Sean McCaughan - VP of IR & Communications David Pathe - President & CEO Dean Chambers - EVP & CFO

Anoop Prihar - GMP Securities Greg Barnes - TD Securities

Thank you, good morning everyone. Welcome to the Sherritt International Corporation first quarter 2015 results conference call.

Our results were released yesterday evening after the close of markets, and a copy of the press release along with the MD&A and full financial statements are available on our website at www.sherritt.com. Also available on the website is an accompanying presentation on the quarterly results that will be referred to during the call.

Today's conference call is being webcast, so in addition to those on the line anyone may listen to the call by accessing our website homepage and clicking on the webcast link. A replay of the webcast will be available on the 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 forward-looking statements. We would like to refer everyone to the cautionary language included in our press release and to the risk factors described in our SEDAR filings.

On the call is David Pathe, our President and Chief Executive Officer; and Dean Chambers, our Executive Vice President and Chief Financial Officer. We'll begin with a review of the results for the quarter, and then move into a Q&A session to address any questions you might have.

And with that, I will now turn the call over to David.

Alright, thank you Sean, and good morning everyone. Just before we get into this I just wanted to note that Steve Wood, our new Chief Operating Officer, has joined us here at Sherritt this week.

Steve is known to some you, he comes to us from ArcelorMittal, Canada's Iron Ore Mining Operations, where he was the President and CEO. Before ArcelorMittal, Steve had a long career in the nickel business, and including a period of time in Indonesia.

I just want to welcome Steve, we're going to wish him luck and say that I'm delighted that we are able to attract a person of Steve's caliber. So turning to the quarter, I'm going to frame my discussion around the strategic priorities that you've heard us talk about over the past year, which are still our guiding principles for the year ahead.

Those of you following along in the presentation, you will see those on the Slide 4. I'll be talking about the progress and in Ambatovy, and specifically our achievement of the 90-for-90 here that we have been talking about, and what remains to be done for the independent engineer sign office while the timing and action requires for the remaining.

Secondly, I'm looking at our Cuban Energy business and recognizing that a number of you attended our Investor Day presentation in late March, we've got some initial results now from our drilling in the Puerto Escondido/Yumur extension, and I'll spend a little time on those results. Our balance sheet and the liquidity remained top of line, and they surely showed us some good progress in reducing administrative costs.

We had a combined administrative expenses coming in at $17.7 million. So starting with the highlights on Slide 5, the highlight of the quarter from my perspective was the strong production and low costs at both of our nickel operations.

Higher production, both at Ambatovy and in Moa resulted in our metals unit delivering the highest nickel production level in our history, and cash cost at $436 per pound at Moa and $576 at Ambatovy. We also met the criteria for the production performance milestones for the Ambatovy running at 54,000 tonnes annualized, which is 90% of nameplate capacity for 90 days in a 100 day continuous period.

We were aiming to achieve this milestone by mid-year, and there were those of you that thought that was ambitious. However, we got there ahead of schedule, thanks really to the problem solving acumen of the Sherritt Technologies people, and the persistence, dedication and hard work of our team at Ambatovy.

Financially our adjusted EBITDA of $44.2 million was down 19% year-over-year. EBITDA in metals and power were both up but those gains were more than offset by oil, with realized oil prices down now over 40%.

On a cash flow basis, our combined adjusted operating cash flow increased this quarter to just over $56 million. So turning to our nickel operations, starting with the Moa Joint Venture on Slide.

Moa was off to a good start for the year – this quarter, and the quarter similar to Q4 of last year. Production increased to over 8700 tonnes of finished nickel, and about 850 tonnes of cobalt on a 100% basis.

We also saw our overall cost profile improve as net direct cash costs for a pound of nickel decreased to 18% year-over-year, to $4.36 a pound, aided mainly by lower fuel oil and energy costs, as well as the higher production. Mining and processing unit cost also came down despite higher sulphur and sulphuric acid costs, as we realized some improvements in our fixed costs and recognized the benefit of some reduced unplanned maintenance.

On Slide 8, you will see the main activity at Moa – on Slide 7, sorry, the main activity at Moa right now is the highlight to start a construction on our new acid plant, to be the third acid plant on the site, and it will eliminate our dependents on imported sulphuric acid. Starting the construction is good but we still have some work to do with our Cuban contractor to ensure there is no slippage in the schedule, and we are working with them on that now.

The economic benefits of the third acid plant come from both, the benefit of consuming sulphur rather than sulphuric acid, and from reducing fuel oil consumption as a result of being able to capture new steam from the steam produced during the acid making process. Lower fuel oil prices have already delivered some of the benefits of reduction in our net direct cash costs.

In today's environment the savings remain meaningful to us, it would have been just over 15% if the acid plant was up and running now. With sulphuric acid costs, directly or indirectly – they are indirectly representing about a third of our operating costs.

The acid plant project offers a very attractive payback and an ability to reduce our operating costs further. Moving on to Ambatovy on Slide 8, you have heard us talk about the ramp up in Ambatovy for the last ten quarters or so now and we've evolved through responding to mechanical failures to operating – to optimizing process and controls.

The 90-for-90 milestone is a tremendous accomplishment, and we have all been waiting for a cash figure that starts with a five. Our strategy in the second half of last year to proactively deal with the maintenance turnarounds on the autoclaves was successful.

We have continued to see cost come down with increased production. Production in this quarter was over 11,500 tonnes of finished nickel, up 33%.

To zero in on this trend we've got a graphic showing the correlation of the last five quarters between increased production and lower cash costs. While it could be misleading to look at cash cost over shorter periods due to the timing and cost impact to maintenance activities, in January, when we ran it over 90% of capacity we saw a net direct cash cost in Ambatovy that were in line with our Moa operation.

Adjusted EBITDA improved from the fourth quarter and operating cash flow of $12.6 million represents approximately 30% of our metal segment cash flow this quarter, with further gains to come as we reach design capacity. In April, we've seen some production impact though the plant didn't run during the recent strike action.

We proactively undertook some maintenance of the refinery as a result for the mine strike and that ran into early April. We also undertook some of the maintenance turnaround in our fifth autoclave that we postponed during the fourth quarter while we are on our 90-for-90 run.

As we usually do, we will release April production numbers early next month. While I'm here, let me make a brief comment on that strike action in Ambatovy in April.

Last week we announced that the pre-planned strike by some of our employees have been resolved. Strike at plant was relatively short-lived and involved only a portion of our workforce so we were able to keep the plant running during the strike.

This was our second strike in two months following a similarly brief action at the mine sites in March. In both cases, the grievances were non-compensation related, really having more to do with communication issues.

In each case we were able to come to an agreement on a path forward to improve communications and get people back to work. On the next slide – that will be familiar to those of you that attended our Investor Day presentation in March.

The independent engineer recently visited the site and is now reviewing all the documentation pursuant to final sign-off expected sometime in May for several certificates. All three of the certificates for production, efficiency, and environmental are up for approval around the same time.

The remaining two certificates being legal and financial don't require any independent engineer sign-off and we continue to believe that we're on track for the September 30 deadline. My last comment I made was just to touch on the nickel markets and what we're seeing.

Expectations this year were for higher nickel prices supported by supply shock, but we've seen that nickel market continued to demonstrate volatility and weakness in pricing with prices down to further 9% since the fourth quarter. That being said, the market expectations continue to forecast a deficit forming in the market and we agree the market still has the potential to shift to deficit later this year.

Inventories in the LME did increase during the quarter but there are signs that we are at least seeing those level off now at current levels. Looking into supply, inventories of lateritic ore in China continue to decrease, which will lead to MPI reductions in China.

On consumption side, the market continues to watch for changes in Chinese growth and stainless steel demand. While there are some signs of slowing steel demand been reported out of China, most exports are still forecasting a global increase in demand this year.

Longer term, which is really where we focus, we continue to expect to see supply deficit supporting expectations of rising nickel prices later this year. The reality is we are in the nickel business for the long term, our view of the fundamentals that become supply shortage will support a strengthening price and lead to improved results for us.

On to our oil and gas business, you have seen from our results – the real story in the quarter is heavily influenced by the drop in oil prices year-over-year. We're now seeing some recent strength in and Brent and WTI that may have a little more positive and decisive move we've seen in the last few months, but we continue to watch that.

Results in the first quarter were the same thing we saw last quarter. The impact to our net backs from the realized sales prices is visible and costs were up due to weaker Canadian dollar, higher maintenance, and higher well work over costs.

Overall operating costs of $8.26 in Cuba is [ph] still very attractive by industry standards. Capital spending of $27 million was based on a drilling plan for the year which primarily includes new wells in the extension area.

Turning now to Slide 13, we can take a look at what we're seeing so far in our drilling program. So we are the largest independent oil producer in Cuba, producing roughly 20,000 gross working interest barrels of oil per day from 58 wells.

The majority of these wells are part of our existing Varadero West production sharing contract, and our Puerto Escondido/Yumuri PSC, and those end in November 2017 and March 2018 respectively. Our multi-year strategy that includes increased drilling this year in the extension area, with plans to move into new areas such as Block 10, which we believe holds significant potential for our company.

Block 10 is particularly attractive, given the discovery there in the 90s which tested at 3,000 barrels a day. Block 10, we're starting with the exploration work which includes reprocessing of existing seismic information, and we'll be looking to drill there early next year.

If all goes according to plan, expected production from these new areas becomes meaningful in the 2017-2018 timeframe. So let me review our production results for the quarter and production from the wells drilled and completed since the quarter end.

Our gross working interest oil production for the quarter was off 2% compared to a year ago. This quarter, we've seen declined rates perform a little better than expected on existing wells, in all of our 58 wells, five are new wells now producing in the extension areas.

Off those wells I think three are performing at expectations, two wells are little below our expectations, and we have a sixth that is now just finished drilling and is currently being tested. In our recent drilling in the extension area we've had more success on the Puerto Escondido side, that's part on the Yumuri side.

Based on what we're seeing in Yumuri, we're slowing down our drilling while we get a little better handle on the geology. Accordingly, you will see that we have reduced both our capital and production guidance slightly for 2015.

When I look at our net production, I see that we're down 7% year-over-year. Typically in an environment like this we have declining oil prices and higher costs, we would see higher net production.

However, that factor is temporarily altered, this trend is the new extension work at our new contract at Puerto Escondido/Yumuri. Like all of our PSCs in Cuba we have a quarterly limit on how much we can recover in cost recovery oil in any given quarter.

This puts a ceiling on our cost recovery barrels and net barrels and timing is the only difference here as these barrels cost will be recovered in the future periods as per our agreements in our plants. Turning now to Power in Slide 15, we saw production levels higher than the previous prior period, primarily due to the prior year not really having a full quarter of production.

That being said, production and power remains consistent and this business continues to generate strong results after the addition of the Boca Phase 8 project. Financially, adjusted EBITDA improved to $7.3 million.

In addition, we are also receiving principal and interest on the loan we have down to the Energas Joint Venture. Timing was such that we received an interest payment this quarter, was slightly cash flow is higher to approximately $24 million for the quarter.

And that's what I wanted to touch on, I'll turn it over to Dean now who will take you through some financial and accounting highlights, and then we'll come back to take your questions.

Thank you, David and good morning. I would like to cover our financial performance during the quarter, our focus on balance sheet and liquidity, and update on the improving tax rates in Cuba, and developments in our continuous improvement program to enhance our public disclosure.

Let me begin with our last item, you will recall last quarter we introduced a non-GAAP metric combined revenue. This helps in getting a better sense of our revenue across all of our divisions.

My first slide, Slide 16, recast the different metrics we present on a combined basis which are designed to provide an overall view of our business instead of what IFRS dictates in our financial statements. You will find the summary and a reconciliation of our combined measures on Page 5 and 6 of our MD&A.

This quarter we are implementing enhanced cash flow disclosure. This is centered around a couple of new non-GAAP items mainly combined adjusted operating cash flow, combined adjusted operating cash flow per share, and combined free cash flow.

Our combined adjusted operating cash flow is combined because it takes the operating cash provided by continuing operations from our cash flow statement and also includes the cash flow from operations on a proportionate basis for the Moa and Ambatovy joint ventures. In comparison, our consolidated statements of cash flow in our financial statements only show cash flow from Ambatovy or Moa when there is a distribution, for example, a dividend.

As previously reported, the adjusted term is just showing that this metric is before changes in non-cash working capital. This metric can be divided by the average number of shares outstanding to determine the combined adjusted operating cash flow per share.

Now the combined free cash flow metric starts with combined cash provided by operations and adjust for capital expenditures only. These definitions are included in the appendix to the slides and a detailed summary of all our non-GAAP measures can be found on Pages 24 to 29 of the MD&A.

But we also breakout these new metrics by segment. So with that overview behind us, let's move on to the quarter.

Slide 17 shows our financial highlights. Now just a reminder, in making comparisons year-over-year in our financials we are comparing a full quarter at Ambatovy in Q1 of this year to two months of the quarter last year.

As we reached commercial production in January of 2014 and began reporting operating results as of February 1. This quarter, we reported adjusted EBITDA of $44 million compared to 2014 adjusted EBITDA of about $55 million.

This decrease was mainly due to lower EBITDA from oil. Looking at earnings, we reported a net loss from continuing operations of approximately $57 million compared to a net loss of $148 million in the fourth quarter, and a loss of $48 million in the year ago quarter when oil prices were considerably higher.

In a couple of minutes, I will walk through the drivers of earnings and cash flow for the quarter. But before I do that I want to also touch on our liquidity, our debt and required funding for Ambatovy.

We exited Q1 with continued strong cash on hand of approximately $478 million and total available liquidity of almost $550 million. Our debt profile is relatively steady during the quarter as our debt grew only as a result of accrued interest and foreign exchange.

We did not see any meaningful changes in this quarter in our liquidity position despite lower commodity prices. Now year-to-date it has not been required for Sherritt to fund Ambatovy, however, we continue to forecast funding by the Ambatovy partners in 2015 as funding is primarily driven by debt service on the project senior debt with principal of the payment scheduled for June and December.

We've previously disclosed an expected funding requirement of $50 million to $100 million for share-to-share for this year. But we are currently evaluating the impact of further weakness in the nickel price, and on a phenomenal basis we could see the funding requirement certainly increased to the higher end of that range or potentially a little higher.

On Slide 18 we recap the changes we announced in March to the Cuban statutory tax rates following the new foreign investment loss. These changes resulted in a recorded income tax recovery of $30 million but between a non-cash adjustment of $13 million reflecting re-measurement to deferred tax liabilities and a current tax recovery of $17 million.

These reductions were significant with statutory rates following from 30% to 22.5% in oil and gas, from 45% to 22.5% at Moa, and from 13% to 15% in Power. And just to give you a frame of reference going forward, we would expect approximately $17 million in cash tax savings at these rates with similar earnings to what we experienced in 2014.

When higher nickel and oil prices return, we would expect higher savings as pre-tax earnings also would increase. Lastly, we are still awaiting confirmation of the new statutory tax rate at Power but the others have been confirmed.

I also want to run through our change in earnings from last quarter to this quarter. Looking at Slide 19, you see we are starting with Q4 2014 adjusted net loss of $18 million.

We then look at the changes in major items that contributed to the net loss of $56.8 million this quarter, we then present the adjusting items that get us to an adjusted net loss of $71 million. So operationally, the largest improvement is the increased earnings from Ambatovy between the periods.

Oil and Moa earnings both declined due to lower oil and nickel prices. Next, we show the tax recovery during the quarter which I covered in the previous slide.

We also saw a higher FX loss in the quarter resulting from the weaker Canadian dollar and higher consolidated depreciation. There are a few items netted against the FX loss and higher depreciation which takes our reported net loss for the quarter upto $56.8 million, and when taking into account a few adjusting items shown on the slide, the adjusted net earnings figure is $71 million.

Similarly if I review our changes in cash flow from the fourth quarter to this quarter shown on Slide 20, we see some similar trends driving improvements. Overall, combined adjusted operating cash flow change from negative $35 million in the fourth quarter to $56 million in the first quarter.

Out of these, cash flow improved by $24 million during the quarter, however, Moa and oil both showed small decreases in cash flow. Cash flow from the Power business was up substantially, primarily with the timing of interest received on the conditional sales agreement loan.

Debenture interest was lower due to the timing of interest payments, and we also didn't have a one-time premium in fees of $34 million paid in the debt restructuring that occurred in the fourth quarter of last year. Slide 21 shows our capital spending guidance.

Naturally in this lower price commodity environment we are constantly evaluating appropriate adjustments to our capital plan to manage the balance sheet and our liquidity levels. We are making some changes to our capital guidance today.

Now the majority of our capital spending is actually denominated in US dollars, as a result, the $231 million of capital originally forecasted is approximately $250 million at today's exchange rate. We have now implemented a reduction from this current capital number that gets us to $210 million in capital spending for this year.

So when factoring in the change in FX rates I just mentioned on our capital plan, this reduction is more representative of an approximately $40 million reduction in capital as opposed to the $21 million you see by just comparing today's guidance to previous guidance. Now most of the reduction falls in oil and gas recognizing the drilling results so far, and the intention to drill fewer holes – fewer wells.

The reduction in the Moa JV is relatively minor given the need to replace mobile equipment, progress the acid plant, and the requirement for sustaining capital at the refinery which is on schedule to complete a one in ten year turnaround this summer. I would also like to note that with planned extended shut down this summer, we forecast that the shutdown will have an approximate impact of 500 tonnes on a normal second quarter production.

Reductions at Ambatovy relate to a number of individual sustaining projects which can be deferred without negatively affecting achieving financial completion. Now in the event the commodity prices do improve, there could be a reassessment of capital expenditures going forward.

Lastly, on our last call I indicated that we would recognize a gain of approximately $19 million on the sale of our corporate office here in Toronto, and I indicated we would recognize that in this quarter. However, due to the timing of that transaction, we now expect to report that gain in the second quarter.

This wraps up my remarks and I will now turn the call back to David.

Thanks, Dean. So in summary, I would say the quarter is a good start to the year operationally against the backdrop of persistently weak commodity prices for a lot of commodities, including ours.

Over the last year, we have taken steps to bring greater focus to our company, reduce our debt levels, improve operational performance, extend the life of our energy business and reduce costs. But as a shareholder like many of you, I also care about the share price.

Commodity prices continue to be difficult for us but my personal economic future is inextricably tied to this company. Success as Ambatovy as company maker, however, we are also committed to improving in building value in all of our businesses.

We are an operator of large competitive low cost assets, and we continue to look at how we can be better, more competitive, and enhance value in this changing business environment. With that I will turn it back over to the operator and take your questions.

Good morning. Just two quick questions on Ambatovy.

First, I know David, you spoke a little bit about the strike at the refinery but could you just provide a bit more context there? And then the second question is, I noticed that there is about $2 a pound differential between your realized cobalt prices at Ambatovy, first at Moa, and when you look at the realized price at nickel, they are almost identical.

I'm just wondering how do we explain that delta.

On the strike – the strike itself at the plant side, I think were not probated nine days, it was less impactful on us than the mine strike the previous month, because the mine strike did more or less stop production at the mine, we were just able to send some down the pipeline of stockpiles, but the plant, we were able to largely keep running, it was only a portion of our workforce that went off the job, and the workforce of the various contractors, as it runs some of our utilities and other elements were unaffected. So as that strike went on for a week or so, a little over a week, the production impacts would have somewhat in that we just didn't get the maintenance activity, just as quickly as we would if we were fully staffed up but it didn't slow things down the way the mine strike did the previous month.

In Madagascar, generally I think there will always be events that we're dealing with. I think we've got a strong team of people down there that handled it well and have good communication with the workforce.

We did see the governments get involved, the very senior levels and the Prime Minister dispatched a couple ministers down to [indiscernible], to help facilitate the discussions between us and the Work Council and push towards the settlement. So it was definitely seen as a big issue in country that everybody was keen on getting to a resolution and we're pretty confident today that we did and people are back to work and we'll continue to work on that relationship.

Cobalt price, I'm not sure what that answer is before there and we will get a better answer to you, and we are seeing a good quality metal now on both, the nickel and cobalt coming out of Ambatovy this year, virtually all the nickel we produced has been only grade nickel out of Ambatovy now, we've saw our previous issues there – beyond issues of timing of shipments and finding new and ongoing steady customers for cobalt pricing for longer term arrangements for all customers out. I don't have an immediate answer, I'm sorry for that, but we will get you one, and overtime I would expect that we would see those – that spread converge and we should see very similar pricing subject to shipping in timing and those sorts of concerns and both plants.

Dave, can you talk a little bit about the challenges I guess you had at the two wells in Cuba and why Moa [ph] isn’t meeting up to expectations?

Yes, I think that's what we're going to spend the next three or six months figuring out, Greg. They just haven't come on producing at the rates that we were anticipating, everyone – a couple of them are producing, we've got one that's still producing more water than we are anticipating and less oil than expected.

And so they are not as rich as we were – as the seismic and geology was indicating they might be. And so our guys have got some work to do to just to figure out why that isn't and they are going back and looking at their models and the geology again.

Given the capital environment and the results that we've seen so far there, that's why we're going to talk our time on this event and see if we can understand a little better what's going on there before we pick our next drilling locations and then that's what we'll do better. I don't have a lot of insight into it beyond that for you today.

Beyond that they didn't come online quite the way our models suggested they would and should, and we're going back and we've get some homework to do to try and piece together why that is.

Just unclear – this is not one of the new blocks though, this is one of the previous blocks you had?

The drilling – all the drilling we've done so far this year is in that existing block, the Puerto Escondido/Yumuri block, which is the one we signed the extension on mid-year. And so all the wells that we drilled subsequent to that date we have for an additional ten years, on the new blocks were are still reprocessing the seismic in identifying drilling locations in well we'll be drilling early next year.

Okay. And just the Block 8A I guess that's four on the map here, that's on land I think.

Yes.

And that's different from what you've been doing in the past, is it not?

It is, our recent activity there has been more and needed to be immediately offshore blocks and you can see on that map, I don't have it in front of me here but you can see reporter Escondido and Emery, and Varadero West, and Block 10 are all sort of immediately offshore and nice work down the asset. So we've got some feel for Block 8A but not as much information as we have on Block 10.

Our focus between now and 2016 will be on Block 10. We are on that – that drilling results that I mentioned from the 90s was us, and at that time it was quite a long each from onshore and the advances in the technology of the last 20 years make that more accessible now and it was from that first well was drilled.

So you're right, four is different in terms of no longer being offshore horizontal drilling out underneath the seabed, the way our existing production is. It's still in the same general geographic area and we think similar geology, but that's why our primary and initial focus is on Block 10.

Okay. When do you think you'd be drilling 8A or the way off in the future?

That's not specifically planned, that's at least two or three years in the future.

Okay, thank you.

Thank you, operator. Before we close for the quarter, I'd like to take this time to remind everyone of our upcoming Annual General Meeting on May 12.

Details of this event can be found under the events section on our website at www.sherritt.com. We also look forward to speaking with you again in July with the release of our second quarter 2015 results.

Thank you to everyone for participating in the call, and please feel free to contact us with any follow-up questions.