Hallgarten touts Sherritt as a potential ‘New Inco' with Cuban nickel /cobalt interests

Cuban nickel miner Sherritt International may be the bane of anti-Castro Cuban émigrés, but, in reality is a major international mining company that travels below most investors' radar.

RENO, NV - 

Analyst Christopher Ecclestone suggests the Ambatovy nickel project in Madagascar will propel a $2 billion market cap mining stock that most investors have never heard of "to being the only really multinational nickel play besides the heavily iron ore-diluted Vale."

Toronto-based Sherritt International (TSX: S) produces nickel, cobalt, thermal coal, oil and gas and electricity. It is the largest geothermal coal production in Canada and, is in the strongest position as a foreign operator in Cuba and the current time, according to Ecclestone.

In an analysis published Thursday, Ecclestone noted Sherritt's objective "is to become the world's largest laterite nickel and cobalt producer effectively a ‘new Inco'."

Ecclestone asserted, "Some sort of restructuring of Sherritt into energy and mining would propel ‘Sherritt Nickel' into a role as a leading global player and give it a currency to roll up some of the smaller mines (particularly in Australia) that are available and suffering from post-boom obscurity."

Sherritt Energy "could be a major player in its own right" with a dominant position in Canadian thermal coal, its small global oil plays, and its involvement in Cuban electricity, he advised.

While cobalt makes up only a small proportion of Sherritt's production, Ecclestone calls it "by far the most unique aspect of the company's product mix." Sherritt currently has cobalt production out of the Moa Bay nickel mine in Cuba and will be adding production from the Ambatovy nickel/copper project late next year.

The $4.5 billion Ambatovy project may eventually join the ranks of the world's biggest lateritic nickel mines. Sherritt, the project operator, has a 40% ownership position, while Sumitomo and Korea Resources each have a 27.5% stake. At full capacity Ambatovy could produce 12 million pounds of cobalt annually with a 27 year-reserve life.

Ecclestone suggests that in a sustained economic recovery, "we would expect cobalt to be back above $30 pretty smartly. Nickel might take decades to see its 2007 highs again."

Unrefined nickel plus cobalt is Cuba's largest export at about around $2 billion in revenue last year.  The Moa Joint Venture produces 37,000 tonnes of nickel and cobalt annually. Sherritt plans to increase contained nickel plus cobalt production to a total of 48,000 metric tons annually next year.

The joint venture agreement requires that a percentage of the profits be reinvested in Cuba. Sheriff now owns a percentage in Cuban non-mining ventures such as oil and gas production and power generation.

The province of Holguin, where the Moa JV is located, is estimated to contain 34% of the world's known reserve of nickel, or some 800 million tons of proven nickel plus cobalt reserves, and another 2.2 billion tons of probable reserves.

In his analysis, Ecclestone notes Sherritt "has remade itself over the years on various occasions by slicing and dicing its assets according to the taste of the times. There is no reason to think that will not happen again."

‘The obvious reconfiguration is to reorganize the nickel assets as Ambatovy moves closer to production," he suggests. "A spin-off of the Cuban Madagascan operations, the Alberta refinery and mine would create a ‘New Inco.' The only fly in that ointment is the machinations of the Cuban émigré lobby."

"As a standalone nickel play the New Inco would have paper that it could use to bolt a portfolio of other smaller plays around the world and nip at the heels of the nickel unsavvy Vale."

"This would leave the energy assets as a relatively homogenous construction, which could be valued against peers in space," he advised. ‘The Cuban oil & gas asset and the electricity company would be prime fodder for being amongst the first entities to be listed on the Havana Stock Exchange, when such an entity comes into existence."

"We would suspect that Sherritt is the consummate (only?) Cuba play out there. The company knows the territory and is well positioned for any opening of the Cuban economy," he added.

"The company's prospects do not require higher nickel or cobalt prices to be justified unlike many nickel plays out there," Ecclestone asserted. "Nevertheless Sherritt is the only of those players who can stomach the risk of being a first mover on the Cuba play."

Hallgarten & Company rates Sherritt as a LONG with a 12-month target price of CAD$10. 

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responses to this article

errors a poorly written article with numerous spelling and grammatical errors. It makes you wonder wonder about the correctness of the specific information. by stephen ottridge on November 13 2009, 09:57 Find this comment inappropriate? Report it

Well written article Definitely a well written article. If readers doubt the validity of the 'specific information' in the article it is merely due to a lack of understanding. These details are public information and are not specific at all. by Jerry Attrick on November 13 2009, 12:02 Find this comment inappropriate? Report it

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