Sherritt International Corporation (SHERF.PK)

Q2 2012 Earnings Call

July 25, 2012 2:00 pm ET

Executives

Paula Myson – Managing Director, Investor Relations

David V. Pathe – President and Chief Executive Officer

Michael Robins – Chief Financial Officer and Senior Vice President, Finance

Analysts

Matt Murphy – UBS Securities Canada Inc.

Alec Kodatsky – CIBC World Markets Inc.

Anoop Prihar – GMP Securities L.P

Greg Barnes – TD Securities Equity Research

Presentation

Operator

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Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Sherritt International Q2 2012 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Wednesday, July 25, 2012 at 2:00 PM Eastern Time.

I would now like to turn the conference over to Ms. Paula Myson, Managing Director for Investor Relations and External Communications. Please go ahead.

Paula Myson

Thank you, Ron, and good afternoon, everyone. Our results were released this morning, a copy of the release along with the MD&A and full financial statements are available on our website. Today’s conference call is being broadcast live on the Internet. So anyone may listen to the call by accessing our website home page and clicking on the webcast link. A replay of the webcast will be available on our website later today.

Before we begin our comments, I’d like to remind everyone that today’s press release and certain of our comments on the call will include certain forward-looking statements. We’d like to refer everyone to the cautionary language included in our press release and to the risk factors described in the CEDAR filings. On the call today are David Pathe, our President and CEO, and Mike Robins, our Chief Financial Officer. Our call today will start with some general comments from David Pathe followed by a summary of the financial results for the quarter by Mike Robins. So to begin, I’ll turn the call over to David.

David V. Pathe

All right, thank you, Paula, and thank you everyone for taking a bit of time to join us this afternoon. Ms. Paula said I will go and have Mike who would take you through a few numbers in a few minutes here, but I want to just touch on a few things first. Overall, a pretty good quarter, all our operating businesses running as where we – better than what we expect them to be in a more difficult commodity price environment that was a year ago, but generally a decent quarter for us.

Few things I just wanted to touch on, I’ll start with Ambatovy, that’s top of mind for many people for us, when they’re thinking of us these days. We had a pretty good quarter from a start-up and ramp up perspective. We produced mixed sulphides in May and we’re able to produce sufficient quantities of mixed sulphides and we’re going to start feeding that in the refinery. Before the end of the quarter, we’re able to start-up – run a test batch of nickel briquettes and actually to show that the project was capable of producing finished nickel. So that, we saw as they makes achievement and we're pleased to see that.

We had good results over the quarter with – in terms of ramping up our autoclave performance through April, May and June, July more and more hours of operating time, more throughput of ore and generally a pretty good response from what we are expecting to see.

We’ve had our share of [season] problems in terms of leaky pipes and valves that don’t work and pumps that fails and the kind of stuff you would expect to see at a start up, that this is continue – but the chemistry in the order place, and the hardest as the power process is continue to perform as well better than we could have expected. So we’re pretty pleased overall with the way the projects coming along.

From a cost perspective, we had a budget of 5.5, we’re still confident we will be within that. I think we are at about $5.3 billion right now. The vast majority of the construction people have been demobilized at this point, so we're getting very close to be able to close the books on the capital cost number and we’re certainly comfortable it is going to be within that 5.5 number now borrowing any foreseen large expenditure.

In terms of total project cost, I think we’re at $6.3 billion at the end of the quarter, Where that number will end up is really just a function of what the ramp up curve will be now, I mean some other extraneous factors. You probably recall the difference between that number and the 5.5 number is that 5.5 number doesn’t include working capital, foreign exchange, interest expense on the project debt, those types of things. Especially what we’re doing now is we are capitalizing operating costs until we get to the point where we reached what we have considered to be commercial production and what point the accounting treatment will switch over from capital accounting to regular revenue recognition and expense accounting.

What – that is what we have to consider to be commercial production will take place when we get to about 70% of operating capacity. When that occurs and what the total cost will be largely a function of the ramp up schedule, what nickel prices are in terms of what we’re able to get for the nickel production that we’re producing as we work our way up to the 70% level, as well as foreign exchange rates and those sorts of things.

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