Sherritt International Corp. (S.TO)

This is always a stock that looks cheap because of the asset base. Has good assets, but they are in jurisdictions that cause people some headwinds. One of these days this thing will do better. Feels this is more of a trading situation than an investing situation. If you own and are not a trader, maybe you should take this as an opportunity to lighten up.

Nickel has had a big run and is the superior of the three base metals. Indonesia has a ban on export of ore. They need to get the companies there to build a smelter. This is a nice clean way to play nickel, but he has not done it. Russia is a big nickel producer also.

Thinks there is a lot more to the story. There is an activist investor now and we’ve never really had activist investors until just a while ago. He applauds activist investor that comes in and wants a seat on the board and wants to see the share price going higher. This creates a bit of a fire under stock prices. The company has a nickel mine in Madagascar and are anticipating by year-end that the mine will be up to 90%. Earnings on this company is at about $0.30 and next years earnings estimates are somewhere near $1. Stock has great momentum.

If you are bullish on Nickel it is one of the more direct ways to play it. He does not favour it and is not bullish on nickel. Prefers Hud Bay or First Quantum.

Nickel is $7 a pound while it was $6 at the beginning of the year. Nickel prices have been going down for 3 years so, because of their Madagascar mine, this company has been suffering. Indonesia ruled that their ore cannot be taken out without processing it, so nickel prices have been rebounding. Oil business is very profitable and a good generator of free cash. This is a call on what nickel prices are 5 years from now. You want to buy mining assets when they are well below Book and this one is.

Has done well with bonds over the last 7 years. They have this window of time when they can decide what to do with the proceeds from the sale of the coal business without paying down the debt. Nickel is the kind of market that it is supposed to have a floor. He doesn’t have the stomach right now, but is watching it and might own it soon.

7.5% Sep 24, 2020. They did an asset sale, but these bonds are protected from asset sales. They may have to go and buy back all the bonds above par. Putting all that money to debt reduction is good for credit.

Owned in the distant past. Moved out when they went to Madagascar because it was too big a jump into a questionable jurisdiction. They moved into coal but it did not offset the risk factors there. Follows it but is not anticipating jumping in. Wait and see if the project pays off.

They put so much capital into this project and usually there are massive cost overruns on a project this big and then the company would have to raise capital or cut the dividend. Don’t buy more but it is worth holding if you have it. If someone is bullish on Nickel then this would be something to look at.

The story is all about their massive project in Madagascar. The run right now is about 70%, which is really good as they have been delayed on getting up to full capacity. Great asset and great cash flow generator. The trouble is, they have entered loans between all the companies involved. It’s really all about nickel prices, which have not really recovered.

All eyes are focused on their nickel project in Madagascar. Just starting production. Until that really gets going and investors have a really good sense of the profile for that project, there is a question mark as to what that mine will be. Nickel as a commodity is not doing much. Yield of 5%.

Your opinion on their bond maturing in 2020? This bond has had a history because of its involvement in Cuba. The major dealers in Canada would not underwrite their securities so it has always had a reasonably good balance sheet but is rated below investment grade. They have rallied lately and it has gone down about 150 basis points and its current level is at about 8%. Nickel production is up and running full time and the nickel glut has seemed to have come to an end. He would recommend that no more than 5% of a fixed income portfolio be in such securities, and even then, he is reluctant to buy individual bonds. He prefers ETFs if he were going to buy high yields at all.

(Market Call Minute) It likes there will be too much nickel in the long term.

This is all about how they get the stuff out of the ground in Madagascar. It has been a huge science experiment and investing in science experiments is never a good idea. Has a lot of high-yield debt.

Been a disappointment. They sold their coal assets last week, odd timing he thinks. Balance sheet is better and dividend is safe. It is much more of a nickel company now. You have to focus on what’s the outlook for Nickel. If you have a recovery, this one is levered and it should do great. He would see if it hit $4.50.