Sherritt’s profits rise, debentures shrink

A combination of stronger oil prices, higher production and fewer taxes translated into improved third-quarter earnings for Sherritt International (S-T).

Net income for the three months ended Sept. 30 topped $29.4 million (33 per restricted voting share) on revenue of $110 million, compared with $26 million (28 per share) on $96.7 million a year ago. The recent quarter included a one-time gain of $3 million (before taxes) from the sale of remaining oil assets in Italy, plus $3.4 million in tax savings.

For the nine months ended Sept. 30, Sherritt posted net earnings of $96.1 million ($1.09 per share) on $362.6 million, compared with $43.1 million (35 per share) on $259.7 million. The improvement primarily reflects higher nickel and oil prices and greater production volumes.

The oil and gas division generated $48.6 million in revenue in the recent quarter, or 32% more than a year ago. This, in turn, helped boost operating earnings by 42% to $28.1 million, which brings the 9-month figure to a record $65.1 million.

For the fourth consecutive quarter, the mining and processing facilities at the Moa Bay nickel laterite project in Cuba set a new production record. Total production of nickel and cobalt in mixed sulphides was 7,516 tonnes, up 17% from a year ago. Even higher production is anticipated, owing to the onset of mining at the higher-grade Oriental zone.

Despite the increase, the Fort Saskatchewan refinery, where Moa Bay concentrates are shipped, pumped out 11% and 4.5%, respectively (less nickel and cobalt). Only 6,730 tonnes nickel and 677 tonnes cobalt were produced during the quarter.

Sherritt did realize more for its attributable nickel, though this was more than offset by higher energy costs and lower cobalt prices. Consequently, revenue from metals remained unchanged year-over-year, whereas operating earnings dipped $4.1 million to $12.8 million.

Also overcome by hefty fuel costs, the fertilizer segment posted a loss of $3.1 million, compared with losses of $1.9 million a year ago. Nevertheless, divisional revenue was 26% higher at $6.2 million, reflecting significantly higher ammonia prices.

Pending an improvement in energy prices, Sherritt has suspended operations at its urea facility. However, ammonia and ammonia sulphate sales are not expected to be affected, owing to a build-up of inventories prior to the fall application season.

In October, Sherritt re-purchased a $25-million principal amount of its 6% unsecured debentures at a price of $830 per $1,000 principal, for a total cost (including accrued interest) of $21.3 million. This follows similar buy-backs in July and April.

Sherritt’s aggregate principal amount of debentures now stands at $600 million. The notes mature in late 2006 and can be converted into restricted voting shares at $8.78 per share.

Sherritt currently has just over 72 million restricted voting shares outstanding. The company also has 100 multiple voting shares outstanding, all of which are owned by Chairman Ian Delaney. The voting shares allow him to elect most of the board members, subject to corporate bylaws.

On Sept. 30, Sherritt had $488.6 million in working capital, of which $345.3 million was cash or equivalents. The cash component is $40.7 million less than what the company had at the start of the year, with the largest chunk of cash flow having gone to capital projects.

During the quarter, a dividend of 10 per share was paid to shareholders, bringing total payments for the current year to $14.5 million.