Cobalt and 11% Yields Lure Risk-Takers to This Canadian Miner – by Allison McNeely (Bloomberg News – January 10, 2018)

Sherritt International Corp.’s double-digit bond yields are beginning to lure investors, even as questions linger about whether the Canadian miner has unloaded enough debt and turned around its sputtering projects.

The Toronto-based firm restructured its Ambatovy mining joint venture in Madagascar last month, cutting debt by about C$1.3 billion ($1 billion) and ceding most of its stake in the money-losing business. But the nickel mine has never met production goals, and meanwhile an oil and gas venture with the Cuban state oil company has been delayed after failing to reach its first-round drilling target.

Strengthening commodity prices have spurred investors to push Sherritt’s bonds up from their 2017 lows, but skepticism is still reflected in the yield of nearly 11 percent, about twice the level of high-yield peers. In a world where credit spreads are at 10-year lows, the payout is too good to pass up for some investors.

“It’s about where you can find value in this market,” Dan Cooper, a fixed-income portfolio manager at Mackenzie Financial Corp., who helps manage C$36 billion, said by phone from Toronto. “It’s not without its risks, and that’s why it’s not trading at 5 percent.” He said Mackenzie has been buying Sherritt bonds over the past year.

Mining companies have largely recovered from the rout in commodity prices that saw high-yield Canadian companies downgraded amid concerns about their ability to service their debt.

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