Sherritt International Corp T.S

Cobalt Pricing / Swap

[YourFriendo]

So...cobalt prices are in the doldrums...posted prices do not accurately reflect the market. If you needed to unload a lot of Cobalt right now, you'd probably be fetching 15-16$. Lots of stockpiling going on.

This is a mixed bag for the cobalt swap arrangement. On one hand, nickel is high, so Moa JV should have no problem paying a good chunk of the Cobalt dividend.

On the other hand, Sherritt needs the cash from the Cobalt to pay for all of it's ridiculousness. So they will need to monetize the Cobalt at these low prices.

This is why I was not a fan of the debt repurchase. It's better to sit on a lot of cobalt and wait until the market turns then sell it at discounted prices to pay off cheap debt.

[VerificateASAP]

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[rkhosla]

Friendo where are you getting this info re 'true' Co price???

[FrozenInOntario]

Friendo, do not believe you understand the cobalt swap. A) 1041 MT will be received every year from Moa to offsett the Account Receivable of GNC.   Title to the cobalt will be transferred to Sherritt.  If the value of the Cobalt received over 5 years is less than CAN$ 362 million, GNC will be assess interest on this amount and will need to pay it.    So translation, 

[Albatross]

Plus they are reducing the debt at a discount... and there's the immediate savings on interest paid. It would be a bad idea for them to just sit on the cobalt. Take it, sell it, repeat. Pay off debt. Buy back stock if it's still deeply undervalued. Then start paying out shareholders. Also, what do you think happens to prices if a player was to hoard a significant amount of something and

[YourFriendo]

A) Only if they can declare the dividend. B) I didn't imply that and I'm not even sure what you are saying. C) It's major source of cash is from the Moa JV dividend. Those dividends will now be declared (for the most part) out of Cobalt....no longer cash. So Sherritt in turn has to monetize the cobalt in order the fund interest + oil and gas + technologies + corporate overhead + non

[rkhosla]

Point C is interesting and TBD.  We just don't have enough details.  It is possible you might be right. However I think they will still be declaring cash dividends out of the JV IN ADDITION to the debt repayment by way of cobalt swap.  If the cash distribution stop that obviously will mean that the Cuban partners are also not taking any money out of the JV at all and I do not

[FrozenInOntario]

Friendo has a point on the cobalt dividend : Sherritt will need to sell the cobalt they receive, both their dividend portion as well as GNC share.      And he is right again : this cobalt dividend will reduce the distributions that Sherritt will receive yearly.  However,  overall the amount will be the same : Either Moa JV sells the cobalt and dividends only cash

[YourFriendo]

I would argue that it's not guranteed. If the JV needs to sell the Cobalt to satisfy internal cash requirements it will do so, thus decreasing (or eliminating the dividend). This would happen in a scenario where the proceeds from nickel sales are not adequate to cover cash demands of the JV. It's also important to note that GNC's cash flow comes from Moa. So it's guaranteed in

[rkhosla]

Well according to some there is a pile of cash (working capital) in the JV.... I can't see a situation were the Ni sales don't fund the JV at a min.  The other scenario where there is none left over for a divy to cover Sherritt operating costs not part of the JV (corporate, etc) is possible but unlikely.  I see cash divy's from the JV continuing IN ADDITION to the flow of Co.

[FrozenInOntario]

You are right, if nickel price is so bad that the JV is not cash flowing, they would not issue a cobalt dividend.    Then Sherritt would not be a good investment at current price and heading right to bankruptcy.   Place your bets accordingly. The GNC quote share of the cobalt dividend is offsettting the Power account receivable.    They are on the hook for this as

[YourFriendo]

Yes they are on the hook for this. But people need to understand that the cobalt swop does no guarantee a cobalt stream. It's still subject to the dividend being declared by the JV (and in turn Sherritt getting 100% of this). At current prices this should be no problem, but it seems some on this board think it's a guaranteed cobalt stream...which it ain't

[rkhosla]

Yes you are correct. Up to a minimum dollar limit whether the dividends is in cobalt or in cash it will be redirected to Sherritt. Once that minimum is achieved however the dividends will be equally shared between the two partners. I cannot see Cuba foregoing cash dividends therefore they have the motivation to hit the minimum threshold so that they themselves can receive some cash.  

[Nickbull]

Friendo You prove you know little cheers

[VerificateASAP]

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[Ernieandbert]

Agreed.  Friendo, maybe you should stick to looking at charts, not fundamental modeling.  The debt has a very tight restrictive payments clause that precludes the company from buying back stock or paying a dividend, amongst other restrictions.   To not know or understand this says a lot about your ability    Go short lots of stock on your view     

[YourFriendo]

Strange considering a never mentioned anything about a stock by back or dividend? So what exactly don't I understand?

[YourFriendo]

What point exactly are you referring to? 

[VerificateASAP]

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[autofocus111]

@Yourfriendo "So they will need to monetize the Cobalt at these low prices." They can't monetize it until it is received. I am not aware of the timing of the payment date. You?

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[autofocus111]

@verificate "7) the list goes on" Sure, maybe they buy back into Ambatovy too. Field of dreams. PS: I'll post to whoever I want to. Yourfriendo made a statement and I raised thse issue of payment timing. You don't like it tough tiddies.

[VerificateASAP]

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[YourFriendo]

Depends on if and when they declare the dividend.

[autofocus111]

Yourfriendo "Depends on if and when they declare the dividend." Exactly, and you can't know if cobalt prices will still be 'low' at that time.