Record profits for Sherritt

With big increases in metal prices pumping up its top line, Sherritt International (S-T) posted record earnings in its second quarter.

The company, whose major commodity businesses are all enjoying cyclic upturns, earned $61.9 million on revenues of $267 million in the three months ended June 30, and for the first half of the year is showing a profit of $114.8 million (55 per share) on revenues of $491.9 million. In 2003, Sherritt earned $33.8 million on revenues of $221.2 million in the second quarter and earned $68.6 million on revenues of $414.1 million in the first half.

Nickel prices, which have jumped from an average of US$8,360 per tonne in the first half of 2003 to an average of US$13,455 per tonne in the first half of 2004, account for a large part of the increase in revenue. But the near-tripling of the cobalt price — from US$8.38 per lb. in the first half of 2003 to US$24.76 in the first half of 2004 — means significantly more to Sherritt than to other nickel producers. Sherritt produces a tonne of cobalt for every 10 tonnes of nickel; by comparison, Falconbridge produces one for every 49 tonnes of nickel, and Inco, one for every 175.

Sherritt’s realized price for cobalt in the second quarter was US$26.37 per lb., a premium of about 6% over the average price of cobalt during the period. With production of 421 tonnes in the quarter (a 10% increase over the corresponding quarter in 2003), cobalt revenues brought about $33 million into the till in the period, an increase of $22 million year-on-year.

Second-quarter nickel production, at 4,143 tonnes, was slightly more than in the corresponding period last year, but nickel revenues increased to $71 million from $48 million the year before. Ammonium sulphate fertilizer, produced in Sherritt’s metal refining process, accounted for a further $38 million in revenue for the company’s metals group on higher prices but lower production volume.

The metals and fertilizer group provided $58 million in operating earnings in the quarter.

Sherritt’s Luscar Coal thermal-coal operations, which it holds as a 50% partnership with the Ontario Teachers’ Pension Plan, enjoyed slightly higher coal prices in the second quarter, though production volume dipped slightly, to 4.6 million tonnes from 4.8 million the year before. The coal operation provided $62 million in revenue in the quarter, up from $60 million in the corresponding period of 2003, but operating earnings fell to $2.6 million from $5.3 million the year before.

Revenues from oil and gas operations in Cuba and Spain increased to $53 million, from $49 million last year, as production fell and prices increased. Operating profit was $24.8 million. Power generation, up 11%, year over year, at 137 gigawatt-hours in the second quarter, provided $9.3 million in revenue but $5.9 million in operating profit.