Sherritt profit falls 58 per cent to $55.9 million amid lower commodity prices

By Kristine Owram, The Canadian Press

TORONTO - Lower commodity prices, the loss of an oilfield in Cuba and ongoing capital spending at a costly nickel project sent Sherritt International Corp.'s (TSX: S.TO) third-quarter net income down 58 per cent to $55.9 million.

Although chairman and CEO Ian Delaney described the third quarter as a "satisfactorily boring quarter" in a conference call with analysts Wednesday, the market was disappointed. Shares in the diversified resource company lost 45 cents or more than six per cent of their value to $6.80 in Wednesday trading on the Toronto Stock Exchange.

Sherritt said its profit amounted to 19 cents per share, down from $133.1 million or 45 cents per share a year earlier, while revenue fell to $389.6 million from $478.3 million.

As of the end of September, Sherritt's long-term debt was $3.4 billion, of which about $2.1 billion was related to the troubled Ambatovy nickel project in Madagascar.

The company said total capital expenditures were $397.0 million in the quarter, of which 84 per cent or $330.9 million related to Ambatovy. Total project expenditures were US$3.1 billion as of Sept. 30.

Sherritt chief financial officer Dean Chambers said he expects a total of $1.4 billion will be spent on Ambatovy in 2009, revised downward from a previous forecast of $1.8 billion. He said the difference will be spent in 2010.

Construction on the project is scheduled to be completed by the latter part of 2010 and production is expected to begin in 2011.

The company has been struggling with ballooning costs and legal difficulties at Ambatovy as it works to get the project up and running.

In the summer, reports said the new president of Madagascar had hired a French law firm to press for changes to the mining act and an Ambatovy agreement signed earlier with the project partners.

But Delaney dismissed this.

"We've pretty much assumed that we're going to be unaffected and conducted ourselves that way and so far it seems to be coming true," he said.

Sherritt, the project operator, owns 40 per cent of Ambatovy, and Sumitomo and Korea Resources each have a 27.5 per cent stake. The project's engineering contractor, Montreal-based SNC-Lavalin Group (TSX: SNC.TO), has a five per cent interest.

Although the final cost of developing the project hasn't yet been determined, it is estimated to be approximately US$4.52 billion.

Delaney said Sherritt is now looking for opportunities to expand.

"We continue to look at opportunities for expansion in Cuba. We've got quite a number we could do there in our metals business for sure," he said.

"We continue to accumulate cash. We are continuing to be acquisition-ready after a fashion and continuing to grind the costs."

Sherritt said nickel sales of 9.8 million pounds were similar to a year earlier, while cobalt sales of 1.0 million pounds were up seven per cent, reflecting increased cobalt production.

Meanwhile, Sherritt sold 8.9 million tonnes of coal from its prairie operations, up three per cent from a year earlier, while sales from its mountain coal operations were 600,000 tonnes, up 20 per cent.

The company said it's seeking arbitration in a dispute over an off-take contract signed by an unnamed party for 100 per cent of the production of the Obed mine in Alberta, which started up in July.

In September, the party refused to take delivery of the coal and Sherritt said it is seeking full compensation for any and all costs or lost profits that will result from having to sell the coal to other customers.

Oil production in the quarter was 12,875 barrels of oil equivalent per day, down 23 per cent from the year earlier period, reflecting the loss of Block 7 in Cuba due to the Cuban government's termination of a production-sharing contract earlier in the year.

Electricity sold was up slightly to 588 gigawatt hours compared to 577 gigawatt hours a year earlier due to higher gas availability.

For the full year, Sherritt said it expects to produce 33,500 tonnes of nickel, 3,700 tonnes of cobalt, 39.3 million tonnes of coal, 12,600 barrels of oil equivalent per day and 2,100 gigawatt hours of electricity.

The Toronto-headquartered company is active in a number of resource-oriented businesses, including nickel, coal and oil and gas production in several countries including Canada and Cuba.