National bankNot to steal RK thunder but here it is
2023 Cost Outlook Drives Target Increase S (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$0.62 Sector Perform (Unchanged) C$0.80 (Was C$0.75) 29.0%
Q4/22 Production Overview and 2023 Guidance
Q4/22 Production Broadly In Line
Sherritt announced 2022 Production of 32,268 t (100% basis) of nickel, 3,368 t of cobalt and 568 GW of electricity. Production was largely in line with the lower end of company guidance and NBF Estimates.
2023 a Transition Year at Moa
Sherritt expects 2023 will be a transition year for the Moa JV (50% owned by Sherritt; 67% of NAV) with the focus on ensuring the expansion plan remains on time and on budget. The company plans to release an updated mine plan in Q1/23 to provide updated production profile to beyond 2040 (in line with NBF Estimates). This transition phase of mine expansion will include accessing new mining areas and bringing the new slurry preparation plant online in 2024.
Operating/Capital Guidance Below NBF Estimates
Guidance of 30,000 - 32,000 t nickel and 3,100 - 3,400 t cobalt from the Moa JV is broadly in line with NBF Estimates. The power business is expected to produce 575-625 GWh of electricity as the company works with its Cuban partners to increase the availability of natural gas. Sherritt is guiding to NDCC at Moa between US$5.00/lb and US$5.50/lb which was lower than NBF Estimates of ~US$6.30/lb as was attributable capital expenditure guidance of $94.4 mln, including $70 mln in sustaining and $20 mln in growth capital at Moa (50%) for construction of the slurry plant and leach plant sixth train.
Target to $0.80 (was $0.75); Reiterate Sector Perform
Incorporating Q4/22 production results and 2023 guidance led to an increase in our 2023 FCF assumptions, leading to a modest target increase. Our Sector Perform rating accounts for Sherritt's targeted exposure to Nickel and Cobalt improving the outlook for cash distributions from the Moa JV in the near term offset by the company's ongoing debt commitments and need for further clarity on anticipated growth initiatives at Moa. S is trading at 0.37x NAV at our Base Case commodity price assumptions compared with intermediate base metal peers at 0.99x. Our $0.80 target is based on ascribing a multiple of 0.65x NAV (100%).