Rough Calculation of Sherritt Free Cash Flow and Breakeven Owning Sherritt is all about the torque in offers to higher nickel prices as the cycle matures. For those of you who are serious about trying to understand this company, below I have roughly approximated cash generation for the business combining current commodity prices, some forward guidance, and some 2017 results. I have then assumed a discount rate and looked forward at different nickel prices as the cycle matures.
Very Rough Calculation:
35,000,000 lbs nickel Moa @ net cash flow or C1 profit of $3.50 (NDCC guidance $2.50-3.00 but we know it is going to be lower due to the improved price of cobalt) = $112mUSD cash flow from Moa or $140m CDN. (Note: This makes sense as EBITDA from Moa 17Q4 was already $32m)
+ $32m adj cash flow Power (2017 result)
- $50m interest on debt (buy back of debt lowers int cost by approx $7 from last year)
- $52m capex Moa (from guidance)
- $23m head office unallocated expense (2017 includes Ambatovy negotiation so using 2016 number adjusted for $10m technologies division costs for which there is an offsetting $10m credit in general corporate revenues)
I have added nothing for oil and gas as currently cash generated is being used for development and is a net 0. (Oil and gas cash flow is a red herring anyway. For years there was no free cash flow generation from oil and gas. It was only as the fields matured and in the last few years that oil generated free cash flow which helped at the nickel price trough).
Approximate Net Free Cash Flow of CDN: $46m (no cash credit for Moa loan repayments or oil receivable payments. This means breakeven is approximately $5.00 nickel all other things being equal.
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Using the exact same numbers and plugging in a $9 nickel price provides free cash flow of approximately $190.5m
$190.5/10% discount rate/390m shares = $4.89/shr (or $4.25 on a fully diluted basis)
Using the exact same numbers and plugging in a $12 nickel price provides free cash flow of approximately $322.8m
$322.8/10% discount rate/390m shares = $8.28/shr (or $7.19 on a fully diluted basis)
Using the exact same numbers and plugging in a $15 nickel price provides free cash flow of approximately $455m
$455/10% discount rate/390m shares = $11.68/shr (or $10.14) on a fully diluted basis
Again, this is why you own Sherritt - for the play on higher nickel prices as the cycle matures! EV and grid storage are new and previously unaccounted for sources of demand for C1 nickel. No new nickel projects (supply of Class 1) of substance are on the horizon.
Contrarian333