DBRS Releases Report on Sherritt International Corporation

DBRS Limited (DBRS) has today released a report on Sherritt International Corporation (Sherritt or the Company) that provides further detail on DBRS’s October 14, 2015, downgrade of the Company’s Issuer Rating and Senior Unsecured Debt ratings to B from BB (low) as well as the trend change on the ratings to Stable from Negative and its unchanged recovery rating of RR4.

Low nickel and oil prices and the disposition of Sherritt’s Coal unit in 2014 have contributed to a significant decrease in operating cash flow since 2010 at a time when the Ambatovy mine remains in need of cash injection to fully meet design targets if the Company wishes to maintain its 40% interest in the project, resulting in a strain on Sherritt’s liquidity.

DBRS expects Sherritt’s losses before non-recurring items will continue in H2 2015 and throughout 2016 as the Company faces the challenges of low nickel, cobalt and oil prices and the Ambatovy ramp-up. Lower earnings in H2 2015 and into 2016 are expected to reduce near-term operating cash flow. Combined with an ongoing need to fund Ambatovy deficits (including senior debt principal payments) and Ambatovy’s debt reserve account (about $57 million in Q3 2015), plus with elevated Oil and Gas drilling, Sherritt’s credit metrics are expected to be challenged and its current cash/available credit resources reduced.

Oil, nickel and cobalt prices are not expected by DBRS to materially fall further over the next 18 months, but they are not expected to rebound sharply either. A fully ramped-up Ambatovy mine with improved product pricing can be expected to be a solid net cash generator (most of which will initially be dedicated to debt repayment) for many years to come. In the interim, Sherritt will have to manage its cash resources carefully in order to maintain its existing ratings.

Today’s report and the October 14, 2015, press release are available at www.dbrs.com or by contacting us at info@dbrs.com.