SHERRITT INTERNATIONAL $2.62 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704- 6698; www.sherritt.com; Shares outstanding: 297.5 million; Market cap: $779.5 million; Dividend yield: 1.5%) sold off all of its coal interests for $793 million in cash in April 2014.
The company is now focused on nickel production, with operations in Cuba and Canada. As well, it has a 40% interest in the Ambatovy nickel mine on the island nation of Madagascar, off Africa’s east coast. Sherritt also produces oil and gas in Cuba, Spain and Pakistan and manages 506 megawatts of power generation capacity in Cuba.
In the three months ended September 30, 2014, Sherritt’s revenue jumped 55.0%, to $302.7 million from $195.3 million a year earlier. That’s mainly because Ambatovy started up. Cash flow per share rose 25.0%, to $0.15 from $0.12.
Earlier this year, the company fended off an attempt by activist investor George Armoyan and his firm, Clarke Inc. (symbol CKI on Toronto), to place three of its nominees on Sherritt’s board of directors. Armoyan also put forward proposals for Sherritt to cut costs and reduce debt.
Even though it won a shareholder vote to defeat Armoyan’s proposals, Sherritt is putting a number of them in place.
These moves include cutting debt. In October, the company paid off $425 million of debt. It now holds cash of $504.0 million, but its total debt of $1.8 billion is still 2.3 times its $779.5-million market cap. Sherritt is also cutting about 10% of its salaried workforce.
Most of Sherritt’s revenue and earnings come from Cuba, which adds risk. However, it’s diversifying away from that country by investing in other nations, such as Madagascar. The company needs an improving global economy to fuel commodity demand, but it’s well positioned to profit when markets rebound.
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