We report on a company whose share price has only recently fallen below $1. Sherritt International has established global operations that have fallen in value along with declining commodity prices. Sherritt produces nickel from operations in Cuba, Canada and Madagascar, and has oil and gas operations in Cuba, Spain and Pakistan. To deal with depressed prices for nickel and oil and gas, the company has cut costs, suspended its dividend, and sold its coal assets to pay down debt. While it still holds $2.1 billion in long-term debt, the moves put Sherritt in a good position to benefit from recovering commodity demand once the global economy strengthens. We recommend Sherritt International as a penny stock to buy for aggressive investors.
SHERRITT INTERNATIONAL (Toronto symbol S; www.sherritt.com) 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.
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In the three months ended September 30, 2015, the company’s revenue fell 25.3%, to $76.9 million from $102.9 million a year earlier, mostly due to lower oil and gas prices. Cash flow per share fell sharply, to $0.05 from $0.16.
Sherritt paid off $425 million of debt in October 2014 after selling its coal interests for $793 million in cash in April 2014. Even so, it ended the latest quarter with long-term debt of $2.1 billion, or a high 9.7 times its currently depressed $217.5-million market cap. The company holds cash of $265.8 million.
To conserve cash, Sherritt has cut 10% of its salaried workforce. It also suspended its $0.01-a-share quarterly dividend to conserve cash. The company had previously cut its payout from $0.043 a quarter to $0.01 in early 2014. Nickel prices have fallen 35%, to $4.01 U.S. a pound, since it made that cut.
The elimination of the dividend should save $12 million a year. The company has also said it will reduce its 2016 capital spending by as much as 25% to 35%. Earlier this year, it lowered its planned 2015 capital spending to $195 million from $210 million.
Most of the company’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. Sherritt needs an improving global economy to fuel commodity demand, but it’s well positioned to profit when markets rebound.
Sherritt is a buy for aggressive investors.
Recommendation in Stock Pickers Digest: BUY for aggressive investors.
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