08:44 AM EST, 12/01/2022 (MT Newswires) -- National Bank on Thursday noted that Sherritt International Corporation (TSX: S) -- a world player in using hydrometallurgical processes to mine and refine nickel and cobalt, metals essential for an electric future -- had at the end of Q3 announced a Modified Dutch Auction to repurchase its 8.50% senior second lien secured notes due 2026 and a Fixed Price Tender Offer to repurchase its outstanding 10.75% unsecured PIK option notes due 2029. Today, National noted, Sherritt announced the results of the Dutch Auction process, and increased the Maximum Consideration Amount from $50 million to $80.4 mln, reducing the principal amount of debt by near $90 mln.
As a reminder, National noted, Sherritt ended Q3 2022 with $139 million in cash, $390 in long-term debt and $8 mln outstanding on the company's syndicated RCF.
National said the debt repurchase amounts to a near 22% reduction in principle and is expected to reduce annual interest expenses by near $7.6 million. Including the initial note purchase in June, Sherritt will reduce debt by $150 mln (near 35% from the start of the year), and annual interest expenses by near $13 mln.
Sherritt, noted National, has a ND/EBITDA ratio of 1.1x. At current commodity prices, the bank models EBITDA over the next 12 months of $174 million and FCF of near $15.8 mln -- an implied EV/EBITDA of 2.5x and FCF yield of 8%. FCF will be used to support deleveraging and ongoing expansion initiatives at Moa.
National's 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. It noted Sherritt is trading at 0.33x NAV at its Base Case commodity price assumptions compared with intermediate base metal peers at 0.85x.
National's $0.80 target is based on ascribing a multiple of 0.65x NAV (100%)."