RE:RE:RE:RE:Rough Calculation of Sherritt Free Cash Flow and Breakeven Don't get me wrong, I was not/am not in favour of the dilutive equity raise, nor am I a particular fan of David Pathe.
My David Pathe score card goes like this:
Sale of Coal Assets was slow and cost the Company $500m but was done. Grade C
Extension of Public Market Debt with almost no dilution to equity holders. Grade A+
Negotiation of Ambatovy restructuring at pretty much unadjusted book value. Grade A
Dilutive Equity Financing. Grade F
I think he was ill equipped to take the job when he started and while his particular skill set was of value in negoitations with bond holders and Ambatovy partners, I'm not sure they are the skills required to take the Company forward.
However, I think the decision to raise financing was a result of a management and board that had been beaten into submission over the past few years and was willing to grab anything available to them with of course the aid of their investment bankers who never have met a Company that shouldn't raise money.
In a rising market for their products, the financial torque of remaining levered would have provided the shareholders with a greater take on every $ of cash flow produced.
However, the Board has an obligation to the corporation itself and not any particular group of stakeholders and so they would see the equity raise as protecting "the corporation" even while diluting shareholders.
As far as your comments concerning Ambatovy, the $70m was the cost of the negotiation (lawyers, advisors, etc). Money is set in reserve for immediately forseeable potential capital requirements. The first quarter at Ambatovy given the shut down and ramp up will likely not be great but at guided to production levels for the balance of the year and current nickel/cobalt prices the net impact on Sherritt would not be great (don't forget to net the operatorship fees as well).
I think we have beaten this discussion to death at this point. Best to wait and see what first Q results provide. One thing I can tell you for sure - there is not Chapter 11 filing around the corner as you have been postulating Look at the bonds - trading mid 90s to very high 80s for the longer maturies - YTM of about 10% - the same discount rate I used to discount cash flows at different nickel prices. The bond market is a lot smarter than the stock market. The shares are undervalued IF you believe in a rising nickel price environment in which case they provide the best torque. Board and management are "risks".
Contrarian 333