Economic Performance

Management Approach

The emergence of the electric vehicle market has created optimism about the nickel and cobalt markets as both metals are key components in current battery technology. As a low-cost, high-purity producer of Class 1 nickel, Sherritt is poised to take advantage of growing demand given that our production is primarily in briquette form – a type ideally suited to battery production.

Sherritt ended 2018 with less debt than the previous year and cash, cash equivalents and short-term investments of $207.0 million. Net direct cash cost for 2018 ranked the Moa JV within the lowest-cost quartile relative to other producers and ranked it as the lowest-cost nickel HPAL operation according to annualized information tracked by Wood Mackenzie.

Building on our progress of recent years, Sherritt’s focus in 2019 will be on the following strategic priorities:

  • Preserve liquidity and build balance sheet strength
  • Optimize opportunities in the Cuban energy business
  • Uphold global operational leadership in finished nickel production from laterites
  • Improve organizational effectiveness, including a focus on Operational Excellence and a commitment to strive for leadership in diversity and inclusion

Performance

Please refer to our 2018 Annual Financial Report for detailed information on our economic performance last year and an overview of how we plan on executing against our 2019 strategy.

Business Conduct

Management Approach

Our Purpose and Our Promises describe our guiding principles and how we expect them to be lived every day as we carry out our business. Our Business Ethics Code provides clear guidance to our workforce on what it means to act with integrity. It covers conflicts of interest, fraud and corruption, fair dealings, protection and proper use of the company’s assets, compliance with regulatory requirements, disclosure, confidentiality, and reporting mechanisms available to employees and contractors.

Globally, there is a necessary focus on eliminating corruption within companies and between businesses and all levels of government. Many countries have passed anti-corruption legislation, imposing significant monetary and incarceration penalties for corrupt practices. Investigative activities by law enforcement agencies have also increased significantly, bringing effect to this legislation.

As a Canadian company, we are subject to the Canadian Corruption of Foreign Public Officials Act (CFPOA), as well as anti-corruption laws in Madagascar and Cuba. The CFPOA prohibits Canadian business interests from making or offering improper payment of any kind to a foreign public official – or anyone acting on his or her behalf – where the ultimate purpose is to obtain or retain a business advantage.

Our Anti-Corruption Policy prohibits the violation of the CFPOA and other applicable anti-corruption laws. All divisions, groups and offices must undergo anti-corruption training and log all government meetings and payments. In Madagascar, governmental and commercial corruption presents a significant risk, whereas in Canada and Cuba, it does not. As such, we provide additional training, awareness-building and controls at Ambatovy, where all suppliers with standard contracts must also sign and adhere to our Anti-Corruption Policy.

Sherritt is very supportive of the transparent reporting of payments to governments. We are a Supporting Company of the Extractive Industries Transparency Initiative (EITI), to which we report in Madagascar. Visit this website to review EITI Madagascar’s latest report, which was published in 2015. In 2017, Madagascar was validated by EITI as having made meaningful progress in implementation. For more information on Validation, visit the EITI website. We have also developed a process for meeting the public reporting obligations of Canada’s Extractive Sector Transparency Measures Act (ESTMA), the requirements of which are very similar to those of EITI. Sherritt’s first Extractive Measures Transparency Act Report is now available online. The report, which is a requirement of the Government of Canada, covers certain payments that Sherritt made to all levels of government in Canada and abroad in 2018.

Performance

Ethical Conduct

In 2018, 24 reportable concerns were submitted through the Whistleblower system. Of the 24 reportable concerns, nine were deemed to warrant an investigation and 15 were subsequently closed. These were investigated internally by Internal Audit and/or management. The concerns were mainly related to allegations of fraud within the company, such as inappropriate business relationships with vendors and conflicts of interest. The remaining reportable concerns that were not investigated were deemed to be HR-related matters and were managed and closed by local HR business partners. All of the 24 reportable concerns in 2018 were related to Ambatovy.

Upon commencing employment with Sherritt, all employees are required to review and sign off on their understanding and acceptance of our Business Ethics Code.

Anti-Corruption

Sherritt’s Anti-Corruption Policy was last updated in 2018, with a newly updated anti-corruption training module to be rolled out in 2019 as part of Sherritt’s existing onboarding program. Previously, 100% of our entire eligible workforce was trained by the end of 2016, and subsequent refresher training for the updated policy occurred in 2017. As part of the training, employees had to sign the policy to demonstrate their understanding and commitment to the anti-corruption principles.

In Cuba, only expatriate employees and a small number of Cuban nationals who work directly for Sherritt were required to take the training, given the nature of our joint venture relationships and our agreement with the state-run agency that provides our operations with workers.

At Ambatovy, all new employees (nationals and expatriates) are required to complete the SkillMine anti-corruption module as part of their onboarding program, within six months of their employment commencement date. At the end of 2018, 91.5% of new employees had completed the online module within the orientation program. The remainder have been advised to complete the module in 2019.

Performance commentary on transparency reporting can be found under Community Development.

Human Rights

Management Approach

Understanding and expectations related to human rights in the mining and energy sectors began to evolve 15 to 20 years ago as companies increasingly turned their attention to countries that are less developed. Many of these countries are characterized by weak governance and respect for the rule of law, extreme poverty, a lack of business regulations, and less-than-ideal mechanisms to protect the human rights of their citizens. These and other factors can contribute to instances of conflict in natural resource development – often involving communities, companies, governments and security officers – as a means of resolving grievances of local residents.

The work of Professor John Ruggie, on behalf of the United Nations, defined a practical human rights framework, known as the United Nations Guiding Principles on Business and Human Rights. This framework outlines the roles for state and business actors in the protection of human rights. It also identifies “access to remedy” for anyone with a human rights complaint as a critical element for business to maintain its social license.

Although human rights issues do not currently represent a top risk at Sherritt, they are an inherent risk to all mining and energy production sites. To manage this risk, we are aligning with international best practices and expectations regarding human rights. We developed an enterprise-wide policy that commits to uphold the Universal Declaration of Human Rights, along with other international principles.

The primary human rights–related considerations for Sherritt include: access to remedy; the interaction between security personnel and communities near our operation in Madagascar (addressed under Site Security); labour rights (addressed under Employee Relations); and children’s rights in Madagascar.

At Sherritt, remedies for complaints, up to and including potential human rights violations, are provided through the community grievance mechanisms in place at the site level. Grievance mechanisms are processes to receive, acknowledge, investigate and respond to community complaints. These are valuable early-warning systems that can resolve sources of friction between stakeholders and companies, and can, over time, build trust. We have incorporated best-practice guidance from a number of sources into our Grievance Mechanism Standard to ensure it is both practical and credible. A few examples of the types of community grievances we have received in recent years are: impacts to livelihoods during construction of Ambatovy, allegations of inappropriate hiring or contracting practices, and environmental impacts of operation and/or construction activities.

Currently, we have a formal community grievance mechanism in place at Ambatovy. It includes an external grievance committee, comprising respected members of local communities, which meets quarterly to review the grievance management process and resolutions, and to provide feedback and suggestions for improvement to management.

At our site in Fort Saskatchewan, we have a long-established informal process for responding to complaints from external parties and are in the process of finalizing the implementation of Sherritt’s Grievance Mechanism Standard. In Cuba, there is a state-run system where citizens can file complaints against an entity, organization or enterprise whose activities they feel are adversely affecting their well-being. Commissions are set up to investigate grievances and develop action plans to address them. Sherritt’s management team, or that of our Cuban partners, participates in the process to address any grievances related to our operations.

Our Human Rights Policy also articulates our commitment to the Convention on the Rights of the Child. Violation of children’s rights is a fairly low risk in Canada and Cuba, but in Madagascar this risk is more significant. At Ambatovy, we have a zero-tolerance policy for child exploitation. This policy was drafted with the support of UNICEF, in response to an incident that occurred at Ambatovy several years ago. We also support youth-led peer awareness campaigns on child exploitation issues and HIV/AIDS in Madagascar. All contracts or agreements awarded to local suppliers include clauses requiring the strict respect of international rules on child labour. Ambatovy’s Local Business Initiative regularly verifies that these requirements are upheld.

Sherritt does not mine cobalt in conflict areas. By monitoring third-party feed sources, Sherritt ensures cobalt mined from any conflict area does not enter our supply chain at any point.

Performance

Third-party Review

In 2018, Sherritt’s Fort Saskatchewan refinery underwent an external audit on its application of the Voluntary Principles on Security and Human Rights as well as UNICEF’s checklist on Security and Children’s Rights. Refer to this section for more information on the Voluntary Principles. A similar audit is planned for Ambatovy in 2019.

Human Rights Grievances

There were no human rights–related grievances reported by external stakeholders at any of our operating sites in 2018. Note that employee and labour grievances are captured under Employee Relations and Stakeholder Engagement.

Children’s Rights

In Madagascar, where risks to children are present, Ambatovy has been particularly engaged with the Children's Rights and Business Principles to help put a children's rights lens on work with contractors and suppliers in the supply chain. As of 2017, more than 9,000 suppliers have committed to following our children’s rights requirements, which include zero tolerance towards child sexual exploitation and child labour, among other concerns. Any supplier found to be in violation of these contractual requirements would be immediately terminated. Ambatovy developed a training program for suppliers and subcontractors on UNICEF’s Children's Rights and Business Principles, which includes creating an action plan for respecting children’s rights. The first round of training was rolled out before the end of 2018 and at time of writing this report, 14 sessions had been completed with approximately 150 employees designated by Ambatovy’s supplier and contractor companies participating in the sessions. They will then share the knowledge and information gained with their colleagues in a cascade manner, which will cover over 6,000 supplier employees. The rationale for delivering this training was to ensure participants understood the content of Ambatovy’s management system and policies and that undue risk regarding children can and should be avoided. In 2019, this training will be offered to Ambatovy employees as well.

Since risks to children were first identified during the construction of Ambatovy, much work has been done to ensure the rights of children are protected. In 2018, Ambatovy organized four workshops on the fight against child labour in communities near the mine (especially, children herding zebu or cattle, and pulling rickshaws in Moramanga), as part of Ambatovy’s involvement with the child protection network in Moramanga. Additionally in 2018, Ambatovy audited 11 local vendors, mainly focused on the legal and social obligations of vendors which include commitments around human rights and child labour.

Sherritt was a participant in the UNICEF Canada–led Child Rights and Security Working Group established to focus on security-related impacts on children caused by the extractive sector. Other contributors include UNICEF, the Government of Canada, several global mining and energy companies, international non-governmental organizations, and other governments. In 2017, the Working Group published the checklist on Security and Children’s Rights, designed to assist governments and companies in assessing the degree to which their security frameworks respect children’s rights, and in early 2018, the Child Rights and Security Handbook, an implementation companion to the checklist, was launched.

We continue to provide assistance to child protection networks near our mine and plant sites in Madagascar in developing funding proposals for international donors. See this case study for more on our work to support children and youth in Madagascar.