Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Sherritt International Second 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, July 27, 2023 at 10:00 A.M. Eastern Standard Time. I would now like to turn the presentation over to Mark Preston, Manager, Investor Relations. Please go ahead, sir.
Thank you. Good morning, everyone, and thank you for joining us today. Before we begin, I just want to make mention of a couple of items. As you know, we released our Q2 results last night, and all of our disclosure materials, including the press release, the MD&A, financial statements, and they're all available on our website as well as on SEDAR. As is customary, during today's conference call and webcast, we will be using a presentation that is available on our website in the Investor Relations section.
In addition, we will be making forward-looking statements and references to certain non-GAAP financial measures. Cautionary notes on forward-looking statements can be found on slide three, and the non-GAAP measure discussions and reconciliations to the most directly comparable IFRS measures are included in the appendix to the presentation.
With me today are Sherritt's Chief Executive Officer, Leon Binedell, and Chief Financial Officer, Yasmin Gabriel, who will be reviewing the results in detail. Following this discussion, we will open the call to questions. It's now my pleasure to pass the call on to Leon.
Thank you, Mark. Good morning, everyone. Thank you for joining us today. I'm starting on slide 4. This quarter was highlighted by the fact that we received almost CAD 100 million in the quarter on our cobalt swap agreement. This is a testament to the quality and effectiveness of the agreement and the strong working relationship we have with our Cuban partners.
With the success of this first year, we are confident that the remaining 4 years will be equally successful. Just for some context, while CAD 76 million of the dividends were redirected by our partner, GNC, to pay down their receivables, an equal amount came to Sherritt as our 50% share in dividends for the year to date.
This was the second highest dividend payment from the Moa Joint Venture, behind last year when we benefited from strong nickel and cobalt prices and record high fertilizer prices. At the end of the quarter, we had approximately CAD 125 million in cash and available liquidity in Canada.
We're also excited that we started receiving additional gas from 2 new wells drilled on behalf of CUPET that will have a significant positive impact on our power operations for years to come. With the continuing success of the Moa swap, which provides Energas with foreign currency on a monthly basis, we can start to look forward to receiving dividend distributions from the power business in future. Operationally, we had a bit of a mixed quarter, but the biggest challenge, which was out of our control, was commodity prices.
Each of the nickel, cobalt, and fertilizer prices were significantly lower in the current quarter than last year. Sales volumes for each of the commodities were higher than last year, and we benefited from lower input commodity prices. The 63% decrease in cobalt realized prices and a 35% decrease in fertilizer prices had a material impact on our net direct cash cost and profitability.
I'll go into these in a bit more detail and provide additional operational updates, and then Yasmin will elaborate on our financial results. I'll come back and talk about our 2023 guidance before we take questions. Turning to slide 5 on our strategic priorities, we continue to focus on delivering and advancing our strategic priorities. Foremost, we strengthened our balance sheet during the quarter with a cobalt swap I just mentioned, and Yasmin will elaborate on this.
We continue to progress the Moa JV expansion, which remains on budget and on schedule for a 2024 completion, which when completed, we expect will see production of contained metal from Moa increased by 20%. We issued our 2022 sustainability reports, which showed continued progression towards our ESG targets. In our technologies division, we continue to advance our commercialization activities. .
We commenced the mixed hydroxide precipitate test program, which is supported by funding commitments from Natural Resources Canada, which we announced last quarter. We advanced our flowsheet for our Next-generation laterite processing technology, or NGL, as we call it, and commenced new batch testing on specific laterite opportunities to test NGL's applicability. I will now review our operating results for the quarter. Sadly, during the quarter, Sherritt reported two fatalities at the Moa site.
While we've been demonstrating improved safety performance for a number of years in our total recordable and lost time injury frequency rates, over the past quarter, we failed to deliver our significant, most fundamental expectation of zero fatalities. Following the incidents, the president of GNC, our Cuban partner, and I, visited the site to express our condolences and to demonstrate our personal commitment to health and safety and our continued support for the organization.
Our initial focus was on ensuring support for the families and coworkers who lost loved ones and close friends. Together, we moved swiftly to investigate and assess the safety culture, procedures, and protocol failures that ultimately contributed to these incidents. In collaboration with local management and the authorities, these incidents were investigated using a rigorous root cause analysis methodology, and a diagnostic gap analysis of the site's fatality prevention measures was completed.
We are committed to implement improvements to prevent fatalities at Moa in collaboration with our Cuban partner. To date, Moa has reinvigorated training and compliance with fatality prevention standards and completed an ICAM investigation and commenced the implementation of the recommendations for improvement following these two incidents.
We also performed a fatality prevention maturity assessment, and we are working closely with our joint venture partners to also enhance the safety improvement tracking at Moa. Q2 production results for the Moa Joint Venture are outlined on slide eight. Operationally, this quarter again, saw a number of challenges for our Moa JV, particularly in maintaining or enhancing appropriate feed availability to the refinery. At the Moa mine, while ore blending related issues from Q1 were resolved in Q2, we continue to see challenges in increasing Mixed Sulphide production effectively to build our feed stockpile at the refinery.
An unplanned maintenance incident occurred in the quarter, where a sulfur pipeline leaked sulfur into a steam feed and fouled the hydrogen plant catalyst, causing an outage in the hydrogen plant. This cost was a loss of approximately 600 tons of metal in MSP at Moa during the quarter. Sherritt's 50% share of finished nickel production in Q2 was 3,268 tons, or 12% lower than the prior year. Finished cobalt production during the quarter was at 331 tons, down 16% from Q2, 2022, primarily due to the lower feed availability from Moa, stemming from the Q1 challenges.
Production for the second half is expected to be at normalized rates at the refinery, following the planned annual refinery maintenance shutdown in Q2. We'll start to access new mining areas in late 2023 to further enhance blending opportunities in Moa. Maintenance challenges at the Moa mine in the first half of the year, coupled with the ore blending challenges from Q1, have impacted feed availability at the refinery.
As a result, full year production is expected to be at the lower end of the guidance range for the year. However, additional third-party feed has been secured to utilize the existing refinery capacity to help offset these shortfalls. I'll talk a little more about this when we review the outlook for the remainder of the year.
As you can see from the graph on Slide 9, our net direct cash costs, or NDCC, was significantly higher in the current quarter compared to last year. The most significant impact was the lower byproduct credits compared to the prior year. Despite higher cobalt and fertilizer sales volumes, a 63% lower cobalt realized price and 35% lower fertilizer prices, and the impact of our biannual sulfuric acid maintenance activities in Q2 this year, collectively amounted to almost $3.50 impact on a per pound basis of nickel salt.
As a reminder, Q2 last year, saw record high fertilizer prices and a spike in cobalt prices as a result of the Russian invasion of Ukraine. Higher MPR costs reflect lower production volumes and the costs associated with the significantly higher cobalt sales volumes in the current year period, and additional maintenance costs related to the issues mentioned.
The higher MPR costs were partly offset by lower input commodity prices in Q2, where we saw a 49% decrease in global sulfur price, 50% decrease in natural gas prices, and a 24% decrease in fuel oil prices. Based on the NDCC for the six months to June of $6.88 per pound, expected production levels for the rest of the year and materially lower realized prices for cobalt and fertilizers, we have revised our 2023 guidance. I'll cover this shortly. On slide nine, just a quick update on the Moa JV expansion program. We continue to make good progress and the program remains on time and on budget.
To date, the structural steel and field assembly on the slurry preparation plant is complete, and the piping, electrical, and slurry water return piping are all progressing on schedule, and for project completion in early 2024. For the sixth leach train, more than half of the contracts have been awarded, collectively within budget and included all the long-lead items. This sets this project up for principal construction in 2024 and for completion by the end of 2024 on budget.
The acid tank construction, the vendor has been selected and a contract will be awarded once the permits are granted in the second half of this year. Just a reminder for everyone that this program is being fully funded by the joint venture itself and does not impact Sherritt's liquidity.
Given the low capital requirement and the amounts already spent to date, we are confident that the joint venture will have sufficient liquidity to complete these projects as planned. Turning to our power division on slide 11, electricity production for Q2 was 172 gigawatt hours, 29% higher than the prior year period.
The increase in electricity production is a result of increased equipment availability, as one turbine was brought back online following completion of maintenance work in order to utilize the successful increase in the available gas. During the quarter, Energas began receiving the additional gas from 2 new wells drilled on behalf of Cupet, the Cuban oil company. As part of the joint venture agreement, the gas is provided to Energas free of charge for use in power generation.
We continue to investigate opportunities to further increase gas supply for additional power production to maximize the available capacity of these facilities. Unit operating costs for Q2 were higher than Q2 last year as a result of the timing of maintenance spend, partly offset by the higher electricity production and sales.
As a result of the increased available gas and the increased equipment availability, we updated the 2023 annual guidance ranges for our power business as well. Since the last earnings presentation, we had a number of inquiries about Sherritt's interest in the gas production of these wells.
I want to say that while our oil and gas business unit provided the drilling services for these wells to CUPET, we have no economic interest in the gas production, but we receive gas free of charge, principally for power production and for domestic gas sales through the Energas joint venture. With that, I'll hand over to Yasmin to summarize our financial highlights before I return to our guidance.
Thank you, Leon. Start today with our key financial metrics, slide 13. Both Adjusted EBITDA and net earnings from continuing operations for Q2 2023 were lower than Q2 2022. The most significant factor was the reduction in average realized prices for nickel, cobalt, and fertilizer. Combined, these changes had just over a $60 million impact on Adjusted EBITDA and net earnings. In addition, we had higher costs associated with the significantly higher cobalt sales volume in the current year period and additional maintenance costs impacting production, as Leon noted earlier.
We also had a $15 million lower non-cash share-based compensation recovery, resulting from a 44% decrease in the share price on a higher number of vested units in Q2 of last year. Despite these factors, we maintained profitability with higher sales volume from each of the commodities.
Shifting to slide 14 for an update on our cobalt swap agreement. As Leon mentioned earlier, we are very pleased to have successfully completed the first year of the cobalt swap agreement before midyear. This demonstrates the strong working relationship we have with our Cuban partners and reinforces our confidence that we will receive the full benefit of the cobalt swap over the next 4 years. It will not only provide significant liquidity in excess of our second lien notes maturing in November 2026, but will also provide us with strategic optionality. As we previously disclosed in June, the Moa Joint Venture distributed the annual maximum cobalt volume of 2,082 tons, with an in-kind value of $88 million.
With the downside protection in the agreement, a cash top-up dividend of $64 million was distributed by the Moa Joint Venture in June to reach the annual minimum dollar amount of $114 million. Half of the cobalt and cash received, which totaled $57 million or CAD 76 million, was redirected to Sherritt by GNC to settle the outstanding Cuban receivable. To date, we have sold more than 90% of the cobalt for $73 million and have received $67 million in cash from these sales.
We continue to sell the remaining volume into the market and expect to receive all remaining cash from sales by the end of Q3. Turning to our liquidity position on slide 15. At the end of Q2, our available liquidity was $125 million, compared to $82 million at the end of last quarter.
The increase results primarily from the almost CAD 100 million we received from the sale of cobalt, plus the cash top-up dividend received under the cobalt swap I mentioned on the previous slide. This increase was offset by a number of items, including CAD 18 million used at our Fort Site operations, primarily due to the timing of payments relative to strong pre-sales received in Q1.
We also paid our semi-annual interest on our second lien notes of about CAD 9 million, and we repurchased CAD 7 million of our PIK notes on the open market at a 27% discount. We were not required to make a mandatory redemption of second lien notes in April, as a minimum liquidity threshold was not met.
As a reminder, with the completion of the current year obligations under the cobalt swap, any further dividends from the Moa Joint Venture this year will be distributed equally to each partner in cash. On slide 16, I'll provide an update on our PIK notes. Year to date, we've repurchased CAD 11 million on the open market at a 30% discount, that includes CAD 7 million repurchased in the quarter, as I mentioned in the previous slide. This week, we made the semi-annual interest payment on the PIK notes in cash, rather than adding to the principal balances we've done in the past, stopping the compounding impact of capitalized interest.
With the liquidity from the cobalt swap and the expectation that it will be equally successful in the remaining four years of the agreement, we are looking ahead in pursuit of significant strategic options, including providing returns to our shareholders. In order to pay dividends or repurchase shares, we need to make two consecutive cash interest payments on the PIK notes, so again in January 2024, to utilize the permitted spending capacity under the terms of the second lien note.
The amount of permitted spending is a point-in-time calculation, and at the end of the quarter, we had approximately CAD 114 million of capacity. This capacity provides us with significant flexibility to pursue investments and future returns to our shareholders. That concludes my remarks. I'll pass it back to Leon to discuss the 2023 guidance.
Thank you, Yasmin. Slide 18 outlines our revised guidance for 2023. As we mentioned last quarter and again earlier today, the volatile cobalt prices had a significant impact on our year-to-date NDCC. The current year-to-date cobalt credit is $1.81 per pound, compared to $3.14 in the prior year. We came into the year forecasting a US $23.50 per pound cobalt reference price. In updating our NDCC guidance, we are currently using a forecast annual reference price of $16.80 US per pound, which is materially lower, requiring an update to our NDCC guidance.
In addition to the cobalt market challenges, we have reduced our expected fertilizer credits on the back of lower fertilizer prices, as mentioned. During the annual shutdown this quarter, we had planned on commencing replacement of an old compressor in the ammonia plant and had a new one ready to go.
On cut over to a rental unit, which we were planning to use during the replacement work, we discovered that the rented compressor was defective. We have addressed the situation in late July, but in the meantime, we purchased ammonia, and while nickel and cobalt production will not be impacted, fertilizer production will be negatively impacted until the new compressor is fully operational by the end of the year. As a result, we are also factoring in lower fertilizer sales volumes into our ST- NDCC guidance.
The additional third-party feed purchases in the second half of the year is expected to offset MSP production shortfalls from Moa, but will have an incremental cost impact to our estimated 2023 NDCC as well. As a result, we have increased our NDCC guidance from $5.00-$5.50 per pound to $6.75-$7.25 per pound of nickel sold, but we maintained our production guidance. On a positive note, the additional gas received from the two new wells will have a positive impact on both our 2023 power production and cost.
We increased the annual production guidance ranges from 575-625 gigawatt hours, to a new range of 650-700 gigawatt hours for the year, and reduced unit operating cost guidance range from CAD 28.50-CAD 30 per megawatt hour, down to CAD 27.25-CAD 28.75 per megawatt hour for the year.
Moving to our final slide, 19. In conclusion, we continue to focus on meeting our strategic objectives within the confines of the current volatile market conditions, but continue to believe that the long-term fundamentals for our commodities remain robust. With the success of the cobalt swap and anticipated cash flows from it, we will continue to focus our attention on building a stronger and expanded operating profile while managing our balance sheet effectively.
We believe we have strong cash generating capacity to effectively manage our balance sheet and pursue our strategic objectives concurrently. I'd like to thank everyone for your time today, and operator, I'd like to open the call for questions at this time.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star, followed by number 1 on your telephone keypad. If your question has been answered and you would like to withdraw from the queue, please press star, followed by number 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question will come from Gordon Lawson at Paradigm Capital. Please go ahead.
Hi, good morning. Could you please elaborate on the fertilizer production issues and how much time do you expect to lose in the coming quarters?
Thanks, Gordon, for your question. The impact on the second half of the year from fertilizer sales is still somewhat unclear in terms of the total volumes that we might be able to sell, but we've assumed fairly low value or low volumes of sales for the back half of the year. Not really a material credit to NDCC at all.
Okay. The second question relates to the swap. Cobalt prices where they are, can you just clarify that it will in fact, not affect the structure of the swap payment as it relates to the cash dividend?
At this stage, we don't anticipate that there will be any negative impact to the cobalt swap. The cobalt swap agreement is tied to both volume, but also minimum cash value associated with those. We anticipate that in a lower price environment, we will have cash top-up dividends as we did this year. Given the current expected commodity prices and long-term operating parameters, we expect to receive a cobalt swap in each of the remaining four years.
Okay. Okay, that's perfect. Thank you very much. That's it for me.
Thank you, Gordon.
Your next question comes from Dalton Baretto at Global Mining Research. Please go ahead.
Thank you, and thank you for taking my question. Just following up on that cobalt issue, it looks like Chinese capital and know-how is now entering the HPAL space in Indonesia with a flurry. Are you worried about the cobalt prices on a, say, a 2, 3-year outlook as India, Indonesia ramps up HPAL and obviously therefore, cobalt production? Do you see that lithium-ion battery demand for cobalt will mop up all that expected Indonesian increase? Thank you.
Thanks, Tony, for the question. We certainly have seen an increase in cobalt production from the HPAL facilities in Indonesia, backed by Chinese investment. Just for context, those are significantly lower volumes on a per operation basis than what we see coming out of the DRC still.
The DRC cop operations still drive over 70% of current global cobalt supply. Whilst it's incremental supply, it's not nearly to the same magnitude. We do see that the ongoing electric vehicle adoption and consumer use in lithium-ion batteries will eventually mop up all that added capacity in supply. There will be some price pressure in the near term and some volatility as this unfolds.
As none of these facilities come on smoothly, they come in fits and starts, as well as the consumption in electric vehicles as new gigafactories are being built and the cobalt consumed. In the mid to long term, we do see that we're getting into a position of a supply shortfall again.
Okay. Thank you.
Mark, please proceed with any closing remarks.
If that's all the calls we have, then I'd like to thank everybody for joining us today, and we'll talk to you next quarter. Thank you.
Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.