Sherritt lowers 2012 production guidance, swings to $22.6-million Q3 loss

TORONTO – Sherritt International Corp. lowered its production guidance for 2012 as the diversified resource company swung to a $22.6-million loss in the third quarter and a nine per cent drop in revenues.

The loss equalled eight cents per share for the period ended Sept. 30, compared to a 16 cents per share profit a year earlier when net earnings reached $45.5 million.

Adjusting for a series of one-time items, the Toronto-based company earned three cents per share, compared to nine cents per share forecast by analysts.

Sherritt has a wide variety of resource-related businesses in Canada and abroad. It’s involved in nickel mining on the African island of Madagascar, oil and gas exploration and other pursuits in Cuba and coal mining in western Canada.

Revenues decreased to $422.2 million from $466.4 million in the prior year due to lower nickel prices and volumes and lower exports of thermal coal, partially offset by higher fertilizer revenues and the impact of a weaker Canadian dollar.

The charges equalling $32.4 million, or 11 cents per share after tax, related largely to the redemption of 2014 debentures, coal environmental rehabilitation obligations and a call option for the Ambatovy project in Madagascar.

John Hughes of Desjardins Capital Markets said the results were negative as it missed expectations and lowered its 2012 production guidance.

Production of finished nickel and cobalt started at Ambatovy in the third quarter. Total nickel production, including test briquettes, was 2,370 tonnes while total cobalt production was 165 tonnes.

The Ambatovy facility continued to ramp up in the quarter as the number of operating hours increased to 4,119 during the quarter.

Last year, Sherritt (TSX:S) extended its work schedule and increased estimated costs for its Ambatovy project in Madagascar. It cited a litany of problems including poor performance by contractors and inaccurate estimates on the project in the island country off the east coast of Africa.

Sherritt produces nickel from projects and operations in Canada, Cuba, Indonesia and Madagascar.

The company is also the largest producer of thermal coal in Canada and the largest independent energy producer in Cuba, with extensive oil and power operations across the island.

Sherritt’s share of sales volumes in the quarter totalled 8.6 million pounds of finished nickel, 900,000 pounds of finished cobalt, 8.5 million tonnes of thermal coal, one million barrels of oil and 154 GWh of electricity.

The company maintained its 2012 forecasts Wednesday for Cuban nickel production and oil production but lowered its guidance for nickel production at Ambatovy by 20 per cent to 6,400 tonnes from 8,000 tonnes, and said thermal coal production will be reduced six per cent to 33,000 tonnes.

It had $934.2 million of cash and equivalents and $113.3 million of operating cash flow in the quarter.

Capital spending in the quarter was $48.7 million, including $8.6 million for Ambatovy, down from $53.6 million in the year-ago period.

Sherritt, which has more than 6,800 employees, also licenses its nickel mining technology to other metals companies.

On the Toronto Stock Exchange, its shares dropped more than four per cent, losing 18 cents at $4.30 in early afternoon trading.