Anaconda squeezes Sherritt’s earnings (March 04, 2002)

A $23.4-million, fourth-quarter writedown related to its stake in problem-plagued Aussie nickel miner Anaconda Nickel combined with a $6.8-million writedown on some oil properties in Spain, combined to take a bite out of Sherritt International‘s (S-T) bottom line for 2001.

On the backs of the writedowns, Sherritt recorded a net loss of $9.2 million (or 15 per diluted share) for the three months ended Dec. 31, 2001, compared with net earnings of $19.5 million (15 per share) in the year-ago period. Excluding the writedowns, the latest fourth quarter net earnings were $14 million or 9 per share, in line with analyst estimates. Revenue climbed to $189 million from $117.7 million.

During the third quarter of 2001, the company increased its stake in Anaconda by $7.8 million to about 40 million shares. The investment was written down by $23.4 million during the latest quarter to meet Sherritt’s estimate of its long-term net realizable value based on available information.

Anaconda has struggled to get its giant Murrin Murrin laterite nickel plant in Australia operating at capacity. The plant employs Sherritt’s technology for extracting nickel from low-grade lateritic ore. The project is well behind the originally estimated early 2000 start-up date.

Anaconda is looking to restructure its US$400-million debt with mainly U.S. bondholders. The company incurred a loss of A$457.5 million for the six months ended Dec. 31, 2001.

In October, Sherritt received a statement of claim brought in the Supreme Court of Australia against it and mining contractor Dynatec (DY-T) by Fluor Australia. The claim relates to alleged deficiencies at Murrin Murrin, which are the subject of an ongoing arbitration initiated by Anaconda against Fluor. Fluor was retained by Anaconda to provide engineering, procurement and construction services. Anaconda insists that Fluor breached the services contract and says Fluor’s claim is without merit and intends to defend it vigorously.

The bulk of the quarterly revenue’s came form the company’s coal business (including its 50% stake in the Luscar coal partnership acquired in the second quarter), which chipped in $80.3 million. Metals revenue fell by $18.9 million to $55.4 million from the previous year on lower realized nickel and cobalt prices and lower fertilizer sales volumes (results from its fertilizer operations are now reported as part of the metals business). The metals business incurred an operating loss of $3.4 million during the fourth quarter, compared with operating earnings of $4.6 million in 2000.

With added cash flow from the coal division, Sherritt cash flow from operations was $40.7 million, a nice turnaround from the $700,000 consumed in the 2000 fourth quarter.

For all of 2001, Sherritt’s net earnings were off sharply at $51.6 million (or 33 per fully diluted share), compared with year-ago earnings of $115.6 (84 per share). Revenue climbed to a record $636.6 million from $480.4 million, owing in part to an $11.5-million increase in revenue from the oil and gas business, which enjoyed record oil production in Cuba. But the coal business was the real star performer contributing $204.5 million of revenue from May 12 to the end of 2001. Cash flow from operations was $195.1 million, up $1.9 million from 2000.

Nickel and cobalt metal production rose slightly from the previous year with 14,613 tonnes nickel and 1,471 tonnes cobalt. Nickel and cobalt sulphide production grew by 1,420 tonnes to 16,180 tonnes. The company realized US$4 per lb. for its nickel and US$15.17 per lb. for its cobalt during the year, off 31% and 23%, respectively from a year earlier. During 2001, nickel averaged US$2.70 per lb. on the London Metal Exchange and cobalt spot prices averaged US$9.56 per lb.

The metals business recorded operating earnings of $3.7 million on revenue of $230.3 million in 2001, off from the operating earnings of $61.9 million on year-ago revenues of $299 million. Metals revenue slid by $68.8 million from the year-ago $230.3 million.

At the end of 2001, Sherritt had $147.9 million in cash and short-term investments, down from $261.3 million at the end of 2000.

Looking ahead, Sherritt expects coal sales to increase as the Line Creek and Coal Valley mine expansions are expected to be fully operational. Nickel and cobalt production will be little changed from 2001 levels.