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https://www.valueinvestigator.com/en/valuefavourites/s.php
We believe that the successful commercialization of Ambatovy, which management has indicated could occur by the end of 2012 or early 2013, would be a “company maker” for Sherritt, and could serve as a significant source of value for the company going forward. At present, the project is in the commissioning phase, and while certain start-up risks do remain, given that Sherritt is very familiar with lateritic nickel production, we are optimistic that Ambatovy will achieve commercial production. Ultimately, we think that the potential exists for the company’s operating divisions to eventually be split apart, which could create stand alone entities in coal, metals and oil & gas and power. We believe this could surface value for Sherritt investors by removing the perceived holding company discount.
Using a sum-of-the-parts methodology, we estimate that Sherritt is trading at a significant discount to its net asset value (NAV) of approximately $9.00 per share. We believe this discount reflects several factors, including: a perceived holding company discount, especially considering the disparate mix of Sherritt’s assets; a “Cuban discount” given its significant operations in Cuba; and considering its multiple lines of business and the relative complexity of its financial reporting, the fact that the company may be misunderstood by the market.
At the end of Q1 2012, Sherritt had approximately $550 million in cash, and approximately $1.0 billion of available liquidity. The total capital cost for Ambatovy is estimated at US$5.5 billion, of which US$5.3 billion had been incurred at the end of Q1 2012. Considering that construction is substantially complete, we believe that all material cap-ex for the project has been incurred.
Overall, with a dividend yield of 3% and a number of looming catalysts, we believe that Sherritt is an overlooked, deep value investment. It is our opinion that with the pending commercialization of Ambatovy and the potential to sell or split off the company’s disparate resource assets, Sherritt represents excellent value in the context of a 6-12 month holding period.
ABC Funds
July 6, 2012
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