Sherritt Reports 2010 Third-Quarter Results

TORONTO, ONTARIO--(Marketwire - Oct. 27, 2010) -

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Sherritt International Corporation ("Sherritt" or the "Corporation") (TSX:S) today announced third-quarter 2010 results.

• Net earnings for third-quarter 2010 were $57.6 million ($0.20 per share), compared to $55.9 million ($0.19 per share) for third-quarter 2009.
  
  Net earnings for third-quarter 2010 include the following non-cash items: (i) a net unrealized foreign exchange gain of $16.4 million after tax ($0.06 per share), and (ii) an impairment of property, related to relinquishing oil and gas exploration licences in Turkey, of $7.9 million ($0.03 per share). Adjusted for these items, third-quarter 2010 net earnings were $49.1 million ($0.17 per share).
• Sales volumes for third-quarter 2010 (Sherritt's share) totaled 9.8 million pounds of nickel, 1.1 million pounds of cobalt, 9.1 million tonnes of thermal coal, 1.0 million barrels of oil and 176 GWh of electricity.
• Cash, cash equivalents and short- term investments were $708.0 million at September 30, 2010. Of the cash balance, $35.2 million (50% basis) was held by the Moa Joint Venture and $50.4 million (100% basis) was held by the Ambatovy Joint Venture.
• Operating cash flow was $101.9 million for third-quarter 2010, and compares to operating cash flow of $198.5 million for third-quarter 2009.
• Capital expenditures totaled $247.5 million for third-quarter 2010, including $197.6 million for the Ambatovy Project (100% basis). This compares to capital expenditures of $396.5 million in third-quarter 2009, of which $330.9 million related to the Ambatovy Project.
• In Madagascar, the majority of equipment and material required for the Ambatovy Project was on-site and mining operations began in preparation for start-up of the Ore Preparation Plant. Cumulative project expenditures to September 30, 2010 were US$4.16 billion, excluding financing charges, foreign exchange and working capital requirements, and represent approximately 90% of the total expected project expenditures.
• At September 30, 2010, total debt was $3.2 billion, of which approximately 54% ($1.7 billion, 100% basis) related to the limited-recourse Ambatovy senior project finance and 19% ($0.6 billion) to the non-recourse partner loans to Sherritt.

Mixed sulphides production for third-quarter 2010 was 2% (175 tonnes, 100% basis) higher than third-quarter 2009. Finished nickel production was 4% (363 tonnes,100% basis) higher, and finished cobalt production was comparable to the prior-year period. The increase in finished metal production during third-quarter 2010 reflected a higher nickel-to-cobalt ratio in the refinery feed and the benefit of the autoclave replacement program completed during fourth-quarter 2009.

Nickel sales volumes were comparable to the prior-year period, while cobalt sales volumes were 6% (65 thousand pounds, 50% basis) higher than third-quarter 2009, primarily due to the timing of shipments.

The average nickel reference price in third-quarter 2010 was 20% (US$1.63/lb) higher, and the average cobalt reference price was 5% (US$0.80/lb) higher, than third-quarter 2009. Reference price increases reflect improved demand for finished metal and a stronger Canadian dollar relative to the U.S. dollar.

The net direct cash cost of nickel for third-quarter 2010 was 17% (US$0.48/lb) higher than third-quarter 2009, due to increased commodity input prices and third-party feed costs, as well as the impact of a stronger Canadian dollar on U.S. dollar-denominated refining costs, which were only partially offset by a higher cobalt by-product credit.

Capital expenditures in the Moa Joint Venture for third-quarter 2010 were 74% ($5.4 million, 50% basis) higher than in third-quarter 2009, when available cash flow was impacted by lower nickel and cobalt prices. Third-quarter 2010 expenditures were directed to sustaining activities and the capitalization of interest related to the Phase 2 expansion, which is currently suspended.

The Ambatovy Project

Ambatovy Project capital expenditures for third-quarter 2010 were $197.6 million (100% basis), 40% ($133.3 million) lower than the prior-year period. Cumulative project expenditures to September 30, 2010 were US$4.16 billion, excluding financing charges, foreign exchange and working capital requirements, and represent approximately 90% of the total project expenditures. The Corporation expects the Project capital spending will not vary materially from the US$4.52 billion capital estimate. During third-quarter 2010, $186.9 million (100%) in funding was provided by the Ambatovy Partners. Sherritt financed 73% ($54.7 million) of its $74.8 million funding obligation directly and the remaining 27% ($20.1 million) through additional loans from other joint venture partners.

During the quarter, the majority of equipment and material required for the Project was on-site and mining operations began in preparation for start-up of the Ore Preparation Plant. Also during the quarter, Sherritt and the EPCM contractor assumed control of construction of the power plant from the lump-sum, turn-key contractor to ensure a safe and reliable start-up required to support commissioning and production activities. Plant systems, sub-systems and equipment continued to be turned over to commissioning teams during the quarter, including process air compressors, several systems in the sulphuric acid plant, and the ore thickener circuit at the plant site.

Two illegal labour disturbances were staged during the quarter. In the interest of safety for all personnel, construction activities at the Toamasina site were suspended for 17 days. The disturbances were primarily related to post-construction employment concerns for people from the Toamasina area. Agreement was reached in early September following discussion with worker delegates, community leaders and local politicians.

The Project is designed to produce 60,000 tonnes (100% basis) of nickel and 5,600 tonnes (100% basis) of cobalt annually at capacity. Mechanical completion is expected in early 2011.

Production volumes for third-quarter 2010 at Prairie Operations were 7% (0.6 million tonnes) lower than the prior-year period, largely due to reduced customer demand as well as the impact of wet weather on mining activities in Saskatchewan. Reduced customer demand resulted from several factors, including unplanned maintenance at a generating station and adjustments in a customer's dispatch levels in response to lower power pool demand. Production volumes at Mountain Operations were 124% (0.6 million tonnes) higher than third-quarter 2009, primarily due to the consolidation of 100% of the results for Mountain Operations, beginning on July 1, 2010. The resultant increase was partially offset by the impact of mining conditions and more challenging maintenance activities that reduced equipment availabilities at Coal Valley mine.

Third-quarter 2010 sales volumes at Prairie Operations were 9% lower than in third-quarter 2009, due largely to reduced customer demand arising from maintenance activities and plant curtailments. At Mountain Operations, sales volumes for third-quarter 2010 were 61% higher than the prior-year period, reflecting acquisition of the remaining interest in the Mountain Operations, effective July 1, 2010, as well as the inclusion of Obed Mountain mine production for the full third- quarter in 2010, partly offset by vessel delays at the port. The Obed Mountain mine was re-started in July 2009 and underwent a staged ramp-up to capacity during third-quarter 2009.

Realized pricing (excluding royalties) for third-quarter 2010 at Prairie Operations was 15% ($2.06/tonne) higher than the prior-year period, reflecting the combined impact of improved pricing on a coal supply agreement renewed in 2010, favourable index-adjustments to prices, and higher cost and capital recoveries at the contract mines. Realized pricing at Mountain Operations was 26% ($18.35/tonne) higher than third-quarter 2009, due to higher thermal export coal reference pricing during 2010, which was partially offset by the foreign exchange impact of a stronger Canadian dollar relative to the U.S. dollar.

Unit operating costs in third-quarter 2010 were higher relative to the prior-year period, with Prairie Operations 14% ($1.54/tonne) and Mountain Operations 6% ($4.02/tonne) higher. The increase in Prairie Operations was largely due to lower production volumes as well as the timing of equipment repairs at two owned mines, while the increase in Mountain Operations was due to lower production volumes at Coal Valley mine resulting from more challenging mining conditions, reduced equipment availability and higher port costs related to demurrage.

Coal royalties for third-quarter 2010 were 19% ($2.5 million) lower than the prior-year period as a result of the timing of decreased mining in royalty assessable areas. Potash royalties were 17% ($0.3 million) lower than in third-quarter 2009 due to the combined impact of relatively weaker potash prices and lower tonnages mined.

Capital expenditures during third-quarter 2010 at Prairie Operations were 45% ($11.5 million) lower than in the prior-year period due to higher prior-year spending on the activated carbon project and infrequently-occurring expenditures in 2009, including a dragline tub replacement at the Sheerness mine and a maintenance shop expansion at the Genesee mine. Capital expenditures during the period at Mountain Operations were 51% ($1.8 million) higher than in third- quarter 2009, largely due to the consolidation of CVP beginning in third-quarter 2010 and the resumption of spending on capital that had been deferred in 2009 to match capital spending to cash flow.

In Mountain Operations, the covenant breach of a three-year non-revolving term facility was eliminated during third- quarter 2010.

During the third quarter, Sherritt agreed in principle with CUPET to the retroactive adjustment of production from a well that was part of the Varadero West production-sharing contract (PSC). Under the terms of the agreement, 50% of the production from this well was reallocated from the Varadero West PSC. Up until the expiry of the Varadero PSC in March 2010, this oil was reallocated to the Varadero PSC. Subsequent to the expiry of the Varadero PSC, the oil has been reallocated to CUPET. As a result, GWI production and profit oil production have been adjusted as indicated below. The net impact is a loss of $4.1 million composed of: a reduction in revenue of $7.7 million, a decrease in treatment and transportation costs of $0.7 million, a decrease in depletion of $0.4 million and a decrease in taxes of $2.5 million.

Gross working-interest (GWI) oil production in Cuba for third-quarter 2010 was 6% (1,409 bpd) lower than in the prior-year period due several factors, including the 1,051 bpd retroactive adjustment of production from one well in the Varadero West field as described above, the impact of the loss of production from the expiry of the Varadero production-sharing contract in 2010, and natural reservoir declines. These factors more than offset the impact of recent drilling and workovers. Net working-interest production in Cuba before the profit oil adjustment of 2,099 bpd in third-quarter 2010 was relatively unchanged from the prior-year period. Production in Spain was 10% lower than in third-quarter 2009, due to the impact of undertaking workovers.

Average realized prices in third-quarter 2010 were 1% higher than third-quarter 2009 in Cuba and 7% higher in Spain as a result of higher reference pricing, offset by a stronger Canadian dollar relative to the U.S. dollar.

Third-quarter 2010 unit operating costs in Cuba were 18% ($1.21/bbl) higher than the prior-year period largely as a result of the inclusion of a one-time adjustment in third-quarter 2009 that reversed an allocation of expenses to operating costs. Unit operating costs in Spain were 13% lower in the quarter compared to 2009 due to the costs relating to the higher level of workover activity in 2009.

Capital expenditures in third-quarter 2010 were 47% ($10.5 million) lower than in the prior-year period, reflecting reduced drilling activity in 2010 and the inclusion of exploration activity in Turkey in 2009. In third-quarter 2010, one well was initiated and two wells were completed in Cuba.

Electricity production for third-quarter 2010 was 10% (60 GWh) lower than the prior-year period and the net capacity factor was 4% lower for the comparable periods. Gas shortages continue to have a negative impact on production; however, Sherritt continues to work with our partners in Cuba to increase future gas production.

Third-quarter 2010 unit cash operating costs were 5% ($0.57/MWh) lower than in the prior-year period, as third-quarter 2009 was impacted by turbine failures and associated maintenance costs.

Capital expenditures in third-quarter 2010 were 51% ($2.1 million) higher than in third-quarter 2009 due primarily to increased activity in respect of the 150 MW Boca de Jaruco Combined Cycle Project.

Cash, cash equivalents and short-term investments were $708.0 million at September 30, 2010. Of the cash balance, $35.2 million (50% basis) was held by the Moa Joint Venture and $50.4 million (100% basis) was held by the Ambatovy Joint Venture. These funds are for the use of each joint venture, respectively.

At September 30, 2010, the amount of credit available under various facilities, inclusive of approximately US$0.4 billion (100% basis) under the Ambatovy senior project financing, was $0.8 billion.

Sherritt's projected production volumes, royalties and capital expenditures for the year 2010 are shown below.

• In Metals, guidance for full-year 2010 production of both mixed sulphides and finished nickel has increased slightly from second-quarter 2010, consistent with current plant performance and feed composition. Finished cobalt production estimates remain unchanged from last quarter. Capital expenditure guidance is 11% ($6 million) lower than in second-quarter 2010 and reflects the timing of both sustaining capital projects and the completion of the sulphuric acid plant in Moa.
• At Ambatovy, mechanical completion is expected in early 2011. The Ore Preparation Plant is scheduled to start-up in fourth-quarter 2010, to begin processing feed that has been stockpiled since the initiation of mining activities in July 2010.
• In Coal – Prairie Operations, production guidance has decreased slightly (3%, 1 million tonnes), reflecting the impact of lower production volumes in the third quarter. Guidance for both potash and coal royalties remains unchanged. Full- year 2010 capital expenditures at Prairie Operations is expected to be 21% ($13 million) lower than previous guidance, primarily due to the delayed timing of certain equipment replacement and repairs as production volumes reduced equipment hours.
• In Coal – Mountain Operations, production guidance has decreased 4% (0.2 million tonnes), reflecting the impact of lower third-quarter production. Capital expenditures in Mountain Operations have increased 17% ($4 million) from prior guidance, largely due to the full consolidation of CVP beginning on July 1, 2010.
• In Oil and Gas, guidance relating to full-year GWI oil production in Cuba has increased by 1% (250 bpd), reflecting refinement in estimates based on three quarters of actual production. Capital expenditures in Cuba are expected to be 26% ($22 million) less than previous guidance, largely due to decreased exploration activity for the year. In total, eight development wells and two exploration wells will be drilled in 2010.
• In Power, guidance for production levels in 2010 remains unchanged. Capital expenditures guidance has been reduced by 54% ($42 million) reflecting a decrease in the expected costs associated with a major inspection and slower than expected spending in 2010 on the 150 MW Boca de Jaruco Combined Cycle Project.

The Corporation discloses EBITDA in order to provide an indication of revenue less cash operating expenses. Operating earnings is a measure used by Sherritt to evaluate the operating performance of its businesses as it excludes interest charges, which are a function of the particular financing structure for the business, and certain other charges. EBITDA and operating earnings do not have any standardized meaning prescribed by Canadian generally accepted accounting principles and, therefore, they may or may not be comparable with similar measures presented by other issuers.

Sherritt is a diversified natural resource company that produces nickel, cobalt, thermal coal, oil, gas and electricity. It also licenses its proprietary technologies to other metals companies. Sherritt's common shares are listed on the Toronto Stock Exchange under the symbol "S".

This press release contains certain forward-looking statements. Forward-looking statements generally can be identified by the use of statements that include words such as "believe", "expect", "anticipate", "intend", "plan", "forecast", "likely", "may", "will", "could", "should", "suspect", "outlook", "projected", "continue" or other similar words or phrases. Specifically, forward-looking statements in this document include statements respecting certain future expectations about the Corporation's capital expenditures; capital project commissioning and completion dates; production volumes; royalty revenues; oil and gas drilling activities; sales of activated carbon; and other corporate objectives, plans or goals for 2010. These forward-looking statements are not based on historic facts, but rather on current expectations, assumptions and projections about future events. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that those assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. Sherritt cautions readers of this press release not to place undue reliance on any forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. By their nature, forward-looking statements require Sherritt to make assumptions and are subject to inherent risks and uncertainties.

Key factors that may result in material differences between actual results and developments and those contemplated by this press release include global economic conditions, business, economic and political conditions in Canada, Cuba, Madagascar, and the principal markets for Sherritt's products. Other such factors include, but are not limited to, uncertainties in the development and construction of large mining projects; risks related to the availability of capital to undertake capital initiatives; changes in capital cost estimates in respect of the Corporation's capital initiatives; risks associated with Sherritt's joint-venture partners; future non- compliance with financial covenants; potential interruptions in transportation; political, economic and other risks of foreign operations; Sherritt's reliance on key personnel and skilled workers; the possibility of equipment and other unexpected failures; the potential for shortages of equipment and supplies; risks associated with mining, processing and refining activities; uncertainties in oil and gas exploration; risks related to foreign exchange controls on Cuban government enterprises to transact in foreign currency; risks associated with the United States embargo on Cuba and the Helms-Burton legislation; risks related to the Cuban government's ability to make certain payments to the Corporation; development programs; uncertainties in reserve estimates; uncertainties in asset-retirement and reclamation cost estimates; Sherritt's reliance on significant customers; foreign exchange and pricing risks; uncertainties in commodity pricing; credit risks; competition in product markets; Sherritt's ability to access markets; risks in obtaining insurance; uncertainties in labour relations; uncertainties in pension liabilities; the ability of Sherritt to enforce legal rights in foreign jurisdictions; the ability of Sherritt to obtain government permits; risks associated with government regulations and environmental health and safety matters; differences between Canadian GAAP and IFRS; and other factors listed from time to time in Sherritt's continuous disclosure documents.

Further, any forward-looking statement speaks only as of the date on which such statement is made, and except as required by law, Sherritt undertakes no obligation to update any forward-looking statements.