All resource stocks are subject to the risk that comes with the rise and fall of commodity prices. But, depending on where they do business, some also face a second challenge: political risk.

Among Canadian mining stocks, Sherritt International (Toronto symbol S) is prominently identified with political risk due to its extensive involvement in Cuba. The company’s Cuban operations are profitable, but it is expanding into other countries to lessen that risk.

Sherritt is a diversified natural resource company that produces nickel, cobalt, thermal coal, oil and gas. It also manages 376 megawatts of power-generation capacity in Cuba.

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Sherritt is best known as a major nickel producer with operations in Cuba and Canada. It is also Canada’s largest thermal coal producer. As well, the company produces oil and gas in Cuba, Spain and Pakistan.

Canadian mining stocks: Sherritt joins Rio Tinto in Indonesia

Sherritt gets the majority of its revenue and earnings from Cuba, and is the country’s largest foreign investor. Cuba’s uncertain political and economic situation adds to Sherritt’s risk. The impending end of Fidel Castro’s regime contributes to the air of uncertainty.

However, Sherritt is diversifying away from Cuba by investing in other countries. For example, in late 2011 it bought 46% of mining giant Rio Tinto’s huge Sulawesi nickel project in Indonesia.

It is also close to finishing a mine at its 40%-owned Ambatovy project on the island nation of Madagascar, off Africa’s east coast.

Canadian mining stocks: Sherritt keeps its production costs low

In the three months ended June 30, 2011, Sherritt’s revenue rose 23.2%, to $500.6 million from $406.3 million. Excluding one-time items, earnings per share rose 5.3%, to $0.20 from $0.19. Higher nickel sales, as well as higher prices for coal and oil, were the main reasons for the improved results.

Sherritt’s long-term debt of $1.5 billion is equal to 100% of its market cap. However, the company holds cash of $609.1 million, or $2.05 a share.

Sherritt’s production costs are low. That enhances its prospects. However, the company needs a strengthened global economic recovery to fuel commodity demand. As well, it needs to successfully develop its new mines.

Our analysis of Sherritt International in the latest edition of Stock Pickers Digest concludes with our clear buy-sell-hold advice on the stock.

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