Sherritt (T.S) up 7.3% as activist is rebuked and giant nickel-cobalt mine analyzed

Mining and energy company Sherritt International Corp. (TSX: T.S, Stock Forum) delivered a rebuke to activist shareholder George Armoyan on Monday, telling shareholders in a letter that the Clarke Inc. CEO lacks relevant experience, has a poor track record when it comes to corporate governance and has no credible ideas.

The letter has surfaced on the same day that a Scotia Capital analyst delivered a report on his recent visit to Sherritt's giant Ambatovy nickel-cobalt project.

For his part, Armoyan said earlier this month the Sherritt board needs to be shaken up and that some of its governance and compensation practices need to be changed.

Sherritt was up 7.3% to $3.80 on Monday, leaving a market cap of $1.1 billion, based on 297.3 million shares outstanding. The 52-week range is $5.04 and $2.82.

The company said in a press release it has filed a letter to shareholders and its proxy circular. Sherritt also said it has tried for many months to avoid a costly and disruptive proxy fight, by reaching a constructive outcome that would maintain the quality of Sherritt’s board.

But those efforts have been spurned by Armoyan. (with files from The Canadian Press).

Meanwhile, Scotia Capital analyst Orest Wowkodaw said he visited Sherritt’s giant Ambatovy nickel mine and processing facilities in Madagascar on March 28th and 29th, 2014.

The mine, ore preparation plant, and 220-kilometre slurry pipeline are all fully operational, and are performing in line with expectations, Wowkodaw wrote in a research report.

“While we are generally impressed with our tour of Ambatovy, we continue to rate Sherritt as ‘sector perform’ due to the company’s relative valuation, significant exposure to a weak, albeit improving, nickel market, and ramp-up and political risk uncertainty at Ambatovy,’’ he wrote.

Scotia’s one-year target is $3.50 target for the stock.

Sherritt has a 40% stake in the Ambatovy joint venture, an entity that owns the US$7.2 billion project, which is located off the eastern coast of Africa, and is reputed to be the largest single mining investment ever made in Africa. The other joint venture partners are Sumitomo Corp. (27.5%), Korea Resources Corp. (27.5%), and SNC-Lavalin Inc. (TSX: T.SNC, Stock Forum) (5%). SNC was the contractor on the project.

At the end of December 31, 2013, the Ambatovy deposit contained 165 million tonnes of proven and probable reserves, grading 0.94% nickel and 0.082% cobalt, or 1.6 million tonnes of nickel and 136,000 tonnes of cobalt, or enough to support a mine life of 29 years.

At full capacity, Ambatovy is anticipated to produce 60,000 tonnes of finished nickel and 5,600 tonnes of finished cobalt per annum, making the operation the world’s largest single nickel mine.

“In our view a successful ramp-up of Ambatovy over the next 12 to 18 months would remove a significant overhang on the company’s shares,’’ Wowkodaw said. “However, we believe the market is likely to take a wait and see approach.’’