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Sherritt International’s (TSX: S) president and CEO David Pathe did not mince words when he said the firm must take action to protect its balance sheet in order to withstand lower commodity prices at a time when “more than 60% of global nickel production is underwater on a cash cost basis.”
After markets closed on Sept. 17 Sherritt suspended its 1¢ per share quarterly dividend, noting that at current spot prices of US$4.50 per lb., nickel is down 32% since the company last cut its dividend in the first quarter of 2014 from 4.3¢ per share to 1¢ per share.
A world leader in the mining and refining of nickel from lateritic ores and the largest independent energy producer in Cuba with oil and power operations across the island, Sherritt said prices for nickel and crude oil haven’t traded this low since 2009.
Sherritt also said it would cut capital expenditures in 2016 by as much as 25%-35%. Earlier this year the company trimmed its 2015 capex guidance by $15 million to $195 million.
Pathe was unavailable for an interview to discuss the cost-cutting measures, but in a press release the company said that suspending the dividend and cutting capital spending and operating costs are part of a broader strategy to: maximize liquidity by conserving cash and equivalents and short-term investments; manage capital spending and operating costs by aligning capital spending with cash flow generation in 2016; and achieving financial completion at Ambatovy in Madagascar by the end of September, at which point the US$1.7 billion Ambatovy joint-venture financing (100% basis, balance at June 30, 2015) becomes non-recourse to all the Ambatovy partners. Sherritt is the operator with a 40% stake and its partners are Sumitomo (27.5%), Korea Resources (27.5%), and SNC-Lavalin Group (TSX:SNC) (5%).
Commenting on the cost-cutting news, base metals analyst Raymond Goldie of Salman Partners in Toronto, says he continues to believe that “the depletion of China’s inventories of high-grade nickel laterite ores, around the end of October, is likely to trigger a bull market in nickel,” adding that “the situation reported by Sherritt is likely to be one of the factors propelling nickel prices upward.”
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