Sherritt International Corp. (S.TO)

This is the worst company out there. Its management is poor. An activist investor tried turning this thing around, but didn’t succeed. It trades under his last support line of EBV-3. The market is saying the state of the assets is not what it is worth.

This is a speculative stock. They have a major project in Madagascar with great partners, but the politics are questionable. There are some environmental aspects to it, but the deposit is excellent. Their technology really fits that particular ore deposit. If this project goes bad, he doesn’t know where the stock will go from there.

If you are looking at base metals, this would be one he would be interested in. It is well run, well diversified and controls a lot of resource. It might be a little early, but this is definitely one he would be looking at when the time is right.

Bonds. He was a long term holder of their bonds. There was execution risk, but you had the Saskatchewan assets. Once they sold those, he got out.

Bond 8.0% November 2017. It is an improving story. They sold down some existing gas assets. Nickel prices are rising. They are paying down debt. A good yield enhancer and a short maturity date.

Sold their thermal coal business, and have about a year to either 1) find an acquisition or 2) pay down existing debt. About as pure a way to play nickel as you’ll find. Just ramping up their Madagascar project. Indonesia has an export ban on iron ore, and if you think that will continue for at least another 6-12 months, there will be continued erosion in nickel inventories and continued strength in nickel. For every 10% increase you see in the price of nickel, you get a 30% increase in EBITDA. Tremendous leverage.

Has looked at this in the last couple of months, only because he has been looking at base metal producers. Not ready to invest in any of them because he is still uncomfortable with the global economy. There are issues with the shadow banking in China that are also starting to blow up over the last couple of weeks. Too much uncertainty.

This is a perplexing one. Have gotten past all the proxy battles, and nickel prices have done extremely well. Sold their coal, so the balance sheet currently is very good. The asset value is around $10, so it should trade quite a bit higher. Haven’t totally de-risked their Madagascar holdings, but they will do so over the next few months.

(A Top Pick Feb 24/14. Up 6.65%.) 7.5% Sept 24, 2020. The real story was that the company had just sold their coal business for $900 million. In the indenture for these bonds, they did have to put a bid in at 101. At this point they will be negotiating with bondholders. This company would like to pay down its short-term debt.

This is the cleanest play on the nickel market in Canada. They have reduced exports out of Madagascar which lead to a huge increase in nickel prices. As blocks of sellers get cleared out you could see the stock go higher. He holds First Quantum.

(Market Call Minute.) Had some corporate activist investors thinking management was doing a bad job, but the big thing is the new massive nickel mine in Madagascar, which is on stream and producing.

The volatility you have seen is very much a play on nickel prices, which were high a few years ago and plummeted to a very low level about 6 months ago. This has impacted the share price. He has found money in this company through their debt. They are rated just below investment grade and have bonds in 2018 and 2020 that yield roughly 7.5%. A much safer way to play this company.

Nickel has performed extremely well. It came back from a strong run. We are close to a mid-2012 resistance level. Seasonally it does not do well this time of year. He would wait until fall.

Fundamentally this is a nickel producer. Used to have a big coal business which they recently sold. Also, have an issue with being in Cuba, which precludes a US investor from buying the stock. The big reason why it has run up is because of the nickel price. The Indonesian government just declared that they would not export any unprocessed ore (mostly to China), which cuts out about 20% of global supply. Just bringing out one of the big mines in Madagascar, right place at the right time. Thinks there is a lot more upside here unless the ban gets lifted.

Nickel prices have been going crazy. This company is up 63% from its bottom in February. There is a proxy battle which is coming to a head this month. Doesn’t think it will succeed, but it will point out some inefficiencies that will now get fixed. There is a lot of talk about nickel going to $12 a pound, and if it should do that, this company is going to go quite a bit higher.