Anaconda writedown sinks Sherritt

A $29.8-milllion writedown on its investment in troubled Aussie laterite nickel miner Anaconda Nickel sent Sherritt International (S-T) $1.1 million into the red during the three months ended Sept. 30.

The net loss translates into 7 per fully diluted share, and is significantly off earnings of $23.5 million (14 per share) in the third quarter of 2001.

Revenue between the two periods climbed to $207.7 million from $186.8 million on higher nickel and oil prices, which were partially offset by higher financing expenses and lower earnings from the coal business.

Sherritt’s oil and gas business contributed $67.7 million to consolidated revenue, while nickel operations chipped in $51.3 million. Operating cash flow before working capital changes climbed $19.3 million, to $71.9 million.

For the first three quarters of 2002, net earnings were $45.8 million (28 per share) on revenue of $609.5 million, down from earnings of $60.8 million (40 per share) on $447.6 million in the corresponding period of 2001. Revenue benefited from a $105-million contribution from the coal business for the first nine months of the year. Cash from operating activities before working-capital changes was $173.3 million, up $33.1 million from a year earlier.

Ignoring the Anaconda writedown, quarterly and 9-month earnings were $28.7 million (23 per share) and $75.6 million (60), respectively.

Anaconda recently struck a deal that will see its secured creditors receive US25 on each dollar owed them. The creditors will also receive A$35.8 million, or 90% of an arbitrated award relating to a claim against U.S.-based Fluor Daniel for problems at the Murrin Murrin plant, which is well behind the originally estimated startup date of early 2000.

Sherritt has an 8% stake in Anaconda.

Sherritt’s quarterly nickel and cobalt metal production slipped slightly from the previous year, to 3,515 tonnes and 332 tonnes, respectively. Nickel and cobalt sulphide production fell 3% to 4,177 tonnes. The decrease is due to a maintenance shutdown.

The company realized US$6,834 per tonne for its nickel, 37% better than a year earlier, and US$6.87 per lb. for its cobalt, off 27%.

In mid-October, Sherritt, in equal partnership with the Ontario Teachers Pension Plan, launched a $1.6-billion takeover bid for Fording (fdg-t), Canada’s largest producer of export-coal. Fording called the offer inadequate and tabled plans to convert itself into an income trust in an attempt to thwart the takeover.

Fording recently beat out the partners’ jointly owned Luscar Energy Partnership for a 5-year contract to operate TransAlta‘s (TA-T) Whitewood and Highvale mines in Alberta, about 65 km west of Edmonton. The contract calls for 15 million tonnes of coal to be supplied in January. Fording has been operating the Whitewood mine on a contract basis since 1986.

Sherritt expects fourth-quarter finished nickel and cobalt production to meet or exceed quarterly levels recorded so far this year. Net oil production in Cuba and Spain is expected to remain steady.

At the end of September, Sherritt had cash and short-term investments totalling $253 million, and long-term debt of $244 million.