October 29, 2008 / 1:15 PM / 10 years ago

UPDATE 3-Sherritt profit rises, but projects slowed down

* Profit lifted by energy prices, one-time gains

* Cuts spending, suspends C$270 mln in expansion work

* Ambatovy project to be delayed (Adds details from conference call)

By Cameron French

TORONTO, Oct 29 (Reuters) - Sherritt International Corp (S.TO) posted a sharply higher third-quarter profit on Wednesday, but said it would cut expansion work at two projects and put its Ambatovy nickel project in Madagascar under review due to weak nickel prices.

The Canadian miner and energy producer said it will suspend about C$270 million ($220 million) in spending at its Moa nickel operations in Cuba and at its Fort Saskatchewan nickel refinery in Canada as part of plan to conserve cash flow until financial and economic conditions stabilize.

Sherritt’s early 2010 start date for the mine at Ambatovy will almost certainly be pushed back, as the company tries to renegotiate labor and equipment contracts that were entered into when prices for both were much higher, Sherritt Chief Executive Jowdat Waheed said on a conference call.

“Our view is that the contracts that we have entered for labor rates, for... pricing of things such pipelines for instance or engineering procurement and construction management services, things which worked eight weeks ago do not work today at all,” he said.

Ambatovy is projected to yield 60,000 tonnes of nickel and 5,600 tonnes of cobalt a year. Sherritt is 40 percent owner of the project and its operator. Its partners on the project are Sumitomo Corp, Korea Resources, and SNC-Lavalin (SNC.TO).

The company is also targeting a 15 percent cut in forecast controllable operating costs, and a “significant reduction” in forecast sustaining capital spending in 2009. It will also scale down oil and gas spending to bring them in line with oil and gas cash flows.

Sherritt is just the latest of several base metal producers that have slowed projects or suspended mines to deal with commodity prices that have plunged in recent months. Sherritt’s average realized nickel price was 35 percent lower in the third quarter than it was in the year-before quarter, and has fallen another 35 percent since then.

Waheed said prices for several inputs have fallen dramatically of late, with the cost benefits likely to be felt next year.

Sulfur, for instance, which is used in the mining process, was going for $800 a tonne in the third quarter, but is now down around $300 a tonne, he said.


The company earned C$133 million, or 45 Canadian cents a share, in the quarter, up from C$65.4 million, or 28 Canadian cents a share, a year earlier.

Stripping out one-time gains, its profit was 33 Canadian cents a share, ahead of the profit of 22 Canadian cents a share expected by analysts.

The company’s stock rose 13 percent, or 53 Canadian cents to C$4.60 on the Toronto Stock Exchange on Wednesday, outperforming other base metal producers.

Revenue rose 58 percent to C$477.2 million, boosted by strong results from its coal and oil and gas operations.

Fourth-quarter results are expected to be hurt by lower prices for nickel, cobalt and oil, and only partly offset by higher prices for thermal coal and potash, Sherritt said. It did not provide details for the forecast, citing price volatility.

$1=$1.22 Canadian Reporting by Cameron French, additional reporting by Susan Taylor in Ottawa; Editing by Peter Galloway

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