The Canadian miner announced on February 26, 2019 that it would not fund its 12% stake in the Ambatovy JV, with Japan’s Sumitomo Corp and South Korea’s Korea Resources Corp (Kores), to protect Sherritt’s balance sheet after Ambatovy made a cash call to boost its short-term liquidity. Sherritt subsequently announced that it had become a defaulting shareholder on March 6, 2019.
First refusal to fund Sherritt’s 12% share in Ambatovy will now pass to Sumitomo and Kores, while Sherritt itself will lose voting rights and influence on operations at a local level as per the terms of a default under the shareholders agreement.
The Ambatovy mine, which produced 33,733 tonnes of refined nickel and 2,900 tonnes of refined cobalt in 2019, will reportedly continue to produce after Sherritt’s proposed exit, details of which will be firmly announced on April 30.
“Nickel and cobalt production at Ambatovy will not be [affected] by the transaction or pending timelines,” director of investor relations and communications, Joe Racanelli, told Fastmarkets on March 10.
Although Sherritt has increased its nickel and cobalt production guidance for 2020 via its 50:50 Moa JV in Cuba (with Cuba’s General Nickel Co), no production guidance was released for Ambatovy, which increased its nickel output by 2% year on year in 2019.
The Moa JV is expected to produce between 32,000-34,000 tonnes of refined nickel and 3,300-3,600 tonnes of refined cobalt in 2020 – having produced 33,108 tonnes of nickel and 3,376 tonnes of cobalt in 2019.
Depressed nickel prices have undoubtedly exacerbated the issue, shaping the company’s belief that selling its 12% share in the Ambatovy JV would be the best way to protect its liquidity.
The London Metal Exchange three-month nickel price continues to languish below $13,000 per tonne on March 10, despite hitting a three-week intra-day high of $12,995 per tonne.
Refined nickel production from lateritic ore requires a significantly higher LME three-month price when compared to the capex cost of production, with multiple miners citing an LME three-month nickel price of $20,000 per tonne as an equitable level for lateritic production.
“The transaction involves a number of components, including the exchange of $588 million of existing bonds for a new secured second lien note and the exchange of $145 million of CFA loans owed to our Ambatovy joint venture partners for our 12% equity interest, or a new amended loan. The transaction, pending approvals from all stakeholders, is slated to close by April 30, and will reduce Sherritt’s debt by approximately $415 million,” Racanelli said.
Sherritt is confident the 12% stake will be financed by existing shareholders Sumitomo and Kores, and declined to comment on whether or not other parties were involved in any discussions.
“We’re confident that the transaction will be approved by all stakeholders,” Racanelli added.