Td Flash Note (no they have not placed us on Action List Buy)
Sherritt International Corp.
(S-T) C$0.37
Cobalt Swap Agreement to Settle Overdue Cuban Receivables
Greg Barnes
Derick Ma, CFA, CPA, CA
Event
Sherritt announced a comprehensive repayment agreement with its Cuban partners
that should see $361.9 million owed to Sherritt by two Cuban entities repaid over a
five-year period starting in 2023.
The agreement addresses a long-standing source of frustration for Sherritt investors,
given the lack of progress that has been made on repaying the overdue funds over
many years. The five-year repayment time frame lines up well with maturities on
Sherritt's existing debt facilities, including its $317 million 8.5% notes due in 2026
and the $69 million 10.75% PIK notes due in 2029.
Impact: POSITIVE
Under the terms of the agreements (the cobalt swap), General Nickel Company
(GNC), Sherritt’s Moa JV partner, has agreed to assume certain liabilities of
amounts owed to Sherritt by Union Cubapetroleo (CUPET) and Energas S.A.
(Energas) in order to fully repay outstanding amounts over a five-year period. The
outstanding receivable amounts owed to Sherritt from Energas and CUPET total
~$361.9 million.
Under the cobalt swap, over the five years beginning January 1, 2023, the Moa JV
expects to distribute a maximum of 2,082 tonnes, or approximately 60% of current
production (100% basis) of finished cobalt annually to the JV partners. GNC will
redirect its 50% share of the total Moa JV dividends, up to 1,041 tonnes of finished
cobalt per year, to Sherritt as repayment towards the outstanding receivables,
provided that the total cobalt volume redirected has a value of at least US$57
million (~US$25.00/lb of cobalt).
Upon receipt of the finished cobalt dividends, the title to both Sherritt and its
partner’s redirected share of the finished cobalt will be transferred immediately to
Sherritt and the physical product will be moved to a Sherritt warehouse in Fort
Saskatchewan, from which Sherritt will sell the finished cobalt in the open market.
Sherritt also announced that Cuba’s Executive Council has approved the 20-year
extension of the Energas’ power generation contract with the Cuban government
to March 2043, which was set to expire in March 2023. The extension of the power
generation contract supports Sherritt's ongoing investments in Cuba and helps
facilitate the cobalt and Moa swap agreements.