Sherritt bullish on cobalt after 52% drop

The Moa Bay joint venture nickel-cobalt operation in eastern Cuba. Source: Sherritt International Inc.

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The Moa Bay joint venture nickel-cobalt operation in eastern Cuba. Source: Sherritt International Inc.

Sherritt International Inc. [S-TSX] says an increase in global cobalt prices in April is likely to be sustained through the balance of 2019.

Consumer demand helped to boost cobalt prices by about 15% in April, Sherritt said in a press release containing details of the company’s first quarter financial results. The rally is clearly welcome as Sherritt had to swallow a 70% drop in its realized cobalt price during the first quarter.

“The recent increase in cobalt prices is expected to be sustained through the balance of 2019 albeit with some volatility due to increased speculative interest, growing demand from the electric vehicle battery market and persistent supply risk concerns linked to the Democratic Republic of Congo, which is currently the world’s largest source of cobalt supply,” the company said.

Toronto-based Sherritt is a world leader in the mining and refining of nickel and cobalt from lateritic ores with projects and operations in Canada, Cuba and Madagascar. Sherritt is the largest independent energy producer in Cuba, with extensive oil and power operations across the island. Its key asset is a nickel mining joint venture with the Cuban government.

The 50/50 partnership, formed in 1994, involves the extraction and processing of nickel and cobalt from an open pit mine at Moa Bay in eastern Cuba.

The laterite nickel ore is processed on site, producing mixed sulphides (containing nickel and cobalt) that are shipped in bags to Halifax, N.S., and then transported by rail to a refinery in Fort Saskatchewan, Alberta.

Sherritt licenses its proprietary technologies and provides metallurgical services to mining and refining operations worldwide.

On Friday, Sherritt said cobalt prices and demand experienced considerable softness and volatility in the first quarter of 2019. The reference price for the first quarter was US$18.53 per pound, down 52% from US$39.01 a pound for the same period in 2018.

“Consistent with trends over the past several months, the price decline was driven by increased supply of intermediate product from the Democratic Republic of Congo as well as by destocking of inventory by Chinese consumers,” Sherritt said.

“However, since the start of April, cobalt prices have risen approximately 15% as consumers renew purchasing activities,” the company said.

Still, Sherritt’s stock price fell 17.81% or $0.065 to 30 cents on volume of 3.5 million as investors reacted to first quarter results that did not meet expectations.

The company posted an adjusted net loss in the first quarter of 14 cents that was higher than the consensus estimate of 7 cents.

The worse-than-expected loss was attributable to lower earnings from the Ambatovy nickel joint venture in Madagascar, along with weaker Cuban oil and power results.

“Our record production results in Q1 2019 were negatively impacted; however, by the dramatic 70% decline in realized cobalt prices, contributing to considerably lower by-product revenue and higher [net direct cash costs] than we have experienced in recent quarters,” said Sherritt CEO David Pathe. “Our Q1 progress was also impeded by the disappointing collections on our Cuban overdue receivables,” Pathe said.


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