of some spending into 2023. In regards to power, production guidance was increased based on the improved performance for the nine months to end of Q3 and was increased to 525 GWh-550 GWh for the full year due to the increased availability of gas supply.
As a result of the increased power production and delays in delivery of some parts and supplies into Q1 2023, the unit cost guidance range for power has decreased to $22 MWh-$23 MWh . I wanna thank you for your time today. In conclusion, on Slide 25, as you have heard, Sherritt had strong and busy Q3, and we continue to make progress in meeting key strategic priorities for the year. We signed the agreement to address our Cuban receivables, launched a further debt repurchase last night. We approved the expansion plans at Moa JV. We received approval for the extension of our power generating contract to 2043, and we signed the Energas payment agreement, which helps support ongoing business as well as provide a mechanism by which Sherritt can receive dividends on a timely basis.
Finally, we released our 2021 sustainability report, which continued to show peer leading safety performance, showcasing contributions of almost CAD 1 million to community investment projects while we experienced no security incidents involving allegations of human rights abuses at any of our operations. We completed an LME accreditation audit confirming no child or forced labor in any of our supply chains. Operator, I would like to open the call to questions at this time. We encourage everyone with questions not being addressed in this call to contact Investor Relations following this call. Operator, over to you.
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 three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Gordon Lawson at Paradigm Capital. Please go ahead.
Hey, good morning, everyone. Congratulations on another great quarter. Could you just elaborate for me, please, just to be clear, are you no longer expecting to make upgrades, or debottlenecking work at Fort Saskatchewan or any work on the autoclaves?
What we're currently anticipating, Gordon, thank you for participating, is to spend additional investment capital at Moa exclusively while we continue to work operationally to debottleneck and enhance operations at the refinery. At this time, we do not see any need for additional capital investment to expand capacity at the Fort site.
Okay. Does that include the autoclaves?
Indeed. Because we believe there is sufficient viability of intermediate products, we do not see the need to make any additions at the refinery at this time to process all of the MSP from Moa, but the majority of it will still continue to be processed through the refinery utilizing existing capacity.
Okay. This is more in line with the growing development of the battery market. Is that correct?
That is correct, yes.
Okay. I'm sorry I missed it, but could you please elaborate on what was said on the credit issues that stemmed from the Moa payment and if there are any penalties from this?
Sorry, could you repeat that, Gordon?
There's a statement regarding credit issues related to debt as a result of missed Moa payments. Could you just please elaborate on that and whether or not there are expected penalties from this?
Oh, you're referring to the mandatory redemptions?
Yes.
The mandatory redemptions are based on excess cash flow, but are minimum liquidity at the time, and that would have been based on October. At that time, we wouldn't have had the minimum liquidity. No, there wouldn't be any penalty. It depends on both excess cash flow and minimum liquidity requirements at a point in time.
Oh, okay. Great. Thank you very much. That's it for me.
Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star one now. We do have a question from John David at LMA. Please go ahead.
Yes. On behalf of shareholders, I think this is a very impressive movement forward in the activities that you've accomplished this past quarter. I mean, it's quite amazing and gives a lot of stability to the company, particularly the balance sheet. However, I did want to raise the issue of executive compensation publicly. My concern is, as a long-term shareholder and others, since November 3rd, 2017, five years ago, our shares have decreased in value from $1.40 down to a low of almost $0.10, and presently around $0.40+. This represents a loss of shareholder value of CAD 400 million, more or less.
At that time, five years ago, the board substituted the existing executive bonus compensation system of awarding share options which aligned management with shareholders directly and reverted to a cash bonus system based on RSUs, which do not align with shareholder value. At present, if shares return to the 2022 high of CAD 0.65, Sherritt is obligated to pay executive compensation at this time of CAD 30 million. If they return to the 2017 level five years ago, they would be obligated to pay almost CAD 90 million. As a shareholder, I'm concerned that these cash bonuses are paid by a cash-poor company and directly reduce per share profit by CAD 5 million per CAD 0.10 share price increase. This has a huge impact on shareholders, a negative impact on shareholder value by reducing the price earnings ratio, and thus the share price.
John.
Yes.
John.
My question is, the existing RSU compensation system is destructive for shareholder value. When is Sherritt going to revert to the option share-based bonus system on the books to properly align executive compensation with shareholder interests? Thank you.
Thank you for your question, John. We appreciate your concern. At our AGM, we did commit to do a review of executive compensation. That review is ongoing, and we have disclosed the implications of our current plans to the market, and you rightly pointed out what those implications are. We would happily engage with you one-on-one to talk through these options and what we have been doing about this at the appropriate time once we've completed our current work on executive compensation. What I would like to highlight is that we continue, as you pointed out rightly, that we're building the sustainability of this business.
We've addressed our balance sheet risk to a large degree with the transactions we've concluded in the last quarter or so, and we continue to focus on improving the balance sheet and delivering value to our shareholders.
Thank you. At this time, I will turn it back over for closing comments.
Thank you. Thank you, operator. Thank you everyone for attending our call today for the third quarter. We appreciate your interest in the company. We want to encourage our note holders to take a look at the press release from yesterday and to consider our repurchase offer. If you have any questions, please feel free to give us a call. Lucy is always standing by to answer questions.
Thank you, operator, and we'll hand the call back over to you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.