* Q2 shr C$0.08 vs year earlier C$0.28
* Revenues down 19 pct on weak metals prices
* Shares ease 2.7 percent (Adds details)
By Cameron French
TORONTO, July 29 (Reuters) - Sherritt International (S.TO) posted a 70 percent fall in second-quarter profit on Wednesday, hurt by lower nickel, cobalt and oil prices resulting from weakened global industrial demand.
The company, whose main assets are in Cuba, Canada and Madagascar, earned C$24.4 million ($22.5 million), or 8 Canadian cents a share, in the quarter ended June 30. That compared with a profit of C$80.3 million, or 28 Canadian cents a share, in the year-earlier period.
The profit met the average expectation of analysts polled by Reuters for 8 Canadian cents a share, excluding exceptional items.
Revenue fell 19 percent to C$357.7 million, as average nickel prices in the quarter were down 50 percent from the year before and average cobalt prices were down 71 percent, Sherritt said.
Net nickel mining costs rose due to the weaker cobalt prices, which Sherritt uses to offset nickel mining costs.
However, company officials speaking on a conference call noted that nickel mining costs declined 31 percent from the first quarter, and said declining costs for sulfur, which is used in the mining process, could help costs in the future.
"We still have not yet recognized the full impact of declining sulfur pricing in the marketplace, and we would expect to realize that as the year progresses," said Dean Chambers, the company's chief financial officer.
Lower costs for consumables such as acid and oil have helped soften the blow for miners that have been hit by the steep year-on-year drop in metals prices and tighter credit markets.
For 2009, the company expects nickel production to be 33,500 tonnes and cobalt production to be 3,500 tonnes.
The results were also hit by a 24 percent drop in oil prices, as well as 29 percent drop in oil output.
The company's main development asset is its 40 percent stake in the $4.5 billion Ambatovy nickel project in Madagascar, which is currently under construction and expected to begin production in 2011.
Sherritt overcame an obstacle to the project last month when it arranged a financing deal with its partners, which include Japan's Sumitomo Corp (8053.T), Korea Resources Corp, and Canadian engineering firm SNC-Lavalin (SNC.TO).
However, the company pointed to a potential new roadblock on Wednesday, saying that a law firm hired by Andry Rajoelina, who seized power in Madagascar in March, has advanced arguments that the Ambatovy project's eligibility certification may be invalid, a position Sherritt said it and its partners reject.
"Discussions are ongoing and we are in a strong legal position," Chambers said.
Rajoelina leads an interim government ahead of elections that could be held by year's end.
Terry Ortslan, an analyst at TSO and Associates in Montreal, noted that the action by Rajoelina is in keeping with similar moves in some resource-rich developing countries -- Mongolia and the Democratic Republic of Congo, for instance -- that have revisited resource policy to get better terms.
"I hope there's not much of a risk, because it could cause issues with the lenders," he said.
The news did not appear to have a big impact on the company's shares, which fell 17 Canadian cents, or 2.7 percent to C$6.03, falling roughly in line with other Toronto-listed base metals miners.
$1=$1.09 Canadian Additional reporting by Chakradhar Adusumilli in Bangalore; editing by Peter Galloway