SHERRITT INTERNATIONAL $6.36 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704-6698; www.sherritt.com; Shares outstanding: 296.4 million; Market cap: $1.9 billion; Dividend yield: 2.4%) 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.
Sherritt is a major nickel producer, with operations in Cuba and Canada. 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. As well, Sherritt produces oil and gas in Cuba, Spain and Pakistan. It is also Canada’s largest thermal coal producer.
In the three months ended September 30, 2011, Sherritt’s earnings jumped 102.2%, to $45.5 million, or $0.15 a share. A year earlier, it earned $22.5 million, or $0.07 a share. Revenue rose 13.0%, to $466.4 million from $412.7 million. Higher coal and oil prices were the main reasons for the improved results.
Sherritt’s long-term debt of $1.6 billion is equal to 84.2% of its market cap. However, the company holds cash of $586.6 million, or $1.98 a share.
Sherritt gets most 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. 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.
The company needs an improving global economy to fuel commodity demand. But its low production costs and its ongoing geographic diversification enhance its prospects.
Sherritt International is a buy.
