Topic: Growth Stocks

SHERRITT INTERNATIONAL $4.33 – Toronto symbol S

SHERRITT INTERNATIONAL $4.33 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704- 6698; www.sherritt.com; Shares outstanding: 296.9 million; Market cap: $1.3 billion; Dividend yield: 4.0%) 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 this year.

The company is a major nickel producer, with operations in Cuba and Canada. As well, it is now starting 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 December 31, 2012, Sherritt’s revenue fell 12.8%, to $467.9 million from $536.8 million a year earlier. Lower nickel and cobalt prices and a decline in thermal coal sales were the main reasons for the drop. Cash flow fell 56.4%, to $39.5 million, or $0.13 a share, from $90.7 million, or $0.31. That was due to the lower revenue and higher production costs.

The company’s long-term debt of $2.0 billion is equal to 154% of its market cap. However, it holds cash of $526.8 million, or $1.77 a share.

Sherritt has raised its quarterly dividend by 13.2%, to $0.043 from $0.038. The shares now yield 4.0%.

The company gets most of its revenue and earnings from Cuba and is that country’s largest foreign investor. Cuba’s uncertain political and economic situation adds to Sherritt’s risk. However, it is diversifying away from Cuba by investing in other countries. For example, in late 2011, Sherritt bought 46% of Rio Tinto’s huge Sulawesi nickel project in Indonesia.

The company needs an improving global economy to fuel commodity demand. But its low production costs and ongoing geographic diversification enhance its prospects.

Sherritt International is a buy.

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