Sherritt stock falls as Ambatovy nickel mining costs jump

Tue Sep 30, 2014 3:51pm EDT
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Sept 30 (Reuters) - Shares in Sherritt International Corp fell 11 percent on Tuesday after the Canadian mining and oil and gas company said operating costs at its big new nickel mine in Madagascar will be higher and metal grades lower.

In an updated technical report on its 40 percent owned Ambatovy nickel mine, Sherritt said its annual operating costs at the mine would be $682 million between 2016 and 2020, a 36 percent increase from a previous estimate, according to RBC Capital Markets analyst Fraser Phillips.

At the same time overall nickel and cobalt grades at the mine have decreased as a result of the inclusion of lower-grade ore although total contained metal has increased due to higher ore tonnages.

The market is concerned that metal grades have fallen not only for Ambatovy's reserves but also for ore that is in the mine plan, Salman Partners analyst Ray Goldie said.

The Ambatovy mine is Sherritt's primary growth project but also its biggest risk. The ramp-up of the mine has been challenging with several instances of unplanned maintenance and mechanical problems. The company also has oil and gas and power interests in Cuba.

Ambatovy's other owners are Sumitomo Metal Mining Co Ltd and Korea Resources Investment & Development Inc , each with a 27.5 percent stake, and SNC-Lavalin Group Inc with 5 percent.

Nickel prices have been under pressure, dropping to their lowest in more than five months last week.

Sherritt's shares fell as low as C$3.11 on the Toronto Stock Exchange on Tuesday, a loss of 11 percent and its weakest in nearly seven months. It was last off its lows at C$3.22, down 27 Canadian cents or 8 percent on higher than average volume of 1.52 million shares. (Reporting by Nicole Mordant in Vancouver; Editing by James Dalgleish)