Sherritt International (T.S) to focus on nickel, oil, but dividend may be reduced to zero

Peter Kennedy Peter Kennedy, Stockhouse
2 Comments| January 6, 2014


Scotia Capital has upped its stock price target for Sherritt International Corp. (TSX:T.S, Stock Forum) following its announcement last month of a $946 million transaction to divest its coal assets (and associated royalty portfolio) to Altius Minerals, (TSX: T.ALS, Stock Forum) and Colorado-based Westmoreland Coal Co.

The new one-year target for the stock is $4.25, up from $4 previously.

“In our view the divestment of the coal business is a positive development for Sherritt as it allows the company to focus on its core nickel and oil business while potentially significantly de-leveraging the balance sheet,’’ writes Scotia analyst Orest Wowkodaw in a research report.

He said the gross proceeds of $946 million are well above his 8% net asset value of $636 million, and leaves the company with a focus on nickel and oil (the power business is immaterial).

“However, in the near-term, we believe that a stated focus on potential acquisitions with direct implications on the amount of debt actually retired early, and in our view, a likely dividend cut, are likely to overhang the shares,” Wowkodaw writes.

Sheritt currently pays an annual dividend of $50 million (or $0.17 per share), representing a relatively high yield of 4.5%, one that was largely supported by the stable and predictable cash flows from the coal business and associated royalty portfolio.

“In our view, given weak nickel markets and ongoing funding requirements during the ramp-up at Ambatovy, the company’s dividend is likely to be materially reduced in the near term, possibly to zero,’’ Wowkodaw said.

Ambatovy is located in Madagascar and is reputed to be the largest finished nickel and finished cobalt operation from lateritic ore in the world. 

Sherritt controls 40% of the project. Its joint venture partners are Sumitomo (27.5%), Korea Resources (27.5%), and SNC-Lavalin Group Inc. (TSX: T.SNC, Stock Forum) (5%).

Ambatovy has an annual design capacity of 60,000 tonnes of nickel and 5,600 tonnes of cobalt.

Sherritt International shares were off 1.3% to $3.65 Monday, leaving a market cap of $1.1 billion, based on 297.3 million shares outstanding. The 52-week range is $6.14 and $3.02.


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u4eah
- What I was trying to say in the above very limited comments box, is "Sherritt" has an appalling environmental record at "MOA Nickel Cuba", according to the following research;...http://www.ascecuba.org/publications/proceedings/volume18/pdfs/cepero.pdf
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January 6, 2014
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u4eah
- Just got back from fabulous holiday in Cuba. - While there, took an incredible catamaran day-trip to "Cayo-Saetia" (Castro's former private island) stocked with all manner of exotic creatures from ostridge to zebra to giraffe; and the reddest soil I've ever seen (and I've been to PEI). - The Cubans are fiercely proud, hospitable peoples; despite their abject poverty. - From the summit of Cayo Saetia, one could see off in the distance, a very tall smoke stack, remini...
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January 6, 2014
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