Sherritt to recoup $260 million of outstanding debt from Cuban partners

“We have been able to negotiate agreements that establish an effective schedule for the full repayment of the outstanding receivables by our Cuban partners within five years, and we believe this brings an end to the historical repayment uncertainty,” Leon Binedell, president and CEO of Sherritt, stated in a news release. “Combined with Sherritt’s portion of the dividends, this is expected to provide significant cash flow to deliver on our strategic priorities to reduce debt and aggressively expand our business.”

Cobalt swap
As per the terms of the cobalt swap, General Nickel Company (GNC), Sherritt’s Moa JV partner, has agreed to assume certain liabilities owed to Sherritt by Union Cubapetroleo (CUPET) and Energas SA in order to fully repay outstanding amounts over the five-year period. GNC will in turn enter into payment agreements of an equivalent amount to the liabilities with the Cuban partners. This includes the Energas conditional sales agreement receivable of C$332.4 million and trade accounts receivable from CUPET of C$29.5 million.

Beginning in 2023, the Moa JV expects to distribute a maximum of 2,082 tonnes of finished cobalt annually – or approximately 60% of current production (100% basis) – to the joint venture partners. Accordingly, Sherritt expects to receive a maximum of 1,041 tonnes of finished cobalt dividends per year in respect of its 50% share of the Moa JV.

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 has a value of at least $57 million.

If the cobalt dividend redirected by GNC has a value of less than $57 million, GNC’s share of any cash distributions from the Moa JV in that year will be redirected to Sherritt. If the maximum cobalt volume distributed (1,041 tonnes) is not met in a given year, the volume deficit will be added to the threshold in the following year. Any shortfall in the annual minimum payment will also be added to the following year, such that the full repayment is expected to be made within five years.

Upon receipt of the finished cobalt dividends, the title to both Sherritt and its partners’ 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 on the open market.

Moa swap
In addition to the cobalt swap, an extension to the payment agreement with Cuban partner Energas has been executed to fund the operating and maintenance costs of Energas, as well as to cover future payments that would be owed to Sherritt.

Sherritt expects to continue to receive approximately $4.2 million (C$5.6 million) per month under a payment agreement with Moa JV and Energas, whereby Moa JV converts foreign currency to Cuban pesos through Energas to support Moa JV’s local Cuban operating activities. These funds are then paid to Sherritt primarily to facilitate foreign currency payments for the Energas operations.

In 2008, Sherritt entered into a conditional sales agreement with Energas to construct additional electrical energy capacity in Cuba, under which Energas was required to repay certain amounts advanced. However, due a number of events, including periods of low commodity prices, increased sanctions by the US government, and the covid-19 pandemic, access to foreign currency in Cuba to make payments on the liability had been significantly restricted.

Similarly, in regards to the trade receivable from CUPET, the lack of access to foreign currency has limited CUPET’s ability to pay amounts owing to Sherritt.

The cobalt swap provides a mutually beneficial arrangement to pay down the outstanding receivables in a reasonable timeline without relying on Cuba’s ability to access foreign currency, Sherritt said.

Shares of Sherritt International surged by 10.1% by 12:55 p.m. in Toronto following the latest announcement. The company’s market capitalization is at C$170.6 million.