Mr. Leon Binedell reports

SHERRITT REPORTS Q2 RESULTS AND STRONG LIQUIDITY FROM COBALT SWAP

Sherritt International Corp. has released its financial results for the three and six months ended June 30, 2023. All amounts are in Canadian currency unless otherwise noted.

"We are pleased with the success of the cobalt swap agreement and the liquidity it provides Sherritt. While we had some production challenges this quarter, our Moa joint venture's strong cash position and expected cash flow generation will continue to support our expansion program," said Leon Binedell, president and chief executive officer of Sherritt International. "Our current liquidity profile and expected future cobalt swap distributions creates significant strategic optionality for Sherritt."

Mr. Binedell continued: "We paid cash interest on our PIK notes in July, 2023, and following a second PIK note cash interest payment in January, 2024, we will have the opportunity to provide returns to our shareholders. At the end of the quarter, our capacity to make restricted payments under the second-lien note indenture was approximately $114-million, allowing significant flexibility to pursue investments and future shareholder returns."

Selected q2 2023 developments:

• Available liquidity in Canada of $125-million, largely driven by the successful completion of the first year of the cobalt swap:
  • Final 802 tonnes of cobalt dividend required to fulfill the 2,082-tonne annual maximum volume received;
  • Cash dividend of $48.5-million (U.S.) ($64-million) received as a top-up payment as the total in-kind value of cobalt received did not meet the annual dollar minimum of $114-million (U.S.) ($57-million (U.S.) per partner);
  • General Nickel Company's (GNC) 50-per-cent share of the cobalt and cash dividends, collectively $57-million (U.S.) ($76-million), was redirected to Sherritt as payment toward the GNC receivable;
  • Sherritt sold 1,064 tonnes or $38.4-million of cobalt (1,760 tonnes or $68.2-million for the year to date) and has received $35.1-million in cash from sales ($53.9-million for the year to date);
• Sherritt's share of finished nickel and cobalt production at the Moa JV was 3,268 tonnes and 331 tonnes, 12 per cent and 16 per cent lower, respectively, than the prior-year quarter;
• Net direct cash cost (NDCC) (1) was $7.22 (U.S.) per pound in Q2 2023, compared with $2.19 (U.S.) per pound in Q2 2022, primarily due to 63 per cent lower cobalt and 35 per cent lower fertilizer realized prices. Sherritt revised its 2023 NDCC guidance range from $5 (U.S.) to $5.50 (U.S.) per pound to $6.75 (U.S.) to $7.25 (U.S.) per pound of nickel sold;
• Power production increased by 29 per cent compared with Q2 2022, primarily from the receipt of gas from two new wells and improved equipment availability. Sherritt updated its 2023 annual production guidance range from 575 to 625 gigawatt-hours (GWh) to 650 to 700 GWh and reduced its unit operating cost guidance range from $28.50 to $30 per megawatt-hour (MWh) to $27.25 to $28.75/MWh;
• Net earnings from continuing operations was $300,000 or nil per share in Q2 2023, compared with $81.5-million or 21 cents per share in Q2 2022;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) in the quarter was $15.7-million, compared with $102.0-million in Q2 2022, primarily as a result of lower nickel, cobalt and fertilizer average-realized prices (1);
• Sherritt released its 2022 sustainability reports, which continued to show progress on its ESG (environmental, social and governance) goals, and achieved another successful independent audit on Sherritt's conformance with the LME's responsible sourcing requirements;
• Sadly, Sherritt reported two fatalities at the Moa JV mine site. Working with its Cuban partners, a rigorous root cause analysis and a review of the site's fatality prevention measures were completed, and improvements are being implemented to enhance and maintain a safe work environment.

Developments subsequent to quarter-end:

• In accordance with the cobalt swap, subsequent to quarter-end:
  • Sherritt sold 114 tonnes or $4.3-million of cobalt and received $13.3-million in cash from prior cobalt sales. The remaining 208 tonnes of cobalt are expected to be sold and all cash is expected to be received by the end of Q3 2023.
• Sherritt paid $3.4-million cash interest in July on its 10.75 per cent unsecured PIK (payment-in-kind) option notes due 2029. Under the terms of the PIK note indenture, payment of cash interest during the preceding consecutive 12-month period permits the corporation to provide returns to shareholders, including share repurchases and dividends.
• Sherritt received confirmation from the London Metals Exchange (LME) that Sherritt is in conformance with LME's track B responsible sourcing requirements.

Cash and cash equivalents as at June 30, 2023, were $176.0-million, up from $138.3-million at March 31, 2023. During Q2 2023, Sherritt received $64.0-million as a top-up dividend on the cobalt swap and $35.1-million in cash from the sale of cobalt to third parties, and used $17.6-million for operating activities at Fort Site, primarily due to timing of payments relative to strong presales received in Q1, $9.4-million for interest payment on second-lien notes, $5.0-million to pay down its revolving credit facility and $5.3-million for the repurchase of $7.4-million of PIK notes. In addition, Energas paid $8.8-million (33-1/3rds-per-cent basis) to GNC in the quarter ($14.8-million for year to date), in Cuban pesos, in accordance with the cobalt swap.

Sherritt did not make any mandatory redemptions on the second-lien notes during the quarter as the minimum liquidity condition pursuant to the provisions of the indenture agreement was not met.

For the two-quarter period ended June 30, 2023, excess cash flow, as defined and calculated pursuant to the second-lien note indenture, was $57.1-million. Subject to the minimum liquidity threshold of $75.0-million pursuant to the second-lien note indenture, at the interest payment date in October, 2023, the corporation will be required to redeem, at par, total second-lien notes equal to 50 per cent of excess cash flow, or $28.6-million. In determining the minimum liquidity amounts in October, 2023, the $7.8-million of cash used to repurchase the 10.75 per cent unsecured PIK option notes due 2029 during the six months ended June 30, 2023, and any amounts drawn on the credit facility will be added back in the calculation of minimum liquidity before and after any such redemption.

Review of operations

Metals

Revenue for the three months ended June 30, 2023, was 11 per cent lower compared with the same period in the prior year. Lower nickel revenue was a result of 20 per cent lower average realized prices (1) on unchanged sales volume in Q2 2023. Higher cobalt revenue for Q2 2023 was primarily attributable to a 329-per-cent increase in sales volume, which included the additional 50 per cent of sale volume of redirected finished cobalt received and sold by Sherritt under the cobalt swap. This increase more than offset the impact of a 63-per-cent decline in realized prices. On a comparative basis, based on Sherritt's 50-per-cent share only, cobalt sales volume was 532 tonnes in Q2 2023, compared with 248 tonnes in Q2 2022.

Fertilizer revenue was lower for Q2 2023 primarily as a result of the 35-per-cent lower average realized price compared with the prior-year period. The impact of lower average realized price was partly offset by a 27-per-cent increase in sales volume in the current-year period.

Mixed sulphides production at the Moa JV for the three months ended June 30, 2023, was 3,783 tonnes, down 3 per cent from the same period in the prior year. While ore blending challenges from Q1 2023 were resolved, the lower production in Q2 was primarily due to unplanned maintenance in the hydrogen plant, which was resolved in the quarter.

Sherritt's share of finished nickel production for Q2 2023 totalled 3,268 tonnes and was 12 per cent lower than the same period in the prior year, primarily as a result of lower mixed sulphide feed availability at the refinery. Finished cobalt production for Q2 2023 of 331 tonnes was 16 per cent lower, consistent with lower nickel production. The annual refinery shutdown occurred in Q2 similar to last year and production has since resumed to normal.

Maintenance challenges at the Moa mine in the first half of the year, coupled with the ore blending challenges in 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 existing refinery capacity and offset shortfalls in Moa mine production from the first half of the year.

Fertilizer production for the three months ended June 30, 2023, was 16 per cent lower compared with the same periods in the prior year, primarily as a result of lower metals production and unplanned ammonia plant maintenance during the period.

Mining, processing and refining (MPR) costs per pound of nickel sold for the three months ended June 30, 2023, was up 16 per cent, compared with the same period in the prior year. Higher MPR costs reflects lower production volumes and the cost associated with the significantly higher cobalt sales volume in the current-year period. The higher MPR costs were partly offset by lower input commodity prices in Q2, including a 49-per-cent decrease in global sulphur prices, a 50-per-cent decrease in natural gas prices and a 24-per-cent decrease in fuel oil prices.

NDCC (1) per pound of nickel sold increased to $7.22 (U.S.) per pound in Q2 2023 from $2.19 (U.S.) per pound in Q2 2022. The higher NDCC was primarily due to significantly lower fertilizer and cobalt byproduct credits (2) as lower average-realized prices more than offset higher sales volumes and higher MPR costs in the current-year period as discussed above. Q2 2022 saw a spike in cobalt and fertilizer reference prices following the Russian invasion of Ukraine.

Based on the NDCC for the six months ended June 30, 2023, of $6.88 (U.S.) per pound, expected production and materially lower realized prices for cobalt for the balance of the year, Sherritt revised its 2023 NDCC guidance range from $5 (U.S.) to $5.50 (U.S.) per pound to $6.75 (U.S.) to $7.25 (U.S.) per pound of nickel sold. Revised NDCC guidance reflects a full-year average cobalt reference price of $16.80 (U.S.) per pound, compared with $23.50 (U.S.) per pound in Sherritt's original estimates and incremental costs from third party feed purchases in the second half of the year as noted above. Continuing maintenance challenges in the fertilizer business are expected to impact fertilizer production volumes reducing fertilizer byproduct credits for the remainder of the year.

Sustaining spending on capital (1) in Q2 2023 was $13.6-million, up 9 per cent from $12.5-million in Q2 2022. The year-over-year increase was due primarily to timing of planned spending at both the Moa JV and Fort Site. Growth spending on capital was $2.5-million, most of which was related to spending on the slurry preparation plant as part of the Moa JV expansion program.

Based on spending to date and expected timing of spending for the balance of the year, 2023 guidance for sustaining and growth spending on capital are unchanged for the year.

Moa JV expansion program update

Progress for the expansion program in Q2 2023 included the following.

Slurry preparation plant (SPP)

The SPP construction continues to progress and remains on budget and on time for expected completion in early 2024:

• Structural steel and field assembly of major equipment completed;
• Installation of piping, electrical cable tray and electrical cables, and instrumentation progressing on schedule;
• Slurry and water return pipelines are 72 per cent complete and are expected to be finished in early Q4 2023;
• The commissioning plan and schedule are being developed and are expected to be completed in August, 2023.

Processing plant

The processing plant expansion is progressing on schedule for an expected end-of-year-2024 completion:

• 53 per cent of procurement packages for the sixth leach train have been awarded within budget, including all long-lead items;
• An effort-hour loaded schedule has been developed for the sixth leach train and is currently under review and is expected to be finalized in Q3 2023;
• Engineering for the fifth sulphide precipitation train is in progress and is expected to be completed in Q3 2023;
• Vendor selected to supply the materials and erect the acid tanks to which the contract is expected to be awarded when the construction permit is granted by the Cuban authorities, expected in the second half of 2023.

Power

Revenue for the three months ended June 30, 2023 was $10.9-million, up 27 per cent compared with the same period in the prior year, primarily due to higher production.

Electricity production for the three months ended June 30, 2023, was 172 GWh, compared with 133 GWh in the prior-year period. The increase in electricity production is a result of increased equipment availability as one turbine was brought back on line following completion of maintenance work and successful efforts to increase availability of gas.

During the quarter, Energas began receiving additional gas from two gas wells drilled by Union Cubapetroleo. The gas is provided to Energas free of charge for the use in power generation. Opportunities to further increase gas supply for additional power production continue to be investigated.

Unit operating costs (1) for the three months ended June 30, 2023, was $34.13 per MWh, up 70 per cent from the same period in 2022, primarily driven by higher maintenance costs due to timing of maintenance, partly offset by higher sales volumes.

As a result of successful efforts to increase available gas from two new wells, Sherritt updated its 2023 annual production guidance range from 575 to 625 GWh to 650 to 700 GWh and reduced its unit operating cost guidance range from $28.50 to $30 per MWh to $27.25 to $28.75 per MWh.

The power business unit had $600,000 spending on capital (1) in Q2 2023, primarily driven by maintenance activities. Spending on capital is in line with guidance for the year.

Technologies

During the three months ended June 30, 2023, technologies:

• Ccontinued to provide technical support, process optimization and technology development services to the Moa JV and the Fort Site, and continued to support the Moa JV's expansion program;
• Commenced its mixed hydroxide precipitate (MHP) test program supported by a funding commitment from Natural Resources Canada (NRCan);
• Advanced its flowsheet enhancements on its next-generation laterite (NGL) processing technology and commenced new batch testing on specific laterite opportunities to test the applicability of the NGL;
• Continued to progress on commercialization activities around proprietary technologies and innovative industry solutions.

(1) Non-GAAP (generally accepted accounting principles) financial measures.

(2) Cobalt byproduct credits include Sherritt's share of cobalt revenue per pound of nickel sold only.

Outlook

Moa joint venture

Maintenance challenges at the Moa mine in the first half of the year, coupled with the ore blending challenges in 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 existing refinery capacity and offset shortfalls in Moa mine production from the first half of the year.

Based on the NDCC for the six months ended June 30, 2023, of $6.88 (U.S.), expected production and materially lower realized prices for cobalt for the balance of the year, Sherritt revised its 2023 NDCC guidance range from $5 (U.S.) to $5.50 (U.S.) per pound to $6.75 (U.S.) to $7.25 (U.S.) per pound of nickel sold. Revised NDCC guidance reflects a full-year average cobalt reference price of $16.80 (U.S.) per pound, compared with $23.50 (U.S.) per pound in Sherritt's original estimates, and incremental costs from third party feed purchases in the second half of the year as noted above. Continuing maintenance challenges in the fertilizer business are expected to impact fertilizer production volumes reducing fertilizer byproduct credits for the remainder of the year.

Power

As a result of successful efforts to increase available gas from two new wells, Sherritt updated its 2023 annual production guidance range from 575 to 625 GWh to 650 to 700 GWh and reduced its unit operating cost guidance range from $28.50 to $30 pe MWh to $27.25 to $28.75 per MWh.

Conference call and webcast

Sherritt will hold its conference call and webcast on July 27, 2023, at 10 a.m. Eastern Time, to review its Q2 2023 results. Dial-in and webcast details are as follows.

North American callers, please dial :1-888-396-8049, passcode 66327482.

International callers, please dial 1-416-764-8646, passcode 66327482.

A live webcast will be available on the company's website.

Please dial in 15 minutes before the start of the call to secure a line. Alternatively, listeners can access the conference call and presentation via the webcast available on Sherritt's website.

An archive of the webcast and replay of the conference call will also be available on the website.

Financial statements and management's discussion and analysis

Sherritt's condensed consolidated financial statements and MD&A for the three and six months ended June 30, 2023, are available on the company's website and should be read in conjunction with this news release. Financial and operating data can also viewed in the investor relations section of Sherritt's website on SEDAR.

Non-GAAP and other financial measures

Management uses the following non-GAAP and other financial measures in this news release and other documents: combined revenue, adjusted EBITDA, average realized price, unit operating cost/net direct cash cost (NDCC), adjusted net earnings/loss from continuing operations, adjusted earnings/loss from continuing operations per share, spending on capital and combined free cash flow.

Management uses these measures to monitor the financial performance of the corporation and its operating divisions, and believes these measures enable investors and analysts to compare the corporation's financial performance with its competitors and/or evaluate the results of its underlying business. These measures are intended to provide additional information, not to replace international financial reporting standards (IFRS) measures, and do not have a standard definition under IFRS, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. As these measures do not have a standardized meaning, they may not be comparable with similar measures provided by other companies.

About SHERRITT International Corp.

Sherritt is a world leader in using hydrometallurgical processes to mine and refine nickel and cobalt -- metals deemed critical for the energy transition. Sherritt's Moa joint venture has a current estimated mine life of 26 years and has embarked on an expansion program focused on increasing annual mixed sulphide precipitate production by 20 per cent or 6,500 tonnes of contained nickel and cobalt (100 per cent basis). The corporation's power division, through its ownership in Energas S.A., is the largest independent energy producer in Cuba with installed electrical generating capacity of 506 megawatts (MW), representing approximately 10 per cent of the national electrical generating capacity in Cuba. The Energas facilities comprise two combined-cycle plants that produce low-cost electricity from one of the lowest-carbon-emitting sources of power in Cuba. Additionally, its technologies group creates innovative, proprietary solutions for natural-resource-based industries around the world to improve environmental performance and increase economic value. Sherritt's common shares are listed on the Toronto Stock Exchange under the symbol S.

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