SHERRITT INTERNATIONAL $3.02 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704- 6698; www.sherritt.com; Shares outstanding: 297.3 million; Market cap: $900.8 million; Dividend yield: 5.7%) is a diversified natural resource company that produces nickel, cobalt, thermal coal, oil and gas. It also manages 356 megawatts of power generation capacity in Cuba, with an additional 150 megawatts starting up soon.
The company is a major nickel producer, with operations in Cuba and Canada. As well, it has started up its 40%-owned Ambatovy mine on the island nation of Madagascar, off Africa’s east coast. Sherritt also produces oil and gas in Cuba, Spain and Pakistan and is Canada’s largest thermal coal producer.
In the three months ended September 30, 2013, Sherritt’s revenue fell 16.2%, to $286.2 million from $341.5 million a year earlier. Lower nickel and coal prices were the main reasons for the drop. Cash flow per share declined 33.3%, to $0.20 from $0.30.
The company’s long-term debt of $2.1 billion is equal to 230% of its market cap. However, it holds cash of $370.8 million, or $1.25 a share. Sherritt raised its quarterly dividend by 13.2% in April 2013. The shares now yield a high 5.7%.
Geographic diversification cuts risk
The company gets most of its revenue and earnings from Cuba, which adds risk. However, it is diversifying away from that country by investing in other nations, including Madagascar.
The company needs an improving global economy to fuel commodity demand, but it’s well positioned to profit when resource markets rebound.
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