Sherritt International Corp T.S

$60 mil debt retired for $45 mil cost no extension

[rkhosla]

As expected, not too many PIK holders tendered. Strong response however and no extension. We fell 5 million short of full subscription. I think this is a moderate success though not as massive a discount had more PIK holders tendered.  

https://www.sherritt.com/English/Investor-Relations/News-Releases/News-Release-Details/2022/Sherritt-Announces-Results-of-Modified-Dutch-Auction-to-Purchase-Secured-Notes-and-Fixed-Price-Tender-Offer-to-Purchase-Junior-Notes/default.aspx

[FCPlady]

Management is spinning this as a success.  IMO, it's a disappointment.  They didn't hit the $50M target   Now I want to hear where there going to get the cash to buy back the notes and still be a going concern. 

[Ernieandbert]

You want to know where they will get the cash?   How about a release of working capital at moa?   They show the full balance sheet of moa as of 1Q22.  You can see it he 50mm of cash moa holds and the recent build up of working capital.  Anyone want to bet there is a release of working capital over the next few quarters?  But that won't happen till after 2Q22 otherwise

[Albatross]

Definitely a positive. Great to see them paying off debt. 70 mil next q sounds about right considering where nickel has averaged last couple months.  This is definitely one of my riskier plays. And truth be told I've put money to much better use jumping around other companies. But.. I'm in it for the long haul 

[Ernieandbert]

70mm ebitda this Q?   Ni is averaging a lot higher for the Q than the 1Q22anf that was $81mm ebitda.  Co is off a bit but I bet ndcc will still be in the range.  I would think ebitda is closer to 85mm.   If they are smart, they willl buy back as many jr notes in open market as they can.  Think about this...the jr notes are about as close to equity as you can get and they

[Maxmoe]

Agreed 100%, let's see if they learned their lesson. Years ago they did a big equity issue and called bonds at par or a small premium when they could have should have bought the bonds at 60 cents ish. Total disaster for shareholders.   Hey, anybody have a keyboard with symbol for cents or did that disappear with my old underwood typewriter?

[FCPlady]

This is why the dutch auction didn't make sense, IMO.  They coould have chipped away at the debt buying on the open market at lower prices instead of giving a premium. Bond prices got a lift through this tender but we'll now see them decline to their real market value.  Let's see how the shareprice reacts today.  Ni is now below $12.40.

[Ernieandbert]

1) they would have never been able to buy more than they did in the open market at lower prices 2) better to buy 41mm sir's at 85 today than 100 come october...saved 15 pts in price on tender vs the cash flow sweep and another 4pts or so in coupon they would be paying to Oct.    strategically brilliant move by the co and they still reserve the right to buy bonds back in the open

[rkhosla]

Uhhmm the May 12 NBF research note says $361 EBITDA 2022E not $230 as you say it said.  No?

[Ernieandbert]

Not what he wrote this morning at 7:45am: "At current commodity prices, we model EBITDA over the next 12 months of $230 mln and FCF of ~$70 mln - an implied EV/EBITDA of 2.1x and FCF yield of 15%. FCF will be used to support deleveraging and expansion initiatives at Moa."   He can model whatever he wants but the co's own sensitivity analysis shows: $12/lb Ni at $302mm

[rkhosla]

huh - this is the second time this month that I don't have access to the most up-to-date note. Both with my TD web broker and with my national bank financial. What's going on? Maybe I am a low priority customer… Maybe I need an upgrade.  

[Ernieandbert]

You ain't missing anything.  Clearly these Analysts are out to lunch and couldn't care less about S.  It has zero Institutional holders so no large commissions to be had and little to no capital markets advisory fee potential.  They are not going to spend time on those or allocate research resources to it.  It is a forgottened orphan...which is the opportunity. 

[Maxmoe]

Maybe a dyslexic transposition of digits? Or a humdinger currency translation error? Ask him.

[Maxmoe]

Never mind, I'll ask. I'll let you know what I get back if anything.

[Maxmoe]

Where exactly is the company model showing $302mm ebitda at $12 ni? What is model at $10 ni?

[mas7575]

https://s2.q4cdn.com/343762060/files/doc_presentations/2022/Sherritt-Investor-Presentation-April-2022.pdf it was in a recent March 2022 Sherritt investor presentation: $302m at $12.00 $221m at $10.00 slide 24, "Impact of Rising Nickel Prices" glta, mas75  

[Ernieandbert]

Exactly.  Right there for all to see.   You don't even have to do the work and create a model ( which I did before they published their sensitivity table here).  

[rkhosla]

And that is based on NDCC $4.25 USD/lb whereas it came in at $3.42.  I reiterate though fertilizer sales will be less next Q and they were a major factor in the low NDCC.  

[Ernieandbert]

Yes, based on U$4.25 NDCC which it still will be even with Fertilizer off.  May be slightly better but modelling at U$4.25 is fair/conservative.  And fertilizer is a completely inelastic good, lest we have a food shortage/crisis to go along with the energy shortage/crisis we will be in for multiple years.  

[Maxmoe]

Okay, so no model with all the assumptions for all the commodities. I wouldn't be so harsh on nbf forecast of $230. If he's still using $10 or $11 ni in his model, plus tweak assumptions for cobalt and fertilizer, plus suck out some more stock based compensation and add in higher costs for fuel and 230 is not outrageously out of line with corporate sensitivity chart. Now consider what

[Maxmoe]

Even at the "low" number of "only" $230 ebitda, S is trading at , roughly 1X multiple. A bargoon.

[Ernieandbert]

Right on ev/ebitda and under 1x for 2023.   And where has S been trading historically?   Try 4-6x.  And today, S has never had such a strong b/s and ni prices as a huge tailwind.   At a min it should be trading today at 2.5x.  When they allow the cash flow to be upstreamed and on S's b/s (likely in fall) this Uber cheap valuation will drag in buyers who won't be

[Ernieandbert]

And once again, I forgot...EV/Ebitda multiple excludes ALL Cash (inclusing Cash in Cda).   So it is even more ridiculous.  All you long term holders were buying this thing at 5x+ and today you can buy it at less than 1x. Insanely cheap.  I think that is called "somehting for nothing". 

[Ventoux]

$10 per share would be quite impressive. That would imply an equity market  cap of $3.97 billion, forget the debt.  Put me down as skeptical. Having said that I hope you are correct!

[Ernieandbert]

That's was some investors thought less than two years ago on Intermediate oil producers trading under $1.00 and now in the $100 range.  It is called valuation.  Run a DCF on S and see how it is possible.  I didn't pull that number out of my a$$. 

[Maxmoe]

And ..... Ni is still above $10 per pound. 2022 is first year in 10 years it's traded north of $10. 2 years ago it was $5 a pound and S was in doo-doo.  

[rkhosla]

Keep in mind fertilizer sales will be disappointing in Q2 - Essentially fertilizer saved us in Q1.

[FCPlady]

Only flaw in your argument - the Cubans need the cash more than S. The Cubans would rather get distributions than have excess working capital at Moa, IMO.

[Ernieandbert]

I am quite sure you don't understand how the 50/50 jv at moa works.  And likely do not understand accounting fundamentals.  IMO.  

[Maxmoe]

If the entire issue tendered and had to be pro-rated fills , that would be a "disappointment ".  Tick holders have nothing to bbyatch about now. S can always buy more after huge cash flow rolls in for Q2 and Q3.