Sherritt International Corp. (S.TO)

He is not familiar with the seasonality of this, but logic would suggest that since it is involved in the base metal sector, it should normally be doing well near the end of the year. Technically, the stock has completed a nice little base, and has just broken above the base, which is quite encouraging. It fits in with something else. The price of nickel, a major part of this company’s production, has recently broken on the upside, and looks like it wants to move higher with other base metals.

This has always been a very difficult one. It is a Cuba thing. It sold off a lot of its Canadian assets. Has a bit of cobalt which is strong nowadays.

A nickel producer and the stock has been in a long slump. There have been some signs of life in the last few weeks. It is trading in sympathy with all the base metal commodities, most notably nickel. Emerging markets have been growing their economies faster this year than last. The problem he would have is with the quality of the assets and the financial strength of the company.

It has been on his watch list for years. He used to not like the management and they have not done well recently.

It has been trapped lately. It is pulling back to the old support level of 70-75 cents. He would expect it to bounce, but would want it to take out the last peak before buying.

Hasn’t followed this closely over the past couple of months, but did do a lot of work on it 6 months ago. Had a lot of debt they were trying to get rid of, at which time the multiple would expand. That has happened, but the stock really didn’t react the way people expected. He would stay on the sidelines.

A nickel producer in Cuba and Madagascar. They’ve renegotiated their position in Madagascar and have gone from 40% ownership to 12% of equity and debt. Their balance sheet is now in much better shape. It is fully expected this will be completed by the end of June. It will leave them with 2 nickel projects. About $3.50 nickel would be their breakeven, and it is currently trading at $4.15. They really need higher nickel prices. They can survive, because they have cash in the bank and cash from these projects.

Reached an agreement with Ambatovy on a joint venture partnership structure, with Sherritt reducing its interest from 40% to 12%, and got forgiven $1.3 billion of debt. This gives them a better balance sheet. You need higher nickel prices. If nickel were to go to $7, this stock would be worth a couple of dollars. It has huge leverage on nickel which overwhelms every other single thing about it.

His issue has to do with 1) what is happening with the commodities they are in and 2) the geography that they operate in. Madagascar and Cuba are their 2 major markets. He would rather not invest in companies that operate in countries that he is not sure of.

Nickel mining in Cuba. The stock has been up a little over the last while. For basic raw materials stocks, so much is dependent on growth in Asia. Doesn’t think we are going to see the same sort of structural buildout of China for a while. Wouldn’t bet on this company or any other basic raw material producer, on whether or not we are going to see demand in North America.

He prefers Hudbay Minerals (HBM-T). Sherritt is nickel, which is finally perking up for the 1^st time in quite a while. Their Madagascar mine has a cost of about $4.40. Nickel got over $5 recently, and this spent a lot of time below its breakeven point for quite a while. They have extended their bonds out 5 years, and have done a deal where they no longer fund their 40% of Ambitovy mine, they are only funding 12%, so the balance sheet looks okay. If you believe in the whole economy growing because the US is fiscal stimulating and these prices go higher, he still finds Hudbay safer with a better balance sheet with better zinc prices and a better copper price, and it could go to $10.

Just recently it moved above a key resistance level and started to show an upward trend. Nickel prices are starting to move higher. You are into a good position technically and seasonally these stocks do well now.

This has gone into the tank, and the balance sheet has fallen away as they have taken off write-offs. It is now rallying with the metals. They are scheduled to lose another $.89 a share this year, which could erode the BV even further.

Management has done a great job in doing the things that are necessary. However, a tough problem to overcome is that they have a market cap of over $3 million, which needs to get to $1 billion before institutions get on board. They’ve fixed their debt, but they have to fix the mine in Madagascar. The only pure play in the nickel market, but unfortunately, too small of a market cap for many companies.

You have issues with it being leveraged, issues with nickel and political issues in Madagascar. It could be interesting as a lottery ticket. They re-structured some of the debt, but that does not mean the equity is going to be worth anything at the end of it.