Super thorough note - some highlights: -Moa Expansion at Opportune Time in Cycle - Our Base Case assumptions currently exclude expansion capital at Moa to complete the conceptualized 15-20% expansion which will likely require ~ $130-$150 mln by mid-2024. If we were to theoretically incorporate the expansion into our Base Case ($150 mln in initial capital for a 15% increase in production), we see the potential for an incremental $60 mln in annual EBITDA (at US$15/lb Ni).
-By our estimate,
elevated fertilizer prices are expected to more than offset increase in consumables like natural gas, oil and sulphur, and should they remain elevated through Q2 North American planting season, we would anticipate a reduction in Sherritt’s 2022 NDCC cost guidance of US$4.00 – US$4.50/lb Ni (NBF: US$4.12/lb currently).
-Sherritt Heavily Torqued to Nickel/Fertilizer Prices - If we were to layer in spot prices of US$22.00/lb, Sherritt would produce
~$544 mln of Adjusted EBITDA in 2022 - implying ~0.70x EV/EBITDA and would be net
debt-free within a few months. Although Sherritt has nickel puts in place for 25% of Q1/22 nickel production, Sherritt has no puts, forward contracts and/or calls to limit upside through the rest of 2022.
-In 2022, we model revenue split of Nickel (51%), Cobalt (34%), Fertilizer (11%), Electricity (4%), with our Base Case estimates assuming US$9.50/lb nickel prices and US$32/lb cobalt prices.
-We note that every
10% change in nickel impacts Sherritt’s NAV by ~60% and 2022E CFPS by 35%.
So...their base case (Ni $9.50) gives us a NAV of $1.44. Call it Ni $10 for simplicity. Ni $15 and Ni $20 then are 50% and 100% higher and based on this "torque" ratio of 60% per 10% Ni rise (from base of approx $10 therefore each and every additional $1 rise gives 60% NAV increase) you end up with a NAV of 3x and 6x respectively. Ie $4.32 and $8.64. Even given our traditional discount to NAV of .5, you can see us ending up at $5.00 very realistically. Especially as one of the bullet points above alludes to, if we can become debt free "within a few months"